IMAGES EVERYWHERE, INC. v. SIX FLAGS THEME PARKS, INC.No. B208263.

IMAGES EVERYWHERE, INC., et al., Plaintiffs and Appellants,
v.
SIX FLAGS THEME PARKS, INC., et al., Defendants and Respondents.

Court of Appeals of California, Second District, Division Three.
Filed April 27, 2011.
Payne & Fears, Daniel L. Rasmussen and Julie Bisceglia for Plaintiffs and Appellants.
Rintala, Fraser & Jaenicke and G. Howden Fraser; Faegre & Benson, Terri L. Combs and Jesse Linebaugh for Defendant and Respondent Six Flags Theme Parks, Inc.
Arnold & Porter, Anna R. Zusman; Ward Norris Heller & Reidy, Harold A. Kurland and Jeffrey J. Harradine for Defendant and Respondent Qualex, Inc.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

CROSKEY, J.

Images Everywhere, Inc. (Images Everywhere), and John Shawn Productions, Inc. (JSP), appeal a defense judgment in favor of Six Flags Theme Parks, Inc. (Six Flags), and Qualex, Inc. (Qualex), after a jury verdict. Images Everywhere and JSP provided consulting services to Six Flags pursuant to a letter agreement. They contend Six Flags breached the letter agreement and the implied covenant of good faith and fair dealing by terminating their consulting services in December 2006 and contracting with Qualex (formerly Event Imaging Solutions, Inc.) instead. We conclude that the plaintiffs have shown no prejudicial error and will affirm the judgment.

FACTUAL AND PROCEDURAL BACKGROUND

1. Factual Background

Six Flags operates amusement parks throughout the United States. Images Everywhere, JSP, and Qualex owned and operated photography concessions at some of those parks under license agreements.

John Bement of Six Flags approached Peter Gelfand of Images Everywhere with a proposal for Six Flags to replace the photography concessions at some of its parks with its own in-house photography operations. Six Flags sought the assistance of Images Everywhere in accomplishing this, and later sought the assistance of JSP and its principal John Tawgin as well. After discussing the proposal over the course of two and one-half years, the parties entered into a Letter of Agreement dated March 4, 2004.

The letter agreement began:

"This is to confirm that the Six Flags Theme Parks, Inc. (`SFTP') is entering into a contractual agreement with John Shawn Productions, Inc./Images Everywhere!, Inc. (`JSP/IE') to provide a turnkey photo operation at Six Flag St. Louis. The purpose of this agreement is to see if this type of consultant arrangement (hereinafter called `The Plan') would be feasible for both parties in the future."

After describing the parties' respective responsibilities and compensation terms (10 percent of gross revenues), the letter agreement stated:

"During the course of the 2004 season, the parties will review the implementation of the Plan at Six Flags St. Louis and the economic and financial results thereof. If, in SFTP's sole judgment, it determines to implement the Plan in 2005 at all or some of its other U.S. theme parks: • JSP/IE will make every effort to follow through with a strategy to have Six Flags run their entire front gate and ride photography operations. • The parties will negotiate in good faith the contractual arrangements regarding the implementation of the Plan, it being understood that JSP/IE will be offered the opportunity to act as consultants to SFTP in connection with such implementation on terms not materially less favorable to JSP/IE as those applicable to Six Flags St. Louis. If the Plan is being implemented at any park in which JSP/IE has an existing contract, the contractual arrangement will take into account amounts that would have been paid to JSP/IE under such contract for periods following implementation.

"In the event SFTP determines not to implement the Plan past the first year the following will occur:

• JSP/IE will run the Six Flags St. Louis photography operation as a concession with a contractual term of 5 years and on other terms reasonably acceptable to SFTP. • SFTP will extend all existing contracts of JSP/IE for a period of 5 years beginning with 2005."

The letter agreement did not include an integration clause.

