Nelson v. Kuebler

Filed 5/25/10 Nelson v. Kuebler CA4/1

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

APPEAL from a judgment of the Superior Court of San Diego County, Randa Trapp, Judge. Affirmed.

In 1998, four cousins went into business together to develop real estate. At the outset, each member held an equal share of the business. They operated the business for approximately seven years, under the terms of a written but unsigned limited liability company operating agreement, until one of the cousins (Larry Nelson (hereafter Larry)) died in 2005. The surviving cousins[1] then sought to exercise their option to buy Larry's interest in the business. However, the parties disputed the value of Larry's share: the Surviving Members asserted that Larry's share in the business had declined to 5.4 percent, while Larry's estate asserted his share was an undiminished 25 percent interest in the business.

The Surviving Members filed this action seeking a declaration of their rights in the business and to determine Larry's share in the business. Larry's wife (Martina), as executrix of Larry's estate, cross-complained, seeking various forms of affirmative relief. The matter was tried to the court, and the court ruled in favor of the Surviving Members. Martina's appeal asserts the evidence is insufficient to support the judgment.

FACTUAL AND PROCEDURAL BACKGROUND[2]

A. The Facts

In 1998, Larry and three of his cousins agreed to form a limited liability company (Legacy Builders, LLC (the LLC)) to acquire and develop land in Bonita, California.[3] Larry hired Mr. Profet, a consultant, to draft the LLC Articles of Organization and Operating Agreement, which Profet presented to the four cousins at the initial meeting of the LLC. Profet highlighted some of the important terms of the Operating Agreement, and told the cousins to take it home to review to determine whether anyone had any objections to the terms or wanted any changes made. No one objected to the terms of the Operating Agreement either at the meeting or afterward. Instead, everyone accepted the terms contained in the Operating Agreement and understood they were bound by it, although no one signed the document.

The cousins thereafter operated the LLC pursuant to the Operating Agreement. They obtained waivers and consent to hold meetings in the absence of one of the members as required under the Operating Agreement; each of the members was a manager for the LLC and had duties to discharge as specified by the Operating Agreement; the members complied with the notice requirements to hold meetings as required under the Operating Agreement; and minutes of the meetings were circulated and the members given the opportunity to comment on or object to the minutes, as required by the Operating Agreement.

At the outset of the LLC, each member held a 25 percent interest in the LLC based on their initial capital contributions to it. However, over the ensuing years, the Surviving Members continued to make capital contributions to the LLC to pay the costs associated with developing and carrying the project over the years, but Larry stopped contributing capital after December 1999.[4] Both Michael and Jeffrey regularly contacted Larry to ask him to contribute his share of capital infusions for the project, and during 2000 the other cousins were concerned that Larry's failure to contribute additional amounts of capital to the LLC would make it increasingly difficult for him to maintain his 25 percent capital account in the LLC. Jeffrey's requests for additional capital, as reflected in numerous letters to Larry, identified each new request for capital as representing Larry's then-current share of the LLC's capital needs based on Larry's declining percentage interest in the LLC.[5]

The LLC continued operating under the original Operating Agreement until Larry's death in 2005.[6] After Larry's death, the Surviving Members informed Martina, as executrix of Larry's estate, that they elected to purchase Larry's remaining interest in the LLC pursuant to the Operating Agreement. Martina rejected the offer.

B. The Lawsuit and Judgment

The Surviving Members filed a complaint against Martina (as executrix of Larry's estate) that sought, among other claims, a declaration that (1) the Operating Agreement contained the terms of a valid oral agreement among the cousins; (2) under the Operating Agreement, Larry's failure to contribute to capital calls resulted in his interest being reduced relative to the capital contributions made by the Surviving Members, and that Larry's interest in the LLC was approximately 5.54 percent; (3) and Martina was bound by the terms of Article VIII for determining the value of the estate's interest in the LLC and for transfer of that interest to Surviving Members. Martina's cross-complaint sought a declaration that the parties had an oral agreement that Larry's interest in the LLC would be 25 percent and there was no agreement that would permit dilution of his interest below 25 percent. Martina's cross-complaint also asserted claims for breach of contract and quantum meruit, based on the assertion that there was an implied agreement Larry would be compensated for his services to the LLC.

