FLADEBOE v. AMERICAN ISUZU MOTORS INC.,

Filed 4/23/07

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION THREE

Appeal from a judgment of the Superior Court of Orange County, Andrew P. Banks, Judge. Affirmed.

David B. Dimitruk for Plaintiffs, Cross-defendants and Appellants.

The Mulcahy Law Firm, James M. Mulcahy and Rex T. Reeves for Defendant, Cross-complainant and Respondent.

* * *

Introduction

This case forcefully demonstrates the wisdom and significance of the doctrine of implied findings. Under the doctrine of implied findings, the reviewing court must infer, following a bench trial, that the trial court impliedly made every factual finding necessary to support its decision. Securing a statement of decision is the first step in avoiding the doctrine of implied findings, but is not always enough: The appellant also must bring ambiguities and omissions in the factual findings of the statement of decision to the trial courts attention. If the appellant fails to do so, the reviewing court will infer the trial court made every implied factual finding necessary to uphold its decision, even on issues not addressed in the statement of decision. The question then becomes whether substantial evidence supports the implied factual findings.

The trial court in this case issued a minute order with findings following a bench trial on a declaratory relief cause of action brought by Ray Fladeboe (Fladeboe), Ray Fladeboe Lincoln‑Mercury, Inc. (RFLM), and Fladeboe Automotive Group, Inc. (Fladeboe AG). Fladeboe, RFLM, and Fladeboe AG (collectively Plaintiffs) alleged American Isuzu Motors Inc. (Isuzu) unreasonably withheld consent to RFLMs request to transfer an Isuzu dealership. The trial court made no express factual findings on that issue; rather, the trial court found that none of the Plaintiffs had standing to assert claims against Isuzu arising out of its withholding consent to the request to transfer the dealership. The trial court also found that Plaintiffs had unclean hands and that RFLM suffered no damages arising out of a withdrawn request to transfer the Isuzu dealership to Fladeboe Volkswagen, Inc. (Fladeboe VW).

Plaintiffs did not request a formal statement of decision, object to the trial courts factual findings, or bring any ambiguities or omissions in those findings to the trial courts attention.

Following the bench trial, a jury awarded Isuzu damages on its cross‑complaint against Fladeboe and Fladeboe AG. The trial court then awarded Isuzu restitution on its claim under Business and Professions Code section 17200. Fladeboe and Fladeboe AG requested a statement of decision on three specific issues related only to the section 17200 claim.

Under these circumstances, the doctrine of implied findings requires us to infer the trial court impliedly made every factual finding necessary to conclude that Isuzu did not unreasonably withhold consent to RFLMs request to transfer the Isuzu dealership to Fladeboe AG. Isuzus reasons for withholding consent were reasonable under Vehicle Code section 11713.3, subdivisions (d) and (e) and were supported by the substantial evidence presented during trial on Plaintiffs declaratory relief cause of action.

In addition, we find no error in the jurys award of damages or the trial courts award of restitution on Isuzus cross-complaint against Fladeboe and Fladeboe AG. Accordingly, we affirm the judgment.

Facts

I. RFLM Creates a Plan of Dissolution.

Fladeboe was the sole shareholder and the president of RFLM. RFLM became an Isuzu dealer around 1980. At that time, RFLM already was a dealer for Lincoln-Mercury and Honda. In 1982, RFLM became a Volkswagen dealer.

On March 21, 1983, RFLM doing business as Ray Fladeboe Isuzu entered into a new dealer sales and service agreement (the Dealer Agreement) with Isuzu. The Dealer Agreement was effective until RFLM dissolved in March 2002. The Dealer Agreement permitted Isuzu to terminate the agreement if RFLM attempted to sell, transfer, or assign the Dealer Agreement, or the dealership assets, without Isuzus prior consent, which consent shall not be unreasonably withheld.

