MORDECHAY BECK v. NOBUG CONSULTING INC

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Court of Appeal, Sixth District, California.

MORDECHAY BECK, Plaintiff, Cross-defendant and Appellant, v. NOBUG CONSULTING, INC. et al., Defendants, Cross-complainants and Respondents.

H040136

Decided: March 20, 2017

ORDER MODIFYING OPINION AND DENYING REHEARING

[NO CHANGE IN JUDGMENT]

THE COURT:

It is ordered that the opinion filed herein on March 30, 2017, be modified as follows:

On page 24, replace the word “order” with “award” so that the new disposition reads: “The judgment is modified to strike the award of attorney fees to defendants. In all other respects, the judgment is affirmed. The parties shall bear their own costs on appeal.”

There is no change in the judgment. The petition for rehearing is denied.

ELIA, J.

MIHARA, J.

PREMO, ACTING P.J.

Plaintiff Mordechay Beck appeals from a judgment entered in favor of defendants NoBug Consulting, Inc., Moshe Shalev, and Irit Shalev on Beck's lawsuit seeking damages, declaratory relief, and an accounting on his claims of breach of oral contract and fraud, which he brought together with plaintiff Luca Bovio Ferassa.1 On appeal, Beck asserts error in the superior court's grant of summary adjudication on his contract claims and the sustaining of defendants' demurrers on one of his claims of fraud and one of breach of oral contract, along with his request for declaratory relief. Finally, Beck challenges the award of attorney fees to the three defendants. We find merit in the last contention and therefore will modify the judgment.

Background

Defendant Moshe Shalev (Shalev) founded a private consulting business in 1995, and in 1999 he incorporated it as NoBug Consulting, Inc. (hereafter, NoBug). Later that year plaintiff Luca Bovio Ferassa worked for NoBug as an independent contractor and later as an employee. In November 1999, shortly before becoming involved with Beck, Shalev established NoBug Consulting SRL (NBR) in Romania, in order to use Romanian engineers in NoBug's business.

Shalev and his wife, defendant Irit Shalev, initially were NoBug's sole owners. Shalev was the sole owner of NBR. Shalev, however, was an engineer who lacked business experience. He asked Beck, a “casual acquaintance,” to help him obtain money to hire three Romanian engineers. Beck was unable to raise the money, but he offered to use his experience in corporate governance, management, and finance to advise Shalev and help him develop the business. In 2000 Shalev agreed to make Beck chairman of NoBug's board of directors while Shalev served as president and chief executive officer. Shalev also agreed that Beck could purchase 500,000 shares of NoBug stock, amounting to 10 percent of the company's 5 million outstanding shares.

In late 2000, Beck and Shalev retained an attorney, Einat Meisel, to formalize the arrangement, including the drafting of documents related to the sale of corporate stock. Among those documents was a resolution by Shalev in his capacity as NoBug's sole director, entitled “Action by Unanimous Written Consent of the Sole Director of NoBug Consulting Incorporated” (Action). Pertinent to this appeal is the provision in the Action for NoBug to “enter into a Common Stock Purchase Agreement,” by authorizing the board of directors to issue five million shares to “the Purchasers listed in Exhibit A.” The “purchasers” listed in Exhibit A were Shalev (1 million shares, to be purchased for $3,000), Irit Shalev (2.75 million shares, to be purchased for $8,250), Beck (500,000 shares, to be purchased for $1,500), and Ferassa (750,000 shares, to be purchased for $2,250). Shalev signed the Action in mid-December of 2000.

Meisel also prepared the accompanying Stock Purchase Agreement (SPA). By April 2001, Shalev, Irit Shalev, and Ferassa had all signed the SPA and paid for their shares. Beck knew he needed to pay for his shares and sign the agreement. In his deposition he expressed the belief that he sent a check for his purchase “toward the end of 2000, beginning of 2001,” but he could not find a record of that check in his files. Beck also could not recall signing the SPA until 2007. It was only in late 2007, he said, when Shalev advised him that he had not purchased any stock, that Beck obtained a copy of the SPA from Ferassa, signed it, and sent it to Shalev along with a check for the purchase of his 500,000 shares. NoBug, however, had no record of ever having received either the check or the signed SPA from Beck.

Beck continued to hold the position of board chairman until 2008. According to Shalev, however, he “was not really involved in the company after 2005.” In September 2008, Ferassa and Beck brought this action against NoBug, Shalev, and Irit Shalev, asserting claims for declaratory relief, fraud against Shalev for failing to issue the company stock as he believed Shalev had promised, fraud against Shalev for failing to structure NBR as an entity within the NoBug “corporate umbrella,” breach of oral contract against both Shalev and NoBug based on the same promises as in the fraud claims, and breach of fiduciary duty against all three defendants. Plaintiffs also sought an accounting.

Shalev and NoBug cross-complained against both plaintiffs. Against Beck defendants alleged breach of oral contract and fraud for failing to provide the services he had promised—that is, to help NoBug develop new business and assist NoBug in its financial and business decisions. The cross-complaint was amended in May 2010 and July 2011.

Defendants moved for judgment on the pleadings, noting that portions of the complaint constituted shareholder derivative claims, without plaintiffs having followed the procedures necessary for a shareholder derivative suit. In May 2010, with the court's permission, plaintiffs filed their first amended complaint, alleging, among other things, that the Shalevs had “used their control of the company to deny Mr. Beck's ownership interest.” The motion for judgment on the pleadings was then deemed moot.

