Mattoo v. 24/7, Inc. CA6 ( 2015 )

Filed 12/18/15 Mattoo v. 24/7, Inc. CA6
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication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.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SIXTH APPELLATE DISTRICT
ARVINO MATTOO et al., as Trustees, etc., H041398
(Santa Clara County
Plaintiffs and Respondents, Super. Ct. No. 1-13-CV240918)
v.
24/7, INC.,
Defendant and Appellant.
In 2001, 24/7 Customer, Inc. (24/7), a newly founded outsourcing company,
engaged Rajat Gupta to act as an advisor. Gupta was, at the time, a prominent
businessman. In connection with Gupta’s agreement to provide advisory services, 24/7
offered him the option to purchase 84,000 shares of 24/7 stock. At Gupta’s request, 24/7
granted the stock option to the Rajat A. Gupta Family Irrevocable Trust (the Trust). The
Trust exercised the option and paid the agreed upon price for the stock. When the shares
vested in 2005, 24/7 failed to deliver the stock certificate to the Trust. Nor did 24/7 do so
when the Trust first requested the stock certificate in August 2008, or when it made a
second request in January 2009. In September 2009, 24/7 informed the Trust that it had
no validly exercised stock option. Arvind Mattoo and Kanchan Gupta (the trustees), as
trustees of the Trust, sued 24/7 for breach of contract, among other claims, on February 8,
2013. 24/7 asserted numerous affirmative defenses in its answer.
The trial court granted summary adjudication to the trustees on their breach of
contract claim, rejecting 24/7’s affirmative defenses. The court then ordered specific
performance of 24/7’s obligation to issue the stock and stock certificate to the Trust.
On appeal, 24/7 contends it raised triable issues of material fact as to the elements
of the breach of contract claim and as to its statute of limitations, fraudulent inducement,
and equitable estoppel defenses, such that the court erred in granting summary
adjudication to the trustees. 24/7 further argues the court relied on inadmissible evidence
in granting summary adjudication in favor of the trustees and erred by ordering specific
performance.
We conclude 24/7 has raised triable issues of material fact as to at least one of its
affirmative defenses. Consequently, we reverse and remand with directions.
I. FACTUAL AND PROCEDURAL BACKGROUND
A. The Services Agreement and the Option Agreement
24/7, co-founded in 2000 by P.V. Kannan, provides business process outsourcing
services, such as call center operations.
Sometime prior to April 11, 2001, Kannan asked Gupta to act as an advisor to
24/7. Gupta was managing partner of McKinsey & Company and a prominent member
in the Southeast Asian business community at the time. In his deposition, Gupta testified
that Kannan wanted to “use [him] as an advisor and use [his] name on the advisory
board.” Gupta further testified that he made an oral agreement with Kannan to be an
advisor to 24/7 (the Services Agreement). According to Gupta, he agreed to give Kannan
advice when sought and to introduce Kannan to his contacts as “appropriate.” Gupta
testified that he received a stock option in return for the Services Agreement.
Kannan declared that, under the Services Agreement, Gupta was to be a
member of 24/7’s advisory board, provide advice, and introduce 24/7 “to senior
executives at major corporations that might be good candidates for [business process
outsourcing] services”; the Services Agreement did not concern the use of Gupta’s name.
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According to Kannan, he finalized the Services Agreement with Gupta through Anil
Kumar, a partner at McKinsey. Kannan declared that he offered to grant Gupta the
option to purchase additional shares in exchange for Gupta’s further agreement not to
become involved in any way with other business process outsourcing companies.
Kannan declared that Kumar said he would communicate that proposal to Gupta and that
Kumar “later emailed . . . back and said the proposal was acceptable to Mr. Gupta . . . .”
Gupta requested that the stock option be granted to the Trust. On April 11, 2001,
24/7 and the trustees on behalf of the Trust entered into a written agreement (the Option
Agreement) for the purchase of 84,000 shares of 24/7 stock at an exercise price of
$0.19 per share. The Option Agreement consisted of the “Notice of Grant of Stock
Option,” “the Stock Option Agreement,” and “the 2000 Stock Option Plan.”
The Notice of Grant of Stock Option provided the shares would vest over a four
year period, with the last of the shares vesting on April 11, 2005.
The Stock Option Agreement authorized 24/7 to repurchase unvested shares under
certain circumstances. It also contained an integration clause stating “[t]he Notice [of
Grant of Stock Option], this [Stock] Option Agreement and the [Stock Option] Plan
constitute the entire understanding and agreement of the [Trust] and [24/7] with respect
to the subject matter contained herein or therein and supersedes any prior agreements,
understandings, restrictions, representations, or warranties among the [Trust] and [24/7]
with respect to such subject matter.”
The Stock Option Plan stated that its “purpose” was “to advance the interests of
[24/7] and its shareholders by providing an incentive to attract, retain and reward persons
performing services for [24/7] and by motivating such persons to contribute to the growth
and profitability of [24/7].” It further provided that “Options may be granted only to
Employees, Consultants, and Directors,” including “prospective Employees, prospective
Consultants and prospective Directors to whom Options are granted in connection with
written offers of an employment or other service relationship with [24/7].”
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On April 11, 2001, Kannan sent Gupta a letter enclosing the Option Agreement. It
stated, in part: “As a token of appreciation for the guidance and support provided during
the early stages of the formation of 24/7Customer.com Inc., I would like to grant you a
stock option . . . subject to approval by the Board of Directors.” The letter closed with:
“We look forward to your continued guidance and support.” Kannan declared that he
used the “guidance and support” language at Kumar’s request. Kumar denied supplying
that language at deposition. Kannan further declared that Kumar discouraged him from
preparing a separate written agreement concerning “what . . . Gupta had agreed to do in
return for the options.” Kannan testified at deposition that he knew Gupta could not
provide consulting services to 24/7 because of his ongoing obligations to McKinsey.
The Trust provided written notice that it was exercising its option to purchase all
84,000 shares on April 11, 2001, and tendered a check for $15,960 (the cost of the shares
at the $0.19 exercise price). 24/7 acknowledged receipt of the executed stock option
paperwork and cashed the check.
