Holding v. Hughes
Filed 10/3/13 San Diego Natives Holding v. Hughes CA4/1
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 This opinion has not been certified for
publication or ordered published for purposes of rule 8.1115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
SAN DIEGO NATIVES HOLDING
COMPANY, LLC et al.,
Plaintiffs and Appellants,
v.
RALPH HUGHES, Individually and
as Trustee, etc.,
Defendant and Respondent.
D061523
(Super. Ct. No. 37-2009-00090232-
CU-OR-CTL)
APPEAL from a judgment of the
Superior Court of
County, Judith F. Hayes, Judge.
Affirmed in part, reversed in part and remanded with directions.
Law Offices of Darrell Palmer and
Joseph Darrell Palmer, Janine Menhennet for Plaintiffs and Appellants.
Ralph Hughes, in pro. per., for
Defendant and Respondent.
Following a bench trial on their
Civ. Proc.
1060), Eric Ireland and San Diego Natives Holding Co., LLC (collectively
appellants) appeal from the portions of a judgment finding (1) they had
contracted to form a partnership with respondents Ralph Hughes and the Hughes
Family Trust relating to certain commercial property (at the times, the
property); (2) the parties are barred from selling the commercial property for
less than $100 per square foot; (3) Hughes is entitled to rent from appellants
under a temporary lease and (4) each party should bear its own costs and
attorney fees.
We reject Hughes's request to
dismiss this appeal. Appellants do not
challenge the court's orders voiding a 2007 lease agreement or ejecting Hughes
from the premises; therefore, those parts of the judgment are affirmed. We also affirm the costs and attorney fee
award because appellants forfeited their right to such an award by failing to
timely file a motion for it. We conclude
the evidence does not support the court's finding that the parties had
contracted to form a partnership; therefore, we reverse that finding and other
findings based on it. We remand for the
trial court to make additional factual findings as directed below and enter a
new judgment consistent with this opinion.
FACTUAL
AND PROCEDURAL BACKGROUND
In April 2007, Hughes and Ireland
signed a handwritten, 10-year lease agreement for a 15,000 square foot
commercial property in San Diego. The
lease granted Hughes the right to sublease and a 10-year renewal option.
In August 2008, Ireland wrote
Hughes an e-mail disavowing that lease agreement. In doing so, he reviewed the parties'
original rationale for it: "If you
recall, early on we had talked about points of agreement. We just never got around to producing the
agreement. Then just prior to the court
date, and in the absence of a formal agreement, you constructed the lease to
protect your interest. I didn't have a
problem with it then, but I've always felt it was a temporary substitute for a
subsequent 'formal agreement.' . .
. I feel a lease is too strong of an
instrument and does not reflect the nature or intentions of our
partnership."
Ireland next proposed an updated
agreement requiring an attorney's approval and a formal contract, stating that
an attorney's involvement "is important to protect both of us." Ireland specified the key elements of a
future contract that he claimed was "needed, healthy and overdue:" "Point 1: I have two thirds interest, and you have a
one third interest, in the property.
[¶] 2. We share benefits and obligations and
liabilities in the same proportion including appropriate expenses, property
taxes, taxable gains or losses, etc., from the date of acquisition of the
property. [¶] 3.
Your expressed desire is to occupy the eastern third of the property for
your casual benefit. This eastern
portion offers you more personal utility, and not due to it's [
compared to the unimproved portion of the property. In general, the one third/two third division
of benefits and liabilities stands as the governing principle in our
partnership. [¶] 4. We
agree that the property will not be considered for sale until it has reached a
value of $100 per [square foot] or more.
[¶] 5. We will continue to work closely to our
mutual benefit. But as you once
suggested, that if we dispute an issue then your brother and my brother may act
as effective arbitrators to resolve the issue." Ireland ended the e-mail reiterating that his
proposal was a "good start," and telling Hughes, "[W]hen you
agree, we can plug [the attorney] in to produce a document within the next two
weeks."
