JPH CONSULTING, INC. v. COUNTRY HILLS HEALTH CARE, INC. No. D056381.
JPH CONSULTING, INC., et al., Plaintiffs, Cross-Defendants and Appellants, IL HIE LEE, Plaintiff and Appellant, v. COUNTRY HILLS HEALTH CARE, INC., Defendant, Cross-Complainant and Respondent, GLEN S. LARSON et al., Defendants and Respondents.
Court of Appeals of California, Fourth District, Division One.
Filed February 24, 2011.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
BENKE, Acting P. J.
Where, as here, a defendant has made a motion for summary judgment and presented evidence that, after extensive discovery, a plaintiff cannot establish an element of its cause of action, the defendant is entitled to summary judgment.
Although the record in this commercial contract case contains a great deal of evidence that the plaintiffs and the defendants were involved in lengthy and very serious negotiations with respect to the plaintiffs' desire to purchase the defendants' interest in a nursing home, like the trial court we have found nothing in the record which shows either directly or indirectly that the parties made any binding agreement. Accordingly, we affirm the trial court's order granting the defendants' motion for summary judgment on the plaintiffs' breach of contract and related tort claims.
FACTUAL AND PROCEDURAL BACKGROUND
1. March 26, 2008 Letter of Intent
Plaintiff, cross-defendant and appellant Jeoung Lee (Jeoung) and plaintiff and appellant Il Hie Lee are the owners of plaintiff and appellant JPH Consulting, Inc. (JPH). The Lees and JPH are in the business of acquiring and operating skilled nursing facilities. At all relevant times defendant and respondent Glenn S. Larson was the president and sole shareholder of defendant, cross-complainant and respondent Country Hills Health Care Center, Inc. (CHHC). CHHC in turn owned and operated a skilled nursing facility in El Cajon, California, known as Country Hills Health Care Center (Country Hills). At all relevant times defendant and respondent Hedi Azemikkah was CHHC's chief financial officer.
Following meetings between the Lees and Azemikkah, on March 26, 2008, JPH and CHHC entered into a letter of intent (LOI) with respect to JPH's acquisition of Country Hills from CHHC. The LOI stated that the parties' intention was to enter into a binding agreement by which JPH would acquire Country Hills for a total price of $3.5 million; that the purchase would close escrow on or before May 1, 2008, and that JPH would pay $2 million in cash at the closing and the balance of the purchase price in six monthly installments of $250,000. However, the LOI expressly did not require that either party complete the transaction, but instead was "intended only to set forth the basic terms of a more definitive Purchase Agreement to be further negotiated by and between [JPH] and [CHHC]."
The parties agreed that during the term of the LOI, CHHC would continue operating Country Hills and CHHC agreed it would not solicit or accept any offers to purchase the facility. The LOI further provided that any information exchanged by the parties during the term of the LOI would remain confidential and that the LOI would terminate upon either the execution of a purchase agreement or April 15, 2008, which ever occurred first.
Although the parties, acting through counsel, exchanged proposed draft purchase agreements, they were unable to reach an agreement and the LOI expired by its terms on April 15, 2008. According to Jeoung, the deal was not consummated because the Lees were unwilling to give the Country Hills landlord a personal guaranty of the obligations of the facility's underlying lease.
2. Stock Purchase Negotiations
According to Jeoung's declaration, on or before April 22, 2008, and after the LOI expired, as an alternative to the asset purchase described in the LOI, she offered to purchase Larson's CHHC stock for a total price of $3 million, less any existing liabilities of the corporation. According to Jeoung, Azemikhah orally accepted her offer on Larson's behalf. The record shows that Larson and the Lees instructed their respective attorneys to prepare a written agreement which would effect a sale on those basic terms.
Between April 23, 2008, and May 1, 2008, the Lees' attorney sent Larson's attorney approximately eight versions of a proposed stock purchase agreement. In an e-mail attached to the first draft of the agreement, the Lees' attorney, Scott, advised Larson's attorney, Tatkin: "I am struggling to get this out as fast as i can and mike [the Lees other attorney] has not had a chance to look at it and i know he will change the provision on net book value, and value of corp and payment of purchase price but can you look at everything else, I now want to be out Monday and need to get this done. Ignore the numbering i will fix that except if something should be a schedule not exhibit or vice vers let me know."