The trial court granted Surviving Members' motion to bifurcate the declaratory relief claims from the remaining claims and to hold trial on the declaratory relief claims first. After an evidentiary hearing, the court found, although there was no express written or oral contract between the parties, the parties had an implied agreement that the terms of the unsigned Operating Agreement would govern their relationships relating to the LLC, and Larry subsequently acknowledged that the terms of the unsigned Operating Agreement had been and would remain controlling.

The Surviving Members then moved for judgment on the remaining claims raised by Martina's cross-complaint, arguing the determination that the terms of the Operating Agreement were binding foreclosed Martina's implied contract and quantum meruit claims seeking recovery by Martina of compensation for Larry's services to the LLC. The Surviving Members noted the terms of the Operating Agreement, which the court had previously found to be binding, expressly stated "members as such and managers as such shall not be entitled to compensation for their services." The court granted the Surviving Members' motion, and entered judgment holding the terms of the Operating Agreement governed the operation of the LLC, including the valuation of each member's interest in the LLC, and granted judgment in favor of the Surviving Members on their declaratory relief claim and against Martina's cross-claims. Martina timely appealed.

ANALYSIS

A. Substantial Evidence Supports the Determination That the Terms of the Operating Agreement Were Binding and Enforceable Against Larry

Martina argues the evidence does not support the finding that the parties had an implied contract to conduct the LLC with the understanding that its operation was to be governed by the terms of the unsigned Operating Agreement.[7]

An implied contract is an enforceable contract, and although " '[c]ontracts are often spoken of as express or implied[,] [t]he distinction involves . . . no difference in legal effect, but lies merely in the mode of manifesting assent.' " (Caron v. Andrew (1955) 133 Cal.App.2d 402, 416.) Moreover, the existence of an implied contract is usually a question of fact for the trial court, and where evidence is conflicting or where reasonable conflicting inferences may be drawn from evidence not in conflict, a question of fact is presented for decision of the trial court and we will not disturb the trier of fact's determination if substantial evidence supports the determination. (Ibid.) Claims asserting both express and implied contract seek to enforce the intention of the parties, and the only distinction is in how the parties manifested their assent, because an implied contract can arise when the agreement to the terms is inferred by proof of conduct as well as by proof of the use of words. (Ibid.)

There is substantial evidence to support the trial court's finding that an implied contract, incorporating the terms of the written but unsigned Operating Agreement as the provisions governing the relationships of the parties, existed in this case. The trial court found that all members of the LLC understood the terms of the Operating Agreement governed their business relationship, and Larry and the other members in fact conducted the business in accord with the terms of the Operating Agreement. The trial court noted (1) all members were designated as managers (as specified in art. 5.01), (2) Larry was designated as agent for service of process (as specified in art. 2.04), (3) the LLC's principal place of business was 1987 Friendship Drive (as specified in art. 2.03), (4) the parties followed the procedures for notice of meetings and waivers of notice (as specified in art. 5.02), and (5) Larry signed minutes of meetings (in compliance with art. 5.02, subd. (c)). Although Martina argues on appeal that various exhibits at trial either provide an alternative explanation for these actions or undermine the findings, her attack on the evidentiary support for these findings is waived because she has not provided an appellate record supporting many of her contrary evidentiary assertions (Hiser v. Bell Helicopter Textron Inc., supra, 111 Cal.App.4th at pp. 656-657) and, more importantly, her brief ignores the evidence supporting these findings.[8] (Nwosa v. Uba (2004) 122 Cal.App.4th 1229, 1246.)

