San Diego Natives Holding v. Hughes CA4/1 (2013) · DecisionDepot
San Diego Natives Holding v. Hughes CA4/1
California Court of Appeal Oct 3, 2013 No. D061523Unpublished
Filed 10/3/13 San Diego Natives Holding v. Hughes CA4/1 NOT TO BE PUBLISHED IN OFFICIAL REPORTS California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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
SAN DIEGO NATIVES HOLDING D061523 COMPANY, LLC et al.,
Plaintiffs and Appellants, (Super. Ct. No. 37-2009-00090232- v. CU-OR-CTL)
RALPH HUGHES, Individually and as Trustee, etc.,
Defendant and Respondent.
APPEAL from a judgment of the Superior Court of San Diego 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 declaratory relief cause of action (Code Civ.
Proc.1, § 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
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.
1 All statutory references are to the Code of Civil Procedure unless otherwise stated.
2
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 [sic] value, due to improvements, as
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
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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
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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.
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"[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.2 Next, the court relied on the parties' August 2008 e-mails, which it
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 6
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
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.)
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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.)
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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
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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
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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
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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
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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). (Id. at pp. 926–927.) The
appellate court concluded, however, that "AFM's failure to file a cost bill and a claim for
fees operated to waive its right to costs and fees." (Id. at p. 927.)
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
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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.' " (Ibid., citing Williams v. Santa Maria 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." (Hydratec, supra, at pp. 928-929.) The court found that AFM's failure to
file a 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
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[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, supra, at p. 929.)
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.
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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.
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AI Brief
AI-generated · verify before citing
Holding. The court held that the parties did not form a partnership agreement, as they never reached mutual assent on material terms, and that the appellants forfeited their right to attorney fees by failing to file a timely motion. The court affirmed the invalidation of the 2007 lease and the ejection order, but reversed the findings regarding the partnership and the property sale price restriction.
Issues
Whether the parties entered into a binding partnership agreement.
Whether the trial court's findings regarding a temporary lease were supported by the record.
Whether the appellants waived their right to attorney fees and costs by failing to file a timely motion.
Disposition. Affirmed in part, reversed in part and remanded with directions.
Quotations verified verbatim against the opinion
“We conclude the parties intended that Ireland's negotiating points merely start a discussion regarding a future partnership, but they never agreed to 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.”