On April 24, 2008, Larson posted a memorandum at Country Hills, which in part stated: "It is no secret to all of you that rumors have been going around that I have sold Country Hills to Mr. and Mrs. Lee, who own Chase Care Center in El Cajon. Although nothing has been formally signed at this time, I want to let you know that I have verbally agreed to do this."
Also on April 24, 2008, Jeoung traveled to Country Hills and met with CHHC employees and examined the books of the business. During this visit she discovered for the first time that CHHC owed the state of California $700,000 in delinquent fees, had not paid its April rent, and that $600,000 would be needed in order to continue Country Hills's insurance coverage.
On April 30, 2008, Scott, acting on behalf of the Lees, sent Tatkin an e-mail which asked for schedules of assets and liabilities and stated: "i am preparing a new agreement but if you wait it will be too late. we have never seen the schedules and if this really going to close i need them ASAP. We cannot prepare them for you and every day new revelations have come out which could have been avoided if your clients would have sent us the schedules. tomorrow is too late to find out more things."
Tatkin responded to Scott's e-mail with the following e-mail: "Why so petulant? I just got the schedules from Hedi yesterday, but your client has been in and out [sic] this deal for the last several weeks. In our phone call yesterday Michael [the Lees other attorney] said the deal as I understood it was idiotic, and neither of you called me back re conference call that was suppose to be at 3:30 yesterday. I left a message for Michael last night regarding status, and your e-mail is the first I've heard from anybody. Given that, how am I supposed to know we even have a deal, let alone that schedules are still needed."
Scott responded to Tatkin with an e-mail which stated: "because this entire deal has waited on those schedules and had your clients prepared them earlier we would not have had the revelations we have had about cases, brokers fees etc."
Tatkin then responded to Scott: "The insurance matters were disclosed weeks ago, check your e-mails. The arbitration re broker's fee only became relevant when you changed from asset to stock sale. And now I have just heard a `rumor' that Mrs. Lee is not intending to buy all [Larson's] shares but only a small percentage to start. You say you're preparing a `new' agreement. What is it? What are the basic terms? What schedules are in it? Same as before, or new ones?"
The last written version proposed by the Lees, which was signed by Jeoung on May 1, provided Larson with $500,000 in cash and a promissory note in the amount of $500,000. The last proposal also made Larson responsible for any amount in excess of $140,000 recovered by the claimant in a then-pending arbitration proceeding and liable under an indemnity clause for a number of costs and fees that might be imposed by a number of governmental agencies and for any litigation based on facts or circumstances known to Larson at the time of the sale. Left unresolved on May 1, 2008, was a demand from Larson's lawyer that the Lees purchase a "tail coverage" insurance policy which would protect Larson in the event of claims made after the sale closed but based on events which occurred before the close.
Larson never signed any of the stock purchase agreements proposed by the Lees or tendered to the Lees any written proposals of his own. However, on May 1, 2008, Jeoung arrived at Country Hills and had a number of conversations with the staff at Country Hills about operation of the facility. Before Jeoung left Country Hills that day, she delivered a $500,000 check, postdated to May 5, 2008, to a therapist, Bob Fleming.
On May 2, 2008, in apparent response to a request that the Lees pay an insurance premium, Scott drafted an e-mail which stated: "mrs lee cannot pay for insurance for a facility she does not own—until we have adeal [sic] she cannot pay for insurance.. the closing will not take place and the stock transfer will not take place until we have a deal—its my understanding that the policvy [sic] does not expire based on a stock sale until there is a sale but continues as long as there is payment from the member which is larson. please advise mr larson that he must pay his may insurance."
3. Sale to Employees
On or near May 1, 2008, the employees of Country Hills expressed interest in acquiring the facility from Larson. Larson and the employees were able to promptly reach an agreement which required that the employees pay Larson $1 million for his stock without any deductions for pending or contingent claims and without any warranties or indemnity, other than a representation the corporation was in good standing and that Larson owned the stock. On May 3, 2008, the employees gave Larson a cashier's check for $555,000 and he transferred his stock to them; the employees paid the balance of $445,000 within 10 days.
