Bio-Tek Technology v. Queen's Dialysis Unit CA2/4 ( 2014 )

Filed 7/16/14 Bio-Tek Technology v. Queen’s Dialysis Unit CA2/4
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for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
SECOND APPELLATE DISTRICT
DIVISION FOUR
BIO-TEK TECHNOLOGY, INC, B245128
Plaintiff, Cross-defendant and (Los Angeles Country
Appellant, Super. Ct. No. BC446507)
v.
QUEEN’S DIALYSIS UNIT, INC. et al.
Defendants, Cross-complainants
and Respondents.
APPEAL from a judgment of the Superior Court of Los Angeles Country,
Rita Miller, Judge. Affirmed.
Law Offices of Joseph R. Zamora, Joseph R. Zamora, for Plaintiff, Cross-
defendant and Appellant Bio-Tek Technology, Inc.
Cole Pedroza, Curtis A. Cole and Matthew S. Levinson, for Defendants, Cross-
complainants and Respondents Queen’s Dialysis Unit, Inc., Claudio Gallego and Aamir
Z. Jamal.
______________________________
Bio-Tek Technology, Inc. (Bio-Tek) appeals from a summary judgment in favor
of respondent Queen’s Dialysis Unit, Inc. (QDU) and two of its shareholders,
respondents Claudio Gallego and Aamir Jamal.1 We agree with respondents that
appellant’s claims are barred by a release that has not been rescinded, and affirm.
FACTUAL AND PROCEDURAL SUMMARY
Bio-Tek provides administrative and managerial services related to biomedical
treatment, including dialysis. QDU is a professional corporation that operates a dialysis
clinic. Medical doctors Gallego and Jamal are two of the four shareholders, officers, and
directors of QDU.
In 2005, Bio-Tek submitted a bid to the California Department of Corrections and
Rehabilitation (CDCR) for a contract to provide dialysis services to prisoners at the rate
of $195 per treatment. QDU agreed to be Bio-Tek’s subcontractor for the bid and to
charge $150 per treatment. The remaining $45 was to go to Bio-Tek for services in
administration and management of the program. The bid was rejected because at the time
neither Bio-Tek nor QDU was a professional medical corporation and CDCR was
concerned that, because they were not, a contract with either would violate the
prohibition against the unlicensed or corporate practice of medicine.2 The CDCR
contract was awarded to Colonial Medical Group, Inc. (Colonial). Bio-Tek
unsuccessfully protested the rejection of its bid, petitioned for a writ of mandate, and then
appealed the adverse decision. Meanwhile, QDU became a professional medical
corporation.
1
Jamal is incorrectly sued under the name Amir Z. Jamal.
2
Administering the business affairs of a clinic is practice of medicine, and a
physician is subject to discipline for aiding or abetting any unlicensed practice. (See
Steinsmith v. Medical Board (2000) 85 Cal.App.4th 458, 465–466 [physician working as
independent contractor of clinic owned by administrators who were not licensed
physicians was sanctioned for aiding unlicensed practice of medicine in violation of Bus.
& Prof. Code, § 2264.]) Generally, a corporation may not practice medicine, but a
2
In February 2007, while Bio-Tek’s appeal was pending, Colonial offered to Bio-
Tek to subcontract the CDCR contract on the terms of Bio-Tek’s earlier proposed bid.
Bio-Tek again invited QDU to be its subcontractor. All parties agreed to the
arrangement, but the receiver overseeing the California prison health system requested
that QDU contract directly with Colonial and that Bio-Tek serve as QDU’s subcontractor.
At a March 12, 2007 meeting, the contractual positions of Bio-Tek and QDU were
rearranged accordingly. After the meeting, QDU took the position that paying Bio-Tek
would violate anti-kickback laws. It refused to use Bio-Tek as a subcontractor on the
contract with Colonial. Bio-Tek threatened to sue both QDU and Colonial. QDU
insisted that, before it could enter into a contract with Colonial, Colonial had to enter into
a separate compensation agreement with Bio-Tek and Bio-Tek had to release all claims
related to QDU’s contract with Colonial.