Hughes responded to Ireland by
e-mail: "Thanks for the quick start
on the above[.] . . . I pretty much agree with points 1, 2, 4, and
5[.]" Given Hughes's rejection of
the third point, the parties never memorialized Ireland's proposal in a
contract. Indeed, in March 2009, Ireland
wrote Hughes opposing his unilateral decision to rent the property because he
lacked partnership privileges: "I
never intended to convey to you that authority[.] I need to be kept in the loop, review and
consent to prospective tenants and, while I'm the sole member, enter into
agreements for the LLC. Once you
formally become a[n] LLC member you can act with authority. . . .
I have grown increasingly uncomfortable with the lease. I never intended it to be any more than a
placeholder until we made it through the court and we had a formal
agreement. . . . What I need to hear is that you are willing
to convert your leasehold interest into equity interest in the LLC and make the
most valuable portion of the property available for necessary revenue. It is important for our business
relationship."
In May 2009, appellants sued
respondents for declaratory relief regarding the validity of the April 2007
lease agreement. Appellants also pleaded
a cause of action for Hughes's ejection
from the premises.
Hughes cross-complained, seeking
declaratory relief on his claim that appellants had breached two valid lease
agreements, one dated April 2007 and another dated September 2007. Hughes also pleaded a cause of action for
ejection of appellants from the premises.
At trial, Ireland testified on
direct examination that for 18 months, including all of 2008, he had tried to
persuade Hughes to form a partnership; however, Hughes initially "didn't
really care to talk about it. He just—he
would always—he was quite evasive about it.
And I figured that it was—had to do with a trust relationship and over
time it would mature and change."
Ireland admitted that as late as when he initiated this lawsuit, he
"was naive" in hoping Hughes "would come to the table and . . .
benefit from a good deal that [Ireland]
thought was on the table."
By contrast, Hughes conceded at
trial that he was using "a lot of weasel words" when he stated he
"pretty much agreed" with some of Ireland's negotiating points. Hughes claimed that because he did not agree
with Ireland's third negotiating point, no partnership agreement was
formed. Hughes insisted, "I never,
ever wanted to become any part of the LLC.
I wanted to have my lease."
Ireland testified on direct
examination regarding his understanding of the parties' respective property
interests:
"[Counsel:] First of all, what was your intent in forming
this relationship with [Hughes]? It was
that you would have two-thirds, and he would have one-third, correct?
"[Ireland:] That is correct.
"[Counsel:] And when you say he would—he would have a
third, you were talking about ownership, right?
"[Ireland:] Correct.
"[Counsel:] Another way of describing ownership would be—
"[Ireland:] Equity.
"[Counsel:] Correct.
So yesterday I asked you are you excluding the concept of [Hughes] being
an owner of the property, and you answered no.
And that's true, right?
"[Ireland:] Correct."
"[Counsel:] So from the beginning—I asked you [at trial
yesterday]: 'Question: So from the beginning you were contemplating
a shared ownership and ultimately a shared sharing [sic] of the gains or
profits in the property.'
"[Ireland:] Correct.
"[Counsel:] And that's the way you answered
yesterday. Yes. You weren't necessarily sure of the form of
the ownership, were you?
"[Ireland:] No, I was not.
"[Counsel:] You never insisted that it be membership in
an LLC, did you?
"[Ireland:] No."
Further, referring to emails that
Ireland had sent to Hughes, counsel asked Ireland, "You talk about Ireland
as a two-thirds interest, Hughes as a one-third interest. Did you ever waver from that concept?" Ireland responded, "No, I did not."
The court issued a statement of
decision. It first discussed the
property's ownership history.
name="_ftnref2" title="">[2] Next, the court relied on the parties' August
2008 e-mails, which it noted were "written well before any litigation was
contemplated and therefore have indicia of trustworthiness." It found that the April 2007 lease agreement
was unenforceable because it never was intended to create a 20-year lease. The court also found no evidence that Ireland
had signed a September 2007 lease agreement.