The Lees and JPH filed a complaint against Larson, CHHC and Azemikkah on May 8, 2003. That complaint was replaced with a first amended complaint (FAC) on September 15, 2008. As against CHHC the FAC alleged causes of action for breach of oral and implied contracts and breach of the covenant of good faith and fair dealing. The FAC also sought injunctive relief and specific performance against CHHC. As against CHHC, Larson and Azemikah, the complaint alleged one cause of action for fraud and one claim for declaratory relief; the FAC alleged separate interference with contract and prospective economic advantage against Larson and Azemikah. Finally, the complaint alleged one constructive trust cause of action against Azemikah.
After Larson answered the complaint and the parties conducted extensive discovery, Larson made a motion for summary judgment. The Lees filed a timely opposition to the motion along with a number of evidentiary objections. Larson filed a reply which included objections to evidence offered by the Lees and responses to the evidentiary objections made by the Lees. In meeting the Lees' objections, Larson offered additional evidence as to the authenticity of the documents the defendants relied upon.
The trial court expressly overruled all the parties' respective evidentiary objections.
The trial court found there was no evidence which supported the Lees' contention the parties agreed to the terms of a sale and that accordingly all of the Lees' contract claims failed. The trial court found that for related reasons, the Lees' tort and equitable claims also failed. Larson dismissed a cross-complaint and the trial court entered a judgment in Larson's favor. The Lees filed a timely notice of appeal.
Summary judgment may be granted only when a moving party is entitled to a judgment as a matter of law. (Code Civ. Proc.,
In broadly outlining the law of summary judgment, the Supreme Court stated: "If a party moving for summary judgment in any action . . . would prevail at trial without submission of any issue of material fact to a trier of fact for determination, then he should prevail on summary judgment. In such a case . . . the `court should grant' the motion `and avoid a . . . trial' rendered `useless' by nonsuit or directed verdict or similar device." (Aguilar, supra, 25 Cal.4th at p. 855.)
We review orders granting summary judgment de novo. (Alexander v. Codemasters Group Limited (2002) 104 Cal.App.4th 129, 139.)
In making his motion for summary judgment, Larson relied on, among other pieces of evidence, a number of e-mails which representatives of the parties exchanged. Copies of the e-mails had been produced at the depositions of various witnesses and authenticated at the depositions. Initially, their production at the depositions and authentication was attested to in general terms by one of Larson's attorneys. In response to Larson's motion, the Lees objected to the e-mails on, among other grounds, lack of proper authentication.
In response to the authentication objection, Larson filed a declaration from his attorney which specifically cited the deposition testimony which authenticated each e-mail. In addition, a transactional lawyer, who had acted on Larson's behalf during the negotiation with the Lees and was either the sender or recipient of each e-mail, signed a declaration attesting to the authenticity of the e-mails.
On appeal the Lees do not argue the e-mails lack proper authentication or that the trial court should have given the Lees time in which to challenge the additional authenticating declarations offered by Larson. Rather, the Lees only argue the trial court should not have considered the additional authentication declarations because the declarations were filed at the time Larson filed his reply brief. We find no abuse of discretion in the trial court's consideration of the entire record before it, including the additional declarations offered by Larson.
Preliminarily, we note that Evidence Code section 1400 states: "Authentication of a writing means (a) the introduction of evidence sufficient to sustain a finding that it is the writing that the proponent of the evidence claims it is or (b) the establishment of such facts by any other means provided by law." Although Evidence Code sections 1410 through 1421 provide a number of means of authenticating documents, those means are not exclusive. "Circumstantial evidence, content and location are all valid means of authentication [citations]." (People v. Gibson (2001) 90 Cal.App.4th 371, 383.) Moreover, we note that under the Uniform Electronic Transactions Act (Civ. Code, § 1633.1 et seq.) "evidence of a record or signature may not be excluded solely because it is in electronic form." (Civ. Code, § 1633.13.) Here, our review of the record shows that in fact all the e-mails were adequately authenticated at the depositions at which the Lees were represented by counsel. Thus the record suggests counsel was aware of the specific authentication at the time counsel initially objected to the initial authentication offered by the Larson defendants.