On March 19, 2007, Colonial’s management company, The Centennial Group
(Centennial), entered into a memorandum of understanding (MOU) with Bio-Tek, which
provided that Bio-Tek would assist Centennial “in the administration, management,
recruiting, and other functions” related to the CDCR contract if QDU contracted with
Colonial. Under the CDCR contract, Colonial was to receive $230 per treatment.
Centennial agreed to pay Bio-Tek between 7 and 9 percent of that rate. The MOU recited
that Bio-Tek would enter into a release with QDU in consideration for Centennial’s
promise to pay those fees so long as Colonial was involved in the CDCR contract. By its
own terms, the MOU was void if QDU did not contract with Colonial.
On the same day, Bio-Tek’s President, Tarik Omari, refused to sign the release
without additional compensation. In a telephone conversation with Omari, respondent
Gallego, QDU’s president, agreed to pay Bio-Tek $10 per treatment for Bio-Tek’s offer
to provide services and disposable items for the dialysis project. After he was assured
that the $10 deal would be added to the release, Omari signed it on behalf of himself and
Bio-Tek (collectively “Releasing Parties”). The release provides: “To resolve the
professional medical corporation is an exception to that ban. (Bus. & Prof. Code, § 2400;
Corp. Code, § 13400 et seq.)
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litigation between them, Colonial and Bio-Tek decided that Colonial would subcontract
with QDU directly to perform the onsite dialysis services called for in the Competitive
Bid and that Colonial would negotiate a settlement of Releasing Parties’ claims in the
litigation directly with Releasing Parties.” It provides further that QDU was willing to
subcontract directly with Colonial only upon the execution of the release. “[I]n
consideration of the mutual covenants, agreements, and understandings contained” in the
release, Bio-Tek and Omari released all claims arising out of their relationship with QDU
in connection with the CDCR bid and contract up to the time of the release. After
learning that Omari had signed the release, QDU entered into an agreement with Colonial
to provide dialysis treatment under the CDCR contract at a rate of $190 to $197.50 per
treatment.
The following day, QDU’s attorney left a telephone message for Bio-Tek’s
attorney, stating that the “last minute deal . . . should not have been made” and needed to
be “unmade.” QDU’s attorney was not sure what would “happen next, maybe the whole
deal will blow up; maybe it won’t,” but he asked Bio-Tek’s attorney to call him. Neither
Bio-Tek nor Omari followed up on this message.
Later, Bio-Tek entered into a separate agreement with Centennial to assist in the
administration of Colonial’s CDCR contract.3 It was to be paid 8 to 10 percent of the
gross monthly revenues, and payments were to be adjusted depending on the rate charged
by QDU. The MOU was incorporated by reference into the Centennial agreement.
QDU’s agreement with Colonial was terminated in December 2009. Centennial
paid Bio-Tek through September 2010. That month Bio-Tek sued QDU and all four of
its shareholders.4 According to Omari, Bio-Tek did not sue earlier because between 2007
and 2009 respondent Jamal repeatedly assured him that QDU would “make it right” by
3
The date recited in the agreement is March 28, 2007 even though Omari did not
sign it until January 2008. In September 2007, Bio-Tek began receiving payments for
consulting work done as early as June 2007.
4
Two shareholders, S. Arif Rizvi and Mojaba Moghadam, were later dismissed.
4
working with Bio-Tek on future contracts. In 2010, QDU made it clear it would not work
with Bio-Tek.
