Bel Vino, LLC v. Stuart CA4/1 ( 2016 )

Filed 9/26/16 Bel Vino, LLC v. Stuart CA4/1
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.
COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
BEL VINO, LLC, et. al., D069902
Plaintiffs and Appellants,
v. (Super. Ct. No. RIC 1204612)
MARSHALL STUART et.al.,
Defendants and Respondents.
APPEAL from a judgment and order of the Superior Court of Riverside
County, John W. Vineyard, Judge. Affirmed.
Lieberg, Oberhansley & Strohmeyer and William H. Strohmeyer for
Plaintiffs and Appellants.
Spaulding, Gomm & Brammer and J. Brady Brammer for Defendants and
Respondents.
Plaintiffs Bel Vino, LLC (Bel Vino); Mike Janko (Janko), an individual and
as Trustee of Bel Vue Trust u/t/a dated October 17, 2011, and American Estate
and Trust, LLC (collectively plaintiffs) appeal from a judgment and posttrial order
in favor of defendants Marshall J. Stuart (Marshall), Susan E. Stuart (together the
Stuarts) and Stuart Cellars, LLC (Stuart Cellars, collectively with the Stuarts,
defendants) on claims related to their purchase of a winery from defendants.
Plaintiffs claim the trial court erred in denying their request for relief from their
waiver of a jury trial. They contend substantial evidence does not support the trial
court's findings against them on their claims for misrepresentation, concealment
and breach of contract related to the condition of the property. Plaintiffs also
assert the trial court erred in: (1) reforming the deed to reserve cell tower lease
payments to defendants; (2) amending defendants' cross-complaint at the close of
evidence; and (3) awarding defendants their expert witness fees. We affirm.
I.
FACTUAL AND PROCEDURAL BACKGROUND
In 1994, Marshall Stuart, a general contractor, and his then wife, Susan,
purchased real property (the property) located in Temecula. The Stuarts opened
Stuart Cellars, a winery, on the property. George Cartwright acted as the chief
operating officer for Stuart Cellars. At some point in time, cell towers were
constructed on the property. In 2007, Riverside County cited defendants for
operating an unpermitted winery. Defendants later submitted and obtained
approval for a plot plan subject to certain conditions of approval. Marshall
understood that the purpose of the plot plan was to legalize the winery. In 2011,
the Stuarts sought to sell the winery due to their divorce.
2
Danny Martin, a commercial real estate appraiser and grape farmer, learned
from Cartwright that the property was for sale. Michael Newcomb, Marshall's
attorney, introduced Martin to Janko.1 Martin conveyed to Newcomb that Janko
was a very sophisticated buyer. Janko later hired Martin to help him purchase a
winery, or land to develop into a vineyard. Martin told Janko that the Stuart
Cellars property was for sale and the men went to look at the property. Martin
drafted a letter of intent on the property for Janko, as an undisclosed principal.
The letter of intent provided for a 30-day closing period.2 After Martin signed the
letter of intent, he assigned it to Janko on August 19, 2011. Around that same
time, Marshall signed a term sheet with AP Wireless to sell the income stream
from two leases on the cell tower for $250,000. AP Wireless did not sign the term
sheet.
On August 30, 2011, Janko and Stuart met to discuss questions Janko had
about the winery. At that meeting, Janko learned about regulatory or government
interface issues that needed to be addressed on the property, including: bringing a
1 Newcomb was later named as a defendant, but is not a party to this appeal.
2 Janko had the transaction set for a 30-day escrow period because he wanted
to move quickly. Martin considered that time period to be "light speed" for a
winery transaction. Apparently, Stuart Cellars held an annual clam bake for the
public and Janko wanted to close the deal before the annual clam bake so he could
realize the income from the event. Ultimately, the transaction closed on October
25, 2011, but was made retroactive to October 21 — 32 days after the contracts
were signed.
3
fire line from the street; hooking up to a new public sewer system; and adding
ingress and egress lanes.
On September 19, 2011, the parties executed an asset purchase agreement
(APA) to purchase the assets of the winery and a real property purchase and sale
agreement (RPPA) to purchase the property. That same day, Martin became the
manager for Bel Vino, acting on behalf of and at the direction of Janko. Section
5.4 of the APA, titled "Compliance with Law," addressed zoning and land use
matters. That section stated that the property was "subject to those requirements
under the Plot Plan Application and Conditions of Approval affecting the Real
Property."
The RPPA stated that the "Property" being sold included defendants'
interest in "all leases and other rental arrangements for occupancy of the Real
Property . . . including without limitation all rights to collect future rents." The
RPPA provided for a "feasibility period" where defendants had five days
following the effective date of the agreement to provide plaintiffs with a list of
materials regarding the property, including "any notices of violation or default
received by any governmental authority with respect to the property." Thereafter,
plaintiffs were required to conduct a due diligence review of the property.
Janko understood that the contracts he signed provided for a feasibility
period and a due diligence period, and that he could "back out of the contract" if
he "uncovered some serious problems."
4
After signing the contracts, Marshall provided Janko with a copy of the plot
plan. Marshall reviewed the plot plan with Janko, page by page, indicating which
items had been completed. After the cover letter, the first page of the plot plan
stated: "There is currently one open and active Code Violation case on the project
site, CV065820, for an unpermitted winery and tasting room. This application
was filed on December 13, 2007 in response to the code violation." Martin
expressed concern that this might be a "deal breaker" and that the transaction
might need to be renegotiated. At that point, Janko "took the whole file over" to
meet with Marshall's engineering firm, Hunsaker and Associates (Hunsaker), to
obtain a cost estimate for the remaining issues in the plot plan.
After defendants closed escrow and purchased the property, Martin learned
that Janko was not happy about several aspects of the transaction, including that
the barn had no footings and had only been approved as an agricultural building.