Additionally, the trial court found there was evidence that Larry acknowledged the Operating Agreement was controlling, and understood that his failure to contribute capital was causing a reduction in his percentage interest in the LLC. Although Martina asserts on appeal that different inferences should be drawn from this evidence, we may not reweigh the evidence or draw inferences different from those drawn by the trier of fact but must instead affirm if any reasonable trier of fact could have reached the conclusions it did. (Howard v. Owens Corning (1999) 72 Cal.App.4th 621, 631.) Even had Martina not waived the challenge on appeal, there is evidence from which a trier of fact could have concluded that all parties understood the terms contained in the Operating Agreement regarding the members' relative percentage shares of the business constituted the agreement governing their shares of the business.[9]

Martina argues on appeal that, even if the terms contained in the Operating Agreement regarding the members' relative percentage share of the business did govern, the trial court erroneously determined that the parties understood the postformation monetary contributions by the other members were capital contributions that reduced Larry's share of the business. Martina, noting Article 3.01 provided for an initial capital contribution and stated that "[u]nless otherwise agreed in writing by all Members, no Member shall be required to make additional Capital Contributions," argues the postformation monetary contributions cannot be construed as capital contributions absent an agreement in writing, and no writing was produced at trial.[10] We are not persuaded by Martina's attack on the trial court's findings, for several reasons. First, Martina cites nothing in the record suggesting this claim was raised below, which would waive the argument. (Cf. Richmond v. Dart Industries, Inc. (1987) 196 Cal.App.3d 869, 874.) More importantly, there was evidence to support the trial court's factual determination that all parties understood the new infusions of funds represented capital account contributions: both Michael and Jeffrey regularly contacted Larry to ask him to contribute his share of capital infusions for the project; the members were concerned that Larry's failure to contribute additional amounts to the LLC would make it increasingly difficult for Larry to maintain his 25 percent capital account; and many of the requests to Larry for additional funds did note Larry's declining percentage interest in the LLC. Although Article 3.01 does provide that a member cannot be compelled to make additional capital contributions, that provision does not control the determination of what the members understood would occur to the capital account of a noncontributing member when other members did make capital contributions to the business.

We conclude there is substantial evidence to support the trial court's judgment that the parties impliedly agreed the terms of the unsigned Operating Agreement would govern their relationships in the LLC, including the valuation of each member's percentage interest in the LLC as set forth in the terms of the Operating Agreement.

B. The Trial Court Properly Rejected Martina's Claim for Compensation for Larry's Services to the LLC

After the trial court rejected Martina's objections to the findings of fact and conclusions of law contained in its tentative statement of decision, and confirmed its statement of decision and held the parties had agreed that the terms of the unsigned Operating Agreement would govern their relationships, the Surviving Members moved for judgment on the claims raised by Martina in her cross-complaint. Martina's cross-complaint,[11] alleging Larry was entitled to be compensated for the work he performed for the LLC, pleaded claims denominated as "implied in fact contract" and "quasi-contract," as well as a claim for fraud.

The Surviving Members' motion for judgment argued the factual determinations made during the first phase of the bifurcated proceeding, and embodied in the statement of decision, were fatal to the claims raised by Martina's cross-complaint. Martina opposed the motion, arguing, even though the court had determined the parties were bound by the terms contained in the Operating Agreement, nothing in that agreement foreclosed Martina's claims for implied-in-fact contract, quasi-contract or fraud. However, in opposition to the motion, Martina's offer of proof was limited. Martina's proposed evidence on the "implied-in-fact contract" and "quasi-contract" claims was that an expert would testify to the fair market value of Larry's services. Martina's only other proposed evidence was that Larry had written an April 2002 letter to Allan (long after the other members had notified Larry that his failure to make additional capital infusions was resulting in his having a declining percentage interest in the LLC) stating Larry believed his capital contributions had a $50,000 ceiling and that (in lieu of monetary contributions) he would perform the bulk of the work necessary to move the project forward. Martina did not proffer any evidence that the Surviving Members saw this letter, responded to his suggestion, or agreed to compensate him.