To surmount the derivative obstacle in the amended complaint, plaintiffs alleged by way of background the following: “Plaintiffs contend that they have each completed all of the steps prerequisite under NoBug's governing corporate documents to become shareholders[.] They have paid the requisite fee and signed the Stock Purchase Agreements, and therefore are entitled to have been duly recorded shareholders of Defendant NoBug since at least 2000. In the alternative, Mr. Beck contends that all parties believed he had been issued shares, and he worked for 7 years as a director and chairman of the board, that Mr. Shalev and Irit Shalev are estopped from claiming he is not a shareholder. Plaintiffs further contend that Mr. Beck is the owner of 500,000 shares of NoBug stock, and that Mr. Bovio Ferassa is the owner of 750,000 shares.”

Defendants demurred to the amended complaint. The superior court overruled it, with the exception of the third cause of action for fraud based on Shalev's alleged promise to set up a Romanian entity as part of NoBug. The court deferred trial to enable NoBug to investigate the derivative claims through a special litigation committee (SLC).

On June 21, 2010, plaintiffs filed their second amended complaint. In November, the court overruled defendants' demurrer to this pleading, and it denied defendants' motion to strike portions of the complaint, with the exception of plaintiffs' requests for an order directing defendants to make NBR a wholly owned subsidiary of NoBug.

In early January 2011, the SLC reported that it had concluded that the derivative claims of the second amended complaint lacked merit and were contrary to NoBug's interests. Later that month both NoBug and the Shalevs moved for summary judgment or, alternatively, summary adjudication. NoBug first sought summary adjudication of the derivative claims; it submitted a second motion addressed to plaintiffs' direct claims. In NoBug's second motion and in the Shalevs' motion, defendants contended that the second, third, and fourth causes of action were time-barred, based on the statutes of limitations for fraud (three years under Code of Civ. Proc. § 338, subd. (d)) and breach of oral contract (two years under Code of Civ. Proc. § 339) The Shalevs further contended that the fraud claims (third and fourth causes of action) could not withstand summary adjudication. The third cause of action, they alleged, depended on recovery of damages for NoBug's lost profits resulting from Shalev's retention of the NBR ownership for himself. The fourth cause of action, they argued, could not survive because the undisputed facts established that Beck did not accept the alleged offer of NoBug shares within a reasonable amount of time, even if he eventually signed the SPA and sent a check in 2007.

On April 13, 2011, the court issued the first of the orders challenged in this appeal, addressing NoBug's and the Shalevs' summary judgment motions. The court granted summary adjudication of the fifth (breach of oral contract) and sixth (breach of fiduciary duty) causes of action pertaining to NBR, because those were “entirely derivative” as found by the SLC. The court denied summary adjudication of the first and fourth causes of action related to the issuance of stock to Beck because those claims contained both derivative and direct aspects that were insufficiently “separate and distinct.” As for the Shalevs' motion, the trial court agreed that Beck could not show Shalev's breach of an oral contract in the fourth cause of action because Shalev's offer 2 was in effect “revoked by a lapse of reasonable time without acceptance, as Beck submitted a signed stock purchase agreement several years after the offer was made.” The third, fifth, and sixth causes of action pertaining to the promise to make NBR a NoBug subsidiary were deemed “entirely derivative”; hence, the Shalevs' motion for summary adjudication was granted to those claims as well.

Thus, the first and fourth causes of action (declaratory relief and breach of oral contract pertaining to ownership of NoBug shares) remained alive as to NoBug, and the first and second causes of action (declaratory relief and promissory fraud pertaining to ownership of NoBug shares) remained against Shalev, with the ruling on the first cause of action applicable to Irit Shalev as well. Finally, the court found that the seventh cause of action had survived because—the burden on summary adjudication having shifted to plaintiffs—they had shown a triable issue regarding whether they had made a pre-litigation demand for an accounting.3 The Shalevs' motion to “clarify” the summary adjudication ruling was denied.

On May 4, 2011, after extensive written and oral argument, the court granted plaintiffs leave to file a third amended complaint. That pleading was filed on July 7, 2011, followed two months later by separate demurrers and motions to strike by NoBug and by the Shalevs. On October 27, 2011, the court sustained NoBug's demurrer to the first and sixth causes of action (declaratory relief and accounting) without leave to amend for failure to state a claim. As to the Shalevs, the court overruled their demurrer to all but Beck's fourth cause of action for breach of oral contract relating to the issuance of NoBug shares. The court struck this claim on the ground that it had already been summarily adjudicated against Beck.4 The court denied the Shalevs' motion to strike the background allegations of the third amended complaint, but it did strike plaintiffs' prayer for punitive damages on the fourth cause of action, noting the unavailability of punitive damages in contract actions.

Upon receiving a letter from Shalev requesting “clarification or modification” of the October 27 order, the court invited a response from plaintiffs and then modified its ruling. In its November 28, 2011 “Further Order,” the demurrer as to Irit Shalev was sustained without leave to amend, as plaintiffs had not opposed the demurrer and motion to strike as it applied to her. The court also sustained without leave to amend Beck's first, second, third, fifth, and sixth causes of action because “any recovery by Beck is precluded by the Court's finding in the April 13, 2011 order ․ that Beck failed to timely submit a signed stock purchase agreement.” An order granting summary adjudication and (as to the accounting cause of action) judgment on the pleadings was later granted to Shalev on Ferassa's claims.