Plaintiffs sued defendants, who later filed a cross-complaint. Plaintiffs waived
their right to a jury trial and the trial court denied them relief from their waiver of
a jury trial. The matter proceeded as a bench trial.
After plaintiffs rested, defendants dismissed most of their cross-complaint,
leaving only their claim for cell tower related damages. Defendants also moved
for judgment under Code of Civil Procedure3 section 631.8. The trial court
granted the motion and amended defendants' cross-complaint to include a claim
3 Undesignated statutory references are to the Code of Civil Procedure.
5
for reformation. The judgment ordered the deed reformed to reserve income from
the cell tower leases to the Stuarts. Plaintiffs timely appealed from the judgment.
The trial court later issued an order granting defendants their attorney fees and
costs. Plaintiffs timely appealed from that order.
II.
DISCUSSION
A. Jury Waiver
Plaintiffs contend the trial court abused its discretion in denying their
request for relief from waiver of a jury trial by failing to give sufficient weight to
the strong public policy in favor of jury trial requests and giving too much weight
to defendants' claims of prejudice. While we may have come to a different
conclusion on plaintiffs' motion, we do not find that the trial court abused its
discretion in denying the request for relief from waiver of jury trial.
The right to a jury trial in a civil case is expressly guaranteed under our
Constitution. (Cal. Const., art. I, § 16.) However, in a civil case the right "may be
waived by the consent of the parties expressed as prescribed by statute." (Ibid.;
§ 631, subd. (f) [listing ways a party can waive trial by jury].) Payment of the jury
fee by a party on one side of the case does not relieve parties on the other side of
the case from a jury waiver. (§ 631, subd. (b).)
Generally, once a party has waived its right to jury trial, such waiver cannot
be withdrawn except in the discretion of the trial court. (Taylor v. Union Pac. R.R.
Corp. (1976) 16 Cal.3d 893, 898.) In determining whether to grant a motion to be
6
relieved of a jury waiver, the trial court may consider delay in rescheduling a jury
trial, lack of funds, timeliness of the request and prejudice to the litigants. (Gann
v. Williams Brothers Realty, Inc. (1991) 231 Cal.App.3d 1698, 1704 (Gann).) A
court does not abuse its discretion where any reasonable factors supporting denial
of relief can be found, even if a reviewing court, as a question of first impression,
might take a different view. (Ibid.)
A writ of mandate is the proper remedy to secure a jury trial allegedly
wrongfully withheld. (Byram v. Superior Court (1977) 74 Cal.App.3d 648, 654
(Byram); Gann, supra, 231 Cal.App.3d at p. 1704 [same]; Winston v. Superior
Court (1987) 196 Cal.App.3d 600, 603 [same]; McIntosh v. Bowman (1984) 151
Cal.App.3d 357, 364 [same] (McIntosh).) In Byram, the court explained:
"Perhaps the most important, though seldom articulated reason for allowing the
determination of a trial court to stand is . . . '[d]efendants cannot play "Heads I
win, Tails you lose" with the trial court.' Reversal of the trial court's refusal to
allow a jury trial after a trial to the court would require reversal of the judgment
and a new trial. It is then reasonable to require a showing of actual prejudice on
the record to overcome the presumption that a fair trial was had and prejudice will
not be presumed from the fact that trial was to the court or to a jury." (Byram, at
p. 653.) As another court noted, "[j]ust as criminal defendants often play the game
known as ' "waive the lawyer," ' civil litigants sometimes joust by ' "waiving the
jury." ' " (McIntosh, at p. 363.)
7
The Byram and McIntosh courts required a showing of actual prejudice
from the court's denial of their motion. (Byram, supra, 74 Cal.App.3d at p. 653;
McIntosh, supra, 151 Cal.App.3d at p. 363.) On this point, we agree with the
Gann court that "it is difficult to envision precisely how one shows prejudice from
denial of a jury trial aside from that inherent in deprivation of a constitutional
right." (Gann, supra, 231 Cal.App.3d at p. 1704.)4 In any event, even without
requiring plaintiffs to demonstrate some prejudice from the court's denial of their
motion, we find no abuse of discretion.
Here, the trial court found, and plaintiffs do not dispute, that they made a
strategic decision to waive their right to a jury trial. Plaintiffs did not seek writ
review of the trial court's denial. Instead, they waited until after the bench trial,
where they were unsuccessful, and sought appellate review and a new trial. The
sole issue presented is whether the trial court erred in denying relief. Critically,
we are reviewing the discretionary denial of relief from the waiver, not the denial
of the underlying constitutional right to a jury trial.
4 As plaintiffs note, other cases have reversed judgments on appeal following
the refusal to grant relief from a jury waiver without requiring a showing of actual
prejudice. (Boal v. Price Waterhouse & Co. (1985) 165 Cal.App.3d 806, 810-811;
Bishop v. Anderson (1980) 101 Cal.App.3d 821, 823-825; see also Massie v. AAR
Western Skyways, Inc. (1992) 4 Cal.App.4th 405, 412.) Notably, none of these
cases address the Byram line of authority requiring that parties proceed via writ of
mandate to challenge the allegedly wrongful denial of a jury trial. Additionally,
all of these cases involved an inadvertent waiver of a jury trial, not a strategically
made decision to waive a jury as presented here.
8
Defendants argued below that their trial preparation was geared toward a
judge who is more familiar with the issues. This preparation included: choosing
exhibits; how they prepared their experts; the type of technology to use; and how
to present and argue the case. These are not small matters. Moreover, as
defendants noted in their opposition to the motion, the case involved questions
regarding agency and the parole evidence that would have required extensive
pretrial evidentiary hearings, whereas if the case were tried to the court, the court
could hear all the evidence and resolve evidentiary disputes at the same time.