B. Gupta’s Performance Under the Services Agreement
Kannan declared Gupta never introduced 24/7 to any potential customers. At his
deposition, Gupta recalled speaking to at least one company about using 24/7 as a vendor
and introducing Kumar to companies so that Kumar could, in turn, introduce them to
24/7. Gupta further testified that Kannan asked to be introduced to the CEOs of large
companies, such as AT&T. Gupta told Kannan that such introductions would be
inappropriate because CEOs of large institutions generally do not make decisions about
business process outsourcing vendors.
C. Gupta’s Involvement With Other Start Ups
At his deposition, Gupta testified that many young entrepreneurs came to him for
advice and that he was “keen to help” them. “Sometimes [he] invested in [those
entrepreneurs’] companies as an angel investor. Sometimes, . . . for the investment, they
gave both stock and options.” On some occasions, he entered into agreements to give
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“advice and guidance” to those companies. An accountant for Gupta and the Trust
testified that Gupta had disputes with two other companies regarding stock options.
Gupta further testified that he obtained stock options from another business
process outsourcing company in return for providing guidance and advice and became a
“special adviser” to yet another business process outsourcing company. Gupta further
testified that he had invested in a third company, which acquired the back office of an
insurance company that provided business process outsourcing services. Gupta testified
that he “didn’t feel [he] had any obligation to inform 24/7” about these investments and
there was no “obligation that [he not] advise, quote unquote, hundreds of [business
process outsourcing] companies that are in the space.”
Kumar opined that Gupta would never “agree to do anything [in return for options
from a start up], because . . . [h]ere is a man at the pinnacle of the corporate world.
Where is he ever going to do services for some tiny little company?” Kumar made that
statement in the context of discussing another company, not 24/7.
D. 2005 Repurchase Notice and Abandonment of Plan to Repurchase
On February 8, 2005, Kannan sent a letter to Gupta stating that 24/7 was
terminating Gupta’s stock option because of his involvement with its competitors, which
breached his agreement with the company. Kannan enclosed a check for $15,960, the
price the Trust had paid for the underlying shares. In his declaration, Kannan explained
that he sent the February 8, 2005 letter because he had learned through news articles and
press releases that Gupta was working with competing business process outsourcing
companies. Moreover, Gupta had done nothing to help 24/7 generate business.
According to Kannan, when he spoke with Gupta about the letter, Gupta promised to
make more efforts at introductions going forward and warned Kannan it would not be
good to have him as an adverse party. Therefore, Kannan abandoned the plan to
repurchase the Trust’s shares.
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E. The Trustees’ Attempts to Obtain a Stock Certificate in 2008 and 2009
On August 26, 2008, a financial advisor to Gupta and the Trust, Aaron Deuser,
e-mailed 24/7 requesting information regarding “an updated valuation” of the Trust’s
84,000 shares and “a stock certificate or partnership agreement representing Mr. Gupta’s
investment in [24/7].” 24/7 responded that Kannan would contact Gupta directly about
the request. Gupta did not hear from Kannan, which “raised a red flag” for Gupta.
Deuser again e-mailed 24/7 on January 15, 2009. In that e-mail, Deuser wrote: “I’m
trying to obtain a share certificate and current valuation for Mr. Gupta’s investment in
preparation of his year-end financial statements.” 24/7’s legal counsel responded to
Deuser on January 15, 2009, advising him to have Gupta contact Kannan directly because
“there are some issues regarding the shares.” Deuser testified that the January 15, 2009
e-mail indicated to him there was “a problem.”
Gupta e-mailed Kannan on February 13, 2009. He wrote: “you and I had a
discussion about [the options] and I thought everything was okay based on that. In any
event, I would appreciate a call from you or alternatively, please instruct your legal
department to give the information to . . . [Deuser] copied on this email.” Apparently,
Kannan did not respond.
On September 29, 2009, Deuser e-mailed Kannan: “I’m still trying to obtain the
share certificate for Rajat Gupta reflecting his exercising of the stock options he owned in
24/7. . . . Could you please provide an update regarding the situation and let me know
what if anything needs to be done in order to facilitate the process?” Kannan responded
the following day that “[t]here are no stock options that has [sic] been exercised validly
from our standpoint.” On November 4, 2009, 24/7 mailed Gupta a check for $15,960
made out to the Trust. 24/7 cancelled the Trust’s shares on January 31, 2011.
F. The Complaint and Answer
The trustees filed suit against 24/7 on February 8, 2013, asserting claims for
breach of contract, trespass to chattels, conversion, breach of the duty of good faith and
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fair dealing, and quiet title. The trustees alleged 24/7 had breached the Option
Agreement by wrongfully withholding shares of stock it sold to the Trust. 24/7 filed an
answer in which it asserted a number of affirmative defenses, including statute of
limitations, fraudulent inducement, estoppel, and breach of contract, including breach of
the duty of good faith and fair dealing.
G. The Motions for Summary Judgment or Adjudication
On March 7, 2014, the trustees moved for summary adjudication of their breach of
contract claim and of 24/7’s affirmative defenses. That same day, 24/7 moved for
summary judgment or in the alternative summary adjudication on the ground that all of
the trustees’ claims were barred by the applicable statutes of limitations.
24/7 submitted Kannan’s declaration in opposition to the trustees’ motion. The
trustees filed written objections in which they objected to large portions of that
declaration on hearsay and other grounds. The trial court declined to rule on the trustees’
written objections because they were not numbered as required by rule 3.1354(b) of the
California Rules of Court. The trustees reiterated their objections at the hearing. When
the court asked whether it had to rule on those objections, counsel for the trustees stated
that she was re-raising the objections “to preserve them should there be an appeal, so this
is really a technical matter.” She suggested that whether to rule on the objections was a
matter for the court’s discretion. The court did not do so.