It concluded the parties had mutually agreed to a temporary lease
agreement in Hughes's favor for $10 per month and that based on the parties'
post-lease conduct, they were operating under an unwritten partnership
agreement that had superseded the temporary lease agreement. It further concluded the parties were subject
to the temporary lease agreement until the terms of the partnership could be
incorporated in a formal written agreement.
Based on these findings, the court
ordered that effective August 12, 2008, "Ireland has a two-third interest
as a member [of the partnership], based on his purchase of the Property for
$1,200,000, and Hughes has a one-third interest as a member, based on the value
of his pre-purchase leasehold interest in the Property and the benefits he
relinquished under the 2003 lease/stipulated judgment to facilitate this
purchase, $558,000, in SD Natives, subject to the following terms: [¶] i.
Ireland and Hughes shall each be responsible from August 12, 2008[,] for their
proportionate share of expenses incurred for the Property after an offset is
applied for income received, except that Ireland shall have the responsibility
to service the $750,000 Wells Fargo mortgage;
[¶] ii. Unless mutually agreed to by Ireland and
Hughes, the Property will not be eligible for or considered for sale until it
has reached a fair market value of $100 per square foot; and [¶] iii.
SD Natives and Ireland shall account to Hughes for the income received
and expenses incurred for the Property from August 12, 2008."
The court ruled in favor of
appellants on their ejection cause of action, ordering Hughes to vacate the
property within thirty days of entry of judgment. The court added: "Since the lease to Riley Recycling was
entered into on or about May 15, 2009, during the Hughes lease at a time SD
Natives was not free to enter into the leasehold agreement with Riley, on his
breach of contract claim, Hughes is entitled to the rent received on the
portion of the Hughes' leasehold rented to Riley during Hughes'
lease." (Some capitalization
omitted.)
Ruling on Hughes's cross-complaint
for breach of contract, the court ordered that Hughes recover $22,223 from SD
Natives, constituting "the sum of $.27 per square foot for 3,500 square
feet of the Property from May 15, 2009[,] through May 31, 2011 . . .
." It found Hughes had no interest
in possession of any part of the property other than as a one-third owner of SD
Natives. The court ruled against Hughes
on his ejection cause of action.
At a November 10, 2011 hearing on
the court's statement of decision, appellants' counsel asked the court to
determine the prevailing party: "I
think that given the very clear finding the court made regarding the 2007
lease, that at least to that issue, which was really the core of this case, my
client is the prevailing party. And I
don't know if it's appropriate to ask you to make a finding now." The court replied, "Not now. It's a post-trial motion." In its December 23, 2011 final judgment, the
court ordered each party to pay its own costs and attorney fees.
DISCUSSION
I.
We first address Hughes's motion to
dismiss this appeal. Hughes first made
the motion in September 2012, on grounds that appellants had voluntarily
accepted the benefit of the judgment, given that Hughes had already complied
with the court's order and vacated the premises. In October 2012, we denied Hughes's
motion. In June 2013, Hughes renewed the
motion, relying on section 1008, subdivision (b). We deny his renewed motion because section
1008 deals with interim orders in the trial court, and does not apply on
appeal. (Betz v. Pankow (1993) 16
Cal.App.4th 931, 937-938 ["Thus, a motion for reconsideration may only be
considered before final judgment is entered and while the case is still pending
in the trial court. [Citations.] Because appellant is attempting to vacate a
judgment, rather than an interim ruling, section 1008 relief is
unavailable"].) Hughes again seeks
dismissal of the appeal in his opening brief, but he did not separately appeal
from the judgment. Moreover, he merely
repeats his previous arguments without providing any persuasive basis for us to
reconsider our prior binding order on this matter. Therefore, we reject Hughes's request and
address the issues on the merits.
II.