Upon defendants' uncontested motion, Irit was dismissed as a defendant in June 2012. NoBug subsequently obtained dismissal of its cross-complaint without prejudice. The parties then began litigating costs and attorney fees. Beck sought indemnification of the attorney fees he had spent in his capacity as board chairperson in defending against NoBug's cross-complaints. The court found Beck's request for costs and fees of $224,444.54 to be excessive, but it did find a reasonable amount attributable to the cross-complaint litigation to be $41,143.25.

On July 12, 2013, the court entered judgment for defendants, directing that plaintiffs take nothing on their complaint and pay defendants' costs and fees of $1,831,223.65. After a setoff for Beck's recovery of $41,143.25 from NoBug, the net judgment in favor of the three defendants amounted to $1,790,080.40.

Beck moved for a new trial, asserting error in the prior rulings on all six claims of the third amended complaint. On September 9, 2013, the court granted Beck's motion as to the second (fraud) and sixth (accounting) causes of action and denied it as to the other challenged rulings. At Beck's request, the court thereafter issued a statement of reasons, explaining that the November 28, 2011 order “was error as to the second and sixth causes of action. The Third Amended Complaint adequately [pleaded] those causes of action which were not precluded by the April 13, 2011 order.” Finally, on October 9, 2013, the court denied Beck's motion to vacate the judgment.

On October 3, 2013, Shalev filed his notice of appeal from the order partially granting a new trial. Beck filed a notice of appeal from the judgment on October 9, 2013, and on October 24, 2013, a notice of cross-appeal from the new-trial order. We consider here Beck's contentions bearing on the judgment; the issues raised by Shalev are addressed in our companion opinion in Beck v. Shalev et al., H040227)5

Discussion

On appeal from the July 2013 judgment, Beck challenges (1) the summary adjudication of the fourth cause of action (breach of oral contract) in the second amended complaint; (2) the order sustaining defendants' demurrers and granting their motions to strike portions of the third amended complaint; and (3) the award of attorney fees to defendants. The first question is resolved in accordance with the principles applicable to review of summary judgments. “ ‘ “[W]e take the facts from the record that was before the trial court when it ruled on that motion. [Citation.] ‘ “We review the trial court's decision de novo, considering all the evidence set forth in the moving and opposing papers except that to which objections were made and sustained.” ’ [Citation.] We liberally construe the evidence in support of the party opposing summary [adjudication] and resolve doubts concerning the evidence in favor of that party. [Citation.]” [Citation.]' ” (Schofield v. Superior Court (2010) 190 Cal.App.4th 154, 156-157, quoting Wilson v. 21st Century Ins. Co. (2007) 42 Cal.4th 713, 716-717; Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 860 (Aguilar).)

We likewise review the demurrers de novo to decide whether the pleading at issue states facts sufficient to constitute a viable cause of action. “Accordingly, we assume that the complaint's properly pleaded material allegations are true and give the complaint a reasonable interpretation by reading it as a whole and all its parts in their context. [Citations.]” (Moore v. Regents of University of California (1990) 51 Cal.3d 120, 125.) We do not, however, assume the truth “of contentions, deductions, or conclusions of fact or law.” (Blank v. Kirwan (1985) 39 Cal.3d 311, 318; see also Randi W. v. Muroc Joint Unified School Dist. (1997) 14 Cal.4th 1066, 1075.) We also may take judicial notice of attached documents and admissions in prior sworn statements and pleadings that may conflict with the allegations of the complaint at issue. (Hoffman v. Smithwoods RV Park, LLC (2009) 179 Cal.App.4th 390, 400.) Thus, “a complaint's allegations may be disregarded when they conflict with judicially noticed discovery responses.” (Bockrath v. Aldrich Chemical Co. (1999) 21 Cal.4th 71, 83.) On appeal, “[w]e do not review the validity of the trial court's reasoning, and therefore will affirm its ruling if it was correct on any theory.” (Nasrawi v. Buck Consultants LLC (2014) 231 Cal.App.4th 328, 337, citing Berg & Berg Enterprises, LLC v. Boyle (2009) 178 Cal.App.4th 1020, 1034 (Berg & Berg); Kennedy v. Baxter Healthcare Corp. (1996) 43 Cal.App.4th 799, 808.)

1. Summary Adjudication of Contract Claim

Beck first contends that Shalev failed to establish entitlement to adjudication as a matter of law on the fourth cause of action for breach of oral contract in the second amended complaint. In performing our independent review, we apply the same three-step process as the trial court. “Because summary judgment is defined by the material allegations in the pleadings, we first look to the pleadings to identify the elements of the causes of action for which relief is sought.” (Baptist v. Robinson (2006) 143 Cal.App.4th 151, 159.) “We then examine the moving party's motion, including the evidence offered in support of the motion.” (Ibid.)