On May 22, 2014, the court denied 24/7’s motion for summary judgment and
granted in part and denied in part its motion for summary adjudication. Specifically, the
court granted 24/7’s motion for summary adjudication as to the trustees’ trespass to
chattels and conversions claims. With respect to the breach of the duty of good faith and
fair dealing claim, the court treated 24/7’s motion as one for judgment on the pleadings
and granted that motion without leave to amend. The court denied 24/7’s motion for
summary adjudication as to the trustees’ breach of contract and quiet title claims. With
respect to the breach of contract claim, the court concluded the trustees had
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“demonstrated a triable issue of material fact as to when the Option Agreement was
repudiated, i.e., breached, and thus when its claim for breach of that agreement accrued,
triggering the four-year limitations period.”
The court granted the trustees’ motion for summary adjudication of the breach of
contract claim and 24/7’s affirmative defenses. As to 24/7’s affirmative defenses, the
court concluded 24/7 failed “to provide evidence which establishes each element of”
those defenses.
H. The Motion for Specific Performance, Judgment, and Appeal
The trustees moved for specific performance of the Option Agreement. The court
granted that motion on July 10, 2014, ordering 24/7 to reissue 336,000 shares of common
stock to the Trust, record the Trust as the holder of those shares in its corporate records,
and issue a certificate of ownership for the shares to the Trust.1 The court entered a
judgment “granting plaintiffs[’] . . . motion for specific performance and motion for
summary adjudication” the same day. 24/7 timely appealed the orders granting the
trustees’ motion for summary adjudication and ordering specific performance.
II. DISCUSSION
A. Appealability
Neither party has challenged the appealability of the judgment. “Nonetheless,
since the question of appealability goes to our jurisdiction, we are dutybound to consider
it on our own motion.” (Olson v. Cory (1983) 35 Cal.3d 390, 398.) Therefore, we
requested supplemental briefs addressing (1) whether and how the trial court disposed of
the trustees’ fifth cause of action for quiet title and (2) whether and why the judgment
appealed from is final. To the extent the quiet title cause of action remains pending, we
1
On January 12, 2013, 24/7 split its common stock in a four-to-one stock split,
thereby converting the 84,000 shares of common stock originally optioned to the Trust
into 336,000 shares of common stock.
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directed the parties to discuss whether the appeal nevertheless is proper under California
Assn. of Psychology Providers v. Rank (1990) 51 Cal.3d 1 (Rank) and Belio v. Panorama
Optics, Inc. (1995) 33 Cal.App.4th 1096 (Belio).
In a joint letter brief, the parties confirmed that the trial court never disposed of the
trustees’ fifth cause of action for quiet title and argued that the underlying judgment
nevertheless is appealable under Rank and Belio. We agree.
Generally, an order granting summary adjudication is an intermediate order that is
reviewable only on appeal from the final judgment in the action. (Areso v. CarMax, Inc.
(2011) 195 Cal.App.4th 996, 1001.) “A judgment that disposes of fewer than all the
causes of action framed by the complaint is not final in the fundamental sense as to any
parties between whom another cause of action remains pending.” (Sullivan v. Delta Air
Lines, Inc. (1997) 15 Cal.4th 288, 307.) Like an order granting summary adjudication, an
order for specific performance is not appealable where “all substantive issues between the
parties have not been resolved.” (Carver v. Teitsworth (1991) 1 Cal.App.4th 845, 851,
fn. 2.) As an exception to the general rule, courts have held that an order granting
summary adjudication that disposes of fewer than all of the causes of action in a lawsuit
may result in an appealable judgment where it “effectively disposed of the entire case.”
(Belio, supra, 33 Cal.App.4th at p. 1102 [construing appeal from an order granting
summary adjudication as to one of three causes of action to be an appeal from a final
judgment because the remaining claims were “purely ancillary to the first cause of
action” and were mooted by the order, such that the order disposed of the entire case];
Rank, supra, 51 Cal.3d at p. 9 [final judgment existed where trial court entered summary
judgment as to only one of seven causes of action because the “judgment effectively
disposed of the case”].)
Here, the challenged orders disposed of the entire case. “Once the trial court had
determined that” the Option Agreement was valid and ordered that 24/7 reissue the stock
to the Trust, “there would be no purpose in conducting further proceedings to decide
9
whether to compel the same result” by declaring that the Trust was the owner of the
disputed shares of stock (as requested in the quiet title action). (Rank, supra, 51 Cal.3d at
p. 9.) Accordingly, we conclude the judgment appealed from is appealable.
B. Standards of Review
“[W]here the plaintiff has . . . moved for summary judgment—or, as in this case,
summary adjudication—[it] has the burden of showing there is no defense to a cause of
action. (Code Civ. Proc., § 437c, subd. (a).) That burden can be met if the plaintiff ‘has
proved each element of the cause of action entitling [it] to judgment on that cause of
action.’ (Code Civ. Proc., § 437c, subd. (p)(1).) If the plaintiff meets this burden, it is up
to the defendant ‘to show that a triable issue of one or more material facts exists as to that
cause of action or a defense thereto.’ (Code Civ. Proc., § 437c, subd. (p)(1).)” (S.B.C.C.,
Inc. v. St. Paul Fire & Marine Ins. Co. (2010) 186 Cal.App.4th 383, 388.)
In reviewing an order granting summary adjudication of issues, we are governed
by the rules generally applicable to review of summary judgments. (See Tauber-Arons
Auctioneers Co. v. Superior Court (1980) 101 Cal.App.3d 268, 273.) Accordingly, we
review the entire record de novo to determine whether the moving and opposing papers
show a triable issue of material fact. (Addy v. Bliss & Glennon (1996) 44 Cal.App.4th
205, 214.) We may affirm on any legally correct ground, “regardless of the grounds
relied upon by the trial court.” (Becerra v. County of Santa Cruz (1998) 68 Cal.App.4th
1450, 1457.)
