Asha Vico S.L. v. Wellspring Industry CA2/7 ( 2016 )

Filed 4/19/16 Asha Vico S.L. v. Wellspring Industry CA2/7
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication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 SEVEN
ASHA VICO S.L., B260766
Plaintiff and Appellant, (Los Angeles County
Super. Ct. No. BC557120)
v.
WELLSPRING INDUSTRY, INC. et al.,
Defendants and Respondents.
APPEAL from an order of the Superior Court of Los Angeles County, Debre Katz
Weintraub, Judge. Affirmed.
Robins Kaplan, David Martinez, Jennifer W. Leland and Eliot M. Houman for
Plaintiff and Appellant.
Russ, August & Kabat, Jules L. Kabat, Irene Y. Lee and Paul A. Kroeger for
Defendants and Respondents.
____________________
INTRODUCTION
Plaintiff Asha Vico S.L. (Asha Vico) appeals from an order denying its motion for
a preliminary injunction against defendants Wellspring Industry, Inc. (Wellspring) and
Golden Global Limited (Golden Global) (collectively defendants). Asha Vico contends
that the trial court abused its discretion in finding that Asha Vico failed to establish a
likelihood of prevailing on the merits. We affirm.
FACTUAL AND PROCEDURAL BACKGROUND
A. THE AGREEMENT TO SELL TUTTI FRUTTI FROZEN YOGURT IN SPAIN
In 2012, Des Mackin and Aisling Forkin, his wife, formed Asha Vico to build the
frozen yogurt market in Spain. On November 15, 2012, Asha Vico entered into a “Tutti
Frutti Product Distribution Agreement” (Agreement) with Golden Global, which granted
Asha Vico the right to sell Tutti Frutti (TF) Frozen Yogurt at a store in Barcelona. The
parties also entered into two separate agreements to open two additional stores in
Barcelona.
At issue in this case is a provision in an addendum to the Agreement for the right
of first refusal for master licensing rights to the TF brand throughout Spain. The
provision states:
“The Distributor shall have First Right of Refusal regarding any
future exclusive distribution and licensing rights of Tutti Frutti Frozen
Yogurt for the entire country of Spain (‘Master Licensing Rights’). If
proposed, Distributor will then have sixty (60) calendar days to accept . . .
by executing a separate Exclusive Product Distribution and Long-Term
Mutual Cooperation Agreement (‘Exclusive Agreement’) with Supplier for
the country of Spain and paying the then-proposed Distribution/License Fee
(currently set at US$350,000), minus all license fees previously paid for
then-existing Tutti Frutti product distribution agreements.
“If Distributor refuses the proposed Exclusive Agreement or fails to
accept it within the sixty (60)-day period, Supplier may assign Master
2
Licensing Rights to a separate party, through a separate exclusive
agreement with the separate party.
“This First Right of Refusal will no longer be valid if the
Distributor’s three (3) contracted retail locations do not open for operation
at an average of one (1) retail location with continuous operations every six
(6) months from the Agreement’s Effective Date, equivalent to a total
period of eighteen (18) months from the Agreement’s Effective Date (the
‘Opening Period’) or have closed or stopped operating within the Opening
Period or thereafter.”
The Agreement contains an integration clause and states that it may not be
amended or modified except by “written consent of both parties.” The Agreement is to
be “interpreted according to the laws of the State of California.”
B. ASHA VICO OPENS ITS FIRST STORE IN BARCELONA
On November 26, 2012, Asha Vico secured a location in Barcelona for opening its
flagship store. Soon after, Asha Vico claims that it began experiencing problems with
defendants. According to Asha Vico, defendants: neglected to provide training on the
use of the frozen yogurt machines and the point of sale system; failed to provide
assistance with signage or advertising; and supplied it with products that were past their
expiration date. Despite these difficulties, Asha Vico opened its store on April 26, 2013.
C. WELLSPRING BEGINS NEGOTIATIONS FOR MASTER LICENSING RIGHTS
In July 2013, three months after Asha Vico opened its first store, Michael Kim,1
Wellspring’s Legal Administration Manager, tried to start negotiations with Asha Vico
for master licensing rights in Spain. In doing so, Wellspring appeared to be acting on
behalf of Golden Global. (See Discussion, post, at pp. 12-13.) Asha Vico informed
Michael that it did not want to discuss master licensing rights without first establishing a
1 There are several individuals with the Kim surname that worked for Wellspring
and/or Golden Global: Michael Kim, Jay Kim, and Sophie Kim. For convenience and
clarity, we refer to each by his or her first name.
