Eco Property Group v. Snider Investments CA2/6 ( 2024 )

Filed 6/3/24 Eco Property Group v. Snider Investments 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NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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has not been certified for publication or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SIX
ECO PROPERTY GROUP, 2d Civ. No. B318564
LLC, (Super. Ct. No. 19CV04971)
Plaintiff, Appellant, and (Santa Barbara County)
Cross-Defendant
v.
SNIDER INVESTMENTS, ORDER DENYING
LLC, REHEARING AND
Defendant, Respondent, and MODIFYING OPINION
Cross-Complainant [NO CHANGE IN
JUDGMENT]
ROGER MACFARLANE, et al.,
Appellants, Cross-
Complainants, and Cross-
Defendants
BRENT BUHRMAN,
Appellant and Cross-
Defendant
MORONGO EQUITY
PARTNERS I, LLC,
Appellant, Cross-
Complainant, and Cross-
Defendant
THE COURT:
The petition for rehearing is denied. The opinion
filed herein on May 6, 2024, is modified as follows:
1. The last paragraph at the bottom of page 32,
commencing with “We need not determine” and ending on page
33 with “(People v. Watson (1956) 46 Cal.2d 818.),” is modified to
read:
We need not determine whether the court’s finding was
erroneous. Appellants have not shown that, if erroneous, the
finding resulted in a miscarriage of Justice. (People v. Watson
(1956) 46 Cal.2d 818.) “A ‘miscarriage of justice’ occurs when it is
‘“ . . . reasonably probable that a result more favorable to the
appealing party would have been reached in the absence of the
error.”’” (Lundy v. Ford Motor Co. (2001) 87 Cal.App.4th 472,
479.) In view of the trial court’s finding, supported by substantial
evidence, that appellants had fraudulently induced the Snider
parties to enter into the three agreements, it is not reasonably
probable that appellants would have achieved a more favorable
result had the court found the general release provision to be
unenforceable against them.
2. Immediately after the above paragraph as modified
herein, and before the section on page 33 entitled, “Cross-
Complaint of Appellants MacFarlane, Newby, Owens, and Walker
Against Buhrman,” the following new section is added:
Appellants’ Petition for Rehearing
In their petition for rehearing, appellants state that they
“seek rehearing because the opinion fails to address Appellants’
arguments that the integration clauses in the Lease and the
Operating Agreement bar the Snider Parties’ fraud claims.”
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(Italics added.) Appellants contend: “On rehearing, this court
should address this issue and conclude that the integration
clauses are fatal to those fraud claims.” “By . . . agreeing to the
integration clauses, Snider is precluded as a matter of law from
claiming that (i) the alleged misrepresentations were material,
(ii) that he actually relied on them and (iii) that the reliance was
reasonable.” “Despite multiple mentions of the integration[]
clauses in [appellants’] opening brief, the Snider Parties
completely ignored those arguments . . . .”
In their opening brief appellants note that both the lease
and Operating Agreement “contain[] an integration clause
whereby the parties confirm that all material information relied
on by the parties is contained in” those agreements. But in their
opening brief appellants do not contend that the integration
clauses barred the Snider parties’ fraudulent inducement claims.
Appellants have therefore forfeited this issue. (Christoff v. Union
Pacific Railroad Co. (2005) 134 Cal.App.4th 118, 125 [“an
appellant's failure to discuss an issue in its opening brief forfeits
the issue on appeal”]; McCann v. City of San Diego (2021) 70
Cal.App.5th 51, 82, fn. 17 [“we need not address claims not
properly addressed in the opening brief”]; Reichardt v. Hoffman
(1997) 52 Cal.App.4th 754, 764 [“‘“Obvious considerations of
fairness in argument demand that the appellant present all of his
points in the opening brief . . .”’”].)
Furthermore, appellants’ arguments concerning the
integration clauses are forfeited because they were not presented
under a separate heading or subheading in the opening brief.
“California Rules of Court, rule 8.204(a)(1)(B), provides that a
brief must ‘[s]tate each point under a separate heading or
subheading summarizing the point, and support each point by
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argument and, if possible, by citation of authority.’ ‘Failure to
provide proper headings forfeits issues that may be discussed in
the brief but are not clearly identified by a heading.’” (Herrera v.
Doctors Medical Center of Modesto, Inc. (2021) 67 Cal.App.5th
538, 547.)
In any event, the integration clauses do not bar the Snider
parties from claiming fraud. “A party may claim fraud in the
inducement of a contract containing a provision disclaiming any
fraudulent misrepresentations and introduce parol evidence to
show such fraud. [Citations.] Fraud in the inducement renders
the entire contract voidable, including any provision in the
contract providing the written contract is, for example, the sole
agreement of the parties, that it contains their entire agreement
and that there are no oral representations (integration/no oral
representations clause).” (Hinesley v. Oakshade Town Center
(2005) 135 Cal.App.4th 289, 301)
There is no change in the judgment.
GILBERT, P. J. YEGAN, J. CODY, J.
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Filed 5/6/24 Eco Property Group v. Snider Investments CA2/6 (unmodified opinion)
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 SIX
ECO PROPERTY GROUP, 2d Civ. No. B318564
LLC, (Super. Ct. No. 19CV04971)
Plaintiff, Appellant, and (Santa Barbara County)
Cross-Defendant
v.
SNIDER INVESTMENTS,
LLC,
Defendant, Respondent, and
Cross-Complainant
ROGER MACFARLANE, et al.,
Appellants, Cross-
Complainants, and Cross-
Defendants
BRENT BUHRMAN,
Appellant and Cross-
Defendant
MORONGO EQUITY
PARTNERS I, LLC,
Appellant, Cross-
Complainant, and Cross-
Defendant
This complex case concerns two complaints, three cross-
complaints, two cross-appeals, and nine parties. The parties are:
1. Property owner Morongo Equity Partners I, LLC
(Morongo).
2. Snider Investments, LLC (SIL), which was the sole
member of Morongo when it was formed.
3. David Snider, who formed SIL and is its sole member.
Snider decided to develop Morongo’s property as a commercial
cannabis cultivation facility and lease it to a cannabis cultivator.
4. ECO Property Group, LLC (ECO). ECO purchased a 20-
percent membership interest in Morongo. The sole members of
ECO are Roger MacFarlane and Eli Owens.
5. MacFarlane, Owens, Scott Newby, Brent Buhrman, and
Gary Walker, Jr. They purported to form a limited liability
company (LLC) that leased property from Morongo for the
purpose of the commercial cultivation of cannabis. After the
termination of the lease, the LLC purported to sign a settlement
agreement with Morongo. But the LLC did not exist.
The trial court bifurcated the proceedings into two phases.
The first phase was a court trial of the three cross-complaints –
one filed by SIL, the second by Morongo, and the third by
MacFarlane, Owens, Newby, and Walker. The second phase will
be either a court or jury trial of the two complaints. The present
appeal concerns only the first phase.
Five parties appeal from the judgment entered in the first
phase. The appellants are ECO, MacFarlane, Owens, Walker,
and Newby. Two parties – SIL and Morongo – moved to dismiss
ECO’s appeal because the first-phase judgment is not a final
judgment as to ECO. Instead of dismissing ECO’s appeal, we
treat it as a petition for an extraordinary writ.
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In the first phase the trial court found in favor of SIL and
Morongo on their cross-complaints. At their request, the court
rescinded three agreements because it determined that
MacFarlane, Owens, Newby, Walker and Buhrman had
fraudulently induced them to sign the agreements. We reject
appellants’ claim that substantial evidence does not support the
court’s finding of fraudulent inducement. We do not reweigh the
evidence on appeal. We also reject appellants’ claim that the
attempted rescission of one of the agreements was ineffective.
The cross-complaint filed by MacFarlane, Owens, Walker,
and Newby was against Brent Buhrman and Morongo. The
cross-complaint alleged that Buhrman had violated
confidentiality agreements and that Morongo had breached a
contract. The trial court found in favor of Buhrman and
Morongo.
The trial court did not award prevailing-party attorney fees
based on contractual attorney fee provisions. (Civ. Code, § 1717.)