Plaintiffs acknowledged the need to hold evidentiary hearings if the case were
tried to a jury in pretrial correspondence with defendants. At that time, defendants
believed the entire case could be tried to the court in four or five days. However,
it took plaintiffs 16 days to present their case to the court. Had plaintiffs tried the
case to a jury, it is highly likely that the case would have taken even longer to try.
Thus, trying the matter to a jury would have prejudiced defendants by increasing
the trial length and defendants' attorney fees.
Finally, although not addressed by the trial court, Newcomb represented
himself at trial because plaintiffs' case against him involved the simple factual
issue whether he had acted as plaintiffs' attorney. Newcomb did not hire counsel,
file motions in limine or depose plaintiffs' agency expert because the case would
be tried without a jury. Newcomb also voiced his displeasure that while respective
counsel for plaintiffs and defendants exchanged e-mail correspondence regarding
9
whether the matter would be tried to a court or a jury, he was not included in these
e-mails. Thus, prejudice to Newcomb supported the trial court's ruling.
Under these circumstances, plaintiffs have not demonstrated an abuse of the
trial court's discretion in the denial of their request for relief from their jury
waiver.
B. Sufficiency of the Evidence
1. General Legal Principles
A party may move for judgment in its favor after the opposing party has
completed the presentation of its evidence. (§ 631.8, subd. (a).) The trial court,
sitting as trier of fact, may weigh the evidence and order judgment in favor of the
moving party. (Ibid.) We review the court's order under section 631.8 for
substantial evidence. (Fink v. Shemtov (2012) 210 Cal.App.4th 599, 608.) We
draw all reasonable inferences and resolve any evidentiary conflict in support of
the trial court's decision. (Combs v. Skyriver Communications, Inc. (2008) 159
Cal.App.4th 1242, 1263.) The trial court weighs the credibility of witnesses and
evidence and may choose to believe some witnesses and not others. (Ibid.)
" 'A party who challenges the sufficiency of the evidence to support a
particular finding must summarize the evidence on that point, favorable and
unfavorable, and show how and why it is insufficient. [Citation.]' [Citation.] . . .
'He cannot shift this burden onto respondent, nor is a reviewing court required to
undertake an independent examination of the record when appellant has shirked
10
his responsibility in this respect.' " (Huong Que, Inc. v. Luu (2007) 150
Cal.App.4th 400, 409 (Huong Que).)
2. Misrepresentation and Contract Claims
a. Additional background
When the Stuarts initially purchased the property it contained several
structures, including a pole barn that had been permitted in 1979 as an agricultural
building. A pole barn consists of poles that hold up rafters, with the poles being
the sole foundation for the building. A pole barn has no footings and the walls of
the pole barn provide shelter, but no structural support, and can come off if not
needed.
One area of the pole barn had an open area with a dirt floor. Defendants
later replaced the dirt floor with a cement floor. Marshall did not obtain a permit
for the cement floor because the building was for agricultural use. Another area of
the pole barn had two-stories, consisting of a storage area, kitchen and bathroom
below and a living space above.
In 2004, Marshall installed an unpermitted 15-foot-tall and approximately
126-foot-long retaining wall on the property. Marshall admitted that he should
have obtained a permit for the wall, that the unpermitted wall existed on the
property when he sold it to plaintiffs and that he did not disclose to Janko that the
wall was not permitted. Marshall, however, had spoken to John Petty, a Riverside
County commissioner, about the retaining wall. Marshall understood that the plot
plan forgave him for not having a permit because the retaining wall was listed as
11
an existing structure that would be approved during the planned commission
hearing by showing how the wall had been constructed. Through his engineer,
Marshall understood that while work is done on the approved plot plan any
citations are waived, and when escrow closed there were no citations or
outstanding issues on the property.
Plaintiffs' operative complaint contained causes of action for intentional
and negligent misrepresentation and fraudulent concealment. Among other things,
plaintiffs alleged that defendants intentionally or negligently failed to disclose or
concealed that improvements on the property were built without permits and in
violation of local building and safety ordinances. Plaintiffs also alleged that
defendants breached their warranty in the RPPA that the property was not in
violation of any law, statute or ordinance.
In its statement of decision, the trial court noted that the RPPA provided for
a feasibility period whereby plaintiffs could conduct due diligence on the property.
The court found that, to the extent plaintiffs' complaints constituted a breach of
either the APA or the RPPA, defendants disclosed the breaches, plaintiffs
discovered the breaches, or the breaches should have been discovered through due
diligence prior to closing. By closing the transaction in the face of potential
breaches, the trial court concluded that plaintiffs failed to exercise their rights
under the agreement and waived any claim for such a breach. The trial court also
found plaintiffs failed to meet their burden of proof establishing any
12
misrepresentation or concealment of a material fact, reliance, causation, intent or
damages.
b. Analysis
Plaintiffs contend substantial evidence did not support the trial court's
findings against them on their claims for misrepresentation, concealment and
breach of contract related to the condition of the property. Specifically, plaintiffs
contend defendants had a duty to disclose that they had made unpermitted
improvements to the winery which were not code compliant; namely, defendants
did not obtain permits when they (1) replaced the dirt floor in the barn with
concrete without installing a foundation and (2) built a retaining wall.
Plaintiffs concede that defendants disclosed some construction issues, but
argue they did not discover until after the transaction closed that the barn had
originally been registered as an agricultural building and would need extensive
work to bring it up to code for its current use as a winery. Plaintiffs also assert
substantial evidence does not support the trial court's findings that: (1) the plot
plan conditions of approval put them on notice regarding the foundation issues in
the barn and the retaining wall; and (2) plaintiffs did not exercise due diligence
before closing the transaction on the property.