3
track record at its flagship store. By November 2013, the flagship store was doing well,
and Mackin contacted Wellspring to pursue the master licensing rights.
On January 27, 2014, Michael sent Mackin a draft master licensing agreement as
an attachment to an email. The email stated that the attached “draft has changes from the
very basic draft agreement [Michael] sent [Mackin] back in July of last year,” and that
Mackin’s “input [was needed] to finalize everything.” The email concluded by stating:
“As you know, our original agreements with you include a first right of refusal, which we
are very happy to honor. However, our timeline is running out and we need to plan out
our route for the brand in Spain.”
On February 17, 2014, Mackin and his business partner Declan Ryan met with Jay
and Sophie, the founders of Wellspring and the TF brand, about Asha Vico’s becoming
the exclusive distributor of the TF brand in Spain. During the meeting, Michael
cautioned Mackin not to discuss the terms of their anticipated agreement with Tom
Strauss, an American investor who was the distributor and licensor of TF in several
European countries. The following day, Jay and Sophie met with Forkin at the Barcelona
store and promised to provide assistance to resolve the problems that Asha Vico had been
experiencing in operating the store.
D. ASHA VICO REJECTS THE PROPOSED FEBRUARY 2014 MASTER AGREEMENT
On February 20, 2014, Michael sent Mackin “the final revised version of the
master agreement for Spain” (hereinafter, the proposed master agreement). (Italics
omitted.) In the email, Michael noted that “the only changes from the last version [from
July 2013] are the distribution fee and sub-licensing fee structure.” (Italics omitted.) He
offered to respond to any questions or concerns about the proposed master agreement and
otherwise requested that Mackin confirm that the proposed agreement was acceptable.
On March 20, 2014, Asha Vico rejected the proposed master agreement. In its
email, Asha Vico stated in full:
“Thank you for providing us with the attached agreement, which I
have reviewed and discussed with our Spanish legal advisors.
Unfortunately the current agreement will require too many amendments,
4
especially with regards to the Master Franchise Agreement which has not
been adequately covered. I am advised this will require a separate legal
agreement along with the Exclusive Product Distribution Agreement. We
believe this will be too time consuming and costly for us to progress at this
stage.
“We would however like to review this again at a later stage and
look forward to maintaining a strong working relationship with you in
regards to our current store. We hope with your support we can make the
store in Barcelona a great success and a perfect template for further Spanish
stores.”
On March 28, 2014, Michael responded to Asha Vico’s March 20th email. At the
end of the email, he advised Asha Vico that Wellspring would consider offering the
master distribution and licensing rights to others:
“Thank you for your email . . . . As I noted to [Mackin], this is the
same basic draft we use for all of our potential master distributors, working
together to revise as necessary.
“Although I first sent this draft to [Mackin] eight months ago on
July 24, 2013, this is the first feedback I’ve received from Asha Vico’s end.
I do not know if Asha Vico gave any consideration to the draft during that
eight-month period, but we are sorry nonetheless that you feel the [master]
[a]greement would require too many amendments and it is not worth your
while to pursue. I’m confident that an agreeable draft could have been
finalized within that period.
“In accordance to our existing Tutti Frutti Product Distribution
Agreements as amended, we will give consideration to other inquiries for
the master distribution and licensing rights of the Tutti Frutti Frozen Yogurt
brand. We will keep you apprised of any updates for the territory.” (Italics
omitted.)
5
E. SUBSEQUENT DISCUSSIONS ABOUT A MASTER AGREEMENT
At the end of March 2014, Mackin attended a franchise trade show in Paris, where
Strauss had a booth for TF Europe. The following day, Mackin saw Strauss talking to
Jay and Sophie. Mackin then spoke to Jay and Sophie, who expressed their concerns
about Asha Vico’s commitment to becoming the master distributor in Spain. According
to Mackin, he assured them that Asha Vico was still committed, and Jay told him that
Wellspring still wanted Asha Vico to be the master distributor in Spain.
On March 31, 2014, Mackin summarized the parties’ recent dealings in an email
to Michael and stated that he would forward his proposed amendments to the draft master
agreement in an effort to “conclude this deal.” The next day, Michael responded by
email in which he suggested that Asha Vico had not demonstrated the desire and ability
to be a master distributor in Spain. He explained that Asha Vico had flatly rejected the
master agreement proposal in February without offering any counter-proposal, had
questioned the profitability of the TF brand, and had only opened one store. Michael also
noted that Wellspring had accepted Asha Vico’s rejection of the proposed master
agreement, and that Wellspring was “fine” with Asha Vico’s decision. After Michael
sent this email, the parties nonetheless continued to discuss a possible agreement.