In September 2001, RFLM and Ford Motor Company (Ford) reached an agreement whereby Ford would purchase the Lincoln-Mercury dealership assets of RFLM for $10 million and RFLM would resign as a Lincoln‑Mercury dealer. To avoid double taxation on the sale proceeds, Fladeboe had his attorneys and tax advisers create a plan allowing the sale proceeds to be paid directly to him as the sole shareholder of RFLM. For the plan to succeed, it was necessary for RFLM to dissolve as a corporation and distribute its Lincoln-Mercury dealership assets before Ford paid the $10 million. The transaction was structured so that before RFLM dissolved, Ford gave it a promissory note for $10 million payable after dissolution. Before dissolution, RFLM was to assign the note to Fladeboe personally, and, after RFLMs dissolution, Ford would pay the $10 million to Fladeboe personally as RFLMs assignee.

For Fladeboe to realize certain tax advantages, RFLM had to be dissolved and all of its assets sold or distributed before Ford made the $10 million payment. RFLMs assets consisted of (1) the Lincoln-Mercury dealership, (2) the Honda dealership, (3) the Volkswagen dealership, and (4) the Isuzu dealership. RFLM adopted a plan of liquidation by which it would sell the Lincoln-Mercury dealership to Ford; sell the Honda dealership to the newly created entity, Fladeboe AG; sell the Volkswagen and Isuzu dealerships to another newly created entity, Fladeboe VW; and dissolve RFLM. The sale of the Honda dealership to Fladeboe AG and the sale of the Volkswagen dealership to Fladeboe VW were also structured so the purchasing entities would deliver to RFLM promissory notes for the sale price before RFLMs dissolution. The notes would be payable after RFLMs dissolution. Before dissolving, RFLM would assign the notes to Fladeboe personally.

II. RFLM Requests Isuzus Consent to Transfer
the Isuzu Dealership to Fladeboe VW.

Fladeboe AG was incorporated in December 2001, and Fladeboe VW was incorporated in February 2002. Fladeboe has always been the sole shareholder and president of Fladeboe AG. He was the sole shareholder and president of Fladeboe VW until he transferred his shares to his son, Bruce Fladeboe, in August 2002.

RFLM sold its Isuzu dealership assets to Fladeboe VW in an asset purchase agreement dated February 19, 2002 (the Asset Purchase Agreement). Pursuant to the Asset Purchase Agreement, Fladeboe VW delivered to RFLM a promissory note for $1.5 million to pay for the Isuzu dealership assets. The Asset Purchase Agreement stated: Buyer acknowledges that [R]FLM is winding up and will dissolve and that any damages from any breach may only be offset against the Promissory Note and Installment Obligation described in paragraph 1.2 of this Agreement. The Asset Purchase Agreement required the transaction close no later than 9:00 a.m. on March 31, 2002.

Under Vehicle Code section 11713.3, subdivision (d)(1), RFLM had to obtain Isuzus approval of the dealership transfer to Fladeboe VW before it could operate as an Isuzu dealer. The Dealer Agreement gave Isuzu the right to terminate the Dealer Agreement if RFLM attempted to sell, transfer, or assign the Dealer Agreement, or the Isuzu dealership assets, without Isuzus prior written consent, which consent shall not be unreasonably withheld.

RFLM requested Isuzu to approve the transfer of the Dealer Agreement to Fladeboe VW and to issue an OL‑124 form to Fladeboe VW. An OL‑124 is a form which the State of California requires to be filed with the Department of Motor Vehicles (DMV) before an automobile dealer may sell the vehicles of a particular make and line. On March 19, 2002, Isuzu requested RFLM to submit various required documents that were missing from its dealership transfer approval request.

The usual procedure was to obtain consent to the transfer before the sale of the dealership is consummated. However, RFLM proceeded with selling the Isuzu dealership assets to Fladeboe VW before obtaining Isuzus consent to the dealership transfer. In mid‑March 2002, RFLM transferred all of its Isuzu dealership assets, including its inventory of 20 to 30 new Isuzu vehicles and its Isuzu automotive parts, to Fladeboe VW and/or Fladeboe AG. Fladeboe VW delivered to RFLM a promissory note for $1.5 million.

III. Fladeboe VW and Fladeboe AG Sell and Service
Isuzu Vehicles and Automotive Parts After RFLM Dissolves.

RFLM filed a certificate of dissolution on March 29, 2002. In that certificate, Fladeboe declared under penalty of perjury (1) RFLM had completely wound up its business, (2) its debts and liabilities had been paid, (3) known assets had been distributed, and (4) the corporation had been dissolved. Ford paid the $10 million due under the promissory note after RFLM filed the certificate of dissolution.