A defendant moving for summary judgment has the initial burden of showing that a cause of action lacks merit because one or more elements of the cause of action cannot be established or there is a complete defense to that cause of action. (Code of Civ. Proc., § 437c, subd. (o); Aguilar, supra, 25 Cal.4th at p. 850.) If the defendant fails to make this initial showing, it is unnecessary to examine the plaintiff's opposing evidence and the motion must be denied. However, if the moving papers make a prima facie showing that justifies a judgment in the defendant's favor, the burden shifts to the plaintiff to make a prima facie showing of the existence of a triable issue of material fact. (Code of Civ. Proc., § 437c, subd. (p)(2); Aguilar, supra, at p. 849.) In determining whether the parties have met their respective burdens, “the court must ‘consider all of the evidence’ and ‘all’ of the ‘inferences' reasonably drawn therefrom [citation], and must view such evidence [citations] and such inferences [citations], in the light most favorable to the opposing party.” (Aguilar, supra, at p. 843.) “There is a triable issue of material fact if, and only if, the evidence would allow a reasonable trier of fact to find the underlying fact in favor of the party opposing the motion in accordance with the applicable standard of proof.” (Id. at p. 850, fn. omitted.) However, “a party ‘cannot avoid summary judgment by asserting facts based on mere speculation and conjecture, but instead must produce admissible evidence raising a triable issue of fact. [Citation.]’ [Citation.]” (Dollinger DeAnza Associates v. Chicago Title Ins. Co. (2011) 199 Cal.App.4th 1132, 1144-1145.)

The fourth cause of action in the second amended complaint alleged that Shalev “agreed and promised that he would structure NoBug in the manner agreed upon by the parties, and would arrange for issuance of 500,000 shares of stock to Plaintiff Beck, 750,000 shares of stock to Plaintiff Bovio Ferassa, [and] 1,000,000 shares of stock to Defendant Shalev, and that the remainder would be held in reserve to be issued in a manner agreeable to the shareholders. [¶] In reliance upon these promises and agreement, Plaintiffs provided services to the corporation, including serving on the Board of Directors and participating in the governance of the corporation, believing that the shares had been, or would be issued in the agreed upon manner.” By issuing no shares to him (and yet issuing 2,750,000 shares to Irit Shalev), Beck was “damaged by having no ownership interest in the corporation.”6

Shalev asserted in support of summary adjudication that no contract was ever formed. Instead, Shalev had only offered to sell Beck 500,000 shares of NoBug stock. Beck did not accept the offer within a reasonable time by signing the SPA and tendering a check for the purchase; consequently, the offer lapsed and Beck's attempted purchase seven years later was ineffectual. Shalev surmised that Beck was attempting to cash in on an anticipated $3 million offer for NoBug, which would have given him “a quick $298,500 profit on a $1,500 investment.”

In support of his motion, Shalev proffered a statement of undisputed facts that primarily noted the allegations of the second amended complaint and the assertions of the Shalevs' answer.7 The Shalevs did offer the December 15, 2000 Action, however, which clearly listed Irit Shalev as an intended recipient of 2,750,000 shares. Pertinent to the current issue was Shalev's own declaration, in which he stated that in 2000 he “agreed” to make Beck chairman of the NoBug board, and that after negotiations with Ferassa and Beck he “agreed that Mr. Ferassa could purchase 750,000 shares of NoBug stock and Mr. Beck could purchase 500,000 shares of NoBug stock.” The Action was the result of joint efforts by Shalev and Beck to “properly arrange” for the assumption of Beck's role and the sale of NoBug stock. Shalev, Ferassa, and Irit Shalev completed their purchases by April 2001, but Beck did not. Richard B. Glickman, the Shalevs' attorney, declared that although Beck was asked to produce copies of the SPA and check he claimed to have sent Shalev at the end of 2007, neither he nor his attorneys had been able to produce such copies.

Also offered as evidence was Beck's deposition. On that occasion he was asked, “Now, in order to buy stock in NoBug California, what, if any, steps had to be taken, to your understanding?” He answered, “My understanding was that the most important that [sic] I need to pay and to get the agreement to sign it.” He said that he gave Shalev a $1,500 check “toward the end of 2000, beginning of 2001,” but he was unable to find a record of that check, and he could not recall whether it was ever cashed. He did recall mailing Shalev a copy of the SPA at the end of 2007 along with a second check; he did not remember sending the SPA before then, however.

Shalev established that Beck did not act upon the opportunity to acquire the promised NoBug stock. Beck alleged that Shalev had “agreed and promised” to “arrange for” issuance of the designated shares of stock to himself, Ferassa, and Beck. The gravamen of the alleged breach was Shalev's allocation of the stock to himself, Ferassa, and Irit Shalev, “[i]nstead of issuing the agreed upon shares.” But Shalev did not promise to issue the shares without payment; he promised to arrange for them to be issued when the recipients signed the SPA and tendered payment. The undisputed evidence established that Shalev did in fact “arrange for” issuance of 500,000 shares of stock to Beck, through the Action and the drafting of the SPA. Beck could not remember performing either of the required acts before 2007, and during discovery neither he nor his attorneys were able to produce evidence of payment. Whether Beck's inaction is viewed as a failure to accept an offer within a reasonable time (as Shalev and the court saw it), a failure to perform a covenant of the alleged contract, or a failure to perform a condition precedent to the issuance of the promised shares, he did not perform within a reasonable time. (See Civ. Code, § 1657 [“If no time is specified for the performance of an act required to be performed, a reasonable time is allowed”]; see City of Stockton v. Stockton Plaza Corp. (1968) 261 Cal.App.2d 639, 644] ) Shalev thus met his initial burden to produce evidence showing that Beck did not possess, and could not reasonably obtain, the evidence he needed to support a necessary element of breach of contract. The burden thus properly shifted to Beck to show that a triable issue of fact existed on the question of whether he did meet the prerequisite to his stock ownership—execution of the SPA and payment for his shares.