Buhrman and Morongo cross-appeal from the phase-one
judgment’s denial of their request for attorney fees. We conclude
that on this issue the trial court erred. We reverse the first-
phase judgment to the extent it denied Buhrman’s and Morongo’s
request for attorney fees. We remand the matter for further
proceedings on this issue. In all other respects, we affirm the
phase-one orders.
Statement of Facts
Division Six opinions normally include a statement of facts
summarizing the material evidence presented at the court trial.
But the facts of this case are voluminous and complex. A detailed
recitation of the facts is not necessary to resolve appellants’
claims.
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At the beginning of its statement of decision, the trial court
set forth the evidence as presented in the trial brief submitted by
Snider, Morongo and SIL. The court fully credited their version
of events, which it summarized as follows:
“In 2016, with California’s impending legalization of
cannabis on the horizon, a . . . group of partners [MacFarlane,
Owens, Walker, Newby, and Buhrman], self-described as a
‘dream team’ of ‘master cannabis cultivators’ and known as
[‘]Seed to Soul,[’] sought to lock up indoor cannabis cultivation
space so that they would not miss out on the oncoming ‘green
rush.’ They found a landlord, [Morongo], whose sole member was
SIL, [which] was developing such a space from the ground up.
[The sole member of SIL was David Snider.] By spinning a tall
tale about their purported qualifications and their access to
endless amounts of financing from one of their team members
[MacFarlane], [the Seed to Soul partners] tricked [Morongo] into
leasing to them and selling [20 percent] of [its] company to [ECO,
MacFarlane’s and Owens’ LLC,] instead of leasing the space to
one of the many large, institutional, and established cannabis
cultivators who had expressed interest in leasing the same
space. . . . [T]heir representations were false, and their post-
execution conduct demonstrated that they had neither the intent
nor the capability of carrying out large scale cannabis cultivation
operations. Instead, once [ECO] had purchased a portion of
[Morongo’s] company which was sold as part of the lease
transaction, [the Seed to Soul partners] manufactured a
construction dispute and terminated the lease . . . . After
threatening a lawsuit concerning the termination, they then used
their misrepresentations to extract a settlement agreement [from
Morongo, the lessor,] despite the fact that their entity [the Seed
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to Soul lessee, which purported to be an LLC,] had never been
formed, had no legal capacity, and did not exist. Eventually, the
founder of this ‘dream team,’ Brent Buhrman, realized that he
too had been swindled by his partners whom he had brought into
the deal, so he came clean to the landlord and revealed the truth
of what had transpired – that the team was not who they
represented themselves to be and, among other things, never had
any of the funding they had claimed to have or the capabilities to
do the things they said they would do . . . .”
“ . . . Owens, MacFarlane, Buhrman, Newby, and Walker
. . . fraudulently induced the Snider Parties [Snider, SIL, and
Morongo] to enter into three agreements: (i) a commercial lease
between the Seed to Soul [partners’ purported LLC] and
[Morongo] by which the Seed to Soul [partners] would cultivate
cannabis at [Morongo’s] property . . . ; (ii) a sale of 20% of SIL’s
100% membership interest in [Morongo] to Owens and
MacFarlane’s entity ECO . . . ; and (iii) a settlement agreement
between [Morongo] and the Seed to Soul [partners’] non-existent
entity called ‘Seed to Soul Management, LLC’ concerning the
unjustified termination of the Lease by the Seed to Soul
[partners] . . . .”
ECO’s Direct Complaint
In September 2019 ECO began the litigation by filing a
complaint against SIL and its sole member, Snider. In December
2021 ECO filed the operative first amended complaint (the direct
complaint), consisting of 13 causes of action.
The direct complaint alleged that the parties had entered
into an agreement concerning the property “located at 13310
Little Morongo Rd, Desert Hot Springs,” hereafter “the Property.”
The Property would be used “for the development of cannabis
5
cultivation facilities.” The Property is owned by Morongo,
previously known as Southern California Cultivation Partners,
LLC. “Snider controlled, managed, dominated, and operated
SI[L] and [Morongo] . . . .” He “[i]s the only manager and member
of SI[L].”
“Pursuant to the Agreement,” ECO is a member of Morongo
with a 20 percent interest. The other member is SIL with an 80
percent interest. Snider and SIL are the “managers” of Morongo.
“[ECO] invested . . . $1,100,000 . . . into [Morongo] for
purposes of providing capital for the construction of a building on
the Property for commercial lease for cannabis cultivation.
Pursuant to the Agreement and representations made by Snider
and [SIL] to [ECO], [SIL] would also provide a contribution of
$4,632,000 . . . for the development of the Property.”
Snider and SIL “breached the Agreement by engaging
in . . . [specified] intentional acts in knowing violation of the
Agreement . . . .” In its prayer for relief, ECO requested general,
special, and punitive damages as well as attorney fees.
ECO’s Derivative Complaint
At the same time that ECO filed the direct complaint, it
filed a second complaint as a “derivative action[] on behalf of
[Morongo]” against Snider, SIL, and five Snider-related
defendants. Morongo was named as a “Nominal Defendant.” We
refer to this second complaint as “the derivative complaint.” It
consists of 11 causes of action.
SIL’s Cross-Complaint
SIL filed a cross-complaint against ECO, MacFarlane, and
Owens. The cross-complaint alleged: “In February 2015, SIL
purchased the [P]roperty . . . .” “In April 2016, SIL formed
[Morongo] and was its sole member and one of its managers
6
pursuant to [Morongo’s] original Operating Agreement.” SIL
transferred title to the Property to Morongo.
Owens, MacFarlane, and Buhrman negotiated an
agreement with Snider whereby a partnership called “Seed to
Soul Farms” (Seed to Soul) would lease a portion of the Property
for the purpose of cultivating cannabis. In addition, the
partnership would purchase a 20 percent interest in Morongo.
The Seed to Soul partners were MacFarlane, Owens, Buhrman,
Walker, and Newby, hereafter collectively referred to as “the
Seed to Soul partners.”
“[T]he Seed to Soul partners agreed [among themselves]
that even though they were not prepared to do anything, they
would represent to Mr. Snider that they were an established
‘dream team’ of ‘master cultivators’ of cannabis, that had all of
the necessary funding already in place and would be ready to
commence cannabis cultivation operations on Day 1 if they were
given a lease for [the Property] and that they would be one of the
largest cannabis cultivators in the state of California. Even
though none of this was true, the Seed to Soul partners wanted to
tie up the [Property] with a signed lease and then would try and
figure things out on the run after the fact.”
During the negotiations, “the lease and the [Seed to Soul
partners’] purchase [of a 20 percent interest in Morongo] were
discussed together and as a ‘package deal.’” Snider required the
purchase so that the Seed to Soul partners would have “‘skin in
the game.’”
Only two partners – MacFarlane and Owens – provided
funds for the purchase of the 20 percent interest in Morongo. The
purchase price was $1,100,000. The actual purchaser was ECO,
“an entity of which only Mr. Owens and Mr. MacFarlane were
7
members.” The terms of the arrangement between Morongo and
ECO are set forth in Morongo’s “First Amended and Restated
Operating Agreement” (the Operating Agreement).
The lease of the Property was signed in June 2016. At
Buhrman’s request, the name of the tenant was changed from
“Seed to Soul Farms” to “Seed to Soul Management, LLC.”
Buhrman, Walker, and Newby “signed the Lease on behalf of
‘Seed to Soul Management, LLC’ . . . . Unbeknownst to [SIL and
Morongo], no such entity existed.” Snider signed the lease on
behalf of Morongo.
Before the lease was signed, Buhrman, Owens, and
MacFarlane “represented to Mr. Snider that Mr. MacFarlane had
already invested $500,000 directly into Seed to Soul and would
invest an additional $500,000 thereafter in order to ensure Seed
to Soul’s financial viability . . . .” But these representations were
false. “With no funding, Seed to Soul Management, LLC never
got formed, never opened any bank accounts, and never sought or
applied for any insurance policies. In e-mail communications
between the partners of Seed to Soul, Mr. MacFarlane specifically
told other Seed to Soul partners to intentionally conceal each of
these facts from Mr. Snider.”