The operative second amended complaint was filed in 2011. A demurrer to it was
sustained in part without leave to amend. The remaining claims are for breach of
contract; interference with contract, or with existing or prospective economic
relationships; fraud; aiding and abetting; and unfair business practices. Most of these
claims are based on the allegation that QDU prevented Bio-Tek from receiving the
originally agreed-upon rate of $45 per treatment. The fraud cause of action is based on
allegations that QDU secretly approached Colonial with an intent to cut Bio-Tek out of
the CDCR contract and keep the entire $195 fee for itself, that it manufactured a false
excuse for not being able to work with Bio-Tek, and that Jamal and others prevented Bio-
Tek from suing earlier by making false promises that QDU would work with Bio-Tek on
other projects. The complaint also includes allegations that Gallegos orally promised that
QDU would pay Bio-Tek $10 per treatment, but QDU reneged on that promise and
refused to honor a 2010 invoice in the amount of $147,000 based on that rate. The
complaint seeks damages and any other proper relief, but does not mention the release.
QDU and its shareholders raised the release as a defense in their answer and cross-
complaint and then moved for summary judgment on the ground that Bio-Tek’s claims
were barred by the release.5 In opposition, Bio-Tek argued the release was either
voidable or void because Omari was fraudulently induced to sign it by the promise that
QDU would pay Bio-Tek $10 per treatment, and that the court had equitable power to set
it aside. Bio-Tek also argued the release was unenforceable since only Omari had signed
it, and it did not extend to fraudulent activity that occurred after its execution.
The trial court granted the motion, finding the evidence of the last-minute $10 deal
was improper parol evidence. The court also found Bio-Tek did not attempt to rescind
5
Additional grounds listed in the motion were that the claims were barred by the
statute of limitations and were based on illegal contracts; that there was no evidence of
interference; and that Bio-Tek was estopped from asserting the alter ego doctrine against
the shareholders.
5
the release until all contracts were completed, did not return the consideration it received
under the contract it obtained in conjunction with the release, and in effect sought to
“affirm the portions of the contract which benefit it but invalidate the portions which
benefit defendants.” The court specifically found that the “contract with Centennial
would never have existed except as a way to pay for the release.”
After judgment on the second amended complaint was entered, Bio-Tek appealed
in case No. B239398. QDU and its shareholders appealed from the denial of their motion
for attorney fees in case No. B240832. Both appeals were dismissed because of the
pending cross-complaint. This appeal followed the dismissal of the cross-complaint.
DISCUSSION
I
Bio-Tek argues the judgment should be reversed because the trial court erred or
abused its discretion in refusing to continue the hearing on the motion for summary
judgment. We disagree.
Code of Civil Procedure section 437c, subdivision (h) requires the court to grant a
continuance of a hearing on a motion for summary judgment if “facts essential to justify
opposition may exist but cannot, for reasons stated, then be presented.” In his
declaration, Bio-Tek’s attorney stated that several depositions still needed to be
completed , but Bio-Tek does not explain what facts essential to the opposition were
expected to come out those depositions. The attorney claimed that QDU’s shareholders
were asserting an advice-of-counsel defense but had refused to answer questions about
this defense based on attorney-client privilege. While an advice-of-counsel defense may
waive the privilege, it does not apply in this case because it was not asserted in the
motion for summary judgment. (See Southern Cal. Gas Co. v. Public Utilities Com.
(1990) 50 Cal.3d 31, 43 [no waiver where claiming party had not placed its attorney’s
advice or state of mind in issue]; Transamerica Title Ins. Co. v. Superior Court (1987)
188 Cal.App.3d 1047, 1053–1054 [no waiver where defense was not based on advice
received and information sought bore only “indirect relevance to the lawsuit”].) Rather,
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the defense advanced in the motion was that Bio-Tek’s claims were based on illegal
contracts.
Bio-Tek’s counsel also sought a discretionary four-week continuance on the
ground that the attorney with whom he had contracted to prepare the opposition to the
motion for summary judgment had recently lost his mother. The ex-parte application for
a continuance was filed on September 19, 2011. The court did not continue the October
11, 2011 hearing on the motion, but did continue the trial date. Bio-Tek’s trial counsel
filed the opposition on September 30, 2011, and its appellate counsel appeared at the
hearing. “[A]n abuse of discretion results in reversible error only when the denial of a
continuance results in the denial of a fair hearing, or otherwise prejudices a party.