As a preliminary matter, plaintiffs' contentions have surface appeal because
Marshall conceded that he did not disclose the unpermitted retaining wall or that
he poured a concrete floor in a portion of the barn. Based on our review of the
entire record, however, it is clear that plaintiffs did not set forth all of the material
13
evidence, both favorable and unfavorable, to their position on the disputed issues.
In this situation, we could have deemed them to have waived or forfeited their
contentions that insufficient evidence supported the trial court's findings. (Huong
Que, supra, 150 Cal.App.4th at pp. 409-410.) Nonetheless, we exercise our
discretion to consider plaintiffs' claims on their merits. As discussed below, ample
evidence supported the trial court's conclusion that the alleged unpermitted
improvements on the property, including the unpermitted retaining wall, should
have been discovered by plaintiffs had they exercised due diligence before closing
the transaction.
Under section 4.1 of the RPPA, defendants had five days to provide
information related to the property, including "any notices of violation or default
received by any governmental authority with respect to the Property." Thereafter,
plaintiffs were required to "promptly commence, and diligently and in good faith
pursue, [their] due diligence review" of the property, including: (1) the feasibility
of any improvements planned by plaintiffs, such as the cost and availability of
building permits and other approvals necessary to construct the improvements; and
(2) compliance with applicable laws, including use restrictions, building codes and
health and safety laws. If plaintiffs were dissatisfied with the property following
due diligence, they could terminate the agreement and have their deposit refunded.
Section 7.3 of the RPPA stated in relevant part: "[I]f either party receives
notice, before Close of Escrow, of a breach of any representation or warranty
made by the other party, and proceeds to Close of Escrow, such breach shall have
14
been waived." Finally, section 5.4 of the APA expressly noted that defendants'
warranty regarding compliance with all requirements of federal, state and local
laws was "subject to those requirements under the Plot Plan Application and
Conditions of Approval affecting the Real Property."
Turning to the barn (winery building), there is no evidence showing
defendants knew of any violations involving the barn, that defendants
misrepresented or concealed any permitting issue regarding the barn or that
plaintiffs could not have discovered the alleged problems with using the barn for a
different purpose had they done their due diligence on the property. Rather, the
evidence supports the trial court findings that plaintiffs would have discovered any
alleged problems with the building had they conducted due diligence as required
by the RPPA.
The two-story portion of the barn, consisting of a storage area, kitchen and
bathroom below and a living space above, had an existing cement floor. When
defendants purchased the property Marshall did not know whether the two-story
portion of the barn had a footing or foundation. Marshall assumed, however, that
the portion of the barn that he used for a commercial purpose, the tasting room and
office, had a footing or foundation because when he purchased the property he saw
that the county had permitted the building. Defendants used the remainder of the
barn for barrel and case storage. Marshall testified that he had not received notice
of any violation regarding the barn that was not addressed in the approved plot
plan.
15
In 1996, when Marshall installed the cement floor in that portion of the
barn that had been used to house horses, he did so without installing a footing or
foundation for the cement floor. Marshall did not obtain a county permit for this
work because poles supported the barn and he merely poured a concrete slab.
Additionally, that portion of the barn with the new concrete floor would continue
its agricultural use as a barrel and case storage facility. After Marshall installed
the cement floor, his use of the barn never changed from an agricultural use to a
commercial use and, 99 percent of the time, defendants used the barn for barrel
and case storage. Marshall kept this wine storage area "blocked off" to the public
with a curtain and signs stating the area was for employees only. Marshall
considered the wine storage portion of the barn as an agricultural purpose. During
his negotiations with Janko and during the escrow period, Marshall never
mentioned anything to plaintiffs about the cement floor possibly needing a footing
or foundation because he was not aware that a footing was required for that
portion of the barn.
Escrow closed on the property in October 2011. Martin testified that Janko
did not hire an inspector to look for code compliance until after escrow had closed.
Janko claims he retained Marshall's engineering firm, Hunsaker, prior to closing.
Hunsaker, however, merely reviewed the plot plan with Janko. Although the plot
plan did not specifically address building code violations, it did specify that
approval of the plot plan was conditioned on bringing the winery into
conformance with all building codes. The trial court noted that section 5.4 of the
16
APA made defendants' warranty regarding compliance with all laws subject to the
requirements in the plot plan (i.e., that all buildings would need to be in
conformance with all building codes), and thus found that plaintiffs were on
inquiry notice as to whether any code violations existed.
Janko presented no evidence that he had Hunsaker review county records
regarding permits on the property before he closed the transaction.5 Janko
retained engineering expert, Larry Markham after escrow closed on the property.
Markham reviewed the various applications that had been processed on the
property over the past 10 to 15 years, the existing plot plan and conditions of
approval for the property. Markham saw that an agricultural registration existed
for the winery and that the house was properly permitted, but no permits existed
for the winery building. He provided this information to Janko, who expressed
dismay at the amount of work that would be needed. Markham conceded that the
plot plan required that all structures needed to be made code compliant. Markham
essentially testified that if Janko had consulted him and geotechnical and structural
engineers when Janko received the plot plan and conditions of approval, he could
5 Relying on Rogers v. Warden (1942) 20 Cal.2d 286, 288, and Furla v. Jon
Douglas Co. (1998) 65 Cal.App.4th 1069, plaintiffs assert they had no duty to
examine public records or engage an expert to protect themselves from defendants'
fraud. While we have no quarrel with these statements as a general matter, these
cases do not involve contractual provisions specifically requiring a party to
(1) exercise due diligence regarding compliance with applicable laws, including
building codes, and (2) determine that the buyer's planned improvements complied
with applicable laws, including use restrictions, building codes and health and
safety laws.
17
have made these determinations earlier. Markham was able to complete his work
a few hours each day over a period of a few days.