“In the fall of 2017, a dispute arose between Seed to Soul
and [Morongo] as to the type of HVAC [heating, ventilation, and
air-conditioning] system that would be installed in” the building
under construction on the Property. Morongo “offered to pay 50%
of the additional cost of the system that Seed to Soul wanted.”
Because Morongo refused to pay the entire additional cost, Seed
to Soul Management, LLC, gave notice to Morongo that it was
terminating the lease.
8
In April 2018 Morongo “entered into a Settlement
Agreement with ‘Seed to Soul Management, LLC’” concerning the
lease. “[A] dispute” subsequently “broke out among the Seed to
Soul [partners], which led to Mr. Buhrman terminating the Seed
to Soul partnership. Feeling that his former partners had
defrauded him, Mr. Buhrman approached Mr. Snider and told
him the truth about what had occurred with Seed to Soul and
with ECO both before and after the execution of the Lease and
Operating Agreement.”
Based on the information provided by Buhrman, SIL
“learn[ed] that the entire Lease and Operating Agreement had
been entered into under false pretenses.” Snider notified
MacFarlane that SIL was rescinding the Operating Agreement
and offered to return the $1,100,000 paid by ECO. MacFarlane
“refused to accept the monies.”
SIL’s cross-complaint consisted of two causes of action. The
first sought to rescind the Operating Agreement permitting ECO
to purchase a 20 percent membership interest in Morongo. The
rescission would be “in exchange for returning to ECO the
$1,100,000 previously paid by ECO to purchase” the membership
interest. The second cause of action was for fraud.
Morongo’s Cross-Complaint
Morongo filed a cross-complaint in intervention against the
five Seed to Soul partners (Owens, MacFarlane, Buhrman,
Walker, and Newby). The allegations of the cross-complaint are
similar to the allegations of SIL’s cross-complaint. Morongo’s
cross-complaint also alleged that, after Seed to Soul
Management, LLC, had terminated the lease, the Seed to Soul
partners “began threatening to take legal action against
[Morongo] for the termination.” To settle the dispute, Morongo
9
“agreed to pay and did in fact pay, Seed to Soul $345,000, which
represented the return of Seed to Soul’s $300,000 [security
deposit] and other minor consideration.” Newby signed the
Settlement Agreement on behalf of Seed to Soul Management,
LLC. The Seed to Soul partners “never disclosed the fact that
Seed to Soul [Management, LLC,] did not exist and as such did
not own any claims that it was releasing. Instead, they
intentionally deceived [Morongo] into believing that the
Settlement Agreement would result in the release of claims held
by the non-existent [limited liability company].”
Morongo’s cross-complaint consisted of four causes of
action. The first was for fraudulently inducing Morongo to lease
the Property to Seed to Soul Management, LLC. The second was
for fraudulently inducing Morongo to sign the Settlement
Agreement. The third was for declaratory relief that the lease is
void and unenforceable. The fourth cause of action was for
declaratory relief that the Settlement Agreement is void and
unenforceable.
The cross-complaint’s prayer for relief requested that the
lease and Settlement Agreement be rescinded, that the Seed to
Soul partners return the $345,000 paid by Morongo pursuant to
the Settlement Agreement, and that they pay Morongo “damages
that would put [it] back into the position it would have been [in]
had the Lease never been entered into.”
Cross-Complaint of Owens, MacFarlane, Newby and Walker
Four of the Seed to Soul partners – Owens, MacFarlane,
Newby, and Walker – filed a cross-complaint against Morongo
and Buhrman. The cross-complaint consisted of seven causes of
action. They included a cause of action for Morongo’s breach of
10
the Settlement Agreement and causes of action for Buhrman’s
breach of confidentiality agreements.
Trial Court’s Phase-One Judgment
As to phase one, a 13-day court trial was conducted. The
court wrote a detailed and thorough statement of decision. It
entered “[j]udgment” on the cross-complaints “in accordance with
the . . . Statement of Decision.”
With the exception of Buhrman, the trial court did not
credit the testimony of the Seed to Soul partners. The court
found Owens to be “evasive.” It said: “[Owens] routinely did not
respond to the courtroom in a manner that was credible or
believable.” As to Newby, the court noted: “[H]is testimony was
not consistent or credible; his testimony in the courtroom was
different from what he said in his deposition; in summary his
testimony was not persuasive of his cause.” As to MacFarlane,
the court stated: “His testimony was sometimes evasive; elusive;
obfuscating.” “His testimony was not credible related to his
claims on the underlying issues in the three cross-complaints at
issue in Phase 1.”
On the other hand, the trial court found Snider’s testimony
“believable; credible; consistent” and “certainly supportive of his
theory of the case.” “His testimony was very persuasive.”
The court noted that Buhrman had “‘rolled over’ on his
former partners and colleagues. He was a ‘rogue partner.” The
court found his testimony “intellectually honest; . . . believable;
credible” and “very persuasive.”
On SIL’s and Morongo’s cross-complaints, judgment was
entered in favor of the cross-complainants. The court concluded
that SIL’s and Morongo’s “evidence is preponderating;
additionally, . . . it is clear and convincing.”
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The court found that the Seed to Soul partners and ECO
had “fraudulently induced [SIL and Morongo] to enter into three
agreements AND the evidence reached the level required for
rescission . . . .” The three agreements are the Operating
Agreement, the lease of the Property, and the Settlement
Agreement between Morongo and Seed to Soul Management,
LLC.
The court stated: “In order to induce [Morongo] to sign the
Lease and SIL to sell a portion of its membership interest in
[Morongo] to ECO, the five Seed to Soul [partners] fraudulently
represented to SIL and [Morongo] that they were comprised of a
‘dream team’ of ‘master cultivators’ with the capability of getting
licensed and carrying out large scale Cannabis cultivation at the
[Morongo] property; [in fact] the ‘dream team’ was an unproven
team with no track record.” In addition, Owens, MacFarlane,
and Buhrman “fraudulently represented that [Owens and
MacFarlane] had already funded Seed to Soul with $1,000,000 for
startup and operational capital, and that they would continue to
fund the venture as needed to ensure its success.”
Moreover, “[t]hey fraudulently represented that the Seed to
Soul [partners] would be prepared to commence Cannabis
cultivation at the property by April 2017, and they would take all
steps necessary to do so, including by starting the State and local
licensing application process, and by ordering equipment,
supplies, and inventories that had long lead times. [¶] [] All the
Seed to Soul [partners] . . . fraudulently represented that they
were committed to Seed to Soul’s long-term success, and that
they would work towards its success.”
The court further found “that the Seed to Soul [partners
had] fraudulently induced [Morongo] to enter into the Settlement
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Agreement by making affirmative material representations that
they knew to be false, including that Seed to Soul Management
LLC was a ‘California Limited Liability Company’ with ‘members’
and ‘managing members.[’]” In fact, Seed to Soul Management
LLC was a “non-existent entity.”
The court ordered that the Operating Agreement, lease,
and Settlement Agreement are rescinded. “‘Rescission
extinguishes the contract [citation], terminates further liability,
and restores the parties to their former positions by requiring
them to return whatever consideration they have received.
[Citation.] Thus, the “[r]elief given in rescission cases—
restitution and in some cases consequential damages—puts the
rescinding party in the status quo ante, returning him to his
economic position before he entered the contract.”’” (Wong v.
Stoler (2015) 237 Cal.App.4th 1375, 1386.)
As to the rescission of the Operating Agreement, the court
ordered Morongo or SIL to return to ECO its $1,100,000
investment in Morongo as well as “$10,000 that ECO [had]
contributed to [Morongo] as a capital call in April 2018.”