The parties successfully converted the photography business in St. Louis from a third-party concession to an in-house operation. They met in Texas in October 2004 to discuss future plans and decided at that time to establish in-house photography operations at amusement parks in Dallas, Texas and New Jersey in 2005. Images Everywhere and JSP provided consulting services for the Dallas park in 2005 without any subsequent written agreement. The manager of the New Jersey park requested a written agreement, however, so the parties entered into an Amended Letter of Agreement dated March 26, 2005, stating that the original letter agreement also applied to the photography operation at the New Jersey park.

Roy Dennis of Six Flags met with Gelfand and Tawgin in July 2005 to discuss a proposed schedule for the conversion of additional photography concessions. In August 2005, Dennis sent Gelfand and Tawgin a schedule listing photography concessions at numerous locations and proposed conversion dates from 2006 to 2015.1 Images Everywhere and JSP worked on conversions in several amusement parks in 2006. During this time, the parties discussed a potential subsequent agreement, but failed to agree on the terms. Meanwhile, Six Flags paid Images Everywhere and JSP 10 percent of the gross revenues from the photography operations at the St. Louis park in 2004, 2005, and 2006, 10 percent of the gross revenues from the photography operations at the Dallas and New Jersey parks in 2005 and 2006, and 10 percent of the gross revenues from the photography operations that were converted in 2006. Images Everywhere and JSP also continued to operate their own photography concessions, which were not converted.

A hostile corporate takeover of Six Flags succeeded in December 2005 and was followed by a change in senior management. Six Flags notified Images Everywhere and JSP in October 2006 that it was terminating their consulting arrangement and that all of its photography business would be operated by Qualex as concessions. After that time, Six Flags did not renew the license agreements for the concessions that Images Everywhere and JSP had continued to operate.

2. Trial Court Proceedings

Images Everywhere and JSP filed a complaint against Six Flags and Qualex in February 2007, alleging counts for (1) breach of contract, against Six Flags; (2) breach of the implied covenant of good faith and fair dealing, against Six Flags; (3) intentional interference with contractual relations, against Qualex; (4) negligent interference with contractual relations, against Qualex; and (5) breach of fiduciary duty and constructive fraud, against Six Flags. They allege that Six Flags agreed orally and through its actions that the consulting relationship would continue until at least 2015 and that Six Flags breached the agreement and the implied covenant of good faith and fair dealing by terminating the consulting relationship prematurely. They also allege that Qualex was aware of the consulting agreement and intentionally or negligently interfered with that agreement. Images Everywhere and JSP dismissed the fourth count before trial.

Six Flags moved for summary judgment or summary adjudication of each count, arguing that there was no long-term consulting agreement, that the letter agreement was terminable at will, and that Six Flags did not breach the implied covenant of good faith and fair dealing. The trial court denied the summary judgment motion, but granted the motion for summary adjudication as to the fifth count.

A jury trial commenced in March 2008. The trial court granted a motion in limine by Six Flags to exclude any evidence offered to support a claim for damages arising from the termination of the plaintiffs' photography concessions. Images Everywhere and JSP orally requested leave to amend their complaint to conform to proof in order to seek damages for lost profits arising from the termination of their concessions. They did so both in opposing the motion in limine and later at trial during the defendants' case-in-chief. They argued that evidence presented at trial showed that the parties intended the provision in the letter agreement for a five-year extension of their existing license agreements in the event that Six Flags "determine[d] not to implement the Plan past the first year" to apply if Six Flags decided at any time not to continue with the conversions. The trial court denied the motion for leave to amend.

Six Flags moved for a directed verdict on the second count for breach of the implied covenant of good faith and fair dealing, arguing that it duplicated the first count for breach of contract. The court granted the motion for a directed verdict.

The trial court instructed the jury on breach of contract and principles of contract interpretation. The instructions stated that the parties disputed the interpretation of the letter agreement and that the jury must determine its meaning.2 The jury returned a verdict answering "No" to the following question:

"Did Six Flags Theme Parks, Inc. breach the Letter Agreement dated March 4, 2004 by terminating the consulting services of Images Everywhere, Inc. and John Shawn Productions, Inc. and not continuing with those services after December 31, 2006?"

The directions in the verdict form stated that the jury should not proceed past this first question if the answer was no.3 The trial court entered a judgment in favor of Six Flags and Qualex in March 2008.

