Weinstock Porter Development v. Teixeira Farms CA2/6 ( 2016 )

Filed 4/25/16 Weinstock Porter Development v. Teixeira Farms CA2/6
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SIX
WEINSTOCK PORTER 2d Civil No. B253455
DEVELOPMENT, LLC et al., (Super. Ct. No. 1377486)
(Santa Barbara County)
Plaintiffs and Appellants,
v.
TEIXEIRA FARMS, INC.,
Defendant and Respondent.
In 2005, Weinstock Porter Development, LLC and 23676-23726 Malibu
Road, LLC (collectively, WP) purchased a parcel of land from Teixeira Farms, Inc.
(TFI). The land was contaminated from oil produced by the Union Oil Company of
California (Unocal), one of TFI’s former oil and mineral lessees. In 2008 WP and TFI
agreed that, in exchange for $200,000 and WP’s agreement to purchase “environmental
insurance,” WP would release TFI from all claims arising from the 2005 sale. Three
years later WP sought rescission of this release, alleging that TFI had concealed or failed
to disclose the fact that it had contractually released Unocal from any and all claims TFI
and its successors and assigns may have against it.
In a detailed and thorough opinion, the trial judge ruled in favor of TFI,
finding that a rescission was not justified. WP appeals the trial court’s judgment and
subsequent award of contractual attorneys’ fees. We affirm.
FACTS AND PROCEDURAL HISTORY
WP purchased vacant land in Santa Maria from TFI with the intent of
developing it into townhomes. WP knew that the soil was contaminated from Unocal’s
past attempts to produce oil, but WP did not know the full nature and extent of the
damage.
After the sale, WP discovered additional contamination. It sought
compensation from TFI, which agreed to pay $200,000 for remediation and
environmental insurance. In exchange, WP gave “a full and complete release from any
and all liability, obligation and cost” to TFI “and its successors, assigns, representatives,
stockholders, directors, officers, principals, employees, agents, parent and subsidiary
organizations, and affiliates, and all other persons and associations, known or unknown”
from “all rights, claims, demands, actions, and judgments which [WP] ever had, or now
have, or may have against [them] related to the [the property sale and environmental
damage]” (TFI Release). As part of the TFI Release, WP waived application of Civil
Code section 1542 and “expressly acknowledge[d] that the significance and
consequences of this waiver . . . is that if [it] should eventually suffer additional damage
. . . , [it] will not be permitted to make any claim against any other party for those
damages.”1
WP then sought compensation from Unocal, which refused to negotiate.
Unbeknownst to WP, before TFI sold the land it agreed to “release, on behalf of [TFI]
and its future assigns, all environmental claims against [Unocal]” (Unocal Release).2
Unocal gave WP a copy of the Unocal Release, asserting that it precluded WP “from
making any claims against Unocal.”
1
Civil Code section 1542 provides that “[a] general release does not extend to
claims which the creditor does not know or suspect to exist in his or her favor at the time
of executing the release, which if known by him or her must have materially affected his
or her settlement with the debtor.”
2
The Unocal Release was an exhibit at trial but was not entered into evidence and
is not in the appellate record. We rely on WP’s characterization of the agreement.
2
WP sued TFI for more than $9 million in damages from the contamination.
Because the TFI Release would bar all of its claims, WP sought to rescind the agreement
based on TFI’s concealment of the Unocal Release.3 Following a bench trial on the
rescission issue, the trial court found that by entering into the TFI Release, WP agreed to
release “all other persons” and “any other party,” including Unocal, and that TFI’s failure
to disclose its separate agreement with Unocal to the same effect was therefore not a
material omission. Accordingly, the trial court ruled that WP could not rescind the TFI
Release and entered judgment in favor of TFI.
After WP filed its notice of appeal, TFI sought attorneys’ fees pursuant to
the TFI Release and the real estate purchase and sale agreement (PSA). The trial court
awarded $95,707 in attorneys’ fees and $1,406.50 in costs.
WP contends that the trial court erred by ruling it was not entitled to
rescission. In addition, it challenges the fee award on the grounds that (1) the trial court
lacked jurisdiction to enter the award after WP filed its notice of appeal; (2) neither the
PSA nor the TFI Release authorizes an award for a rescission action; (3) the fees are
excessive; (4) the fees paid by TFI’s insurer before it withdrew its defense are
unrecoverable; and (5) the contractual fee provisions did not authorize fees to more than
one law firm or incurred before the complaint was filed.