Having made an objection on authentication grounds, the Lees now argue it was improper for the Larson defendants to respond to that objection by submitting declarations which thoroughly met that objection. In asserting error, the Lees rely on cases which stand for the proposition a party moving for summary judgment may not submit evidence that has not been identified in the separate statement of facts required by section 437c, subdivision (b). (See San Diego Watercrafts, Inc. v. Wells Fargo Bank (2002) 102 Cal.App.4th 308, 313; Hawkins v. Wilton (2006) 144 Cal.App.4th 936, 945.) Here, there was no material violation of section 437c, subdivision (b).
Section 437c, subdivision (b)(1) states in pertinent part: "The supporting papers shall include a separate statement setting forth plainly and concisely all material facts which the moving party contends are undisputed. Each of the material facts stated shall be followed by a reference to the supporting evidence. The failure to comply with this requirement of a separate statement may in the court's discretion constitute a sufficient ground for denial of the motion." (Italics added.) Thus, "[w]hether to consider evidence not referenced in the moving party's separate statement of rests with the sound discretion of the trial court, and we review the decision to consider or not consider this evidence for an abuse of that discretion." (San Diego Watercrafts, Inc. v. Wells Fargo Bank, supra, 102 Cal.App.4th at p. 316.) Where, notwithstanding the fact evidence is not specifically called out in a separate statement, a cursory examination of the record nonetheless reveals that evidence and a party's right to prevail on the motion, a trial court may rely on the unmentioned evidence. (Ibid.; see also Kulesa v. Castleberry (1996) 47 Cal.App.4th 103, 119.) On the other hand, where the moving party has completely failed to provide the information required by the statute and the evidence is not otherwise obvious, considerations of due process require that the motion be denied. (Ibid.)
Here, each of the e-mails was specifically mentioned in Larson's separate statement. Moreover, as we have noted, each e-mail was authenticated at depositions where the Lees were represented by counsel. Thus the record shows the Lees were fully advised of the issues that were being addressed by the motion for summary judgment and given ample opportunity to rebut them. Given these circumstances, the trial court did not abuse its discretion in considering the additional authenticating declarations.
In granting Larson's motion, the trial court determined, as a matter of law, that the parties expected that any enforceable agreement would be reduced to writing and signed by each of them. The trial court further concluded that the failure of the Lees to obtain such a written and signed agreement showed the parties in fact did not reach a binding agreement. On appeal the Lees contend they presented evidence which made the requirement of a writing a triable issue of fact. Like the trial court we find no evidence which supports the Lees' contentions.
A. Legal Principles
"[W]here it is part of the understanding between the parties that the terms of their contract are to be reduced to writing and signed by the parties, the assent to its terms must be evidenced in the manner agreed upon or it does not become a binding or completed contract. [Citations.]" (Beck v. American Health Group International, Inc. (1989) 211 Cal.App.3d 1555, 1562 (Beck).) In Beck the defendant sent the plaintiff a letter setting out the basic terms of their agreement and asked that the plaintiff acknowledge his understanding of those basic terms. The plaintiff did so. However, the parties never signed a formal agreement. The plaintiff nonetheless sued the defendant and argued the defendant's letter constituted a binding contract. The trial court sustained the defendant's demurrer without leave to amend and on appeal the Court of Appeal affirmed. In finding the parties had not made any binding agreement, but had only agreed they would later enter into a binding contract, the court stated: "The letter under consideration begins: `It is a pleasure to draft the outline of our future agreement . . . .' (Italics added.) After outlining the terms of the proposed agreement the writer of the letter asks plaintiff to sign it `if this is a general understanding of the agreement,' in order that the Hospital may `forward it to Corporate Counsel for the drafting of a contract.' (Italics added.) The letter concludes: `When we have a draft, we will discuss it, and hopefully shall have a completed contract and operating unit in the very near future.' (Italics added.) Taken in their ordinary sense, the words of the letter manifest an intention of the parties that no binding contract would come into being until the terms of the letter were embodied in a formal contract to be drafted by corporate counsel. Assignment of the drafting to an attorney evidences an expectation that the terms set forth in the letter were subject to his approval. Even after counsel drafted a contract the letter contemplated further negotiations by its statement that `when we have a draft, we will discuss it.' By signing the letter plaintiff assented to its terms, i.e., no binding agreement would result until a formal contract was drafted by counsel. That plaintiff may have intended or believed a binding contract came into existence upon his signing the letter is immaterial in the face of its language which plainly indicated otherwise.