John O'Donnell, defendants' civil engineer, testified that the tasting room in
the barn was permitted and that Riverside County was allowing use of the tasting
room and kitchen under a stipulation that upgrades would be implemented to bring
the building up to current building code standards, including adding shear walls,
structural hold downs to the foundation and tie-downs to the roof rafters.
O'Donnell stated that as long as the barn was used as an agricultural building, it
complied with the permit that had been issued. He also testified that it was
permissible to have a commercial area in a portion of a permitted agricultural
building and that adding a shear wall and a firewall would bring the building to
code. Notably, the Riverside County Code of Ordinances provides that wineries
can have sampling rooms and that a sampling room is considered an incidental
commercial use.
After plaintiffs purchased the property, they substantially changed how the
barn had been used by defendants. Immediately after closing the transaction,
Janko removed everything from the barrel room and renovated the space to
accommodate 150 seated guests. Janko installed televisions in the barrel room, a
bar and tables for seating. Martin understood that Janko's changed use of the barn
impacted its permitted use. Markham similarly conceded that one problem was
Janko's use of an agricultural building for a commercial purpose, which triggered
additional work on the building, including bringing the building up to structural
18
code standards. Appellants cited no evidence showing that the Stuarts knew how
Janko planned to use the barn after the purchase.
This evidence supported the trial court's findings that plaintiffs failed to
meet their burden of proving that the barn was not code compliant at the time of
closing, that the plot plan placed defendants on inquiry notice regarding building
code compliance issues and, had plaintiffs conducted due diligence before closing
the transaction, they would have discovered any alleged problems with the barn
for their intended use.
Turning to the unpermitted retaining wall, the evidence supports the trial
court's findings that the plot plan and conditions of approval placed plaintiffs on
inquiry notice regarding code compliance issues and that plaintiffs could have
discovered any issues regarding the retaining wall had they conducted due
diligence before closing the sales transaction as required by the contract.
Significantly, had plaintiffs hired Markham before closing escrow on the property
they would have discovered that the retaining wall, a readily visible improvement,
did not have a permit. O'Donnell, defendants' civil engineer, testified that section
20.18 of the conditions of approval attached to the plot plan sets forth the
requirement that the permittee's successors-in-interest (i.e., plaintiffs) obtain all
necessary permits for all existing buildings and structures on the property and this
requirement included the retaining wall and barn.
O'Donnell explained that it is common to obtain a permit for an existing
structure. After speaking to a structural engineer for Riverside County and
19
performing some calculations, O'Donnell opined that the retaining wall exceeded
building code requirements and there was "no question in [his] mind" that the
retaining wall could be permitted. If for some reason the retaining wall could not
be permitted, O'Donnell opined that the wall would not need to be removed as it
was stronger than the soil, and that backfill could be added to create a slope. Even
Keith Kulberg, plaintiffs' general contractor, admitted that a structural engineer
could determine whether the retaining wall had been built to code and that it might
be possible to obtain a permit for the retaining wall.
In summary, plaintiffs failed to meet their burden of showing the evidence
did not support the trial court's findings that either defendants disclosed the
breaches, plaintiffs discovered the breaches, or should have discovered the
breaches, through due diligence prior to closing.6
3. Cell Tower Lease Revenues
a. Additional background
The RPPA provided that defendants had the right to approve service
contracts that they elected to assume upon closing and that these service contracts
would be listed on exhibit D to the RPPA. Exhibit D specified that the parties
would complete the exhibit "during [the] feasibility period," which began on
September 19, 2011, and ended October 15, 2011. On the day the parties executed
6 The trial court also found plaintiffs did not meet their burden of proof
regarding damages, a finding plaintiffs did not contest in their opening brief.
Defendants pointed out this oversight in their respondents' briefing, arguing the
lack of damages supported the judgment in their favor. Based on the foregoing
discussion, we need not address this issue.
20
the RPPA, Newcomb handwrote language onto exhibit D of the RPPA that
recorded and unrecorded cell tower leases would be assigned to plaintiffs, but that
all revenue from these leases was retained by the Stuarts. On the copy of the
RPPA signed by Janko, exhibit D is blank. At closing, Newcomb withdrew the
handwritten exhibit D, telling the escrow company it was no longer necessary. All
parties signed a version of exhibit D which stated: "No contracts to be assigned
after due diligence during the feasibility period."
Plaintiffs' amended complaint sought declaratory relief, alleging a
controversy existed regarding the entitlement to cell tower lease payments for a
cell tower lease on the property. Plaintiffs contend that the lease and the right to
receive all payments under the lease transferred to them when they purchased the
property, whereas defendants contend that they have the right to continue to
receive the cell tower lease payments.
Defendants argued that the cell tower revenues were not properly excluded
from the transaction based on a mutual mistake of the parties. The trial court
agreed, noting that before selling the property to plaintiffs, defendants had
substantially completed a separate deal to sell the revenue from the cell towers to
another party and the communications between the parties showed that all parties
understood that the cell tower leases were not part of the transaction. As support
for this finding, the trial court referenced paragraph 8(f) of the RPPA which
specifically allowed defendants to negotiate the cell tower leases while the real
property transaction was pending. The court stated: "When taken in context with
21
the other communications between the parties, this provision reinforces the factual
finding that any failure to exclude the cell tower lease revenue was a mutual
mistake by the parties." Based on its findings, the trial court ordered that the deed
to the property be reformed to designate that all cell tower lease income belonged
to the Stuarts.
b. Legal principles
"When, through . . . mistake . . . , a written contract fails to express the real
intention of the parties, such intention is to be regarded, and the erroneous parts of
the writing disregarded." (Civ. Code, § 1640.) If there is "a mutual mistake of the
parties, or a mistake of one party, which the other at the time knew or suspected,"
a written contract "may be revised, on the application of a party aggrieved, so as to
express that intention, so far as it can be done without prejudice to rights acquired
by third persons, in good faith and for value." (Civ. Code, § 3399.)