When RFLM filed its certificate of dissolution, Isuzu had not yet consented to RFLMs transfer of the Dealer Agreement to Fladeboe VW. Not until December 2002 did Isuzu learn that RFLM had transferred the dealership assets to Fladeboe VW and had dissolved.

Fladeboe knew that once RFLM dissolved, it could not continue conducting Isuzu dealership operations. After March 29, 2002, Fladeboe VW and Fladeboe AG sold and serviced Isuzu vehicles without Isuzus consent and without a license to do so. Fladeboe VW and Fladeboe AG were able to sell and service Isuzu vehicles without Isuzus knowledge and consent by using the unique dealer code number that Isuzu had assigned exclusively to RFLM. A dealer cannot transfer its code number; when Isuzu approves a dealership transfer, it assigns a new code number to the new dealership. By using RFLMs dealer code number, Fladeboe AG and/or Fladeboe VW were able to obtain over $214,000 in sales incentives and over $171,000 in warranty reimbursements from Isuzu, which believed it was dealing with its authorized dealer, RFLM.

Isuzu approved the request to transfer the Dealer Agreement from RFLM to Fladeboe VW on April 23, 2002, and presented a new dealer sales and service agreement for Fladeboe VW to sign. Fladeboe, who was Fladeboe VWs president, refused to sign the new agreement.

IV. RFLM Requests Isuzus Consent to Transfer
the Isuzu Dealership to Fladeboe AG.

Bruce Fladeboe, for whom Fladeboe VW had been created, later decided he did not want an Isuzu dealership because of poor sales. As a result, in October or November 2002, Fladeboe withdrew the request for consent to transfer the Dealer Agreement from RFLM to Fladeboe VW, and asked for Isuzus consent to transfer the agreement from RFLM to Fladeboe AG instead. Until this time, Isuzu had not heard of Fladeboe AG. By November 6, 2002, all of the necessary paperwork in connection with the proposed transfer to Fladeboe AG had been submitted to Isuzu. Under Vehicle Code section 11713.3, subdivision (d)(2)(B), Isuzu had 60 days following November 6, 2002, in which to approve or deny the proposed transfer.

On November 25, 2002, before Isuzu acted on the transfer request, RFLM filed a petition with the California New Motor Vehicle Board (NMVB) requesting it order Isuzu to issue a form OL‑124 to Fladeboe AG. In connection with the petition, RFLM submitted a copy of its certificate of dissolution filed on March 29, 2002. Isuzu was surprised to learn its dealer, RFLM, had been dissolved eight months earlier and had only now notified Isuzu of the dissolution.

On January 3, 2003, Isuzu notified RFLM that it had declined to approve the proposed transfer of the Dealer Agreement to Fladeboe AG. Isuzu based its decision on the following: (1) [t]he dissolution of [RFLM] and your non-disclosure of that event; (2) [t]he unauthorized transfer of the Isuzu hard assets to Fladeboe [AG], and your non‑disclosure of that event; (3) [t]he wrongful performance and reporting of warranty and pre-delivery inspection claims; (4) [t]he wrongful performance and reporting of retail sales; (5) [t]he non‑disclosure and misrepresentation to [Isuzu] of the true ownership of the entity holding the Isuzu hard assets; (6) [t]he failure of [RFLM] to conduct customary sales and service operations since its March 2002 corporate dissolution; and (7) Fladeboe [AG]s direct involvement and participation in the above unauthorized events.

In a letter dated January 7, 2003, the DMV notified Fladeboe it had cancelled RFLMs dealer license. After conducting a hearing on January 8, 2003, the NMVB denied RFLMs petition to order Isuzu to issue a form OL‑124 to Fladeboe AG.

Proceedings in the Trial Court

In April 2003, Fladeboe AG and Fladeboe filed this lawsuit against Isuzu based on its refusal to consent to the dealership transfer. The second amended complaint, the operative complaint, added RFLM as a plaintiff and asserted causes of action for (1) violation of Vehicle Code sections 11713.3, subdivisions (d)(1), (e), and (g), and 11726; (2) breach of the Dealer Agreement; (3) intentional interference with economic relations; (4) negligent interference with economic relations; and (5) declaratory and injunctive relief.