DISCUSSION
Rescission of the TFI Release
“A party seeking rescission based on fraudulent nondisclosure must show
(1) the defendant failed to disclose a material fact which he knew or believed to be true,
and (2) the defendant had a duty to disclose that fact. [Citation.]” (San Diego Hospice v.
County of San Diego (1995) 31 Cal. App. 4th 1048, 1055, italics added.) A fact is material
if “‘a reasonable [person] would attach importance to its existence or nonexistence in
3
WP also sought rescission based on intentional misrepresentation, asserting that
during the TFI Release negotiations, TFI stated that WP “could still pursue
environmental claims against Unocal after execution of the Unocal Release.” The trial
court rejected this claim, finding WP’s sole witness that TFI made such a statement not
credible. WP does not challenge this ruling on appeal.
3
determining his [or her] choice of action in the transaction in question.’” (Engalla v.
Permanente Medical Group, Inc. (1997) 15 Cal. 4th 951, 977.) Materiality is ordinarily a
question of fact unless the nondisclosure “‘is so obviously unimportant’” that the trier of
fact could not reasonably find that a reasonable person would have been influenced by it.
(Ibid.) The trial court so found.
We agree with the trial court that if, as a defense to liability, Unocal can
enforce against WP both the Unocal Release and the TFI Release, then TFI’s failure to
disclose the former was not a material omission that would entitle WP to rescind the
latter. However, we take a different approach. Since Unocal is not a party to this
litigation, we decline to determine its rights vis-à-vis WP, particularly since Unocal’s
standing to enforce the TFI Release is doubtful on this record. Although the agreement’s
broad language purports to release “any other party” and “all other persons and
associations, known and unknown,” “it will seldom be sufficient for the third party
simply to rely on a literal application of the terms of the release.” (Neverkovec v.
Fredericks (1999) 74 Cal. App. 4th 337, 349.) Here, “the circumstances of the contracting
parties’ negotiations” provide little if any support “to determine [that the] third party not
named in the release”—Unocal—“was an intended beneficiary.” (Ibid.)
We conclude, however, that WP is not entitled to rescission. Either (1) the
Unocal Release is unenforceable against WP, in which case its concealment was not
material to the TFI Release, or (2) WP had notice of the Unocal Release, in which case
there was no concealment.
The Unocal Release is a contract between TFI and Unocal. Although it
purports to release Unocal from liability to future purchasers of the property such as WP,
WP is not a party to the agreement or in privity of contract with one. The parties here
“cite no authority, and we know of none, holding the transfer of title to real property also
transfers rights [and obligations] the seller may have had under [a] contract with his
[lessee].” (Drake v. Martin (1994) 30 Cal. App. 4th 984, 994-995.) If the Unocal Release
is unenforceable against WP, its existence could not have been material to the TFI
Release.
4
For the Unocal Release to be effective between WP and Unocal, as either a
covenant that runs with the land or an equitable servitude, WP had to have taken the
property with actual or constructive notice of the release. (See Civ. Code, § 1468
[instrument containing covenant running with the land must be recorded]; Nahrstedt v.
Lakeside Village Condominium Assn. (1994) 8 Cal. 4th 361, 375 [“Restrictions that do not
meet the requirements of covenants running with the land may be enforceable as
equitable servitudes provided the person bound by the restrictions had notice of their
existence”].) Notice, however, would defeat WP’s concealment claim. (See San Diego
Hospice v. County of San Diego, supra, 31 Cal.App.4th at p. 1055 [“The duty to disclose
arises when two elements are present: (1) the material fact is known to (or accessible
only to) the defendant; and (2) the defendant knows the plaintiff is unaware of the fact
and cannot reasonably discover the undisclosed fact”], original italics, fn. omitted.)
Because the Unocal Release was either known to WP when it purchased the
property or was not material to its decision, TFI’s failure to disclose the agreement is not
a basis for rescission. The trial court properly entered judgment in favor of TFI.
Attorneys’ Fee Award
WP challenges several aspects of the trial court’s award of attorneys’ fees.
First, it contends that the trial court lacked jurisdiction to consider and rule on TFI’s fee
motion. To the contrary, “the filing of a notice of appeal does not deprive the trial court
of jurisdiction to award attorney fees as costs post trial” because such an award “is a
collateral matter which is embraced in the action but is not affected by the order from
which an appeal is taken.” (Bankes v. Lucas (1992) 9 Cal. App. 4th 365, 368, 369, citing
Code Civ. Proc., § 916.)