As to the rescission of the Settlement Agreement, the court
ordered the Seed to Soul partners to “forthwith” return to
Morongo the $45,000 it had paid them as “additional
consideration” pursuant to the Settlement Agreement. The court
did not expressly order the Seed to Soul partners to return to
Morongo the $300,000 security deposit it had refunded to them
pursuant to the Settlement Agreement. But the rescission of the
Settlement Agreement required them to return the security
deposit to Morongo. (See Rodriguez v. Barnett (1959) 52 Cal.2d
154, 161, italics added [“Rescission extinguishes a contract
[citation] and requires each party to return whatever he has
13
received as consideration thereunder [citation]. As a matter of
law the defendant would therefore be required to return the
$1,500 deposit to the plaintiffs upon rescission”].) The trial court
found that the Settlement Agreement had “damaged” Morongo
because, but for the agreement, “it would have applied [the
security deposit] to damages [incurred] as a result of the Seed to
Soul [partners’] breach of the Lease.”
As to the cross-complaint of Owens, MacFarlane, Newby,
and Walker, judgment was entered for the cross-defendants
(Morongo and Buhrman) on all counts.
Appeal and Cross-Appeals
ECO and four of the Seed to Soul partners – MacFarlane,
Owens, Newby, and Walker – appeal from the phase-one
judgment. They are hereafter collectively referred to as
“appellants.” A single opening brief was filed on behalf of all
appellants. Morongo and Buhrman cross-appeal from the phase-
one judgment. Both cross-appeals are limited to the issue of
attorney fees. A combined respondents’ brief and cross-
appellant’s opening brief was filed on behalf of Morongo and SIL.
Buhrman filed a separate combined respondent’s brief and cross-
appellant’s brief.
Motion to Dismiss ECO’s Appeal
Based on the One Final Judgment Rule
“Civil cases in California are governed by the ‘“one final
judgment”’ rule, which ‘prohibits review of intermediate rulings
by appeal until final resolution of the case.’ [Citation] . . . The
rationale for the rule ‘“‘is that piecemeal disposition and multiple
appeals in a single action would be oppressive and costly, and
that a review of intermediate rulings should await the final
14
disposition of the case.’”’” (Reddish v. Westamerica Bank (2021)
68 Cal.App.5th 275, 277.)
Before appellants’ opening brief was filed, SIL and Morongo
moved to dismiss ECO’s appeal from the phase-one judgment
entered on the cross-complaints. They claimed that, as to ECO,
the phase-one judgment is nonappealable because a final
judgment will not be rendered until phase two of the trial has
been completed. Phase two will involve the trial of ECO’s direct
and derivative complaints against Snider, SIL, and other Snider-
related defendants.
“Where [as here] a complaint and cross-complaint involving
the same parties have been filed, there is no final, appealable
judgment until both have been resolved. [Citation.] . . .
[¶] [Thus,] [u]nder the one final judgment rule, [ECO arguably]
could not have appealed from the judgment as to the cross-
complaint[s] while proceedings remained pending as to its [direct
and derivative] complaint[s]. [ECO] could appeal only from a
final judgment which resolved both the complaint[s] and the
cross-complaint[s].” (ECC Construction, Inc. v. Oak Park
Calabasas Homeowners Assn. (2004) 122 Cal.App.4th 994, 1002.)
In their response to the motion to dismiss ECO’s appeal,
appellants acknowledge that the appeal “is almost certainly from
a non-final judgment.”
We deferred resolution of the motion “pending completion
of the briefing for this appeal.” In their respondents’ brief, SIL
and Morongo no longer seek the dismissal of ECO’s appeal:
“Notwithstanding the prior Motion for Involuntary Dismissal,
because the parties have now fully briefed the issues, [we] urge
this Court to assume jurisdiction over ECO’s appeal of the Phase
One Judgment . . . .” SIL and Morongo argue that ECO may
15
appeal from the judgment on the cross-complaints because the
judgment “fully adjudicated” ECO’s direct and derivative
complaints. They reason that both complaints are based on the
Operating Agreement, which is unenforceable because the trial
court ordered the agreement rescinded. Therefore, ECO is not
entitled to any relief on the complaints. (See Westamerica Bank
v. MBG Industries, Inc. (2007) 158 Cal.App.4th 109, 132-133,
italics added [“a judgment is not final and not appealable when it
decides the issues in a cross-complaint but not the issues in a
complaint, unless the cross-complaint sought separate and
independent relief by or against different parties, or the judgment
or order on the cross-complaint leaves no issues to be determined
as to one party”].)
We agree that the judgment on the cross-complaints fully
adjudicated ECO’s derivative complaint. In its direct complaint
ECO alleged that, “[p]ursuant to the [Operating] Agreement,
[ECO] and SI[L] are the members of [Morongo].” The rescission
of the Operating Agreement means that ECO lacked standing to
bring the derivative action on behalf of Morongo because it was
never a member of the limited liability company. (DuBeck v.
California Physicians' Service (2015) 234 Cal.App.4th 1254, 1264
[“Rescission extinguishes a contract, rendering it void ab initio,
as if it never existed”].) “[B]oth contemporaneous membership
and continuous membership are required for a plaintiff to have
standing in a derivative action on behalf of an LLC.” (Sirott v.
Superior Court of Contra Costa County (2022) 78 Cal.App.5th
371, 383.)
On the other hand, it is uncertain whether the phase-one
judgment fully adjudicated ECO’s direct complaint. In their
motion to dismiss ECO’s appeal, SIL and Morongo assert,
16
“During Phase Two, if ECO is able to survive the demurrer stage,
there are 13 undecided causes of action in ECO’s [direct]
Complaint . . . .”
Appellants insist that, as to ECO’s direct complaint,
“[u]nresolved claims remain pending between appellant ECO and
respondent SIL.” Appellants note that ECO’s direct complaint
alleges causes of action against SIL for fraudulent concealment
and fraudulent misrepresentation. Appellants contend that
“whether SIL committed fraud against ECO is a Phase Two issue
that has not yet been tried or decided. Phase One only concerned
whether ECO committed fraud against SIL.”
In its statement of decision the trial court said, “Even if
there is a finding of rescission of the Operating Agreement, that
does not eliminate the need for Phase 2. Mr. Snider received 1.1
million dollars [from ECO], used that money to build a building;
then once he built the building, he sold that building, used 2.7
million dollars to pay for another building, and then sold that
building for 12 million dollars . . . ; so there are significant
equitable claims that would then need to be decided in Phase 2 if
. . . the contract is deemed to be rescinded and invalidated.”
During appellate oral argument, counsel for SIL and
Morongo claimed that, if we affirm the phase-one judgment, the
rescission of the Operating Agreement will preclude the trial
court from conducting phase two. Counsel for appellants insisted
that there must be a phase two irrespective of whether the
Operating Agreement is rescinded. This is a matter for the trial
court to determine. Nothing we say in this opinion should be
construed as expressing our view on the issue.
SIL and Morongo request that, if we conclude ECO’s
complaints were not “effectively adjudicated by the Phase One
17
Judgment,” we should “consider ECO’s Notice of Appeal as [a
petition for] an extraordinary writ.” “An appellate court has
discretion to treat a purported appeal from a nonappealable order
as a petition for writ of mandate, but that power should be
exercised only in unusual circumstances. [Citation.] . . . [¶] In
Olson v. Cory (1983) 35 Cal.3d 390 . . . , the Supreme Court
determined it was appropriate to treat an appeal from a
nonappealable order as a petition for an extraordinary writ
where requiring the parties to wait for a final judgment might
lead to unnecessary trial proceedings, the briefs and record
included in substance the necessary elements for a proceeding for
a writ of mandate, there was no indication the trial court would
appear as a party in a writ proceeding, the appealability of the
order was not clear, and all the parties urged the court to decide
the issue rather than dismiss the appeal. [Citation.] The court
concluded that dismissing the appeal rather than exercising its
power to reach the merits, would be ‘“‘unnecessarily dilatory and
circuitous.’” [Citation.]’ [Citation.] [¶] . . . Many of these
considerations are present here.” (H.D. Arnaiz, Ltd. v. County of
San Joaquin (2002) 96 Cal.App.4th 1357, 1366-1367.)