Images Everywhere and JSP moved for a new trial, arguing that the weight of the evidence indicated that the letter agreement was intended to be a long-term agreement and that Six Flags breached the agreement by terminating it prematurely. They also argued that they adequately alleged that Six Flags breached the letter agreement and that they need not amend their complaint to support a claim for breach of contract based on the failure to extend their license agreements. They argued further that the denial of their request for leave to amend the complaint was error and that the directed verdict on their count for breach of the implied covenant of good faith and fair dealing was error. The trial court denied the new trial motion.

3. Appeal

Images Everywhere and JSP timely appealed the judgment. They filed a notice designating a partial reporter's transcript including only proceedings that involved no trial testimony. Six Flags filed a notice designating the testimony of three witnesses, Gelfand, Tawgin, and Bement, to be included in the reporter's transcript.

CONTENTIONS

Images Everywhere and JSP contend (1) this court should independently interpret the letter agreement, consider extrinsic evidence of the parties' course of dealings, and conclude that the parties agreed to continue the consulting relationship until all of the conversions listed in the conversion schedule were completed and that Six Flags breached the agreement by prematurely terminating the relationship; (2) even if there was no agreement to this effect, the jury reasonably could have concluded that Six Flags breached the implied covenant of good faith and fair dealing by terminating the consulting relationship, so the directed verdict on the second count was error; and (3) the denial of their motions for leave to amend the complaint was error. Images Everywhere and JSP do not separately challenge the judgment in favor of Qualex, but argue summarily that a reversal of the judgment in favor of Six Flags would entitle them to a new trial against Qualex as well.

DISCUSSION

1. Images Everywhere and JSP Have Shown No Error in the Interpretation of the Letter Agreement

Images Everywhere and JSP contend this court should independently interpret the letter agreement because "the underlying facts are undisputed." They argue that neither the express terms of the letter agreement nor the extrinsic evidence of the parties' course of dealings is in conflict, and that this court therefore is not bound by the jury's finding that there was no breach of contract. They argue that the letter agreement and the parties' course of dealings show that the parties agreed that if Six Flags decided not to terminate the consulting relationship at the conclusion of 2004, the consulting relationship would continue until all of the planned conversions were completed. They argue further that the conversion schedule established 2015 as the termination date.

Contract interpretation, including the resolution of any ambiguity, is solely a judicial function unless the interpretation depends on the credibility of extrinsic evidence. (Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 865.) If the interpretation depends on the credibility of extrinsic evidence, that credibility determination and the interpretation of the contract are questions of fact that may be decided by the jury. (City of Hope National Medical Center v. Genetech, Inc. (2008) 43 Cal.4th 375, 395.) In those circumstances, any interpretation of the contract by the trier of fact that is both reasonable and supported by substantial evidence will be upheld on appeal. (In re Marriage of Fonstein (1976) 17 Cal.3d 738, 746-747.) Absent a complete reporter's transcript of all trial testimony, however, we cannot determine whether the extrinsic evidence of the parties' course of dealings is in conflict.

An appealed judgment is presumed correct, a reviewing court must indulge all intendments and presumptions in favor of the judgment on matters on which the record is silent, and the appellant must affirmatively demonstrate error. (Denham v. Superior Court (1970) 2 Cal.3d 557, 564.) Accordingly, if the appellant fails to provide an adequate record for the reviewing court to determine both that an error occurred and that the error was prejudicial, we must affirm the judgment. (Ballard v. Uribe (1986) 41 Cal.3d 564, 574-575.) The partial record of the proceedings at trial not only prevents us from determining whether the extrinsic evidence is in conflict, but also makes it impossible for us to evaluate the extrinsic evidence on which the jury might have relied in interpreting the letter agreement. We therefore can neither interpret the letter agreement de novo nor determine whether substantial evidence supports the interpretation by the jury. Instead, we must presume that substantial evidence supports the factual findings by the jury and its interpretation of the agreement. (Ibid.; Estate of Fain (1999) 75 Cal.App.4th 973, 992.) Accordingly, we conclude that Images Everywhere and JSP have shown no error in these regards.