“A grant or denial of specific performance is reviewed under an abuse of
discretion standard.” (Real Estate Analytics, LLC v. Vallas (2008) 160 Cal.App.4th 463,
472.) “Discretion is abused only when in its exercise, the trial court ‘exceeds the bounds
of reason, all of the circumstances before it being considered.’ . . . A trial court will
abuse its discretion by action that is arbitrary or ‘ “that transgresses the confines of the
applicable principles of law.” ’ [Citations.] In appeals challenging discretionary trial
10
court rulings, it is the appellant’s burden to establish an abuse of discretion.” (Shaw v.
County of Santa Cruz (2008) 170 Cal.App.4th 229, 281.)
C. The Trustees Proved Every Element of Their Breach of Contract Claim
and 24/7 Failed to Raise a Triable Issue of Fact as to that Claim
“A cause of action for damages for breach of contract is comprised of the
following elements: (1) the contract, (2) plaintiff’s performance or excuse for
nonperformance, (3) defendant’s breach, and (4) the resulting damages to plaintiff.”
(Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371,
1388.)
With respect to the first element—the existence of a valid contract—24/7 contends
there was a failure of consideration, which entitled it to rescind the Option Agreement.
Specifically, 24/7 maintains the Services Agreement constituted consideration for the
option grant itself. Because, says 24/7, Gupta breached the Services Agreement, the
consideration underlying the Option Agreement failed. The company claims that failure
of consideration excused it from performing under the Option Agreement. The trustees
respond that the Option Agreement was supported by adequate consideration: the
$15,960 the Trust paid for the shares.
To resolve the dispute, we consider the law governing options. An option is a
contract to keep an offer open for a prescribed period of time. (1 Witkin, Summary of
Cal. Law (10th ed. 2005) Contracts, § 168, p. 204.) Where the option is supported by
consideration, it is irrevocable. (Ibid.; City of Orange v. San Diego County Employees
Retirement Assn. (2002) 103 Cal.App.4th 45, 51.) If consideration is not given, the
option is revocable at any time. (1 Witkin, supra, Contracts, § 168, p. 204.)
“ ‘If the offer be accepted upon the terms and in the time specified, then a bilateral
contract arises which may become the subject of a suit to compel specific performance, if
performance by either party thereafter be refused.’ ” (Steiner v. Thexton (2010) 48
Cal.4th 411, 418.) Put differently, “ ‘[a]n option is transformed into a contract of
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purchase and sale when there is an unconditional, unqualified acceptance by the optionee
of the offer in harmony with the terms of the option and within the time span of the
option contract.’ ” (Id. at p. 420.) Thus, “ ‘[a]n option based on consideration
contemplates two separate [contracts], i.e., the option contract itself, which for something
of value gives to the optionee the irrevocable right to buy under specified terms and
conditions, and the mutually enforceable agreement to buy and sell into which the option
ripens after it is exercised.’ ” (Ibid.)
24/7 argues that the promises Gupta made in the Services Agreement provided
consideration for the option, and that consideration failed when Gupta breached the
Services Agreement. It is entirely possible that 24/7 granted the option to Gupta in
exchange for his promise to advise and support the company. Stock options frequently
are given in similar circumstances, such as “to employees as an inducement to continue
employment or to put forth greater efforts . . . .” (Newberger v. Rifkind (1972) 28
Cal.App.3d 1070, 1075.) But “[t]he adequacy of the consideration for the option is not a
material question here.” (W.G. Reese Co. v. House (1912) 162 Cal. 740, 744.) When the
Trust exercised the option, “a contract of purchase, binding [24/7] to sell and the [Trust]
to buy, became complete. It is this contract which the [Trust] is seeking to enforce, not
the agreement for an option, which was immediately executed. Even if an option be
given without any consideration, a binding agreement of purchase and sale results from
an acceptance of the option during its life.” (Id. at pp. 744-745.) Accordingly, whether
the consideration for the option failed is irrelevant. Because the Trust properly exercised
the option, 24/7 is contractually obligated to sell it 84,000 shares of stock. For the
foregoing reasons, we conclude the trustees proved the first element of their breach of
contract claim: the existence of a contract (the Option Agreement) binding 24/7 to sell
and the Trust to buy 84,000 shares of 24/7 stock.
Turning to the remaining elements of the trustees’ claim, it is undisputed that the
Trust performed by paying 24/7 $15,960, the cost of the shares at the $0.19 exercise
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price. 24/7 asserts Gupta’s involvement with its competitors “breached his agreement
with 24/7 and breached his duty of good faith and fair dealing.” This argument fails for
the same reasons 24/7’s lack of consideration argument fails—regardless of whether
Gupta breached the Services Agreement, there exists a separate binding contract under
which 24/7 is obligated to sell and the Trust is obligated to buy 84,000 shares of 24/7
stock. That contract to buy and sell arose when the Trust exercised its stock option. 24/7
breached the contract by refusing to provide the stock certificate and cancelling the
Trust’s shares. A lack of consideration did not excuse 24/7’s performance for the reasons
stated above. The Trust was damaged as a result of 24/7’s breach in that it did not
receive the 84,000 shares for which it paid.
In sum, the trustees met their burden by proving each element of their breach of
contract cause of action. Thus, the burden shifted to 24/7 “ ‘to show that a triable issue of
one or more material facts exists as to that cause of action or a defense thereto.’ ”
(S.B.C.C., Inc. v. St. Paul Fire & Marine Ins. Co., supra, 186 Cal.App.4th at p. 388.)
24/7 failed to show that a triable issue of material fact exists as to the trustees’ breach of
contract claim for the reasons discussed above. Below, we consider whether it did so
with respect to its defenses.
D. 24/7’s Affirmative Defenses
1. Statute of Limitations Defense
a. The Parties’ Contentions
24/7 maintains it was required to perform under the Option Agreement (by
providing the Trust with a share certificate) after the option had been exercised, the
shares had been paid for, and the shares had vested. Each of those conditions was
satisfied by April 11, 2005. 24/7 further argues that, while its performance was due on
April 11, 2005, the Trust chose to defer the required performance until it (through
Deuser) demanded the share certificate on August 26, 2008, and again on January 15,
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2009. According to 24/7, its refusal to provide the Trust with a share certificate at that
time constituted an actual breach. Thus, 24/7 contends, the limitations period on the
Trust’s breach of contract claim began to run no later than January 15, 2009, when 24/7’s
legal counsel told Deuser, “there are some issues regarding the shares.” The trustees filed
suit more than four years later, on February 8, 2013, such that their breach of contract
claim is time-barred.