Moreover, as we explain in the next section of this opinion,
the phase-one judgment operates as a final appealable judgment
as to Morongo and the five Seed to Soul partners. These parties
have also appealed from the judgment. Their appeals and ECO’s
appeal are inextricably intertwined. Many of the issues that
Morongo and the Seed to Soul partners raise on appeal are the
same issues raised by ECO in its appeal. The factual background
is the same. ECO and four Seed to Soul partners have jointly
filed appellate briefs. In the interest of judicial economy and to
ensure consistent appellate rulings, we should resolve the issues
18
as to all of the parties in a single opinion. (See CAZA Drilling
(California), Inc. v. TEG Oil & Gas U.S.A., Inc. (2006) 142
Cal.App.4th 453, 465 [“Where the issues involved in an appeal
are ‘inextricably intertwined’ with claims raised by a party still
involved in litigation at the trial court level, ‘judicial economy’
permits that party to join in the appeal”]; Miller v. Silver (1986)
181 Cal.App.3d 652, 658 (Miller) [“because [wife’s] cause of action
for malpractice is inextricably intertwined with her husband's
claim for loss of consortium, judicial economy dictates that her
appeal as well is properly before us”].)
Accordingly, we deem SIL and Morongo to have withdrawn
their motion to dismiss ECO’s appeal from the phase-one
judgment. We exercise our discretion to treat ECO’s appeal as a
petition for an extraordinary writ. “To exercise our mandatory
jurisdiction over [the Seed to Soul partners’ and Morongo’s]
appeals, . . . but also defer consideration of [ECO’s similar]
contentions [in its appeal from the phase-one judgment], would
further the very fragmentation and multiplicity of appeals that
the final judgment rule seeks to avoid.” (California Dental Assn.
v. California Dental Hygienists' Assn. (1990) 222 Cal.App.3d 49,
60.)
Finality of Phase-One Judgment
as to Parties Other than ECO
In contrast to ECO, the phase-one judgment constitutes a
final appealable judgment as to the Seed to Soul partners and
Morongo. SIL and Morongo acknowledge “that the trial court’s
Phase One Judgment is a final judgment adjudicating all claims
between SIL and [Morongo] on the one hand; and [the five Seed
to Soul partners] on the other. Those parties have no remaining
claims between each other in Phase Two . . . .” The same is true
19
as to the claims between Buhrman and the four other Seed to
Soul partners. (See Smith v. Smith (1962) 209 Cal.App.2d 343,
344 [cross-complainant may appeal from judgment on cross-
complaint “when the judgment . . . finally disposes of the action
as to the appellant”]; Miller, supra, 181 Cal.App.3d at p. 658 [“A
cross-complaint is sufficiently independent ‘to allow a separate
final judgment to be entered upon it . . . [when the] order on the
cross-complaint may be considered final as to some of the
parties’”].)
There are no remaining claims between Morongo and ECO.
Morongo is not a party to ECO’s direct complaint against SIL and
Snider. We previously noted that “the judgment on the cross-
complaints fully adjudicated ECO’s derivative complaint” on
behalf of Morongo. (Ante, at p. 17.)
Adequacy of Trial Court’s
Findings in Statement of Decision
During appellate oral argument, appellants’ counsel
contended that in its statement of decision the trial court had
made “inadequate findings” on the fraud claims. Counsel
asserted that for each appellant the trial court had failed to make
express findings on the five elements of fraud and explain why
the facts supported the findings. “‘The elements of fraud . . . are
([1]) misrepresentation (false representation, concealment, or
nondisclosure); ([2]) knowledge of falsity (or “scienter”); ([3])
intent to defraud, i.e., to induce reliance; ([4]) justifiable reliance;
and ([5]) resulting damage.’” (Lazar v. Superior Court (1996) 12
Cal.4th 631, 638.) Counsel claimed that the inadequate findings
constitute reversible error.
“Upon the timely request of one of the parties in a nonjury
trial, a trial court is required to render a statement of decision
20
addressing the factual and legal bases for its decision as to each
of the principal controverted issues of the case. (Code Civ. Proc.,
§ 632.) A statement of decision need not address all the legal and
factual issues raised by the parties. Instead, it need do no more
than state the grounds upon which the judgment rests, without
necessarily specifying the particular evidence considered by the
trial court in reaching its decision. [Citations.] ‘[A] trial court
rendering a statement of decision under . . . section 632 is
required to state only ultimate rather than evidentiary facts
because findings of ultimate facts necessarily include findings on
all intermediate evidentiary facts necessary to sustain them.
[Citation.]’ [Citations.] In other words, a trial court rendering a
statement of decision is required only to set out ultimate findings
rather than evidentiary ones.” (Muzquiz v. City of Emeryville
(2000) 79 Cal.App.4th 1106, 1124-1125, italics added.)
Here, the trial court made the requisite ultimate findings.
It found that appellants had “fraudulently induced the Snider
Parties to enter three agreements.” It described the fraudulent
representations in detail. It found that the Snider parties had
reasonably relied on the representations. In addition, the trial
court found that, “[h]ad the Snider parties known the truth about
any of these misrepresentations,” they would not have entered
into the agreements. Finally, the trial court found that the
Snider parties had suffered damages by entering into the
agreements. The court expressly rejected appellants’ affirmative
defenses.
“A trial court’s statement of decision must explain ‘the
factual and legal basis for its decision as to each of the principal
controverted issues at trial.’ (Code Civ. Proc., § 632.) It will be
deemed adequate ‘if it fairly discloses the determinations as to
21
the ultimate facts and material issues in the case.’” (Altavion,
Inc. v. Konica Minolta Systems Laboratory, Inc. (2014) 226
Cal.App.4th 26, 45.) The statement of decision here provided the
required fair disclosure. At oral argument appellants’ counsel
complained that the trial court’s findings “were not clear.” We
perceive no lack of clarity.
Rescission of Operating Agreement
The trial court ordered the Operating Agreement rescinded
and ordered Morongo “or SIL” to “[r]eturn [to ECO its] $1.1
million [investment in Morongo] forthwith.” SIL returned the
funds. Nevertheless, appellants contend, “SIL’s attempt to
rescind the Operating Agreement fails as a matter of law.” They
explain: “SIL cannot restore anything to ECO because SIL did
not receive anything of value from ECO – only [Morongo] did.”
“Because it was only a member of [Morongo], SIL could never
return the ECO Initial Contribution. Only [Morongo] could do so,
making rescission by SIL impossible.”
Appellants’ argument elevates form over substance. It does
not matter whether Morongo or its sole remaining member, SIL,
returned ECO’s $1.1 million investment in Morongo. What
matters is that the investment was returned to ECO. That the
funds came from SIL rather than Morongo does not invalidate
the rescission. ECO in effect is saying that it can keep the $1.1
million returned by SIL and remain a member of Morongo until
and unless Morongo pays it an additional $1.1 million, which
would result in ECO’s unjust enrichment.
Moreover, SIL sold to ECO 20 percent of SIL’s 100 percent
ownership interest in Morongo. The trial court found: “[T]he five
Seed to Soul [partners]” had “induce[d] . . . SIL to sell a portion of
its membership interest in [Morongo] to ECO.” ECO was
provided “[t]he opportunity to purchase 20% of [SIL’s]
22
membership interest in [Morongo].” Because SIL sold the
membership interest to ECO, SIL was entitled to rescind the
Operating Agreement upon its return of the $1.1 million
purchase price.
Appellants Forfeited Their Claim that No Substantial
Evidence Supports the Finding that the Lease and
Operating Agreement Were Fraudulently Induced
Appellants contend, “There is no substantial evidence that
the Lease [and] Operating Agreement were fraudulently
induced.” (Capitalization and underlining omitted.) “Fraud in
the inducement is a subset of the tort of fraud. It ‘occurs when
“‘the promisor knows what he is signing but his consent is
induced by fraud, mutual assent is present and a contract is
formed, which, by reason of the fraud, is voidable.’”’” (Hinesley v.
Oakshade Town Center (2005) 135 Cal.App.4th 289, 294-295.)
Appellants argue that substantial evidence does not
support six allegedly fraudulent representations identified by the
trial court in its statement of decision. The following quotation is
an excerpt from appellants’ opening brief summarizing the six
representations (record citations omitted):
“• Representation No. 1: ‘[T]he Seed to Soul [partners]
would be prepared to commence Cannabis cultivation at
the property by April 2017, and they would take all steps
necessary to do so, including by starting the State and local
licensing application process, and by ordering equipment,
supplies, and inventories that had long lead times.’