2. The Directed Verdict on the Count for Breach of the Implied Covenant of Good Faith and Fair Dealing Was Proper

Images Everywhere and JSP contend even if Six Flags had the discretion to terminate the consulting relationship before the completion of all conversions, Six Flags was required to exercise its discretion in good faith and could terminate the relationship only because of a business necessity or similar compulsion. They assert such an obligation based on the implied covenant of good faith and fair dealing as an alternative basis for liability apart from breach of the express agreement.

The law implies in every contract a covenant of good faith and fair dealing providing that no party to the contract will do anything that would deprive another party of the benefits of the contract. (Wilson v. 21st Century Ins. Co. (2007) 42 Cal.4th 713, 720; Kransco v. American Empire Surplus Lines Ins. Co. (2000) 23 Cal.4th 390, 400.) The implied covenant protects the reasonable expectations of the contracting parties based on their mutual promises. (Carma Developers (Cal.), Inc. v. Marathon Development California, Inc. (1992) 2 Cal.4th 342, 373-374 (Carma Developers); Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1395.) The scope of conduct prohibited by the implied covenant depends on the purposes and express terms of the contract. (Carma Developers, supra, 2 Cal.4th at p. 373.) "The precise nature and extent of the duty imposed by such an implied promise will depend on the contractual promises." (Egan v. Mutual of Omaha Ins. Co. (1979) 24 Cal.3d 809, 818.)

The letter agreement stated that the parties agreed that Images Everywhere and JSP would "provide a turnkey photo operation at Six Flags St. Louis" and that "[t]he purpose of this agreement is to see if this type of consultant arrangement (hereinafter called `The Plan') would be feasible for both parties in the future." It stated that if Six Flags decided to implement "the Plan" in 2005 at other amusement parks, Images Everywhere and JSP would "make every effort to follow through with a strategy" for the conversion of all Six Flags ride and front gate photography operations and the parties would negotiate in good faith the terms of a contract to implement that strategy.4 It stated that if Six Flags decided not to continue the consulting relationship beyond 2004, Images Everywhere and JSP would operate the St. Louis photography business as a concession for five years and Six Flags would extend all of their existing license agreements for a period of five years. The express terms of the letter agreement did not establish any consulting relationship beyond the St. Louis conversion.

"The covenant of good faith and fair dealing, implied by law in every contract, exists merely to prevent one contracting party from unfairly frustrating the other party's right to receive the benefits of the agreement actually made. [Citation.] The covenant thus cannot `"be endowed with an existence independent of its contractual underpinnings."' [Citation.] " (Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317, 349.) The letter agreement did not state that the consulting relationship would continue beyond the St. Louis conversion, and the failure to continue the relationship after 2006 did not frustrate the plaintiffs' ability to receive the benefits of the agreement actually made. We therefore conclude as a matter of law that the implied covenant of good faith and fair dealing imposed no duty on Six Flags to continue the consulting relationship. (Ibid.; American Express Bank, FSB v. Kayatta (2010) 190 Cal.App.4th 563, 570.) Such a duty would not merely prevent Six Flags from depriving the plaintiffs of the benefits of the letter agreement, but instead would create an entirely new obligation.

A party is entitled to a directed verdict (Code Civ. Proc., § 630) if the evidence cannot support a verdict in favor of the opposing party as a matter of law. (Newing v. Cheatham (1975) 15 Cal.3d 351, 358-359; Baker v. American Horticulture Supply, Inc. (2010) 186 Cal.App.4th 1059, 1072.) Our review is de novo. (Baker, supra, at p. 1072.) Because the count for breach of the implied covenant of good faith and fair dealing is based on a particular claimed duty that did not exist as a matter of law, the directed verdict on that count was proper.

3. The Denial of the Motion for Leave to Amend the Complaint Was Proper

Images Everywhere and JSP contend the denial of their motion for leave to amend their complaint was error. Citing testimony by Gelfand and Tawgin, they argue that the purpose of the provision for a five-year extension of their license agreements upon the termination of the consulting relationship in the event that Six Flags "determine[d] not to implement the Plan past the first year" was to protect them against the risk that Six Flags would gain valuable information from them concerning the conversion of photography concessions without fully compensating them for that information.