The trustees respond that the time for complete performance of the Option
Agreement never arrived because the parties had ongoing contractual obligations.
For example, the Trust was obligated to not sell its shares without providing notice to
24/7 and the opportunity to exercise a right of first refusal, while 24/7 had the ongoing
obligation to recognize the Trust as a shareholder. (The trustees do not explain when, if
ever, complete performance was due.) According to the trustees, the question is when
24/7 “evidenced an intent to either abandon, rescind, or repudiate the parties’ contract.”
They say 24/7 did so on September 30, 2009, when Kannan informed the Trust that
“[t]here are no stock options that has [sic] been exercised validly from our [24/7’s]
standpoint.” In the trustees’ view, the January 15, 2009, communication did “not
constitute a clear repudiation of the parties’ agreement.” And “even if 24/7’s failure to
provide the Trust with its share certificates and valuation information on either April 11,
2005, or in response to the Trust’s financial advisor’s inquiry in August of 2008, were
actionable breaches, the Trust was entitled to continue to rely on the parties’ contract
absent mutual abandonment until the time for complete performance had arrived.” The
trustees argue that their breach of contract claim is timely because they filed suit within
four years of 24/7’s September 30, 2009 anticipatory repudiation of the Option
Agreement.
In sum, the parties dispute when 24/7’s performance was due and whether its
breach was actual or anticipatory.
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b. Legal Framework
Section 337, subdivision 1 of the Code of Civil Procedure prescribes a four year
limitations period for breach of contract claims.
“When a contractual provision specifies the time for performance, that time will
generally be given effect.” (1 Witkin, supra, § 764, p. 854.) “If the contract does not
specify the time of performance, and the act cannot be done ‘instantly’ (see infra, § 763),
a reasonable time is allowed.” (Id., § 762, p. 853.) “Where no time is specified for
performance, a person who has promised to do an act in the future and who has the ability
to perform does not violate his agreement unless and until a demand for performance is
made and performance is refused, except in situations (not here present) where the
evidence shows that the delay has operated to the detriment of the promisee to such an
extent as to render the delayed performance valueless, and the promisor was charged with
knowledge of such special circumstances.” (Leonard v. Rose (1967) 65 Cal.2d 589,
592-593.)
“There can be no actual breach of a contract until the time specified therein for
performance has arrived.” (Taylor v. Johnston (1975) 15 Cal.3d 130, 137.) A breach by
anticipatory repudiation may occur before the time for performance. (Ibid.) An
anticipatory breach occurs when one of the parties to a bilateral contract expressly
repudiates the contract by a clear, positive, unequivocal refusal to perform. (Ibid.)
24/7 bore the burden to show that a triable issue of one or more material facts
exists as to its statute of limitations defense. (S.B.C.C., Inc. v. St. Paul Fire & Marine
Ins. Co., supra, 186 Cal.App.4th at p. 388.) It was not required to establish each element
of that defense, as the trial court stated.
c. Analysis
We begin by considering the time for performance: when was 24/7 obligated to
deliver the share certificate to the Trust? As noted above, a contractual provision on
point will govern. (1 Witkin, supra, § 764, p. 854.) Section 13.2 of the Option
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Agreement, entitled “Delivery of Shares to Optionee,” appears to specify the time for
performance. It provides: “As soon as practicable after the expiration of the Unvested
Share Repurchase Option, but not more frequently than twice each calendar year, the
escrow agent shall deliver to the Optionee the shares and any other property no longer
subject to such restriction.”2 We conclude there exists a triable issue of material fact as
to whether section 13.2 required 24/7 to deliver a share certificate evidencing the Trust’s
ownership of 84,000 shares to the Trust “[a]s soon as practicable” after the shares vested
in April 2005.
If the Option Agreement does not specify a time for performance of 24/7’s
obligation to provide the Trust with a stock certificate, then 24/7 was not in breach until
the Trust demanded performance and 24/7 refused. (Leonard v. Rose, supra, 65 Cal.2d at
pp. 592-593.) There exists a triable issue of material fact as to when, if ever, the Trust
demanded 24/7’s performance.
On August 26, 2008, Deuser wrote in an e-mail to 24/7, “In addition to the
Fair Market Value [of the 84,000 of 24/7 stock], I am also trying to obtain stock
certificate or partnership agreement representing Mr. Gupta’s investment in [24/7]. Any
information you could provide for either of these items would be greatly appreciated.”
On January 15, 2009, Deuser sent a second e-mail to 24/7 stating: “I’m trying to obtain a
share certificate and current valuation for Mr. Gupta’s investment in preparation of his
year-end financial statements.” 24/7 contends those e-mails constituted demands; the
2
Under the terms of the Option Agreement, the “Unvested Share Repurchase
Option” permits 24/7 to repurchase unvested shares from (1) an optionee whose service
to the company has been terminated or (2) an optionee who attempts to transfer unvested
shares. The Unvested Share Repurchase Option expires within 60 days after (1) the
optionee’s service is terminated or (2) 24/7 learns of the attempted transfer of unvested
shares. The Option Agreement further provides that 24/7 “may require the Optionee to
deposit the certificate evidencing the shares which the Optionee purchases upon exercise
of the Option with an [escrow] agent designated by [24/7] under the terms and conditions
of an escrow agreement approved by [24/7].”
16
trustees disagree. We conclude there exists a triable issue of material fact as to whether
either of those e-mails constituted a demand for performance.
We find the trustees’ contention that the time for performance had not arrived due
to ongoing contractual obligations to be unpersuasive. The Trust could not have
performed its ongoing obligations—not selling its shares without providing notice to 24/7
and the opportunity to exercise a right of first refusal—if it never received the stock in the
first place. Nor could 24/7 recognize the Trust as a shareholder under those
circumstances.