“• Representation No. 2: The Seed to Soul [partners] ‘were
committed to Seed to Soul's long-term success, and that
they would work towards its success.’
23
“• Representation No. 3: Owens and MacFarlane ‘would
continue to fund the [Seed to Soul] venture as needed to
ensure its success.’
“• Representation No. 4: The Seed to Soul [partners] ‘were
comprised of a “dream team” of “master cultivators” with
the capability of getting licensed and carrying out large
scale Cannabis cultivation at the [Morongo] property.’
“• Representation No. 5: That Appellants had a ‘viable
company.’
“• Representation No. 6: That Owens and MacFarlane ‘had
already funded Seed to Soul with $1,000,000 for startup
and operational capital.’” (Underlining omitted.)
“Where findings of fact are challenged on a civil appeal, we
are bound by the ‘elementary, but often overlooked principle of
law, that . . . the power of an appellate court begins and ends
with a determination as to whether there is any substantial
evidence, contradicted or uncontradicted,’ to support the findings
below. [Citation.] We must therefore view the evidence in the
light most favorable to the prevailing party, giving it the benefit
of every reasonable inference and resolving all conflicts in its
favor in accordance with the standard of review so long adhered
to by this court.” (Jessup Farms v. Baldwin (1983) 33 Cal.3d 639,
660.) “‘“The issue is not whether there is evidence in the record
to support a different finding, but whether there is some evidence
that, if believed, would support the findings of the trier of fact.”’”
(Verrazono v. Gehl Company (2020) 50 Cal.App.5th 636, 652.)
“[I]t is presumed that the evidence is sufficient to support
the [court’s] factual findings, and it is the appellant's burden to
demonstrate that it does not.” (Boeken v. Philip Morris, Inc.
(2005) 127 Cal.App.4th 1640, 1667.) “[A]ppellants who challenge
24
the decision of the trial court based upon the absence of
substantial evidence to support it ‘“are required to set forth in
their brief all the material evidence on the point and not merely
their own evidence. Unless this is done the error is deemed
waived.”. . .’” (Nwosu v. Uba (2004) 122 Cal.App.4th 1229, 1246
(Nwosu).)
SIL and Morongo argue that appellants forfeited their
substantial evidence claim because their Opening Brief presents
only the evidence supporting their case and “omits evidence
which the trial court relied upon in reaching its decision.” We
agree. (Schmidlin v. City of Palo Alto (2007) 157 Cal.App.4th
728, 739 (Schmidlin) [“failure to present a full and fair summary
of the evidence supporting the judgment effects a ‘waive[r]’ of any
challenge to the sufficiency of the evidence”].)
“Contrary to fundamental tenets of appellate practice
[citation] the facts stated and the inferences drawn in
[appellants’ briefs] are those most favorable to [appellants] rather
than to [SIL and Morongo]. No attempt is made to fairly state all
of the evidence as is required. [Citations.] . . . [Appellants’
opening brief] constitute[s] merely a challenge to [SIL and
Morongo] to set forth or this court to find the evidence [in the
2,495-page reporter’s transcript and numerous exhibits]
supporting the . . . trial court’s judgment. Given this type of
presentation the contention that the findings are not supported
by substantial evidence may be deemed waived.” (Oliver v. Board
of Trustees (1986) 181 Cal.App.3d 824, 832; see also Foreman &
Clark Corp. v. Fallon (1971) 3 Cal.3d 875, 881.)
In their reply brief appellants contend they did not forfeit
their sufficiency of the evidence claim. Appellants dispute SIL’s
and Morongo’s assertion that “‘[appellants] only present[]
25
evidence that supports [their] position while ignoring an
avalanche of evidence admitted at trial that supports the trial
court’s findings.’” Appellants give two examples of their
presentation of evidence favorable to SIL and Morongo. One is
that “Snider testified that Buhrman repeatedly referred to Seed
to Soul as a ‘Dream Team.’” The other is that appellants “noted
that Seed to Soul Management[, LLC,] was never formed as an
entity with the Secretary of State.” These two examples do not
constitute “a full and fair summary of the evidence” favorable to
SIL and Morongo. (Schmidlin, supra, 157 Cal.App.4th at p. 739.)
Even If Appellants Did Not Forfeit Their
Substantial Evidence Claim, the Claim Lacks Merit
In support of its conclusion that the lease and Operating
Agreement had been fraudulently induced, the trial court made
six factual findings. Where several findings are attacked by the
appellant, “[i]f one finding, supported by substantial evidence,
will sustain the trial court's judgment, . . . it will be presumed
that the trial court predicated its judgment upon such finding,
and questions relative to other findings become immaterial upon
appeal.” (Mershon Co. v. Pachmayr (1948) 88 Cal.App.2d 901,
904; see also Carlton v. Castranova (1961) 189 Cal.App.2d 409,
413 (Carlton).)
Appellants have failed to show that there is no substantial
evidence in support of the trial court’s findings that appellants
made the third, fifth, and sixth representations and that they
were fraudulent. (See Picerne Construction Corp. v. Castellino
Villas (2016) 244 Cal.App.4th 1201, 1208 [appellants “bear the
burden of demonstrating that there is no substantial evidence to
support a challenged factual finding”].) The sixth representation
was “[t]hat Owens and MacFarlane ‘had already funded Seed to
26
Soul with $1,000,000 for startup and operational capital.’” The
third representation was that “Owens and MacFarlane ‘would
continue to fund the [Seed to Soul] venture as needed to ensure
its success.’” The fifth representation was that “Appellants had a
‘viable company.’” The company could not be viable if it was not
funded.
Sufficient evidence supports the trial court’s findings as to
these representations. Snider testified that, before he signed the
lease, Buhrman, Owens, and MacFarlane had told him that
MacFarlane “was going to be the . . . money guy who would
support the operation financially” and “that they’d already been
funded with $1,000,000 injected into the company.” Later in his
testimony, Snider repeated “that Mr. MacFarlane and Mr. Owens
and Mr. Buhrman said that they had already funded Seed to Soul
with $1,000,000 prior to the time that the Lease was executed.”
Buhrman testified that, at the time this representation was made
to Snider, Seed to Soul did not even have a bank account into
which the funds could have been deposited. Buhrman said he
never had “access to any funds from Mr. MacFarlane or Mr.
Owens for use by Seed to Soul.”
When Buhrman confessed to Snider, he said “that the
representations that had been made to [Snider] by [Buhrman]
and [Owens] and [MacFarlane] that the entity was funded were
false.” Snider testified that, if he had known that Seed to Soul
had not been funded, “[w]e wouldn’t have done the deal.”
Buhrman testified that, during his negotiations with Snider,
“Snider had indicated . . . that this would be a deal breaker for
him if the [entity] had not been funded.”
In their reply brief appellants assert, “MacFarlane funded
$500,000.” In support of their assertion, appellants cite lines 3-
27
10 at volume 5, page 1413 of the reporter’s transcript. In this
excerpt Owens testified that he and MacFarlane had deposited
$500,000 into ECO’s bank account: $400,000 from MacFarlane
and $100,000 from Owens. (MacFarlane and Owens were the
sole members of ECO.) No money was deposited into a Seed to
Soul bank account.
It is reasonable to infer that the other Seed to Soul
partners – Newby and Walker – knew that Seed to Soul had not
been funded and that Snider was unaware of the lack of funding.
Newby testified that he had known Seed to Soul did not have a
bank account and that he had not conveyed this information to
Snider.
Buhrman testified that a bank account was not opened
because the LLC was never formed: “There was no way for me to
open a bank account because we had no documents from
Secretary of State for me to open a business account.” Buhrman
explained that he could not open a business account without an
EIN (Employer Identification Number), and an EIN would not be
issued until articles of organization for the LLC had been filed
with the California Secretary of State.