A "court may only reform the writing to conform with the mutual
understanding of the parties at the time they entered into it, if such an
understanding exists." (Hess v. Ford Motor Co. (2002) 27 Cal.4th 516, 524.)
Parole evidence is "admissible to show mutual mistake even if the parties intended
the writing to be a complete statement of their agreement" "because the court must
divine the true intentions of the contracting parties and determine whether the
written agreement accurately represents those intentions." (Id. at p. 525.)
A mistake of fact is defined, in part, as "a mistake, not caused by the
neglect of a legal duty on the part of the person making the mistake." (Civ. Code,
22
§ 1577.) "[O]rdinary negligence does not constitute neglect of a legal duty within
the meaning of Civil Code section 1577." (Donovan v. RRL Corp. (2001) 26
Cal.4th 261, 283.) "In determining what conduct will amount to a neglect of duty
the courts recognize there is an element of carelessness in nearly every case of
mistake [citation] and that which does not amount to the neglect of a legal duty
will not of itself bar" equitable relief. (Reid v. Landon (1958) 166 Cal.App.2d
476, 482.) "Only where the mistake results from 'a failure to act in good faith and
in accordance with reasonable standards of fair dealing' " is equitable relief
unavailable. (Donovan, at p. 283.)
c. Analysis
Plaintiffs contend the trial court's granting of the cell tower revenues to
defendants is not supported by substantial evidence. They assert no basis existed
for reformation of the deed as no mutuality of understanding existed as to the cell
tower income. We are not persuaded.
The evidence shows the parties mutually understood that the cell tower
income was not part of the transaction. Marshall testified that there was never any
discussion of including the cell towers in the sale of the property to plaintiffs.
Rather, Marshall and Newcomb discussed with Martin that the cell towers were
not part of the transaction when Martin was still listed as the buyer. When
Marshall signed the RPPA, he instructed Newcomb to write on exhibit D that the
cell tower income was excluded. The handwritten version of exhibit D entitled
Marshall to all past and future revenue from the cell towers. Marshall directed
23
Newcomb and Martin to tell Janko about exhibit D because it was important to
Marshall for Janko to know that the cell towers were not part of the purchase.
Martin's testimony mirrored Marshall's. Martin had a conversation with
Janko that the income from the cell tower leases was excluded from the
transaction because the Stuarts wanted to keep that income or keep the leases in
their name and that the title insurance policy would exclude the leases. Martin
could not recall if he told Janko that the leases had been sold or were in the
process of being sold, but Martin believed that he informed Janko that the Stuarts
were waiting for a do not disturb agreement to construct another cell tower on the
property. Martin informed Janko that the cell tower leases were excluded from the
transaction, and used the term "stripped" to convey this to Janko.7
Martin testified that Janko acknowledged his understanding that the cell
tower leases were excluded from the transaction. Martin had "no doubt" that the
Stuarts were supposed to receive all the income from the cell tower leases and, if
the Stuarts did not receive this income, this would have constituted a mistake
based on his understanding of the parties' agreement. Martin suggested that the
cell tower leases be included in exhibit D because this is where exclusions to the
7 Citing Ward v. Yorba (1899) 123 Cal. 447, plaintiffs assert that any shared
understanding between Martin and the Stuarts regarding the cell tower income is
irrelevant because Janko did not share this mutual understanding. This argument
ignores that Martin imparted his knowledge regarding the cell towers to Janko and
Janko expressed his understanding in an e-mail that the cell tower leases were not
part of the deal.
24
transaction were to be listed. Newcomb, however, never had Janko sign the copy
of exhibit D that contained his handwritten notation.
In e-mail correspondence between Martin and Newcomb that was copied to
Janko, Martin informed Newcomb and Janko that he had copies of the cell tower
leases from the title insurance company so that they could be excluded from the
transaction. The title insurance policy, which Martin reviewed, excluded the cell
tower leases and another unrecorded cell tower lease. Martin communicated this
information to Newcomb and Janko. This evidence amply supported the trial
court's conclusion that all parties understood that the cell tower income was not
part of the transaction.8
Plaintiffs argue there was no mutual mistake and that reformation was
inappropriate because the parties did not share the same understanding of the
transaction. To support this contention, plaintiffs cite to a portion of Martin's
testimony where he stated that plaintiffs' cell tower income had already been
contractually obligated and those cell towers were no longer an issue.
Plaintiffs inappropriately focus on "why," rather than "what." The evidence
supports the conclusion that the parties to the transaction understood what was
excluded from the transaction — the cell towers and their revenue. Why the cell
8 Both sides note that Janko did not attempt to renegotiate the purchase price
for the property, with defendants arguing this proved Janko knew the cell tower
income was excluded from the transaction and plaintiffs contending the fact had
no significance. Based on the foregoing discussion we decline to reconcile these
differing viewpoints on this piece of evidence.
25
towers and their revenue were excluded from the transaction is not the issue.
Thus, the fact Martin believed the cell tower income was excluded from the
transaction because defendants had already sold it off is of no significance.
Plaintiffs attempt to make this fact significant by noting that the reformed deed
awarded all cell tower revenues to the Stuarts. Plaintiffs argue they did not
contemplate having "this sort of enduring commitment to the Stuarts" or that the
deed might require future revisions.
As to the first point, plaintiffs' understanding that the cell tower revenue
would not belong to them necessarily means the revenue would be going
elsewhere. Whether the revenue went to the Stuarts or some third party does not
change the nature of plaintiffs' commitment regarding the cell towers on the
property. As to the second point, the RPPA does not support this assertion as it
included a provision that the parties would execute other instruments that may
become necessary to consummate the transaction.