In his opposition Beck pointed to a declaration he had submitted in support of a petition for an order to produce documents. In that document he admitted that when he learned that Shalev was contesting his ownership of 500,000 NoBug shares, he tried unsuccessfully to locate a signed SPA or “documentary evidence of having paid the nominal per share fee required for issuance of the stock.” He had never been told that there were any time constraints on payment, so he sent the 2007 copy of the SPA and a check to Shalev, made payable to NoBug. He believed that, “based upon [his] membership in the Board of NoBug from 2007 until early 2008,” he maintained ownership of the 500,000 shares of NoBug stock.

Beck's attempt to create an issue regarding revocation or abandonment of the alleged agreement is unsustainable; the ruling was not, as he represents, that the parties had an agreement that was revoked. The court (by a different judge) later made it clear, as if it hadn't been already, that the ruling made sense only if the “inadvertent word choice” of “agreement” was read as “offer.”

Beck's better argument is that a triable issue of fact existed “as to the existence of an oral agreement that Beck could purchase 500,000 shares of NoBug stock,” in exchange for his service as chairperson of the board. But even if we agreed with him that an oral contract of this nature was formed, Beck offered no evidence to support his claim that the agreement called for his services in exchange for the issuance of shares. Only an arrangement to make the shares available for purchase was contemplated, and it is undisputed that Shalev complied with that obligation: He executed the Action and had the SPA prepared for all purchasers to sign. Beck himself notes that the Action “authorized the sale of shares to Beck.” (Italics added.) Beck was unable to supply evidence demonstrating a triable issue of fact on this point. To defeat a summary judgment or summary adjudication motion in 2013, a plaintiff was (as is the case now) not permitted to “rely upon the mere allegations or denials of its pleadings to show that a triable issue of material fact exists but, instead, shall set forth the specific facts showing that a triable issue of material fact exists as to that cause of action ․” (Code Civ. Proc., former§ 437c, subd. (p)(2).)

Beck further argues that reversal is required because Shalev failed to seek summary adjudication of Beck's claim of promissory estoppel, which he maintains was embedded in the fourth cause of action. Shalev responds that it was Beck who forfeited his position by failing to raise it below. Shalev is correct that Beck never attempted to defend the fourth cause of action by arguing the theory of promissory estoppel in his opposition to Shalev's motion. He did not even raise it in his motion for a new trial or motion to vacate the judgment. The forfeiture rule “is rooted in the fundamental nature of our adversarial system: The parties must call the court's attention to issues they deem relevant.” (North Coast Business Park v. Nielsen Construction Co. (1993) 17 Cal.App.4th 22, 28 (North Coast Business Park).) Accordingly, “A party is not permitted to change his position and adopt a new and different theory on appeal. To permit him to do so would not only be unfair to the trial court, but manifestly unjust to the opposing litigant.” (Ernst v. Searle (1933) 218 Cal. 233, 240-241.) “ ‘The law casts upon the party the duty of looking after his legal rights and of calling the judge's attention to any infringement of them. If any other rule were to obtain, the party would, in most cases be careful to be silent as to his objections until it would be too late to obviate them, and the result would be that few judgments would stand the test of an appeal.’ ” (Sommer v. Martin (1921) 55 Cal.App. 603, 610; accord, North Coast Business Park, supra, at p. 29.)

This principle applies to summary judgment proceedings. (North Coast Business Park, supra, 17 Cal.App.4th at p. 29.) “Though this court is bound to determine whether defendants met their threshold summary judgment burden independently from the moving and opposing papers, we are not obliged to consider arguments or theories, including assertions as to deficiencies in defendants' evidence, that were not advanced by plaintiffs in the trial court. ․ ‘Thus, possible theories that were not fully developed or factually presented to the trial court cannot create a “triable issue” on appeal.’ ” (DiCola v. White Brothers Performance Products, Inc. (2008) 158 Cal.App.4th 666, 676, quoting American Continental Ins. Co. v. C & Z Timber Co. (1987) 195 Cal.App.3d 1271, 1281; Johanson Transportation Service v. Rich Pik'd Rite Inc. (1985) 164 Cal.App.3d 583, 588; cf. North Coast Business Park, supra, at p. 29 [where summary judgment ruling resolved defect issue raised in motion, permitting change of theory on appeal would be “manifestly unjust to the opposing parties, unfair to the trial court, and contrary to judicial economy”].)

In any event, even if Shalev should have recognized that Beck was alleging promissory estoppel as well as breach of contract, Shalev's failure to seek adjudication of this alternative claim does not help Beck. Promissory estoppel consists of the following elements: “(1) a promise clear and unambiguous in its terms; (2) reliance by the party to whom the promise is made; (3) his reliance must be both reasonable and foreseeable; and (4) the party asserting the estoppel must be injured by his reliance.” (Laks v. Coast Fed. Sav. & Loan Assn. (1976) 60 Cal.App.3d 885, 890; Daniels v. Select Portfolio Servicing, Inc. (2016) 246 Cal.App.4th 1150, 1178.) “The party claiming [promissory] estoppel must specifically plead all facts relied on to establish its elements.” (Smith v. City and County of San Francisco (1990) 225 Cal.App.3d 38, 48; see also Moncada v. West Coast Quartz Corp. (2013) 221 Cal.App.4th 768, 802 [conc. & diss. opn of Bamattre-Manoukian, J.) “To be binding, the promise must be clear and unambiguous.” (Lange v. TIG Ins. Co. (1998) 68 Cal.App.4th 1179, 1185.) Beck alleged a promise that lacked the required unambiguous specificity: Shalev promised to “arrange” for issuance of the stock to Beck. The pleading did not suggest any basis for finding reasonable reliance, as Beck alleged that he served on the board “believing that the shares had been, or would be issued in the agreed upon manner.” Given his admitted knowledge that issuance of the shares could not take place until he purchased them and signed the SPA, he could not have reasonably expected to acquire them without satisfying the conditions, as did each other recipient. We therefore agree with Shalev that Beck's reliance allegation was insufficient to satisfy his pleading obligation. It was not incumbent on Shalev to address an inadequately proffered theory.