"We conclude that the letter did not constitute a binding contract, but was merely `an agreement to agree' which cannot be made the basis of a cause of action. [Citation.]" (Beck, supra, 211 Cal.App.4th at pp. 1562-1563, fn. omitted.)
B. The Lees and Larson's Negotiations
Here, in reaching its conclusion the parties expected any binding agreement to be in writing and signed by the parties, the trial court relied on a large quantum of evidence submitted by Larson.
The record here is more than sufficient to support the trial court's conclusion the parties expected any binding agreement would be in writing and signed by the parties. According to Jeoung's own declaration, she made an oral offer to CHHC's financial officer, Azemikkah, and he orally agreed on Larson's behalf to accept it. Thus, here there is less documentary evidence of the parties' agreement than in Beck.
However, in addition to the lack of any definitive documentation of the initial agreement, a strong inference the Lees themselves believed a written agreement was required can be found in both the considerable effort the Lees' attorneys expended in producing multiple drafts of a written agreement and the considerable substantive changes the Lees' representatives made in the numerous written drafts they provided to Larson's attorney. The undisputed record shows that as the Lees learned more about the financial condition of Country Hills, the substantive terms of the agreement, as proposed by the Lees, changed dramatically:
The first draft agreement the Lees' attorney sent to Larson's attorney on April 23, 2008, set forth a transaction in which the Lees would pay Larson a total of $3 million for his CHHC stock. The Lees would pay the purchase price by placing $1 million in escrow prior to closing, an additional $1 million would be placed on deposit with the escrow to be used to pay any outstanding liabilities of the corporation, and the Lees would give Larson a promissory note for the remaining $1 million, with interest at five percent per annum; payment terms on the proposed note were not set forth in the draft agreement, but instead the draft agreement suggested varying payment commencement dates. The April 23, 2008 draft agreement set forth a closing date of May 1, 2008.
The last May 1, 2008, draft agreement was markedly different. Under the May 1, 2008 draft agreement, the Lees would pay Larson a total of $1 million for his CHHC stock. The Lees would make a down payment of $500,000 at the time of closing and give Larson a promissory note for the balance, payable in five equal installments of $100,000 commencing on June 1, 2008. The note proposed in the May 1 draft did not earn any interest.
The wide variation in terms set forth in these drafts is not consistent with any understanding that a binding agreement had been reached by the parties. Plainly, the Lees believed that as they proceeded in negotiating with Larson and discovered more information about Country Hills's outstanding liabilities, they were free to alter the material terms of their proposed purchase. This fact in turn leads to the inevitable conclusion the Lees did not believe any agreement would be binding on them until both they and Larson had signed a written agreement. That inference is of course also supported by the doubts expressed by counsel while the various versions of a contract were being circulated.
Notwithstanding the large quantum of documentary evidence which demonstrates that at most the parties only had an unenforceable agreement to agree, the Lees argue that as of April 22, 2008, they had a binding agreement with Larson and that over the following week the various drafts their counsel circulated were merely proposed changes to which Larson could consent to if he wished. (See Amer. Aero. Corp. v. Grand Cen. Aircraft Co. (1957) 155 Cal.App.2d 69, 80.) Under the Lees' theory, if Larson did not agree to the changes they proposed, the initial agreement would be enforceable. (Ibid.) This theory is not available to the Lees' on this record.