On April 2, 2014, Asha Vico emailed Michael approximately three pages of
proposed changes, stating: “Please find below our comments on the [master agreement].
We look forward to progressing these items with you and getting the Master Franchise to
a close as soon as possible.” The parties then attempted to work out an agreement over
the next several months.2
On June 12, 2014, Michael responded to Asha Vico’s proposed amendments,
providing a paragraph-by-paragraph response, to which Asha Vico replied on June 25,
2 On May 22, 2104, Michael advised Asha Vico that Wellspring was interested in
“mov[ing] forward,” but that he had not yet had a chance to respond to Asha Vico’s
proposed changes to the master agreement. He indicated that he expected to provide
comments soon.
6
2014. Michael did not respond in July, except to say that Wellspring was still working on
Asha Vico’s latest proposed revisions to the master agreement.
In the meantime, while Wellspring and Asha Vico were negotiating a master
agreement, Asha Vico was separately discussing a potential business deal with Strauss.
Mackin met with Strauss in Dublin, Ireland on June 16, 2014, and Strauss visited the
Barcelona store on July 12. Mackin claims that he learned at the Dublin meeting that
Strauss paid $1 for his distribution rights in Europe because Wellspring profited from the
sale of its products to its distributors. At the Barcelona meeting, Strauss “was very
critical of [Asha Vico’s] store and of [Asha Vico’s] planned roll out plan as master
distributor.” According to Mackin, Strauss stated that he was not interested in acquiring
rights in Spain and would partner with Asha Vico only if he was the majority shareholder
who had control over all major decisions.
On August 5, 2014, Wellspring terminated the negotiations. Michael wrote to
Mackin stating that Asha Vico had only opened one store in Barcelona, which was
“predominantly a cafe” that had only a small section dedicated to the TF brand, and that
Asha Vico previously had rejected the master agreement that was originally proposed in
July 2013. Michael then stated: “In the meantime, I introduced you to Mr. Tom Strauss,
our master distributor for a number of other European countries, so you may converse
and cooperate for the European market. I’ve come to learn that you proposed to [Strauss]
to purchase your existing TF store in Barcelona and TF rights for Spain (which you do
not have at this time). Your intentions with this proposal are extremely different from
what you’ve discussed with us, which was your dedication to be involved with the brand
and expand it through your own efforts.” As a result, Wellspring “will no longer
consider any offering of master distributor rights for TF Spain to [Asha Vico].”
Shortly after receiving Michael’s email, Asha Vico responded that Wellspring’s
views were contrary to the parties’ prior course of dealings. Asha Vico closed by stating
that it would refer this matter to its “U.S. [and] European lawyers” and asked that
Wellspring reconsider its “extreme decision.”
7
F. ASHA VICO FILES THIS LAWSUIT AND SEEKS PRELIMINARY RELIEF
On September 12, 2014, Asha Vico filed its original complaint in this action along
with an ex parte application for a temporary restraining order. On September 15, 2014,
Judge (now Justice) Luis A. Lavin denied the application, explaining: “The application is
premised on a distribution agreement with defendant Golden Global Limited that
contains a right of first refusal in one of the addendums. Here, [Asha Vico] rejects the
proposed master distribution agreement on March 20, 2014. Thus, the first right of
refusal expired sixty days later. [Michael’s] May 22, 2014, ‘move forward’ e-mail did
not reinstate the agreement or the first refusal right. Notably, Paragraph 13(a) of the
distribution agreement provides that it may only be amended in writing. This was not
done. [¶] In addition, [Asha Vico] has not complied with other conditions to invoke the
first refusal right. In sum, [Asha Vico] has not shown that it is likely to prevail on the
merits.”
On October 7, 2014, a day after Golden Global terminated the distribution
agreements for the three Barcelona stores,3 Asha Vico filed its first amended complaint
for fraudulent inducement, promissory estoppel, breach of contract, and breach of the
implied covenant of good faith and fair dealing. Days later, Asha Vico filed a motion for
preliminary injunction.