Images Everywhere and JSP also cite an e-mail exchange in August and September of 2005 in which Gelfand and Tawgin expressed concerns about the potential corporate takeover of Six Flags and the effect of that on their existing photography concessions and the consulting relationship, particularly in light of the parties' failure to conclude their negotiations on a long-term agreement. Dennis responded in an e-mail:

"John and I are working on the new agreement. We have an existing agreement in place that addresses your existing operations if Six Flags does not continue the relationship. As I have reiterated several times, a plan had to be developed to address length and compensation before we proceed. The multi-year plan has been developed and we are in the process of analyzing several different scenarios to review with you both. I will contact you both once we have internally agreed on the final direction. We are as anxious to finalize as y'all are but we do have other planning, operating, and budgeting issues to address in conjunction with the photography project."

Images Everywhere and JSP argue that this evidence supports the existence of an "implied covenant" that if Six Flags terminated the consulting relationship after 2004 but before the completion of all of the conversions listed in the conversion schedule, they would be entitled to a five-year extension of their existing license agreements. They appear to be referring to an implied-in-fact covenant, as distinguished from the implied covenant of good faith and fair dealing implied in law in every contract. But they do not discuss the law governing an implied-in-fact covenant. Their argument is poorly explained. We construe their argument to be that the parties' course of dealings and other extrinsic evidence show that the provision in the letter agreement for a five-year extension of their license agreements was intended to apply if the consulting relationship was terminated at any time before the completion of all conversions.

A trial court may allow the amendment of a pleading at any time in the proceeding, including during trial. (Code Civ. Proc., §§ 576, 473, subd. (a)(1).) Leave to amend a complaint to conform to proof at trial should be liberally granted unless the defendant would be prejudiced by the introduction of new issues that the defendant has had no opportunity to defend. (Trafton v. Youngblood (1968) 69 Cal.2d 17, 31.) The decision whether to grant leave to amend a complaint to conform to proof at trial is committed to the discretion of the trial court. (Ibid.) The denial of a motion for leave to amend is prejudicial error only if the proposed amendment would support a valid claim for relief. (Huff v. Wilkins (2006) 138 Cal.App.4th 732, 746; Foxborough v. Van Atta (1994) 26 Cal.App.4th 217, 231.)

The proposed amendment would support a valid claim for relief only if the plaintiffs' interpretation of the letter agreement is reasonable in light of the extrinsic evidence. We cannot make that determination based on a single exhibit and selective testimony by the plaintiffs' witnesses without considering all of the evidence presented at trial bearing on this issue, including testimony by Dennis as the author of the e-mail. Absent a complete reporter's transcript, we cannot determine whether the plaintiffs' interpretation of the letter agreement is reasonable. Instead, in accordance with the presumption in favor of the judgment, we must presume that the evidence before the trial court could not support such an interpretation. We therefore conclude that Images Everywhere and JSP have shown no abuse of discretion in the denial of leave to amend.5

DISPOSITION

The judgment is affirmed. Six Flags and Qualex are entitled to recover their costs on appeal.

WE CONCUR:

KLEIN, P. J.

KITCHING, J.

FootNotes


1. Images Everywhere and JSP refer to this document as the conversion schedule.
2. The jury instructions were not included in the reporter's transcript, the appellants' appendix, or the respondent's appendix. We judicially notice the written instructions given, which were filed in the trial court. (Evid. Code, § 452, subd. (d).)
3. We judicially notice the verdict form, which was not included in the appellate record. (Evid. Code, § 452, subd. (d).) The trial court and the parties apparently regarded a "no" answer to this question as dispositive of the claim against Qualex as well.
4. Images Everywhere and JSP do not contend Six Flags failed to negotiate in good faith.
5. Images Everywhere and JSP therefore can show no prejudicial error in the granting of the motion in limine excluding evidence of damages resulting from the termination of their license agreements.

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