[Citation.]” (Freeman v. Sullivant (2011) 192 Cal.App.4th 523, 527.) Bio-Tek argues its
trial counsel should not have been placed in the “untenable position” of having a grieving
attorney prepare the opposition or finding a new attorney on short notice. Since the
opposition to the motion was filed and argued, it is unclear how any inconvenience to
counsel resulted in actual prejudice to Bio-Tek. Reversal is not required without a
showing of prejudice.
II
A defendant is entitled to summary judgment if there is no triable issue of material
fact. (Martinez v. Combs (2010) 49 Cal.4th 35, 68.) We review the trial court’s ruling on
a motion for summary judgment de novo, viewing the evidence in the light most
favorable to the opposing party. (Shin v. Ahn (2007) 42 Cal.4th 482, 499.) We consider
all of the evidence offered by the parties in connection with the motion, except that which
the court properly excluded. (Merrill v. Navegar, Inc. (2001) 26 Cal.4th 465, 476.)
A. Parol Evidence
After the judgment in this case, the California Supreme Court held that the fraud
exception to the parol evidence rule applies to fraudulent representations that conflict
with the terms of a written agreement. (Riverisland Cold Storage, Inc. v. Fresno-Madera
Production Credit Assn. (2013) 55 Cal.4th 1169 (Riverisland).) According to Bio-Tek,
Riverisland mandates reversal because the trial court erred in excluding parol evidence to
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show the release was induced by fraud. Respondents argue Riverisland should not be
applied retroactively.
As a general rule, judicial decisions are given retroactive effect, except when they
change settled law on which the parties may have relied. (Claxton v. Waters (2004)
34 Cal.4th 367, 378–379.) We disagree with respondents that the exception for
justifiable reliance on a settled rule of law applies here. The Riverisland court described
the rule adopted in Bank of America etc. Assn. v. Pendergrass (1935) 4 Cal.2d 258(Pendergrass) as an “aberration.” (Riverisland, supra, 55 Cal.4th at p. 1182.) By
excluding evidence of fraud, Pendergrass provided “a shield for fraudulent conduct” and
was inconsistent with Code of Civil Procedure section 1856, “which broadly permits
evidence relevant to the validity of an agreement and specifically allows evidence of
fraud.” (Riverisland, at pp. 1175, 1182.) The rule had long been criticized and “detours”
had been developed to avoid applying it. (Id. at pp. 1176–1179.) A retroactive
application is hardly unfair, and Riverisland already has been applied retroactively. (See
Thrifty Payless, Inc. v. The Americana at Brand, LLC (2013) 218 Cal.App.4th 1230,
1240; Julius Castle Restaurant, Inc. v. Payne (2013) 216 Cal.App.4th 1423, 1426.)
But we agree with respondents’ alternative argument that Riverisland is not
dispositive because the trial court did not exclude evidence of fraud in the inducement of
the release. Rather, it relied on Village Northridge Homeowners Assn. v. State Farm Fire
& Casualty Co. (2010) 50 Cal.4th 913 (Village Northridge), to rule that Bio-Tek could
not sue for damages without first rescinding the release and returning the consideration
received under the contract with Centennial.
B. Rescission
In Village Northridge, supra, 50 Cal.4th 913, the court held that “a release of a
disputed claim . . . does not permit a party to elect the remedy of a suit for damages when
the release itself bars that option. Instead, the . . . party to the release must follow the
rules governing rescission of that release before suing . . . for damages.” (Id. at 918.)
Bio-Tek did not follow the rules governing rescission of the release. To effect a
rescission, a party to a contract must give prompt notice to the other party and offer to
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restore any consideration received. (Civ. Code, § 1691.) “When notice of rescission has
not otherwise been given or an offer to restore the benefits received under the contract
has not otherwise been made, the service of a pleading in an action or proceeding that
seeks relief based on rescission shall be deemed to be such notice or offer or both.”