We rely on contract principles to
determine the parties' intent in their August 2008 e-mail exchange. (Bustamante
v. Intuit, Inc. (2006) 141 Cal.App.4th 199, 208.) We conclude the parties intended that
Ireland's negotiating points merely start a discussion regarding a future
partnership, but they never agreed to it.
When, as here, the material facts
are undisputed, the issue of whether a contract exists is a question of law
that we independently review on
appeal. (Bustamante v. Intuit, Inc., supra, 141 Cal.App.4th at p. 208.) Under Civil Code section 1550, the essential
elements of a contract are: 1. Parties
capable of contracting; 2. they consent; 3. a lawful object; and, 4. a
sufficient cause or consideration.
" 'Under California law, a contract will be enforced if it is
sufficiently definite (and this is a question of law) for the court to
ascertain the parties' obligations and to determine whether those obligations
have been performed or breached.' "
(Bustamante, supra, at p.
209.) "The material factors to be
ascertained from the written contract are the seller, the buyer, the price to
be paid, the time and manner of payment, and the property to be transferred,
describing it so it may be identified."
(King v. Stanley (1948) 32
Cal.2d 584, 589, disapproved on another ground in Patel v. Liebermensch (2008) 45 Cal.4th 344, 351, fn. 4.) Civil Code section 1598 provides: "Where a contract has but a single
object, and . . . [is] so vaguely expressed as to be wholly unascertainable,
the entire contract is void."
"To be enforceable, a promise
must be definite enough that a court can determine the scope of the duty and
the limits of performance must be sufficiently defined to provide a rational
basis for the assessment of damages."
(Ladas v. California State Auto.
Assn. (1993) 19 Cal.App.4th 761, 770.)
Further, creation of a valid contract requires mutual assent. (Kruse
v. Bank of America (1988) 202 Cal.App.3d 38, 59.) "Where . . . there is a manifest
intention that the formal agreement is not to be complete until reduced to a
formal writing to be executed, there is no binding contract until this is
done." (Smissaert v. Chiodo (1958) 163 Cal.App.2d 827, 830-831.)
Here, it is undisputed the parties
never reduced the proposed partnership agreement to a formal writing. The record shows the parties did not agree on
a central issue. Specifically, Ireland's
third negotiating point states in part that, "In general, the one [-]
third/two[-]third division of benefits and liabilities stands as the governing
principle in our partnership."
Hughes never agreed to that provision, thus undermining the entire
agreement. Moreover, Ireland admonished
Hughes more than half a year later for making unilateral decisions, and
reminded him they were still operating under the "placeholder" lease
agreement. Ireland clarified, "Once
you become a LLC member [sic] you can
act with authority." The parties'
testimony also supports our conclusion that they never agreed to form a
partnership. We also note that there is
no record showing that the parties negotiated the critical matter of what
consideration would support the partnership agreement. (Civ. Code, § 1550; King v. Stanley, supra,
32 Cal.2d at p. 589.)
Although
the parties failed to agree on a partnership, they did agree Ireland had a
two-thirds and Hughes had a one-third ownership interest in the property.
At oral argument, Ireland's counsel conceded that point. For guidance to
the trial court on remand, we note that based on the record at trial and
counsel's concession, it appears to us the parties are tenants in common, and
Ireland and Hughes enjoy a two-third and one-third ownership interest
respectively in the property, its rents and expenses.
In
light of our conclusion that no partnership was formed, we reverse the court's
order that the parties not sell the property for less than $100 per square
foot. This item was one of Ireland's
negotiation points, but the parties did not formally adopt it. As Hughes testified, he had used "weasel
words" when he purportedly agreed to Ireland's negotiation points.
Appellants claim the trial court
inconsistently declared the 2007 lease invalid, but found that the parties had
agreed to a "temporary lease" until they formalized the partnership
agreement. The basis for the trial
court's finding concerning a temporary lease is unclear. Therefore, on remand, the court is directed
to clarify this matter.
III.