The second amended complaint alleged Isuzu unreasonably withheld consent to transfer the Isuzu dealership and wrongfully refused to issue a form OL‑124 to Fladeboe AG or Fladeboe VW. The second amended complaint sought a declaration that Fladeboe VW or Fladeboe AG is entitled to be issued a Form OL‑124 with respect to the transfer of assets from RFLM, and with respect to the sale of new I[suzu] vehicles under the franchise agreement, and that I[suzu]s refusal to issue the Form OL‑124 and failure to comply with the Vehicle Code, [are] unreasonable.

Isuzu cross-complained against Fladeboe and Fladeboe AG alleging they failed to disclose RFLMs dissolution, fraudulently represented to Isuzu that RFLM was still in existence, and fraudulently sought vehicle incentive payments, warranty reimbursements, and Isuzu parts purchases on behalf of RFLM after it had been dissolved. The cross‑complaint alleged that, since March 30, 2002, Fladeboe and Fladeboe AG have continued to order, receive, and resell at a profit, Isuzu parts and accessories and received payment from Isuzu for warranty repairs, including over $200,000 in warranty labor credit and almost $50,000 in Isuzu replacement parts credit and received over $250,000 in vehicle sales incentive and advertising payments from Isuzu. The cross‑complaint sought damages for fraud, trademark infringement, and trade name infringement, and restitution under Business and Professions Code section 17200.

The trial court bifurcated the case and tried Plaintiffs declaratory relief cause of action in the first phase. In a minute order dated March 8, 2005, at the end of the first phase of trial, the court found that Plaintiffs did not have standing to seek declaratory relief against Isuzu. The trial court also found in favor of Isuzu on its unclean hands defense, stating: Having dissolved and distributed all other known assets to its shareholders (and pre‑dissolution having transferred all its interest in the Isuzu franchise to F[ladeboe ]VW), this Court sitting as a Court of Equity finds that the evidence does not support, nor would it be equitable to allow [R]FLM to use its admitted failure to comply with Vehicle Code Section 11713.3(d)(1) to sue Isuzu under a theory that [R]FLM still holds the franchise rights because the sale to F[ladeboe ]VW did not meet the statutory requirements. Simply put, the totality of the evidence establishes that [R]FLM and the other Plaintiffs have unclean hands.

In a second minute order dated March 8, 2005, the trial court concluded that in light of its disposition of the declaratory relief cause of action, nothing remains of the Plaintiffs Complaint. Accordingly, only Isuzus cross-complaint was tried before the jury in the second phase of trial. The jury found against Fladeboe and Fladeboe AG on Isuzus claims for fraud and negligent misrepresentation and awarded Isuzu $114,642.87 in damages.

After hearing argument, the trial court separately ruled in favor of Isuzu on its claim for unfair competition under Business and Professions Code section 17200. The court found Fladeboe AG violated section 17200 by (1) selling and servicing Isuzu vehicles without a license from the DMV; and (2) using RFLMs Isuzu dealer identification number to obtain new vehicles, sales incentive payments, and warranty repair reimbursements from Isuzu. The court found Isuzu was entitled to recover restitution from Fladeboe AG in the amount of $214,300, representing money paid as dealer sales incentives. A judgment entered on August 19, 2005 awarded Isuzu a total of $214,300 in damages and restitution.

Plaintiffs appealed from the judgment and from the March 8, 2005 minute order adjudicating their complaint. In an order issued on January 26, 2007, we noted the judgment entered on August 19, 2005 is not an appealable final judgment because it adjudicated the cross-complaint but not the complaint. (Morehart v. County of Santa Barbara (1994) 7 Cal.4th 725, 743; see Angell v. Superior Court (1999) 73 Cal.App.4th 691, 698.) To preserve appellate jurisdiction, we treat the two March 8, 2005 minute orders and the judgment on the cross‑complaint as constituent parts of a single judgment entered on August 19, 2005, and construe the notice of appeal as timely taken from that judgment.