On November 19, 2014, Judge Debre Weintraub denied the preliminary injunction
motion. She concluded: “[Asha Vico] failed to accept . . . and also affirmatively refused
the exclusive agreement. As such, [Asha Vico] relinquished the right of first refusal
under the contract. For purposes of this motion, [Asha Vico] has not demonstrated the
likelihood of prevailing on the merits. Because [Asha Vico has] not satisfied . . . its
3 Golden Global notified Asha Vico that it was terminating the agreements because
of Asha Vico’s several breaches, including Asha Vico’s interference with Golden
Global’s prospective economic advantage by attempting to sell the master licensing rights
for Spain to a third party, selling unauthorized products at its Barcelona store, and failing
to open two additional stores in Barcelona.
8
burden o[n] the first prong, the court need not and does not address the balancing of the
harms.”
DISCUSSION
A. STANDARD OF REVIEW
The decision whether to grant a preliminary injunction depends on the balancing
of two factors: the moving party’s likelihood of eventual success on the merits; and the
relative harm to each party by the decision to grant or deny provisional relief. (Ryland
Mews Homeowners Assn. v. Munoz (2015) 234 Cal. App. 4th 705, 711-712.) In deciding
whether to grant relief, the trial court serves as a fact finder and is charged with resolving
all factual disputes, even those requiring credibility determinations. (Ibid.) On appeal,
we defer to those findings, whether express or implied, so long as they are supported by
substantial evidence, and we draw all reasonable inferences in favor of the trial court’s
order. (Ibid.) The trial court’s ultimate decision to grant or deny a preliminary injunction
is reviewed for abuse of discretion, which we do not lightly disturb. (Ibid.)
B. LIKELIHOOD OF SUCCESS ON THE MERITS
1. The Trial Court’s Implied Finding of Good Faith Is Supported by
Substantial Evidence.
In Nelson v. Reisner (1958) 51 Cal. 2d 161, 169 the court held that a bad-faith offer
cannot defeat a party’s contractual right of first refusal. (Ibid. [holding that the defendant
did not waive his right of first refusal by rejecting an unreasonable offer made in bad
faith].) Relying on that holding, Asha Vico argues that it demonstrated a likelihood of
success on the merits by proving that the proposed master agreement was offered in bad
faith. This argument, however, overlooks the documented negotiating history between
the parties, which strongly supports the trial court’s implied finding that Wellspring had
proposed the agreement in good faith on February 20, 2014, and that Asha Vico declined
to accept the proposal as required within 60 days.
From the outset, Wellspring demonstrated a seriousness of purpose in pursuing a
master agreement, commencing discussions and forwarding a draft agreement in July
2013, shortly after Asha Vico opened its flagship store in Barcelona. Asha Vico declined
9
Wellspring’s initial proposal, stating that it wanted to test the market further before
making such a commitment. It was not until the end of 2013 that Asha Vico appeared
willing to discuss a master agreement. In January 2014, Wellspring then sent a revised
draft of the master agreement with a message that it was still willing to honor the right of
first refusal, but that time was running out because it “need[ed] to plan out [its] route for
the brand in Spain.”
On February 20, 2104, Wellspring sent Asha Vico a revised version of the master
agreement. One month later, Asha Vico rejected the proposed agreement, claiming it
would “require too many amendments” that would be “too time consuming and costly” to
pursue. Significantly, Asha Vico never suggested that it was rejecting the proposal
because Wellspring was operating in bad faith. Instead, Asha Vico sought to keep the
door open to future negotiations, stating: “We would however like to review this again at
a later stage . . . .” It thus appears that Asha Vico was not ready to fully commit to the
Spanish market—or at least the evidence permitted the trial court to draw this reasonable
inference.
The subsequent events support that inference. When Wellspring advised Asha
Vico that it would consider offering the master licensing rights to others in light of the
rejection, Asha Vico suddenly changed its position about the time, cost, and difficulty of
completing the agreement, indicating that it would not be at all time-consuming, costly,
or difficult. Mackin wrote: “We need to submit our few amendments and have the final
agreement finalized and signed this week—[I] and Jay agreed that any agreement always
has amendments and we both have reviewed contracts and never signed an agreement
straight away without amendments being made. This is quite normal.” Then, two days
later, Asha Vico managed to send three pages of proposed modifications. And even after
Wellspring rejected most of the proposed changes, Mackin “remained confident that the
parties would agree on [the] written terms.”