2. Fraud in the Inducement Defense
24/7 contends summary adjudication was improper because a triable issue of fact
exists as to whether Gupta committed fraud in the inducement.
Fraud in the inducement is a subset of the fraud tort occurring when the promisor’s
consent is induced by fraud. (Hinesley v. Oakshade Town Center (2005) 135
Cal.App.4th 289, 294.) “[A] contract induced by fraud renders the entire agreement
voidable, permitting the aggrieved party to defend a suit on the contract by objecting to
its enforcement because procured or induced by fraud.” (Filet Menu, Inc. v. C.C.L. & G.,
Inc. (2000) 79 Cal.App.4th 852, 861.) “To establish a claim of fraudulent inducement,
one must show that the defendant did not intend to honor its contractual promises when
they were made.” (Food Safety Net Services v. Eco Safe Systems USA, Inc. (2012) 209
Cal.App.4th 1118, 1131.) “As our Supreme Court has explained, although that
fraudulent intent is often established by circumstantial evidence, ‘ “something more than
nonperformance is required to prove the defendant’s intent not to perform his
promise.” ’ ” (Ibid.)
24/7 contends Gupta induced it to enter the Option Agreement with promises to
make introductions on 24/7’s behalf and not to work with 24/7 competitors, but Gupta
never intended to keep those promises. The only evidence of Gupta’s promises is
Kannan’s declaration. Specifically, Kannan declared that Gupta agreed to introduce 24/7
17
“to senior executives at major corporations that might be good candidates for [business
process outsourcing] services.” Kannan further declared that Kumar told him Gupta had
agreed not to become involved in any way with other business process outsourcing
companies. Below, the trustees objected to the foregoing portions of Kannan’s
declaration on hearsay grounds. As noted above, the trial court failed to rule on any of
the trustees’ evidentiary objections, as it was required to do. (Reid v. Google, Inc. (2010)
50 Cal.4th 512, 532 [“The trial court must rule expressly on” written evidentiary
objections made before the summary adjudication hearing and oral objections made at the
hearing].) The parties devote little real estate in their appellate briefs to discussing the
outstanding evidentiary objections. The trustees simply reiterate their hearsay objections;
they do not attempt to anticipate and refute 24/7’s responses based on the briefing below.
24/7 address portions of the trustees’ hearsay objections in a two sentence footnote in its
reply brief.
“Rulings on the evidentiary objections are necessary before the trial court or this
court can determine whether [24/7] has presented admissible evidence that demonstrates”
a triable issue of material fact exists as to its fraud in the inducement defense. (Hall v.
Time Warner, Inc. (2007) 153 Cal.App.4th 1337, 1347-1348 (Hall); Martin v. Inland
Empire Utilities Agency (2011) 198 Cal.App.4th 611, 630 (Martin) [same].) Where, as
here, the trial court fails to rule on evidentiary objections, we are free to review them as a
matter of first impression. (Reid v. Google, Inc., supra, 50 Cal.4th at p. 535.) We decline
to do so for two reasons. First, rulings on the evidentiary objections “ ‘can involve a
number of considerations more suited to the trial court than the appellate courts,
including an exercise of discretion in establishing the record to be reviewed de novo.’ ”
(Parkview Villas Assn., Inc. v. State Farm Fire & Casualty Co. (2005) 133 Cal.App.4th
1197, 1217 (Parkview Villas); see Hall, supra, at p. 1348 [“Rulings on evidentiary
objections involve an exercise of discretion, and it is the trial court’s responsibility to rule
on the objections in the first instance.”]; Martin, supra, at p. 630 [same].) It is for this
18
reason that the trial court bears the responsibility to rule on the objections in the first
instance and that we review evidentiary rulings made on summary judgment for abuse of
discretion. (Parkview Villas, supra, at pp. 1217-1218.) Second, the evidentiary
objections are not thoroughly briefed on appeal. Therefore, we shall direct the trial court
on remand to rule on the Trust’s evidentiary objections and then decide whether 24/7 has
demonstrated a triable issue of material fact exists as to its fraud in the inducement
defense. (Hall, supra, at p. 1348.)
3. Equitable Estoppel Defense
24/7 maintains the trustees are estopped from arguing that it is too late, under the
Option Agreement, for 24/7 to repurchase the Trust’s shares because Gupta fraudulently
induced 24/7 not to cancel the Trust’s shares earlier. 24/7 relies on paragraphs 19 and 21
of Kannan’s declaration for its contention that Gupta and Kumar induced Kannan not to
cancel the Trust’s shares in 2001 or 2005, despite his dissatisfaction with Gupta’s
performance. Below, the trustees objected to both of those paragraphs of the Kannan
declaration on hearsay grounds. For the reasons discussed above in the context of 24/7’s
fraudulent inducement defense, we shall remand to the trial court to rule on the trustees’
evidentiary objections and then decide whether 24/7 has demonstrated a triable issue of
material fact exists as to its equitable estoppel defense.
E. Specific Performance and 24/7’s Evidentiary Objection
Because the court erred in granting summary adjudication to the trustees on their
breach of contract claim, it follows that the court also erred in granting specific
performance.
Finally, 24/7 contends the trial court abused its discretion in overruling 24/7’s
objections to portions of the trustees’ counsel’s declaration, which purported to interpret
the Option Agreement. Specifically, the court overruled relevance objections to the
following statements in counsel’s declaration: (1) “The Stock Option Agreement
contains an integration clause indicating that matters concerning the options are governed
19
by a written agreement comprising the Notice of Grant, the 2000 24/7Customer.com
Stock Option Plan and the 24/7Customer.com Stock Option Agreement”; (2) “To
repurchase unvested options, 24/7 had to provide the Optionee written notice that it was
exercising its unvested share repurchase option”; and (3) “This written notice had to be
provided within 60 days of either (1) the termination of the Optionee, (2) the exercise of
the Option (if later than termination), or (3) the attempted disposition of unvested shares
by the Optionee.”