Appellants contend the trial court
did not provide them an opportunity to present arguments regarding who was the
prevailing party and thus entitled to costs and attorney fees. They point out the court had stated that the
matter was subject to resolution in a postjudgment motion. Appellants further claim, "Based upon
the judgment that Hughes sued upon with the attorneys' fees provision, [they]
are entitled to [their] fees."
Hughes counters that the trial court properly exercised its discretion
in concluding that "fairness dictated that each side should pay its own
attorneys' fees."
We reject appellants' claim and
dispose of this issue by relying on a case presenting a similar situation. In Hydratec,
Inc. v. Sun Valley 260 Orchard & Vineyard Co. (1990) 223 Cal.App.3d 924
(Hydratec), plaintiff (Hydratec)
filed three separate lawsuits against various entities, including defendant AFM.
The proceedings in the three cases were consolidated, and a court trial
was held. The trial court issued a
written tentative decision, which was to become the statement of decision if no
party requested a statement of decision.
No request was made, and plaintiff's counsel thereafter furnished the
court with three separate judgments, one for each of the matters tried. Each of the proposed judgments provided that
the parties would bear their own costs and attorney fees. The trial court
signed and filed the judgments, and AFM then filed a notice of appeal. On appeal, AFM contended that it had been the
prevailing party in two of the three matters and was entitled to an award of
costs and attorney fees pertaining to those matters (pursuant to a contractual
attorney fee provision). (
"AFM's failure to file a cost bill and a claim for fees operated to waive
its right to costs and fees." (
The appellate court noted that the
California Rules of Court, former rules 870(a)(1)
and 870.2, required a prevailing party to serve and file a memorandum of costs,
as well as a notice of motion to claim attorney fees pursuant to contract,
within one of the applicable alternative time limits set out in those
rules. (Hydratec, supra, 223
Cal.App.3d at p. 928.) The court
observed that if a trial court entered judgment and neglected to award costs,
the party entitled to claim them could request that the court correct the
judgment. The appropriate procedure
would be for that party to file a cost bill.
(Ibid.) "Once a bill is presented, any
subsequent failure of the court to act on it may be remedied by 'appropriate
motion in the trial court or, if necessary, by a writ of mandate in the
appellate courts.' " (
Joint Union High Sch. Dist.
(1967) 252 Cal.App.2d 1010, 1014, fn. 5.)
The court continued:
"However, the fact an incorrect cost allocation may be rectified
does not mean the aggrieved party may wait and raise the issue for the first
time on appeal. To the contrary, if the
claimant fails to present a cost bill, a waiver of the right to costs results. The time provisions relating to the filing of
a memorandum of costs, while not
jurisdictional, are mandatory." (
cost bill was fatal to its claim for costs.
(Ibid.)
The Hydratec court also held that "[t]he same treatment must be
given to AFM's failure to request an award of its attorney fees against
Hydratec." (Hydratec, supra, 223 Cal
.App.3d at p. 929.) The court reasoned
that fees to which a party is entitled under Civil Code section 1717 are
treated as an item of costs (see Code Civ. Proc., § 1033.5, subds. (a)(10)
& (c)(5)), and as then applicable, California Rules of Court, rule 870.2
required a motion to claim attorney fees under Civil Code section 1717 be filed
within the same time limits as were prescribed in California Rules of Court,
rule 870 for the filing of memoranda of costs.
"Since AFM did not comply with the provisions of either [California
Rules of Court,] rule 870 or 870.2, it waived its right to secure an award of
fees pursuant to the two alternatives open to it under Code of Civil Procedure
section 1033.5, subdivision (c)(5)."
(Hydratec,
The same is true in the case before
us, where no record exists showing that appellants moved for costs or attorney
fees. The applicable statutes and
California Rules of Court expressly state that a party requesting attorney fees
based on a contract must do so in a noticed motion. Civil Code section 1717, subdivision (b)(1)
provides: "The court, upon notice
and motion by a party, shall determine who is the party prevailing on the
contract for purposes of this section."