2. Demurrers to the Third Amended Complaint

Beck next takes issue with the rulings on defendants' demurrers to (a) the first cause of action for declaratory relief against NoBug, Shalev, and Irit Shalev and (b) the second, third, and fifth causes of action for fraud and breach of oral contract against Shalev, relating to the ownership of NBR.

a. Declaratory Relief Claims

In the first cause of action of the third amended complaint Beck (along with Ferassa) sought a judicial declaration that (1) he “is the owner of shares of NoBug stock, and the number of shares that he owns”; (2) “NoBug must cancel shares issued to Irit Shalev or Moshe Shalev, and/or issue additional shares to Plaintiffs to restore the original agreed[-]upon ownership interest of 33% for Mr. Ferassa and 22% for Mr. Beck”; and (3) NBR “is to be owned either by shares, or through a constructive trust in a manner consistent with the parties [sic] agreement: (1) 45% by Mr. Shalev; (2) 33% by Mr. Bovio Ferassa and (3) 22% by Mr. Beck.”

The court sustained NoBug's demurrer to this cause of action on October 27, 2011, finding that plaintiffs had pleaded “[n]o actual controversy ․ to support declaratory relief.” It subsequently denied Beck's motion for a new trial, explaining that Beck could not obtain the relief he sought from NoBug, which was to compel NoBug to issue shares to him.

On appeal, Beck contends that the sustaining of NoBug's demurrer was unjustified because the complaint actually “combines two causes of action: one seeking a declaration of rights and a second seeking equitable relief for defendants' breach of an oral agreement, promissory estoppel and fraud.” He maintains that he was seeking not coercive relief, but “an adjudication of his right to purchase stock in NoBug and his right to an ownership interest in [NBR].” In his reply brief, he adds that he “also seeks a declaration that NoBug has an obligation to cancel the shares issued to Irit [Shalev] or to issue additional shares to him to confer a 22 percent ownership interest in NoBug.” It is the equitable portion of his claim, he explains, that requests “an order compelling NoBug to perform its obligations under the agreement,”

This clarification does not advance Beck's position. First, there is no indication that in the court below Beck relied on a claim for equitable relief; and even if he did, it was essentially a request for an affirmative injunction or specific performance— a remedy for Shalev's, not NoBug's, alleged breach of contract. Beck's counsel acknowledged at the hearing on the new-trial motion that specific performance was unavailable to Beck. NoBug's obligation to issue 500,000 shares to him once he paid for them is dependent on the alleged agreement by Shalev to arrange for that transaction. The obligation thus presupposes a failure by Shalev to comply with his contractual duty. NoBug's demurrer was properly sustained.

The court also sustained the demurrer as to Irit Shalev without leave to amend, noting that there had been no opposition to the demurrer as it concerned her. The Shalevs' uncontested request for dismissal of Irit Shalev was granted on June 11, 2012. On appeal, Beck protests that he did oppose the demurrer as it pertained to Irit Shalev, yet he points to no specific argument he raised below, other than a vague reference to nearly 100 pages of his Appellant's Appendix. Beck's contention regarding his alternative unpleaded theory that he was entitled to equitable relief merits no examination for the same reason it is disregarded when applied to NoBug.

As to Shalev, the court initially overruled Shalev's demurrer to the first cause of action, but in its November 28, 2011 order it determined that “any recovery by Beck is precluded by the Court's finding in the April 13, 2011 order ․ that Beck failed to timely submit a signed stock purchase agreement.” In subsequently denying Beck a new trial on this claim, the court withdrew that reasoning, but it nonetheless determined that any error was not prejudicial without further explanation.8

It is unnecessary to address the rationale of the trial court's November 28, 2011 order. As noted earlier, we review the court's ruling rather than its reasoning, and we uphold the decision if it is correct on any theory. (Berg & Berg, supra, 178 Cal.App.4th at p. 1034; Orange Unified School Dist. v. Rancho Santiago Community College Dist. (1997) 54 Cal.App.4th 750, 757.) Independent of the court's prior summary adjudication order, Beck's right to the claimed NoBug shares turns on the legal sufficiency of his substantive allegations of fraud (the second and third causes of action) and breach of contract (fourth and fifth causes of action). As we conclude below and in the companion appeal (Beck v. Shalev et al., H040227), those allegations were subject to demurrer. Accordingly, Beck was not entitled to declaratory relief against Shalev based on Shalev's failure to issue Beck 500,000 NoBug shares and an interest in NBR.