Second, WP contends that attorneys’ fees are unavailable under the TFI
Release, which authorizes an award to the prevailing party “[i]f it is necessary . . . to
institute an action to enforce any right granted hereunder or to redress the breach of any
provision hereof.” WP argues that this clause does not apply because its action sought
rescission of the release rather than to enforce its terms. This argument might have force
if there were not an identically worded fee provision in the PSA, upon which WP
5
“institute[d] an action . . . to redress breach.” (Cf. Gil v. Mansano (2004) 121
Cal. App. 4th 739 [no fees where sale agreement did not contain fee provision and release
providing for fees was asserted only as affirmative defense].)4 Accordingly, we reject
WP’s contention that the contractual language does not support a fee award.
Third, WP asserts that the number of hours billed and the rates charged by
TFI’s attorneys at Carmel & Naccasha (C&N) are excessive. The trial court did not
abuse its discretion by implicitly finding that the 407 attorney hours and 35 paralegal
hours C&N spent on the case are reasonable. The amount of documents that TFI
produced to WP is irrelevant to the amount of time C&N spent on document review. Nor
did the trial court abuse its discretion in implicitly finding that C&N’s rates were
reasonable. It is true that the rates increased significantly after TFI’s insurer, Star
Meadowbrook, withdrew its defense and TFI had to negotiate new rates with C&N under
a separate retainer agreement. The rate increase was reasonable, however, because the
original rates were “negotiated insurance rates” that were “well below . . . standard rates
for private clients.” (Underscoring omitted.)
Fourth, WP claims that TFI is not entitled to recover fees paid by Star
Meadowbrook. WP speculates that Star Meadowbrook did not and may not be able to
recover these fees from TFI because there was at least a possibility that the fees were
covered under the insurance contract. WP provides no evidence, such as the insurance
contract, to substantiate its theory. More importantly, WP has no stake in whether TFI
reimburses Star Meadowbrook for the fees. Even if, as WP supposes, the trial court’s
award “allowed TFI an unwarranted double recovery,” that is a matter between TFI and
Star Meadowbrook in which WP has no standing to intervene. “It is [WP] which seeks a
4
Justice Armstrong’s dissent in Gil argued that the contractual term “action”
should be construed broadly to encompass affirmative defenses. In Windsor Pacific LLC
v. Samwood Co., Inc. (2013) 213 Cal. App. 4th 263, 276, the unanimous panel adopted
Justice Armstrong’s analysis, disagreeing with the Gil majority and a similar case, Exxess
Electronixx v. Heger Realty Corp. (1998) 64 Cal. App. 4th 698. Given the important
factual difference between this case and Gil, we need not decide the issue that has divided
courts in this Appellate District.
6
windfall.” (International Billing Services, Inc. v. Emigh (2000) 84 Cal. App. 4th 1175,
1193.) WP is “not entitled to avoid [its] contractual obligation to pay reasonable attorney
fees based on the fortuitous circumstance that [it] sued a defendant who obtained
insurance coverage providing a defense.” (Staples v. Hoefke (1987) 189 Cal. App. 3d
1397, 1410.)
Fifth, WP contends that TFI cannot recover fees for work performed by a
second law firm, Kirk & Simas (K&S), which initially represented TFI and later assisted
C&N with the defense. WP challenges $1,906 in fees awarded for K&S’s work during
the three months before WP filed the complaint. While the fee provision covers only fees
“incurred in prosecuting [the] action and the enforcement of any judgment,” nothing
limits the time frame in which the work must be performed. Thus, it is the nature of the
work that is dispositive. K&S’s first charge was for a “call with client regarding response
to complaint” and a communication with “opposing counsel” that “service would be
accepted on client’s behalf.” This was work done “prosecuting” the action, as was the
remainder of the work at issue.
WP also argues that K&S was not entitled to fees for work done after C&N
took over the case. It maintains that “[n]othing in the TFI Release (or the PSA) suggests
that retaining two law firms is necessary or appropriate.” The PSA, however, provides
for “reasonable” attorneys’ fees. WP offers no explanation why it was unreasonable for
C&N to consult with the firm that initially handled its client’s defense and in particular
the K&S attorney who helped draft the agreements in dispute.
7
DISPOSITION
The judgment is affirmed. The order awarding attorneys’ fees is affirmed.
Costs on appeal are awarded to respondent.
NOT TO BE PUBLISHED.
PERREN, J.
We concur:
GILBERT, P. J.
YEGAN, J.
8
James F. Rigali, Judge
Superior Court County of Santa Barbara
______________________________
Stiles Law Group and Michael J. Stiles, for Plaintiffs and Appellants.
Carmel & Naccasha and Michael M. McMahon, for Defendant and
Respondent.