The court granted the motion, concluding the express terms of the Operating Agreement barred any of the members from seeking compensation for their services to the LLC, there was no evidence Larry and the Surviving Members agreed that he would be compensated for his "extraordinary" work on the project, and therefore Martina's claims for compensation were foreclosed.

We conclude the trial court's ruling was correct. First, the express terms of the Operating Agreement stated none of the members were entitled to compensation "as managers . . . for their services," and the law is clear that neither an implied-in-fact contract theory of recovery nor a quantum meruit theory of recovery may be obtained when it would contradict express contractual terms covering the same subject. (See, e.g. Wilkerson v. Wells Fargo Bank (1989) 212 Cal.App.3d 1217, 1226 [" '[t]here cannot be a valid express contract and an implied contract, each embracing the same subject, but requiring different results' "], disapproved on other grounds by Cotran v. Rollins Hudig Hall Internat., Inc. (1998) 17 Cal.4th 93, 96.) In Hedging Concepts, Inc. v. First Alliance Mortgage Co. (1996) 41 Cal.App.4th 1410, for example, the court rejected a claim seeking quantum meruit recovery for the value of services rendered where there was an express contract that defined the right to compensation, explaining quantum meruit rests on the equitable theory that a contract to pay for services rendered is implied by law for reasons of justice and "it is well settled that there is no equitable basis for an implied-in-law promise to pay reasonable value when the parties have an actual agreement covering compensation [Citations.] [] Quantum meruit is an equitable theory which supplies, by implication and in furtherance of equity, implicitly missing contractual terms. Contractual terms regarding a subject are not implicitly missing when the parties have agreed on express terms regarding that subject. A quantum meruit analysis cannot supply 'missing' terms that are not missing. 'The reason for the rule is simply that where the parties have freely, fairly and voluntarily bargained for certain benefits in exchange for undertaking certain obligations, it would be inequitable to imply a different liability. . . .' " (Id. at p. 1419.)

Martina argues on appeal that the implied-in-fact contract and quantum meruit theories are not foreclosed by the express contractual provision because the services provided by Larry were provided not as a manager or a member, but in some other capacity. However, even assuming the express contractual clause in the Operating Agreement did not foreclose these theories, Martina's pursuit of implied-in-fact contract or quantum meruit recoveries required proof not merely that Larry performed the services, but also "that it was the expectation of both parties during the time that the services were rendered that compensation should be made." (1 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts,  1036-1037, pp. 1127-1128.) While Martina's offer of proof in opposition to the motion for judgment stated she could provide some evidence that Larry desired compensation, Martina proffered no evidence from which the court might have concluded that the other members expected to compensate Larry for these services. Under these circumstances, it was not error to enter judgment on Martina's implied-in-fact contract or quantum meruit claims. (See generally Gonsalves v. City of Dairy Valley (1968) 265 Cal.App.2d 400, 402-404.)

DISPOSITION

The judgment is affirmed. Surviving Members are entitled to costs on appeal.

McDONALD, J.

WE CONCUR:

BENKE, Acting P. J.

IRION, J.

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[1] The three other members of the limited liability company (Jeffrey Kuebler, Michael Kuebler and Kristine McCormick) were the children of Larry's uncle, Allan Kuebler. Jeffrey Kuebler, Michael Kuebler and Kristine McCormick, plaintiffs below and respondents in this appeal, are hereafter collectively referred to as Surviving Members.

[2] We limit our discussion to those facts contained in the record on appeal. Although Martina cites trial exhibits to argue that many of the trial court's findings are factually unsupported or inconsistent with the evidence, Martina has not provided this court with any exhibits, and we therefore decline further consideration of Martina's arguments or claims insofar as they are based on those exhibits. (Hiser v. Bell Helicopter Textron Inc. (2003) 111 Cal.App.4th 640, 656-657.)

[3] Although Larry and Allan discussed forming the LLC to develop real estate, Allan was neither a member of the LLC nor a participant in the business.

[4] Martina explained that she and Larry stopped infusing funds into the LLC because they were "disenchanted with the progress" being made on the project and viewed it as a "black-hole to dump money in," and believed that they were better served by investing their funds elsewhere.