Against this background, the trial court reasonably rejected Asha Vico’s claim that
Wellspring was operating in bad faith. As evidence of bad faith, Asha Vico first points to
the terms in the February 20, 2014 proposed master agreement, arguing that the draft
10
agreement “imposed virtually no obligations on Wellspring and placed intolerable
financial risk on [Asha Vico].” Asha Vico claims that the terms, on their face, were so
“appalling” as to “shock the conscience.” But if the terms of the draft agreement were as
Asha Vico now describes them, then presumably Mackin would not have characterized
the negotiation process as “quite normal” and would not have been so confident about
reaching an agreement.4
As further evidence of bad faith, Asha Vico next relies on Strauss’s statement to
Mackin in June 2014 that Strauss “intended to roll out Tutti Frutti throughout Europe,”
and that “he had paid only one dollar ($1.00) for all of his distribution rights in Europe.”
This vague hearsay, however, does not indicate that Strauss was offered the distribution
rights to Spain for $1. In fact, Mackin stated in his declaration in support of his
preliminary injunction motion that “Strauss claimed [in July 2014] to have no interest in
acquiring rights in Spain.” Thus, Asha Vico produced no evidence that Wellspring had
offered more favorable terms to Strauss while negotiating with Asha Vico. That
Wellspring may have given better terms to Strauss in markets other than Spain is of
limited relevance to whether it was operating in good faith in negotiating with Asha Vico
for the rights in Spain. (See San Diego Watercrafts, Inc. v. Wells Fargo Bank (2002) 102
Cal. App. 4th 308, 317 [noting that the tenant’s right of first refusal precluded the landlord
from offering to sell the same property on better terms to a third party].)
In short, the trial court was presented with substantial evidence of the negotiating
history between the parties. In weighing the evidence, the trial court reasonably could
place greater weight on the negotiation history, as contemporaneously documented, than
on Asha Vico’s interpretation of that evidence, as viewed through the lens of litigation.
4 In arguing that the proposed master agreement was offered in bad faith, Asha Vico
relies heavily on “Wellspring’s refusal to warranty [its] own products for human
consumption while requiring [Asha Vico] to indemnify [it] if anyone became ill . . . .”
During the negotiations, however, Wellspring did not appear to disclaim this warranty.
Rather, Wellspring’s position was that “[t]he products themselves automatically come
with a warranty of fitness for use.”
11
Though Asha Vico claims that it “is not asking [us] to reweigh conflicting evidence,” that
is precisely what it is encouraging us to do. We find that the trial court acted well within
the bounds of reason in rejecting the claim that Wellspring proposed the draft master
agreement in bad faith and in thus denying the request for a preliminary injunction.5
2. Asha Vico’s Remaining Arguments Lack Merit.
Asha Vico’s remaining arguments do not lead to a different conclusion.
First, Asha Vico claims that defendants’ objection to discovery, lodged on the
ground that the case was subject to arbitration, “triggered adverse inferences under
Evidence Code sections 412 and 413 that the evidence would have been unfavorable to
[defendants] if produced.” But Asha Vico cites no authority that would allow an adverse
inference against a party for exercising its right to challenge discovery. (See, e.g., Code
Civ. Proc., §§ 2023.030, 2025.420, 2030.090.)
Second, Asha Vico argues that it did not reject Golden Global’s offer for a master
agreement because the offer was extended by Wellspring. However, substantial evidence
supports the trial court’s implied finding that Wellspring was acting on behalf of Golden
Global in negotiating the master agreement. As alleged in the first amended complaint,
Golden Global and Wellspring “share the same Fullerton office space and share
overlapping officers and/or directors.” Moreover, throughout the negotiations, Mackin
never expressed concern that Michael—whose email signature identified him as a
5 Because of this conclusion, we do not reach the question whether defendants
waived their right to claim that Asha Vico had breached the Agreement by failing to open
all three Barcelona stores, selling alcohol at the one store it opened, and failing to pay all
money due under the Agreement. Nor do we address the question whether the balance of
hardships favored Asha Vico. Asha Vico has not argued that it is entitled to preliminary
relief without having to show a likelihood of success on the merits based on a “sliding
scale” approach. (Cinquegrani v. Department of Motor Vehicles (2008) 163 Cal. App. 4th
741, 750 [discussing sliding scale].) We therefore do not consider this argument. (Badie
v. Bank of America (1998) 67 Cal. App. 4th 779, 784-785 [“When an appellant fails to
raise a point, or asserts it but fails to support it with reasoned argument and citations to
authority, we treat the point as waived”].)
12
Wellspring official—was unauthorized to negotiate a master agreement for Golden
Global.
DISPOSITION
The order is affirmed. Defendants are to recover their costs on appeal.
BLUMENFELD, J.*
We concur:
ZELON, Acting P. J.
SEGAL, J.
* Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to
article VI, section 6 of the California Constitution.
13