“We review a trial court’s evidentiary rulings for abuse of discretion.” (Shaw v.
County of Santa Cruz, supra, 170 Cal.App.4th at p. 281.) “A judgment of the trial court
may not be reversed on the basis of the erroneous admission of evidence, unless that error
was prejudicial. (Code Civ. Proc., § 475.) The record must show that the appellant
‘sustained and suffered substantial injury, and that a different result would have been
probable if such error . . . had not occurred or existed.’ ” (Grail Semiconductor, Inc. v.
Mitsubishi Electric & Electronics USA, Inc. (2014) 225 Cal.App.4th 786, 799; see Cal.
Const., art. VI, § 13; Evid. Code, §§ 353, 354.) “ ‘Prejudice is not presumed, and the
burden is on the appealing party to demonstrate that a miscarriage of justice has
occurred.’ ” (Turman v. Turning Point of Central California, Inc. (2010) 191
Cal.App.4th 53, 58.)
24/7 does not even attempt to show the trial court’s admission of the objected-to
portions of the declaration was prejudicial. It does not offer competing constructions of
the contractual provisions at issue, nor does it explain how the trustees’ constructions
influenced the outcome of the summary adjudication motion. Accordingly, 24/7 has
failed to carry its burden to show that the trial court’s admission of the trustees’ counsel’s
declaration constituted reversible error.
III. DISPOSITION
The judgment is reversed and the matter is remanded to the trial court with
directions to vacate its orders granting summary adjudication to the trustees on their
20
breach of contract claim and ordering specific performance. The trial court is further
directed to rule on the Trust’s evidentiary objections and then decide whether 24/7 has
demonstrated a triable issue of material fact exists as to its fraud in the inducement or
equitable estoppel defenses. The matter should then proceed to trial on 24/7’s statute of
limitations defense and any other defense as to which the court concludes there is a
triable issue of material fact. 24/7 shall recover its costs on appeal.
21
Premo, J.
I CONCUR:
Elia, J.
RUSHING, P.J., Concurring and Dissenting.
I concur in the majority opinion insofar as it concludes that plaintiff trustees have
established an entitlement to judgment on their contract claim, albeit one remaining
subject to affirmative defenses. I also concur that the trustees failed to establish an
entitlement to summary adjudication on defendant 24/7’s statute of limitations defense. I
disagree, however, that we should punt the fraudulent inducement defense and equitable
estoppel defenses back to the trial court for rulings on the trustees’ evidentiary objections.
There is only one correct ruling on those objections, which we are as well positioned as
the trial court to determine. A ruling by us would conclude the issue and save the parties
and the trial court—and potentially ourselves in a future appeal—the time otherwise
required to bring the issue to a final resolution. Since it is ripe for resolution right now, I
can conceive of no sound basis not to decide it.
The majority cites a number of cases suggesting that trial court rulings on
evidentiary objections provide a necessary predicate to effective appellate review of an
order granting summary judgment. This proposition does not withstand even the most
cursory scrutiny. It is suggested that resolving such objections “ ‘can involve a number
of considerations more suited to the trial court than the appellate courts,’ ” but the only
such “consideration[]” specified is “ ‘an exercise of discretion in establishing the record
to be reviewed de novo.’ ” (Maj. opn. at p. 18, quoting Parkview Villas Ass’n, Inc. v.
State Farm Fire and Cas. Co. (2005) 133 Cal.App.4th 1197, 1217-1218.) But a law and
motion judge rarely has any “discretion” in ruling on evidentiary matters, and never has
any advantage over an appellate court of the kind that generally justifies vesting trial
court evidentiary rulings with a cloak of deference. There is no demeanor evidence
before the court to potentially influence the meaning to be given to testimony. There are
none of the problems of efficient time management or jury confusion often implicated by
evidentiary issues at trial. There are only papers, the admissibility of which will usually,
if not always, present pure questions of law. Certainly none of the objections at issue on
this appeal hinge, even arguably, on anything entrusted to the discretion of the trial court.
Nor do I see how the trial court’s ruling (or failure to rule) can be said to
“establish[] the record to be reviewed” on appeal. (Parkview Villas Ass’n, Inc. v. State
Farm Fire and Cas. Co., supra, 133 Cal.App.4th at p. 1217.) On a motion for summary
judgment, evidentiary issues arise when one party submits evidence in support of or
opposition to the motion and the adverse party contends that the evidence is not
admissible to prove the point on which it is offered. When that occurs, the trial court will
either sustain the objection, overrule it, or—as in this case—fail to rule. Whatever the
court does, our task on review is, or should be, the same: to determine whether the
objection was well taken. In the vast majority of cases—quite possibly all of them—this
will be a pure question of law, in our review of which the trial court’s ruling poses no
constraint whatsoever.
Here the evidentiary issues are fairly simple, though of a type that seems to give
considerable difficulty to many practicing attorneys, and more than a few judges. As
evidence that Gupta fraudulently induced 24/7’s entry into the Option Agreement, 24/7
relied on the declaration of PV Kannan, CEO and co-founder of 24/7, concerning
statements made to him by Gupta and by Amil Kumar. Kumar, whom Kannan knew,
was a partner at McKinsey & Co., a global consulting firm of which Gupta was the
managing director or chief executive. Kannan hoped to enlist Kumar and, through him,
Gupta, to “provide services and assistance” to 24/7 by joining its advisory board and
giving counsel as well as providing contacts to potential customers. Kumar put Kannan
in touch with Gupta, with whom Kannan spoke on one occasion by telephone. During
this conversation, Kannan declared, Gupta evinced a “willing[ness] to introduce me, and
24/7, to senior executives at major corporations that might be good candidates for BPO
services.” Gupta also told Kannan that “because of his challenging schedule, I should
arrange whenever possible any calls or possible meetings through one of his McKinsey
assistants. He also told me that I should not hesitate to communicate through Mr. Kumar,
since Mr. Kumar was located near to me and 24/7, and Mr. Kumar and he spoke or saw
each other on a fairly regular basis.” After that, all communications leading to the option
agreement took place through “either Mr. Kumar or Mr. Gupta’s assistant.”