[5] For example, Jeffrey testified that he wrote to Larry in July 2004 seeking a capital contribution from Larry of $4,371, which represented a 6.96 percent share of the LLC's capital needs for the relevant period, which Jeffrey explained was Larry's share in the LLC as of that date. Jeffrey testified that each new request to Larry for his share of current capital needs contained a different and declining percentage attributable to Larry's share because he had stopped contributing while the others continued to contribute capital, and therefore the "members' percentage interest change[d] based on their capital contributions vis--vis the total capital contributions made by all members [and because Larry] was not making capital contributions . . . and the other members had been . . . mathematically [Larry's] membership interest is reduced in various small amounts every month."

[6] Although Larry made a proposal in 2004 that a "replacement agreement" be substituted for the original Operating Agreement, the other members rejected Larry's suggestion.

[7] Although Martina asserts on appeal that our review of this issue is de novo because her appellate argument rests on undisputed facts, her ensuing argument does not identify what undisputed facts require entry of judgment in her favor as a matter of law. To the contrary, her appellate argument cites alleged facts not in the appellate record, and entirely ignores the conflicting testimony (which is in the record) and legitimate inferences that support the determination the parties conducted the operation of the LLC on the understanding that the unsigned Operating Agreement was valid and binding. Under these circumstances, we may deem waived any claim that the evidence does not support the judgment. (Doe v. Roman Catholic Archbishop of Cashel & Emly (2009) 177 Cal.App.4th 209, 218.)

[8] Martina's request for judicial notice underlines the deficiency of her appellate claims. Martina has asked this court to take judicial notice to augment the record with the Articles of Organization for the LLC. However, the purpose of this augmentation is to provide Martina with a basis for asserting that Larry was not designated as agent for service of process under the Operating Agreement, but was instead designated as agent for service of process under the Articles. This argument ignores that the appellate standard of review is not whether there is evidence from which this court could have drawn an inference contrary to that drawn by the trier of fact, but instead is whether there was any evidence from which a rational trier of fact could have drawn the conclusions it did. Because both the Operating Agreement and the Articles designated Larry as agent for service of process, a rational trier of fact could have concluded Larry was designated as agent for service of process pursuant to the former as well as the latter. We deny the request for judicial notice because it seeks to introduce new evidence irrelevant to the appellate issues presented here.

[9] This conclusion disposes of Martina's appellate claim that the provisions of the Corporations Code, rather than of the parties' agreement, govern the allocation of interests in the LLC.

[10] Additionally, Martina asserts that because the tax returns for 1998, 1999, and 2000 did not reflect a reduction in Larry's percentage interest despite his lack of contribution, there was evidence the parties understood (contrary to the trial court's finding) that the postformation monetary contributions were not to be treated as capital contributions. Martina again has ignored the evidence supporting the trial court's interpretation of the evidence. Jeffrey testified that all three of these tax returns were prepared by an accountant at the same time and were received by Jeffrey sometime in 2001 around when Jeffrey took over the books for the LLC, and that once Jeffrey realized the accountant had prepared these returns without accurate information about the current capital accounts, he sent updated information and subsequent returns did reflect Larry's declining share of the business.

[11] Martina's cross-complaint also pleaded a claim for breach of fiduciary duty against the Surviving Members. However, the breach of fiduciary duty claim was based on two sets of alleged wrongful acts. One group of wrongful acts was that the Surviving Members intentionally depressed the value of the LLC after Larry's death to deprive Larry's estate of his share of the true value of the LLC. Martina concedes on appeal that the latter claim was abandoned at trial. The other group of wrongful acts was that the Surviving Members induced Larry to provide services to the LLC pursuant to the Surviving Members' agreement that Larry's capital account would be credited for the value of his services, and did not fulfill that agreement. Martina on appeal appears to argue that the latter aspect of her breach of fiduciary duty claim, which sounds in fraud, should have survived the Surviving Members' motion for judgment.