Anticipating we might conclude that substantial evidence supported the
trial court's finding of mutual mistake, plaintiffs argue that the trial court erred in
reforming the deed to reserve the cell tower payments to the Stuarts because:
(1) defendants' counsel drafted the RPPA and thus defendants' neglect caused the
error; (2) the reformation conflicts with the express language of the RPPA; and
(3) the cell tower income was not material to the transaction.9
9 We discuss the propriety of the trial court's amendment of the cross-
complaint to include a claim for reformation in part III., post.
26
It is undisputed that Newcomb wrote on exhibit D that the cell tower
income would be reserved to the Stuarts. This was not the mistake at issue as the
evidence shows all parties understood at the outset of the transaction that the cell
tower revenues were not a part of the transaction. The mistake occurred when
Janko's version of the RPPA did not contain a copy of exhibit D with the
handwritten language. Apparently, the parties are unaware how this mistake
occurred. The trial court reasonably could have concluded that defendants' failure
to notice that Janko's version of the RPPA did not contain a copy of exhibit D with
the handwritten language did not amount to the neglect of a legal duty sufficient to
bar equitable relief.
Plaintiffs note that the RPPA transferred all leases, including the right to
collect future rents. Plaintiffs argued to the trial court that this recital is
conclusively presumed true. Again, plaintiffs focus on the wrong language. The
mistake lies not in this language, but in the fact that Janko's copy of exhibit D did
not contain the handwritten provision excluding the cell tower revenue from the
transaction. Ultimately, all parties signed a copy of exhibit D that provided no
contracts were being assigned. This version of exhibit D comports with the intent
of the parties that the cell tower leases and revenue were not part of the
transaction.
Finally, plaintiffs cite to Roller v. California Pacific Title Ins. Co. (1949)
92 Cal.App.2d 149 for the proposition that a contract may only be reformed if the
27
requested reformation is material to the transaction. Plaintiffs contend the trial
court improperly reformed the RPPA because the cell tower income was not
material to the transaction. To support this assertion, they cite to a portion of
Marshall's testimony where he purportedly testified that he would have entered
into the transaction even if the cell tower income had not been reserved to him.
Defendants do not challenge plaintiffs' assertion that reformation can only be
granted if the requested reformation is material to the transaction. Rather,
defendants claim the evidence shows the cell tower income was material to the
transaction. The evidence supports defendants' assertion.
As defendants point out, the cell tower contracts were valued at
approximately $250,000. The purchase price for the property was $3,175,000.
Thus, the cell tower contracts accounted for just under 8 percent of the value of the
property. Moreover, that portion of Marshall's testimony relied on by plaintiffs
does not support their argument. Plaintiffs' counsel asked Marshall two confusing
hypothetical questions, namely:
"[Q:] [I] present you with a hypothetical. For the purposes of this
question, I want you to assume two things: One, that Mr. Janko is
not aware that the cell tower leases would be generating future
income, okay? Did you hear that?
"A. Yes.
"Q. And two, had Mr. Janko known that those cell tower leases
would be generating future income, assume that Mr. Janko would
have never agreed to allow you to keep the revenue from those
leases for those cell towers that exist on his property, okay? Now
given those two -- one, two -- those two factors, would you still
have entered into this contract with Mr. Janko?"
28
"[A]: Yeah, I still would have entered into the contract."
Plaintiffs' counsel then queried Marshall as to whether he understood the
hypothetical, with Marshall responding that he did not understand what was being
asked. Plaintiffs' counsel re-read the hypothetical questions, but the trial court cut
off the line of questioning, citing Evidence Code 352 and undue consumption of
time. In light of what transpired at trial and the confusing nature of the two
hypothetical questions, the trial court reasonably could have concluded that
Marshall's testimony was not probative on the materially of the cell tower income
to the transaction.
In summary, the evidence adequately supported the trial court's finding of
mutual mistake regarding the cell tower revenues.
C. Amendment of Cross-complaint
1. Additional Background
Defendants argued that, assuming a mutual mistake occurred in the
formation of the contract, reformation of the documents was warranted to reflect
the intent of the parties to exclude the cell tower revenues from the transfer.
Although defendants pled mutual mistake in their answer, they did not seek
reformation in their cross-complaint. During trial, the court queried whether
reformation needed to be pled as affirmative relief. After considering briefing on
the matter, the trial court reserved its ruling until after it heard the evidence
regarding mutual mistake. The trial court later granted defendants' motion to
29
conform to proof and ordered that the deed to the property be reformed to
designate that all cell tower lease income shall belong to the Stuarts.
2. Analysis
A trial court has discretion to allow parties to amend their pleadings "in
furtherance of justice." (§ 473, subd. (a)(1).) Leave to amend may be granted
even after the commencement of trial. (§ 576.) Amendment is proper if the
variance between the pleading and proof is not material (§ 470) and no variance is
material "unless it has actually misled the adverse party to his prejudice in
maintaining his action or defense upon the merits." (§ 469.)
A trial court abuses its discretion in permitting an amendment if the
amendment presents new and substantially different issues that the opposing party
has no opportunity to defend, or if the rights of the opposing party were prejudiced
by the amendment. (Trafton v. Youngblood (1968) 69 Cal.2d 17, 31.) In deciding
to allow an amendment during trial, courts are guided by two general principles:
" '(1) whether facts or legal theories are being changed and (2) whether the
opposing party will be prejudiced by the proposed amendment. Frequently, each
principle represents a different side of the same coin: If new facts are being
alleged, prejudice may easily result because of the inability of the other party to
investigate the validity of the factual allegations while engaged in trial or to call
rebuttal witnesses. If the same set of facts supports merely a different theory . . .
no prejudice can result.' " (Garcia v. Roberts (2009) 173 Cal.App.4th 900, 910.)