b. Demurrer to the Third and Fifth Causes of Action

In Beck's third cause of action against Shalev, he alleged that Shalev “promised to set-up [sic] the Romanian business, which was to be operated under the NoBug corporate umbrella, or if it was impractical or impossible to have NoBug Romania as a subsidy of NoBug, then Mr. Shalev would establish Romania [sic] with Mr. Shalev, Mr. Bovio Ferassa and Mr. Beck as owners or shareholders in the same percentage of ownership interest as their respective ownership interests in NoBug.” According to the complaint, Beck and Ferassa relied on these promises by providing services to the corporation. Shalev, however, had not intended to structure NBR as part of NoBug, and he “lied when he advised the Plaintiffs that he had set up the Romanian entity as they had agreed.” Instead, he set up NBR as a separate legal entity without disclosing this fact to plaintiffs. Plaintiffs were “damaged because they were entitled to obtain an ownership interest in [NBR],” either directly or through their ownership interest in NoBug. The fifth cause of action cast the same factual allegations as a breach of oral contract, with the resulting damage that plaintiffs lost “profits that should have been available to them as owners of [NBR].”

The October 27 and November 28, 2011 orders reflected the trial court's view that the third and fifth causes of action stated non-derivative claims that related back to plaintiffs' earlier pleadings and therefore were not barred by the statute of limitations. In denying Beck's new-trial motion, however, the trial court stated that the third and fifth causes of action were barred by the statute of limitations; and because Beck had not addressed this issue, the court's earlier reliance on the April 2011 order “did not materially affect Beck's rights.”

Demurrer was proper on these causes of action. The alleged promise was that Beck and Ferassa would share in NBR ownership “in the same percentage of ownership interest as their respective ownership interests in NoBug.” But while Ferassa had such an interest in NoBug, Beck did not. The alternative alleged promise to structure NBR as part of NoBug likewise cannot survive demurrer, as Beck relinquished his earlier claim to NoBug shares and maintained that he was no longer asserting derivative claims to shares of NBR. Thus, whether viewed as promissory fraud or breach of contract, the alleged broken promise to set up NBR as a business owned by NoBug's shareholders cannot have resulted in direct personal damage to Beck.

e. Leave to amend complaint

Beck contends that the court's failure to grant him leave to amend the third amended complaint constituted an abuse of discretion. He did not request such opportunity, and he fails to demonstrate how the pleading can be amended to state a viable cause of action as to NoBug, Shalev, or Irit Shalev. Leave to amend was not required.

3. Order Striking the Fourth Cause of Action

Beck further challenges the order striking the fourth cause of action of the third amended complaint, which alleged (as in the second amended complaint) breach of contract against Shalev for misallocating the NoBug shares by issuing none to him.

In this case, Beck's contention is predicated entirely on the assertion that the court “erred in granting summary adjudication for [Shalev] because [Shalev] failed to show there was no triable issue of fact as to the existence of an oral agreement relating to Beck's ownership interest in NoBug.” Because we have found no error in the trial court's prior summary adjudication ruling, the court properly struck this claim in the third amended complaint.

4. Attorney Fees

California follows the “American rule,” under which each party to a lawsuit must pay its own attorney fees unless a contract or statute or other law authorizes a fee award. (Code Civ. Proc., §§ 1021, 1033.5, subd. (a)(10); Musaelian v. Adams (2009) 45 Cal.4th 512, 516.) In this case defendants found such authorization in Civil Code section 1717 (hereafter section 1717), which states: “In any action on a contract, where the contract specifically provides that attorney's fees and costs, which are incurred to enforce that contract, shall be awarded either to one of the parties or to the prevailing party, then the party who is determined to be the party prevailing on the contract, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorney's fees in addition to other costs.” (§ 1717, subd. (a).) Accordingly, “[w]hen a defendant obtains a simple, unqualified victory by defeating the only contract claim in the action, section 1717 entitles the successful defendant to recover reasonable attorney fees incurred in defense of that claim if the contract contained a provision for attorney fees.” (Hsu v. Abbara (1995) 9 Cal.4th 863, 877.) The statute thus ensures mutuality of remedy, particularly “when a party litigant prevails in an action on a contract by establishing that the contract is invalid, inapplicable, unenforceable, or nonexistent.” Section 1717 then permits that party to recover attorney fees “whenever the opposing parties would have been entitled to attorney fees under the contract had they prevailed.” (Santisas v. Goodin (1998) 17 Cal.4th 599, 611; see Linear Technology Corp. v. Tokyo Electron, Ltd. (2011) 200 Cal.App.4th 1527, 1535.)

Defendants submitted their motion for attorney fees in December 2012, claiming an “unqualified” right to fees under the SPA and the fee provisions of the Civil Code. Defendants sought $1,669,724.30 as the parties “prevailing on the contract,” within the meaning of section 1717. (§ 1717, subd. (b).) They contended that this provision entitled them to the “mutuality of remedy” principle inherent in the statute, which broadly applied to this entire litigation as an “action on a contract.” (§ 1717, subd. (a).) Those issues that were outside the scope of the SPA—namely, the causes of action for accounting and fraud (and, in the second amended complaint, breach of fiduciary duty) were, in defendants' view, inextricably intertwined with the contract claims and must therefore be included in the fee award, to which all three defendants were entitled.