Kannan declared that during the ensuing discussions he told Kumar that 24/7 was
2
willing to grant Kumar and Gupta more options than would otherwise be granted an
advisory board member, “in return for their agreement not to become involved in any
way with another BPO company while they were acting as advisors to 24/7.” In
response, “Kumar said the proposal was acceptable to him and that he would talk to
Mr. Gupta and get back to me. He later emailed me back and said that the proposal was
acceptable to Mr. Gupta as well.” Based on this understanding, 24/7 granted the options.
The gist of 24/7’s fraudulent inducement defense is that Kumar and Gupta gave
these undertakings without the intention to perform them, thereby inducing 24/7 to grant
the options the trustees seek by this action to enforce. The evidentiary question is
whether Kannan’s averments concerning these undertakings are admissible over the
trustees’ hearsay objection. The answer, as any bar exam grader will tell you, is yes—
because they are not hearsay at all.
In analyzing any hearsay objection, the first question must always be whether the
extrajudicial statement is being “offered to prove the truth of the matter stated.” (Evid.
Code, § 1200, subd. (a).) If it is not, then it does not qualify as hearsay, and no hearsay
objection can lie. Innumerable errors have been made in the past, and many more will
undoubtedly be made in the future, by failing to rigorously inquire, at the very threshold
of the hearsay analysis, whether the statement is offered to prove its truth. Here the
statements at issue plainly are not. This is most obvious with the statements by Kumar
and Gupta concerning their own respective undertakings. Kannan’s averment that they
each agreed to assist 24/7 with introductions to potential customers is admissible over a
hearsay objection and is enough, coupled with evidence of the other elements of the
defense, to establish fraudulent inducement.
A somewhat more difficult question is posed by the question whether Kannan
could competently testify, over a hearsay objection, that Kumar told him Gupta had
agreed not to assist 24/7’s competitors. I am unsure that this question is actually
presented, since Kannan’s declaration fails to directly aver that any such representation
was made. Assuming he sought to so testify, however, I have no doubt that the testimony
would survive a hearsay objection. The evidence would be offered to show not that
3
Gupta actually told Kumar he agreed to the noncompetition term. The evidence would be
offered to show that Kumar made that representation to Kannan in order to induce 24/7 to
grant the options. It might be open to the trustees to argue that Gupta could not be held
responsible for such a representation without evidence that he authorized its making, but
that is a question of substantive law, not an evidentiary issue. If the representation was
relevant to the fraudulent inducement defense—as it manifestly was—then its truth was
irrelevant.
Indeed 24/7’s fraudulent inducement defense presupposes that all of the
extrajudicial statements on which it relied were false, i.e., that neither Gupta nor Kumar
intended to provide introductions to customers or to refrain from assisting competitors.
Kumar’s once-removed representation about Gupta’s intentions is potentially confusing
because it seems at first blush to depend for its relevance on its truth, i.e., that Gupta
really had told Kumar he intended to avoid aiding 24/7’s competitors. But this
appearance is deceiving. In reality it does not matter whether Gupta told Kumar that he
would refrain from helping competitors. What matters is that Kumar told Kannan Gupta
had given such an undertaking, knowing that 24/7 would rely on it. If this verbal act was
imputable to Gupta, then it is admissible against him; and if his actions are imputable to
the trustees in support of a fraudulent inducement defense, then his agent’s acts are
presumably imputable to them as well.
The same reasoning requires that the trustee’s objections be overruled insofar as
they concern the averments of Kannan’s declaration on which 24/7 relies to establish a
triable issue of fact with respect to its claim that the trustees are equitably estopped from
challenging as untimely 24/7’s attempt to repurchase the option. According to 24/7, such
an estoppel arises from statements by Kumar and Gupta intended to induce inaction from
24/7 until the time for repurchase had passed. In one of the challenged paragraphs,
Kannan declared that in 2001, after some 24/7 managers expressed a desire to terminate
the options because 24/7 had received nothing of value in exchange for them, Kannan
“spoke with Mr. Kumar and explained to him that people at 24/7 were very disappointed
and unhappy because Mr. Gupta had not done anything at all. . . . Mr. Kumar . . . told me
4
to be patient, . . . that he would also get Mr. Gupta to be more active.” In the other
challenged paragraph, he declared that after 24/7 learned of reports that Gupta had
invested in and promoted a competitor, he attempted to contact Gupta but was instead
limited to communicating with Kumar, who told him “that he had spoken to Mr. Gupta
and Mr. Gupta had assured him that Mr. Gupta was not an investor” in the competitor. In
response to complaints about difficulties in communicating with Gupta, Kumar
“assuaged us by agreeing that there would be a telephone conference at least once a
month with Mr. Gupta concerning introductions.”
None of these averments are even arguably hearsay. Again they are offered as
false assertions uttered by Gupta, or by Kumar on Gupta’s behalf, to lull 24/7 into
refraining from terminating the options. As this court has previously noted, evidence of a
statement whose proponent contends that the statement was false when made simply
cannot satisfy the definitional requirement for a hearsay objection, i.e., that the statement
be “offered to prove the truth of the matter stated.” (See Cheal v. EI Camino Hospital
(2014) 223 Cal.App.4th 736, 747, fn.6 [error to exclude as hearsay plaintiff’s account of
supervisor’s assertedly false accusation: “A statement offered for such a purpose can
never offend the rule against hearsay.”].) Since this applies to all of the statements on
which 24/7 relies to establish its fraudulent inducement defense, those statements were
admissible over the trustees’ hearsay objection. And since those statements were
sufficient to establish a triable issue of fact on that defense, the trial court erred—and will
err again on remand if it repeats the ruling—by granting summary adjudication in the
trustees’ favor. I would so hold here and now, permitting this matter to proceed to trial
on that and such other defenses as have survived the trustees’ motion.
______________________________________
RUSHING, P.J.
5