The California Rules of Court, rule 3.1702(e), provides that if a party
is entitled to contractual attorney fees in a fixed amount, the fees must be
claimed in the memorandum of costs.
Otherwise, a notice of motion for attorney fees must be served and filed
within the time for filing a notice of appeal.
(Cal. Rules of Court, rule 3.1702(b)(1).) Trial courts have the authority to grant
extensions of this deadline for "good cause"; they may do so
implicitly and even after the deadline has run.
(Lewow v. Surfside III Condominium
Owner Ass'n., Inc. (2012) 203 Cal.App.4th 128, 135.) California Rules of Court, rule 3.1700
similarly limits the time for challenging a trial court's award of costs. We conclude appellants had the burden of
following up on the court's indication that the matter of costs and attorney
fees would be resolved in a postjudgment motion. Therefore, they forfeited the right to those
items by failing to timely move for them in the trial court.
DISPOSITION
The portions of the judgment
invalidating the April 2007 lease agreement, ordering Hughes's ejection from
the subject property, and awarding attorney fees are affirmed; the portions of the
judgment creating a partnership between the parties and forbidding them from
selling the property until its purchase price reaches at least $100 per square
foot are reversed. In light of this
opinion, on remand, the court is directed to rely on the existing record to
ascertain what rights, if any, each party retains in the subject property. Further, the court shall clarify whether the
parties formed a temporary lease agreement.
Each party is to bear its own costs on appeal.
O'ROURKE, J.
WE CONCUR:
McCONNELL, P. J.
HUFFMAN, J.
name="_ftn1" title="">[1] All statutory references are to the Code of Civil Procedure
unless otherwise stated.
name="_ftn2" title="">[2] The parties do not challenge the trial court's findings
concerning the property's ownership history:
"At one point, Hughes owned the one acre property located at 2995
Commercial Street, San Diego. When
Hughes lost the property in bankruptcy, it was purchased by A Trucking and
Crane ('ATC') and the Schroeder family.
. . . [¶] As a result of unrelated litigation, Hughes
occupied a portion of the property pursuant to a Judgment by Stipulation,
entered into on December 19, 2003[,] between Hughes, ATC, and [Schroeder]. . . .
The judgment had the following relevant terms: [¶]
a. Hughes was to lease two
portions of the Commercial Street property, the northwest, and the northeast
corners for a total rent of ten dollars . . . per month. [¶] b.
The term of the lease was to be for ten years from July 21, 2003[,] to July 21,
2013. [¶] c. ATC
was to provide utilities for one year; after which time Hughes was to install
his own meters. [¶] d. ATC
was to pay Hughes' attorney's fees in the amount of $20,000.00. [¶]
e. ATC agreed not to sell the
property before July 21, 2009, without Hughes' permission. [¶]
f. If the property was sold
between July 21, 2009[,] and July 21, 2013, Hughes was to receive 15 [percent]
of the net sale proceeds. . . . [¶]
ATC and Schroeder filed for bankruptcy protection after the 2003
judgment was entered. . . . Based upon the estate's obligations its
creditors sought to liquidate the property.
. . . [¶] When no offers were received which would have
allowed Hughes to remain as a tenant, . . . in order to accomplish the sale of
the property, the trustee offered Hughes a present value payout of his tenancy
in the event an offer was made. . .
. The amount of this proposed payout, in
the event an offer of $1,600,000.00 was made, would have been $598,000.00. . . .
No offers in the amount of $1,600,000.00 were ever received. [¶] .
. . [¶]
On May 29, 2007, with Hughes's endorsement of the deal, the trustee in
the Schroeder bankruptcy obtained approval from the bankruptcy court to sell
the property to Ireland for $1,200,000.00.
. . . As part of the sale, Hughes
released all of his remaining claims against the Schroeder family estate in an
Agreement of Satisfaction, executed on April 4, 2007." (Some capitalization omitted.)