When asked why the LLC had not been formed, Buhrman
replied: “Mr. Owens had convinced Scott Newby and Gary Walker
Junior that . . . to move this million dollars . . . to fund Seed to
Soul Management was going to cost him and Mr. MacFarlane
money . . . [that would] just sit [in the account] because we didn't
have any expenditures at that time and there was no reason to
move the money, and so the other two partners [Newby and
Walker] said, ‘That’s fine, don't bother moving the money,’ and so
I was outvoted by Mr. Owens, Mr. MacFarlane, Scott Newby and
Gary Walker to [not] initiate the formation process of [the LLC].”
28
Buhrman testified that the other partners’ refusal to form the
LLC and open a bank account had caused a “rift” in his
relationship with them. MacFarlane and Owens “never put any
money in the deal to make it available to be able to have that
LLC formed.”
In Exhibit 107 Buhrman declared under penalty of perjury:
“[A]lthough I obtained bids in late 2016 for insurance for our
operations, the other members of the [Seed to Soul] Team refused
to act on it and we did not have any funding so I was unable to
procure it either. The [Seed to Soul] Team lacked the ability to
do anything that it was required to do under the Lease. Mr.
MacFarlane indicated on multiple occasions that we should
conceal from Mr. Snider the fact that the [Seed to Soul LLC] had
not been formed, that no bank account had been opened, and that
he had not made the necessary investment [] into
[Seed to Soul] . . . .”
The trial court found Buhrman to be a credible witness.
Based on his testimony, all the partners knew that the LLC had
not been formed, that Seed to Soul was not funded, and that it
could not be funded because it did not have a bank account.
Accordingly, each of the trial court’s findings as to the third, fifth,
and sixth fraudulent representations constitutes “‘one clear,
sustained and sufficient finding upon which the judgment [as to
the rescission of the lease and operating agreement] may rest
. . . .’” (Carlton, supra, 189 Cal.App.2d at p. 413.)
Appellants Forfeited Their Claim that No
Substantial Evidence Supports the Finding that the
Settlement Agreement Was Fraudulently Induced
Appellants claim, “There is no substantial evidence that the
Settlement Agreement [concerning the termination of Morongo’s
29
lease of the Property to Seed to Soul Management, LLC] was
fraudulently induced.” (Capitalization and underline omitted.)
In its statement of decision, the trial court found “that the Seed
to Soul [partners had] fraudulently induced [Morongo] to enter
into the Settlement Agreement by making affirmative material
representations that they knew to be false, including that Seed to
Soul Management LLC was a ‘California Limited Liability
Company’ with ‘members’ and ‘managing members.[’]” Another
fraudulent representation was that “Seed to Soul Management
LLC had the right to and would sue [Morongo] if [it] did not enter
into the Settlement Agreement and return the [$300,000]
security deposit under the Lease and pay additional
consideration of $45,000.”
The trial court stated: “Each of these representations [was]
false; Seed to Soul Management LLC never existed; it had no
capacity to sue or contract and had no viable legal claims that it
could assert or that could be released.” “[P]rior to making their
misrepresentations, the Seed to Soul [partners] and their Counsel
knew and discussed internally that [Morongo] would not sign the
Settlement Agreement if it found out that Seed to Soul
Management LLC had never been formed.”
Appellants also forfeited this substantial evidence claim
because they failed to set forth in their briefs the material
evidence supporting the trial court’s finding that the Settlement
Agreement had been fraudulently induced. (Nwosu, supra, 122
Cal.App.4th at p. 1246; Schmidlin, supra, 157 Cal.App.4th at p.
739.)
30
Even If Appellants Did Not Forfeit Their Claim that No
Substantial Evidence Supports the Finding that the Settlement
Agreement Was Fraudulently Induced, the Claim Lacks Merit
Substantial evidence supports the trial court’s finding that
the Seed to Soul partners fraudulently induced Morongo to enter
into the Settlement Agreement. Appellants do not dispute that
the entity that signed the Settlement Agreement – Seed to Soul
Management, LLC – never existed. Newby testified that, when
he signed the Settlement Agreement on behalf of Seed to Soul
Management, LLC, he knew it did not exist. But he never told
Snider that it did not exist. Buhrman testified that he had told
the other partners that the LLC did not exist.
In Exhibit 107 Buhrman declared under penalty of perjury:
“Between December 2017-March 2018, the [Seed to Soul] Team
discussed bringing suit for damages against [Morongo] for the
termination of the lease in order to try and recover its $300,000
security deposit. One of the challenges that arose during these
conversations was the fact that [the Seed to Soul LLC] had not
been formed and that as a result, it did not have any capacity to
bring suit against [Morongo]. It was decided to also conceal this
fact from [Morongo].”
Buhrman continued: “Among the [Seed to Soul] Team, we
agreed that the [settlement] payment would be wired to the client
trust account of [our attorney] because [the LLC] had never been
formed and did not have a bank account and we did not want Mr.
Snider to learn of such in fear that he would abandon the
settlement negotiations if he learned that Seed to Soul
Management, LLC could not sue [Morongo].”
Snider testified that, if he “had known that Seed to Soul
Management LLC had never been formed in any jurisdiction,” he
31
would not “have entered into this Settlement Agreement.” Snider
explained, “[T]he only thing anybody was worried about was
litigation, and if there never was an entity, and this was all a
ruse, I didn’t have any fear of litigation, so . . . I wouldn’t have
entered into this Settlement Agreement. I would have held on to
the [$]300,000 [security deposit] to mitigate a fraction of my
damages.”
Appellants argue that “the alleged misrepresentations
[concerning the existence of Seed to Soul Management LLC] were
not material to [Morongo’s] decision to enter into the Settlement
Agreement.” But we cannot reject Snider’s testimony that they
were material. The trial court believed Snider. (See Daly v.
Wallace (1965) 234 Cal.App.2d 689, 692.)
Claim that the Trial Court Erroneously Enforced the
Rescinded Settlement Agreement Against Appellants
In its statement of decision the trial court found, “The
[Seed to Soul partners] have waived, released, and discharged
their claims against David Snider, [Morongo], and [SIL] under
Paragraph 2.1(a) of the Settlement Agreement.” Paragraph
2.1(a) is a general release of all claims. Appellants contend the
court’s “finding is wrong as a matter of law” because it rescinded
the Settlement Agreement. Appellants protest: “[T]he court
articulated no legal basis for finding the Settlement Agreement
rescinded but also finding its waiver provisions to be selectively
enforceable [against them].” “It rescinded the Settlement
Agreement to Appellants’ detriment but enforced it in favor of the
Snider Parties.”
We need not determine whether the court’s finding was
erroneous. Appellants have not shown that, if erroneous, the
32
finding resulted in a miscarriage of justice. (People v. Watson
(1956) 46 Cal.2d 818.)
Cross-Complaint of Appellants MacFarlane,
Newby, Owens, and Walker Against Buhrman
Four Seed to Soul partners – MacFarlane, Newby, Owens,
and Walker (hereafter MacFarlane et al.) – filed a cross-
complaint against Seed to Soul partner Buhrman. The cross-
complaint alleged that Buhrman had breached two agreements
by disclosing to Snider confidential information about the Seed to
Soul partnership. The agreements were “a Memorandum of
Understanding dated as of May 23, 2016” (MOU) and “an
Interest Purchase Agreement . . . dated as of August 20, 2018”
(IPA). MacFarlane et al. sought damages and a “judgment
against Buhrman declaring that he is under a duty to indemnify
[them] for the full amount of any judgment rendered against
them.”
The trial court’s ruling in favor of Buhrman included the
following five findings:
1. “Buhrman did not breach the confidentiality provisions
in the [MOU] and/or [IPA].”
2. Because section “7.06 of the IPA provides that it is an
integrated agreement that expressly supersedes ‘all’ earlier
agreements ‘with respect to the subject matter’ . . . , the IPA is
the only legally enforceable agreement between [MacFarlane et
al.] and Buhrman.” (MacFarlane et al. acknowledge that “the
IPA’s indemnity and confidentiality clauses are much ‘weaker’
than the MOU’s indemnity and confidentiality clauses”).