(Ibid.) Although it claims to have rescinded the release, Bio-Tek did not give the
statutorily required notice of its intent to rescind. The second amended complaint does
not mention the release, allege fraud in the inducement, or seek rescission. (Cf. Village
Northridge, at p. 920 [plaintiff did not allege fraud in the inducement or rescission].)
Instead, in its opposition to the summary judgment motion, Bio-Tek relied on
Persson v. Smart Inventions, Inc. (2005) 125 Cal.App.4th 1141 (Persson) to argue that
the court had equitable power to set aside the release. In Persson, a shareholder was
fraudulently induced to sell his shares to another shareholder for less than their market
value in a buyout agreement that included a mutual release. (Id. at pp. 1149–1150.) The
court held the release was not an essential object of the contract, and setting it aside
would not constitute partial rescission. (Id. at p. 1154.) The plaintiff thus could affirm
the contract and sue for fraud despite the release of unknown claims. (Id. at p. 1154.)
Similarly, in Sime v. Malouf (1949) 95 Cal.App.2d 82, 112–113 (Sime), on which Bio-
Tek also relies, a general release of all claims as part of a fraudulently induced sale of the
plaintiff’s interest in a joint venture did not preclude a suit for damages. Nor was the
plaintiff required to rescind the sale and restore the consideration he received because his
right to it was independent of the release. (Id. at p. 111.)
Bio-Tek’s reliance on Persson, supra, 125 Cal.App.4th 1141, and Sime, supra,
95 Cal.App.2d 82, is misplaced. Under Village Northridge, supra, 50 Cal.4th 913, the
“general contract rule that a party to a contract may elect to affirm the contract and sue
for fraud damages” does not apply to the release of a disputed claim. (Id. at p. 917.)
Unlike the general releases of unknown claims included in the sales contracts in Persson
and Sime, the release of Bio-Tek’s claims against QDU was of a specific disputed claim:
Bio-Tek claimed QDU had fraudulently cut it out of the deal with Colonial, whereas
QDU maintained it could not legally contract with Bio-Tek. The sole purpose of the
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release was to “buy peace” by freeing QDU from the threat of suit by Bio-Tek if QDU
contracted with Colonial. (See Village Northridge, at p. 924.)
Bio-Tek argues it is not required to restore the compensation it received from
Centennial because it was earned for services actually provided and did not come from
QDU. The MOU and contract with Centennial were, at least in part, intended to be
consideration for the release of QDU. Therefore, the compensation Bio-Tek received
from Centennial was not “wholly ‘independent[] of the release itself.’” (Village
Northridge, supra, 50 Cal.4th at p. 925, quoting Sime, supra, 95 Cal.App.2d at p. 111.)
But restoration is not the real issue here. When a party sues for rescission of a release
under the statutory scheme (Civ. Code, §§ 1691–1693), it may delay restoration of the
consideration it received until final judgment, at which point the court may adjust the
equities between the parties. (Village Northridge, at pp. 928–929; see also 1 Witkin,
Summary of Cal. Law (10th ed. 2005) Contracts, § 942, p. 1036.) Bio-Tek did not sue
for rescission; as the plaintiff did in Village Northridge, Bio-Tek relied on the “affirm
and sue” strategy that was rejected in that case. (See id. at p. 929.)
According to Bio-Tek, even if the release is set aside, there is no legal basis for
rescinding the contract with Centennial to which QDU was not a party. The release was
an essential component of the entire deal because, by its own terms, it was an external
condition precedent for QDU’s contract with Colonial, which in turn was an external
condition precedent for Bio-Tek’s contract with Centennial under the MOU. (See 1
Witkin, Summary of Cal. Law, supra, Contracts, § 136, p. 176 [parties may agree that
contract will not become binding until the occurrence of some event, an external
condition precedent to contract effectiveness].) Without the release, there would have
been no binding contract between QDU and Colonial, and none between Bio-Tek and
Centennial. Had Bio-Tek rescinded the release in time, the rescission would have
provided a basis for QDU to rescind its contract with Colonial, and Centennial’s contract
with Bio-Tek would have been void.