30
Plaintiffs contend the trial court abused its discretion in amending
defendants' cross-complaint to assert a claim for reformation because defendants
inexcusably delayed in asserting the claim and the amendment prejudiced them as
they were not provided an opportunity to present experts regarding the intricacies
of transactions involving cell towers. We are not persuaded.
Defendants alleged mutual mistake regarding the cell tower revenues from
the outset of the case. While defendants' cross-complaint did not seek
reformation, defendants alleged they were entitled to the cell tower revenues in
both their first and second amended cross-complaints. Additionally, plaintiffs'
first amended complaint contained a claim for declaratory relief regarding whether
defendants had the right to continue receiving the cell tower revenues.
Accordingly, the amendment merely added a new remedy based on the
same factual issues. (Western Title Guaranty Co. v. Sacramento & San Joaquin
Drainage Dist. (1965) 235 Cal.App.2d 815, 823 ["[r]eformation is nothing but a
remedy to correct a mistake in a written instrument"].) Plaintiffs attempt to show
prejudice by arguing the late amendment denied them the opportunity to present
expert testimony regarding cell tower leases. Plaintiffs, however, failed to cite to
any portion of the record showing they made this argument below. Thus, we deem
it waived. (Ochoa v. Pacific Gas & Electric Co. (1998) 61 Cal.App.4th 1480,
1488, fn. 3.) On this record, the trial court did not abuse its discretion in allowing
defendants to amend their cross-complaint to conform to proof.
31
D. Expert Witness Fees
1. Additional Background
Defendants sought $42,978.87 in expert witness fees. Plaintiffs moved to
tax these expenses on the ground expert witness fees were not allowable under
subdivision (b)(1) of section 1033.5. Relying on Thrifty Payless, Inc. v. Mariners
Mile Gateway, LLC (2010) 185 Cal.App.4th 1050 (Thrifty), the trial court awarded
defendants their expert witness fees based on a provision in the RPPA stating that
the prevailing party could recover costs, including "experts' fees." Plaintiffs assert
Thrifty was wrongly decided and we should follow Fairchild v. Park (2001) 90
Cal.App.4th 919 (Fairchild).
Section 1033.5 specifies items which are allowable and not allowable as
costs under section 1032. Subdivision (b)(3) of section 1033.5 provides that
"[f]ees of experts not ordered by the court" are not allowable as costs. The Thrifty
court noted that where a contract provision entitles a prevailing party to
" ' "reasonable attorney's fees and costs," ' or similar nonspecific language," courts
have held that such language must be interpreted in light of the limits set forth in
section 1033.5. (Thrifty, supra, 185 Cal.App.4th at p. 1065.) Nonetheless, it
reasoned that when parties explicitly provide for recovery of expert witness fees in
a freely negotiated contract, such fees may be recovered by including them on a
memorandum of costs and proving them if a motion to tax costs is filed. (Id. at
p. 1066.)
32
The Thrifty court did not cite Fairchild, an earlier case that addressed a
one-way attorney fee provision requiring tenants to pay the landlord's costs,
expenses, and reasonable attorney fees. (Fairchild, supra, 90 Cal.App.4th at
p. 923.) For purposes of analysis, the Fairchild court assumed that a contractual
term allowing a prevailing party to recover " 'all costs and expenses' " included
items disallowed under section 1033.5 (such as expert fees), but concluded that
parties "cannot expand the definition of 'costs' in [Civil Code] section 1717 to
include items not permitted under section 1033.5." (Fairchild, at p. 929.)
In reaching this conclusion, the Fairchild court applied the reasoning of
Santisas v. Goodin (1998) 17 Cal.4th 599 (Santisas), which held that the
legislative history of Civil Code section 1717 reflects the intent " 'to establish
uniform treatment of fee recoveries in actions on contracts containing attorney fee
provisions and to eliminate distinctions based on whether recovery was authorized
by statute or by contract. A holding that in contract actions there is still a separate
contractual right to recover fees that is not governed by [Civil Code] section 1717
would be contrary to this legislative intent.' " (Fairchild, supra, 90 Cal.App.4th at
p. 929.) "Just as Santisas precludes litigants from adopting a definition of
'prevailing party' that differs from Civil Code section 1717, we conclude, for the
same reasons, that litigants cannot expand the definition of 'costs' in [Civil Code]
section 1717 to include items not permitted under section 1033.5." (Id. at p. 929.)
The analysis used by the Fairchild court makes it distinguishable from
Thrifty. The tenants in Fairchild sought to utilize the reciprocity provisions of
33
Civil Code section 1717 to entitle them, as the prevailing parties, to an award of
" 'all costs and expenses.' " (Fairchild, supra, 90 Cal.App.4th at p. 929.) Here,
and in Thrifty, the parties did not rely on Civil Code section 1717, but rather on the
explicit language of a freely negotiated contract where the parties expressly agreed
the prevailing party could recover its expert fees. Put simply, the reciprocity
provision of Civil Code section 1717 is not at issue in this situation.
Finally, Fairchild is part a line of cases addressing statutory construction
and general cost provisions where the parties did not expressly agree that the
prevailing party could recover its expert fees. As our high court recognized in
another statutory construction case, "[o]ur present analysis, which involves
statutory construction, may not be dispositive in a matter involving the effect of a
contractual agreement for shifting litigation costs, which turns on the intentions of
the contracting parties." (Davis v. KGO-T.V., Inc. (1998) 17 Cal.4th 436, 446, at
fn. 5.)
Accordingly, we reject plaintiffs' argument that the trial court erred when it
awarded defendants their expert witness fees.
34
DISPOSITION
The judgment and order are affirmed.
IRION, J.
WE CONCUR:
BENKE, Acting P. J.
PRAGER, J.*
* Judge of the San Diego Superior Court, assigned by the Chief Justice
pursuant to article VI, section 6 of the California Constitution.
35