Discussion

I. Trial Phase I: Plaintiffs Declaratory Relief
Cause of Action

The trial court severed the declaratory relief cause of action of the second amended complaint and tried it first. In the declaratory relief cause of action, Plaintiffs sought a declaration that Plaintiff Fladeboe VW or F[ladeboe AG] [is] entitled to be issued a Form OL‑124 with respect to the transfer of assets from RFLM, and with respect to the sale of new I[suzu] vehicles under the franchise agreement, and that I[suzus] refusal to issue the Form OL-124 and failure to comply with the Vehicle Code, [are] unreasonable.

A. Did Plaintiffs Have Standing?

The trial court found that Plaintiffs lacked standing to seek declaratory relief. Every action must be prosecuted in the name of the real party in interest, except as otherwise provided by statute. (Code Civ. Proc.,  367.) The real party in interest has an actual and substantial interest in the subject matter of the action, and stands to be benefited or injured by a judgment in the action. (City of Santa Monica v. Stewart (2005) 126 Cal.App.4th 43, 59‑60.) Plaintiffs have standing to sue if they or someone they represent have either suffered or are threatened with an injury of sufficient magnitude to reasonably assure the relevant facts and issues will be adequately presented. (City of Irvine v. Irvine Citizens Against Overdevelopment (1994) 25 Cal.App.4th 868, 874.)

We can readily conclude Fladeboe had no standing to seek declaratory relief or to assert any of the claims alleged in the complaint. He was never an Isuzu dealer. He was not a party to the Dealer Agreement with Isuzu or the Asset Purchase Agreement with Fladeboe VW. Fladeboe was the sole shareholder of RFLM and is the sole shareholder of Fladeboe AG. As a shareholder, Fladeboe did not have standing to assert corporate claims, except in a derivative action. (Jones v. H. F. Ahmanson & Co. (1969) 1 Cal.3d 93, 106‑107; Sole Energy Co. v. Petrominerals Corp. (2005) 128 Cal.App.4th 212, 228.)

It appears, however, that Fladeboe AG and RFLM had standing to seek declaratory relief against Isuzu. The trial court found that Fladeboe AG lacked standing because there is no evidence the rights to the Isuzu franchise were ever transferred, sold or assigned to it by F[ladeboe ]VW or anyone else. Fladeboe AG was the proposed transferee of the Dealer Agreement and stood to benefit if Isuzu approved the transfer. Isuzus denial of RFLMs request to transfer that agreement therefore threatened Fladeboe AG with an injury of sufficient magnitude to reasonably assure the relevant facts and issues will be adequately presented. (City of Irvine v. Irvine Citizens Against Overdevelopment, supra, 25 Cal.App.4th at p. 874.)

The trial court concluded RFLM lacked standing to seek declaratory relief because RFLM had closed the transaction with Fladeboe VW, wound up its business, and dissolved without obtaining Isuzus consent to transfer the Dealer Agreement. Filing a certificate of dissolution did not deprive RFLM of standing to assert claims against Isuzu arising out of the attempted transfer of the Dealer Agreement. Corporations Code section 2010, subdivision (a) states: A corporation which is dissolved nevertheless continues to exist for the purpose of winding up its affairs, prosecuting and defending actions by or against it and enabling it to collect and discharge obligations, dispose of and convey its property and collect and divide its assets, but not for the purpose of continuing business except so far as necessary for the winding up thereof. Once a corporation files a certificate of dissolution, its corporate existence ceases except for the limited purpose of winding up its affairs. (Catalina Investments, Inc. v. Jones (2002) 98 Cal.App.4th 1, 7.) Since the proposed transfer of the Dealer Agreement to Fladeboe VW was never consummated, that agreement remained an asset of RFLM notwithstanding its certificate of dissolution. RFLMs attempt to transfer the Dealer Agreement to Fladeboe AG seems to have been part of the winding up of RFLMs affairs rather than a continuation of RFLMs business.

Although RFLM and Fladeboe AG had standing to seek declaratory relief against Isuzu, they could not prevail on the merits. As explained in the next subparts, all the Plaintiffs had unclean hands, and the evidence supported an implied finding Isuzu did not unreasonably withhold consent from RFLMs request to transfer the Dealer Agreement.

Story continued as Part II ..

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