Respondents argue that when given a chance to rescind the release, Bio-Tek and
Omari did nothing and instead proceeded with the deal. Bio-Tek responds that Omari
10
signed the agreement with Centennial only in 2008 and that by then Jamal had “lulled”
him into a sense of security with promises to ‘“make it right’” by working with Bio-Tek
on future projects. In essence, respondents argue that Bio-Tek waived its right to rescind,
and Bio-Tek argues that any such waiver was fraudulently induced.
Waiver of a right to rescind is presumed when a party, “having full knowledge of
the circumstances which would warrant” rescission, “accepts and retains benefits” under
the contract. (Saret-Cook v. Gilbert, Kelly, Crowley & Jennett (1999) 74 Cal.App.4th
1211, 1225; see also Civ. Code, § 1691 [party must promptly rescind upon discovering
“the facts which entitle him to rescind if he is free from duress, menace, undue influence
or disability and is aware of his right to rescind”].) A fraudulently induced waiver,
however, is ineffective. (Channell v. Anthony (1976) 58 Cal.App.3d 290, 304–305.)
The trial court observed that the same fraudulent acts alleged to have occurred
before the release were repeated after it and therefore were not separately actionable.
Bio-Tek’s position essentially is that QDU defrauded it repeatedly by promising and then
refusing to contract with it. Justifiable reliance on a misrepresentation is a necessary
element of fraud. (Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226, 1239.)
Although the reasonableness of a party’s reliance normally is an issue of fact, reliance is
unjustifiable as a matter of law if the party’s conduct, in light of his or her own
knowledge, experience and available information, is manifestly unreasonable. (Id. at
p. 1240.)
There is no evidence Jamal misled Omari about Bio-Tek’s right to rescind.
Rather, Omari claims to have decided to forego his right to rescind in reliance on Jamal’s
vague promises of future contracts. Omari did so even though he knew QDU already had
reneged on its earlier promises to work with and pay Bio-Tek on the CDCR contract and
even though he already felt “scammed” and “betrayed.” He decided to go along with a
deal in which he claims to have been defrauded twice in hopes that those who defrauded
him would treat him better in the future. In light of his knowledge and experience,
Omari’s reliance was objectively unreasonable. He waived his right to rescind the release
by his acquiescence.
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C. Lack of Signature and Consideration
Bio-Tek claims the release fails for lack of consideration and is unenforceable
because Gallego did not countersign it. We disagree.
A written release requires no consideration. (Civ. Code, § 1541; Cohn v. Bugas
(1974) 42 Cal.App.3d 381, 390.)
The signature of the released party is not essential unless the parties intended it to
be. (Hofland v. Gustafson (1955) 132 Cal.App.2d Supp. 907, 909.) Any language to
that effect ‘“is to be considered in the light of the surrounding circumstances and of the
practical and mutual construction placed thereon as shown by their acts and conduct
before any controversy has arisen between them. [Citation.]’ [Citation.]” (Rael v. Davis
(2008) 166 Cal.App.4th 1608, 1618, fn. 12.) As a rule, ‘“the receipt and acceptance by
one party of a paper signed by the other only, and purporting to embody all the terms of a
contract between the two, binds the acceptor, as well as the signer, to the terms of the
paper. [Citations.]”’ (Dallman Supply Co. v. Smith-Blair, Inc. (1951) 103 Cal.App.2d
129, 132.) It is true that Gallego did not sign the release even though space for his
signature was expressly included. But QDU accepted the release and acted upon it by
entering into a contract with Colonial, for which the release was a pre-condition.
The release is valid and bars Bio-Tek’s claims as a matter of law. Summary
judgment was proper.
DISPOSITION
The judgment is affirmed. Respondents are entitled to their costs on appeal.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
EPSTEIN, P. J.
We concur:
WILLHITE, J. MANELLA, J.
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