First, we note that in Amer. Aero. Corp. v. Grand Cen. Aircraft Co., the case the Lees rely upon, both parties alleged that a binding oral agreement in fact existed and agreed that substantial performance under the oral contract occurred. The parties in Amer. Aero. Corp. v. Grand Cen. Aircraft Co. only disputed whether the parties had also agreed to the terms of a later written agreement drafted by one of the parties. Here, in contrast, Larson contends that no binding oral agreement was ever made and the record fully supports Larson's position. In this regard, Jeoung's declaration, upon which the Lees place a great deal of emphasis, is wholly inadequate to establish the existence of a binding agreement. The declaration simply states that Jeoung believed her oral agreement with Azemikhah was binding. One party's entirely subjective belief is irrelevant in determining whether the parties in fact have made a binding agreement. (See 1 Witkin, Summary of Cal. Law, Contracts, § 116, p. 155.) There must be some outward manifestation by both parties that a binding agreement has been made. (Id. at p. 156.) The memorandum Larson sent his employees on April 24 will not fill this evidentiary void. Larson's memorandum merely states that Larson and the Lees have reached a verbal understanding, but expressly states that no formal agreement has been signed. As the trial court noted, the memorandum clearly expresses Larson's expectation that a formal agreement will be executed. That expectation of course is consistent with the parties' behavior and statements both before and after April 22.
Finally, the Lees' theory is simply not credible on this record. In light of the substantial liabilities which, according to Jeoung, she only discovered after April 22, it is not reasonable to suggest that in the absence of Larson's consent to the substantial reduction in price and down payment the Lees would permit Larson to enforce the initial agreement. As we have discussed, the initial agreement would have required that the Lees place $2 million in cash in escrow, provide Larson with a $1 million note, and wait until after escrow closed to determine the amount of CHHC's liabilities and the appropriate deduction from the purchase price. According to the last written proposal the Lees made, they were only willing to put $500,000 in escrow and wanted Larson to take a note for the balance of the reduced $1 million price. The substantial variation between the amounts the Lees would be required to deposit under the initial agreement and the amounts required under the Lees' final proposal defeat any contention that either party treated the series of new terms offered by the Lees as mere alternatives which left Larson with the option of enforcing the initial terms offered by the Lees.
In sum, the Larson defendants presented evidence which shows that Larson and the Lees agreed to be bound only by a written agreement signed by both parties and the Lees did not present any credible evidence which contradicts that conclusion. Since no written agreement ever came into being, the Lees' contract causes of action were subject to summary judgment and the trial court did not err in dismissing them. (Beck, supra, 211 Cal.App.4th at p. 1563.)
The trial court also acted properly in granting summary judgment with respect to the Lees' claims for injunctive relief, specific performance, declaratory relief and a constructive trust. Where, as here, the record shows that no contract was formed, no contractual remedies are available. (See Reichert v. General Ins. Co. (1968) 68 Cal.2d 822, 830.) For the same reason, the trial court also properly dismissed the Lees' intentional interference with contractual relations cause of action: such a claim requires that a contract between the plaintiff and a third party exist. (Pacific Gas & Electric Co. v. Bear Stearns & Co. (1990) 50 Cal.3d 1118, 1126.)
Although the Lees' claim for intentional interference with economic advantage does not require proof of a binding contract, it does require proof of "an independently wrongful act." (Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1158.) Importantly, "[a]n act is not independently wrongful merely because defendant acted with an improper motive. . . . [A]n act is independently wrongful if it is unlawful, that is, if it is proscribed by some constitutional, statutory, regulatory, common law, or other determinable legal standard." (Korea Supply Co. v. Lockheed Martin Corp., supra, 29 Cal.4th at pp. 1158-1159, fn. omitted.) Contrary to the Lees' argument, there is nothing in the record which shows that Azemikhah was guilty of any independently wrongful conduct. Even if we accepted the Lees' contention that statements Azemikhah made to either the Lees or Larson were motivated by his desire to secure a position with the eventual owner of Country Hills, there is no showing he did anything other than pursue his own economic interest in an otherwise lawful manner.
Although the Lees have attempted to establish an independent wrong by arguing Azemikhah engaged in some species of fraud, this contention ultimately fails because the Lees failed to show a binding agreement came into existence and that they parted with any consideration. The record is clear the Lees did not enter into a contract or suffer any out-of-pocket loss to Larson or Azemikkah. In the absence of proof of reliance and out-of-pocket loss, they cannot establish independent liability for fraud. (See Hadland v. NN Investors Life Ins. Co. (1994) 24 Cal.App.4th 1578, 1586; Civ. Code, § 3343.) Thus, the trial court acted properly in not only dismissing the Lees' economic advantage allegation, it also properly dismissed their fraud causes of action as well.
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