Beck opposed defendants' motion primarily on the ground that the amounts sought were unreasonable, as they reflected duplicative billing and failure to deduct for work that did not qualify for fees under section 1717. Beck maintained that time “not spent on issues associated with the [SPA] is not recoverable, including issues related to whether [NBR] was part of NoBug Consulting.” Accordingly, Beck argued, the court “would be fully justified in substantially reducing the fees claimed, or eliminating them in their entirety.”9

Beck did not oppose the motion on the ground that section 1717 was inapplicable to the entire claim. Indeed, at one point he obtained new counsel who, misunderstanding the nature of the allegations, conceded that a fee award would be proper as they related to the “written contract claim.” On appeal, however, he argues that none of the defendants was entitled to attorney fees because his complaint alleged breach of an oral agreement, not breach of the SPA, and the oral agreement contained no provision for fees. Defendants resist this theory not on the ground that it was forfeited, but on the substance of Beck's position. They maintain that the entire action against all three defendants was “on the contract” and therefore warranted attorney fees. In their view of the litigation, Beck's allegation that he proffered payment and a signed SPA establishes that “an enforceable SPA was the foundation of Beck's case.”

We agree with Beck on this issue. “An action (or cause of action) is on a contract' for purposes of section 1717 if (1) the action (or cause of action) ‘involves' an agreement, in the sense that the action (or cause of action) arises out of, is based upon, or relates to an agreement by seeking to define or interpret its terms or to determine or enforce a party's rights or duties under the agreement, and (2) the agreement contains an attorney fees clause.” (Douglas E. Barnhart, Inc. v. CMC Fabricators, Inc. (2012) 211 Cal.App.4th 230, 237, 241-242.) “On appeal this court reviews a determination of the legal basis for an award of attorney fees de novo as a question of law.” (G. Voskanian Construction, Inc. v. Alhambra Unified School Dist. (2012) 204 Cal.App.4th 981, 995; Connerly v. State Personnel Bd. (2006) 37 Cal.4th 1169, 1175.)

Here, an oral agreement was allegedly reached, but no SPA signed by Beck was ever produced. The gravamen of the third amended complaint was not that any of the defendants breached the SPA or any other written agreement containing an attorney fees provision, but that Shalev broke his oral promise to “arrange for” Beck to purchase the shares, as well as Shalev's oral promise to make NBR part of NoBug. Neither of these alleged oral agreements made any reference to attorney fees. The fee provision of the SPA itself called for fees “incurred by the prevailing party in connection with” legal action “to enforce the obligations of any other party pursuant to this Agreement.” Beck sued not to enforce the terms of the SPA but to enforce the obligation of Shalev to enter into an SPA with him as called for by their oral agreement in 2000. We thus reject defendants' view of the lawsuit as one to “enforce a composite agreement ․ with a written fee clause.”

This was not a case calling for mutuality of remedy. Had Beck's action been successful, he would not have been entitled to attorney fees because he was seeking only to engage in a contractual relationship with NoBug, not to enforce the terms of a contract into which they had already entered. The alleged oral agreement did not include any provision for recovery of fees should a legal dispute arise. Consequently, this case is governed not by section 1717, but by the basic rule that a party must bear its own attorney fees. (Cf. Sawyer v. Bank of America (1978) 83 Cal.App.3d 135, 140.)

We therefore disagree with the superior court's determination that “the gist of plaintiffs' claims and action was that it was an action on a contract.” The alleged contract that was the subject of the action was not one containing a provision for attorney fees. The award to defendants thus cannot be upheld. In light of this conclusion, we need not address Beck's argument that neither of the Shalevs was entitled to fees because they were not parties to the SPA, or his assertion that he did not receive a fair trial on fees because his attorney had a conflict of interest by representing Ferassa as well as him. We also need not address the court's refusal to apportion fees for litigation pertaining exclusively to Ferassa and fees between the claims in the pleadings. Section 1717 does not offer a basis for any of the requested fees here.

Disposition

The judgment is modified to strike the order awarding attorney fees to defendants. In all other respects, the judgment is affirmed. The parties shall bear their own costs on appeal.

FOOTNOTES

1.   Ferassa is not a party on appeal.

2.   The court actually used the word “agreement” rather than offer; but a different judge later explained that the intended word, viewed in context, had to have been “offer.”

3.   The court further determined that the Shalevs had not established the lack of a triable issue of fact on the second and fourth causes of action as to Ferassa. As noted earlier, however, Ferassa is not a party in this appeal.

4.   The court also overruled the demurrer to and denied the motion to strike Ferassa's allegations in the fourth cause of action.

5.   This court ordered these two appeals to be considered together for the purposes of briefing, oral argument, and disposition.

6.   The fourth cause of action did not directly accuse NoBug of breach of contract, nor does Beck assert NoBug's liability on this cause of action in his appellate briefs.

7.   It is misleading and disingenuous for Shalev to point out that plaintiffs responded “Undisputed” to the factual statements in defendants' statement of undisputed facts. As noted, that statement primarily set forth allegations, not the underlying facts themselves. We will disregard Shalev's gratuitous point that Beck “admitted all material facts in his response to [Shalev's] separate statement. ․”

8.   In denying a motion for new trial on this cause of action the court did not directly retract its ruling of October 27 and November 28, 2011. The court ruled that any error in sustaining the demurrer did not warrant a new trial, because “the finding concerning the April [13, 2011] [o]rder did not materially affect Beck's rights.”

9.   As noted, Beck also sought to recover his own attorney fees for defending against NoBug's cross-claims against him. The parties' motions for attorney fees were heard by a different judge of the superior court from those who had decided the summary judgment motions and demurrers.

ELIA, J.

WE CONCUR: PREMO, Acting P. J. MIHARA, J.