3. “Buhrman is not liable to [MacFarlane et al.] for
statements to Snider/[Morongo] because they are protected by the
Litigation Privilege [of Civil Code section 47, subdivision (b)] and
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cannot be the basis of a breach of contract claim.” They are
protected by the litigation privilege because they “were made in
anticipation of litigation.”
4. The “‘unclean hands’ [of MacFarlane et al.] preclude
them [from] suing Buhrman for breach of contract.”
5. “Since [MacFarlane et al.] are seeking indemnity for
claims involving their alleged intentional misrepresentations to
[Morongo], [Civil Code section] 1668 bars [their] indemnity
claim.” Civil Code Section 1668 provides, “All contracts which
have for their object, directly or indirectly, to exempt anyone from
responsibility for his own fraud, or willful injury to the person or
property of another, or violation of law, whether willful or
negligent, are against the policy of the law.”
MacFarlane et al. argue that “[t]he Trial Court’s findings
contain numerous errors of law.” They contend they “have a
valid claim against Buhrman for breaching the MOU,
notwithstanding the trial court’s legally incorrect ruling that the
IPA is the only enforceable agreement . . . .”
We need not evaluate the validity of each of the trial court’s
five findings. MacFarlane et al.’s claim is untenable because the
court also found that appellants had fraudulently induced
Morongo and SIL to enter into the lease and Settlement
Agreement, and this finding is supported by substantial evidence.
Buhrman merely informed Snider of the fraud. Permitting
MacFarlane et al. to seek damages or indemnity from Buhrman
for his disclosure of their fraud would violate California’s public
policy barring exemption of “anyone from responsibility for his
own fraud.” (Civ. Code, § 1668.) MacFarlane et al. cannot use
the MOU’s confidentiality provision to shift their personal fraud
liability to Buhrman. (See Manderville v. PCG&S Group, Inc.
34
(2007) 146 Cal.App.4th 1486, 1500 [“It is well-established in
California that a party to a contract is precluded under [Civil
Code] section 1668 from contracting away his or her liability for
fraud”]; Allstate Ins. Co. v. Hansten (N.D. Cal. 1991) 765 F.Supp.
614, 616 [“Under California law, no contractual agreement may
indemnify anyone from his own fraud”].)
Buhrman’s and Morongo’s Cross-Appeal
From the Phase-One Judgment
In its phase-one judgment the trial court awarded
Buhrman and Morongo their “costs” as to the cross-complaints on
which they had prevailed. But it did not award them their
reasonable attorney fees. In their cross-appeals, both Buhrman
and Morongo contend the trial court erroneously refused to award
them prevailing-party attorney fees based on contractual
attorney fee provisions. (Civ. Code, § 1717.)
The pleadings put the trial court on notice that the
recovery of attorney fees was an issue in the case. In their cross-
complaint against Morongo and Buhrman, the Seed to Soul
partners requested contractual attorney fees. In its answer to
the cross-complaint, Morongo requested attorney fees. Buhrman
requested contractual attorney fees in his answer to the cross-
complaints filed by both Morongo and the Seed to Soul partners.
In its statement of decision, the trial court ruled that
Buhrman’s and Morongo’s claim for attorney fees “in their
request for a Statement of Decision and Proposed Judgment[]
comes vastly too late in this proceeding.” The court explained:
“[Attorney fee] issues need to be addressed early and
systematically in a bench trial. The Court’s experience has been
attorney fees can be the most important issue of a case . . . . This
Court has tried dozens if not hundreds of attorney fee claims.
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Such fees when raised post trial is vastly poor case management. .
. . This court has learned a far better case management system
[is] for the attorney fee testimony [declarations] to be made
during trial and saying to counsel tell me what your reasonable
fee will be if you prevail. In such a process the Court gets
competing declarations and information that is very useful. It
calls out to the clients and lawyers that there can be very big
numbers demanded; it has a definite chilling effect on clients,
and it is not uncommon for such cases to settle mid-trial when
the clients are confronted by the realization of having to pay a
really big fee. . . . When that is all done during trial the Court can
easily manage the time necessary to give everyone a chance to be
heard; something that is vastly more difficult to do a month after
the trial when another case is now occupying the Court’s
attention.” (Brackets for “[declarations]” in original.)
We do not doubt that the trial court’s statements are wise
and may be a “better” and practical way to manage complex
litigation. But, as we explain, the trial court’s preferred
procedure cannot be equated with waiver of attorneys’ fees.
As to Morongo’s claim for attorney fees, the court said:
“There was no request made in [its] pretrial briefs that a demand
for attorney fees was going to be made or what such fees might
be.” “There was no evidence presented during trial what those
fees were.” “During trial no testimony was elicited about any
specific attorney fee clauses in any specific contract(s).” “The
Court had no opportunity to evaluate whether attorney fees could
or should be awarded based upon the evidence.” “The contracts
were all rescinded based upon fraud and [consequently] there are
no contracts upon which to award fees . . . .” “The request for
attorney fees is barred based upon the principles of judicial
36
estoppel.” “The request that the Court enter ‘a Judgment’ for an
‘attorney fee award’ is not supported by the evidence.” “For each
and all [of the above] reasons the request[] for attorney fees will
be denied.”
As to Buhrman’s claim for attorney fees, the court said: In
his two trial briefs, Buhrman did not mention attorney fees.
“During trial no testimony was elicited about any specific
attorney fee clauses . . . .” “The Court had no opportunity during
the trial to evaluate whether attorney fees could or should be
awarded based upon the evidence.” “Buhrman’s request for
attorney fees is barred based upon the principles of equity
including equitable estoppel, waiver and judicial estoppel.”
“Buhrman’s request . . . that the Court enter ‘a Judgment’ for an
‘attorney fee award’ is not supported by the evidence.”
“‘“‘An order granting or denying an award of attorney fees
is generally reviewed under an abuse of discretion standard of
review; however, the “determination of whether the criteria for
an award of attorney fees and costs have been met is a question
of law.” [Citations.]’”’ [Citation.] An issue of law concerning
entitlement to attorney fees is reviewed de novo.” (Carpenter &
Zuckerman, LLP v. Cohen (2011) 195 Cal.App.4th 373, 378.)
Here, the trial court denied Morongo’s and Buhrman’s
request for attorney fees because they did not meet the allegedly
required criteria – during the trial, they failed to present
evidence of the amount of claimed attorney fees and their
entitlement to such fees. We therefore review the trial court’s
ruling de novo. The court erred because the law does not require
the presentation of attorney-fee evidence during the trial.
The following legal principles apply to a claim for attorney
fees: “It is now well-settled that attorney fees, whether
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authorized by contract or statute, are recoverable under [Code of
Civil Procedure] section 1033.5, subdivision (a)(10) as an element
of costs, and rather than claim attorney fees as an element of
damages, the proper method to recover attorney fees is as an item
of costs awarded upon noticed motion. [Citation.] Attorney fees
based on a contract provision do not need to be demanded in the
complaint.” (Chinn v. KMR Property Management (2008) 166
Cal.App.4th 175, 194, disapproved on other grounds in DeSaulles
v. Community Hospital of Monterey Peninsula (2016) 62 Cal.4th
1140, 1158.) “The amount of fees ultimately owed cannot be
known when a complaint is filed; it can only be specified and
sought by a noticed post-trial motion.” (Cadle Co. v. World Wide
Hospitality Furniture, Inc. (2006) 144 Cal.App.4th 504, 515,
italics added; see also Vacco Industries, Inc. v. Van Den Berg
(1992) 5 Cal.App.4th 34, 55, italics added [“allowable costs under
Code of Civil Procedure section 1032 include attorney fees
whenever they are authorized by contract . . . . Such authorized
fees are properly fixed by the court in a post-trial noticed
motion”].) “A notice of motion to claim attorney’s fees for services
up to and including the rendition of judgment in the trial
court . . . must be served and filed within the time for filing a
notice of appeal.” (Cal. Rules of Court, rule 3.1702(b)(1).)
Based on the above legal principles, we reject appellants’
claim that “[Morongo] and Buhrman waived any right to obtain
attorneys’ fees by not seeking them during trial.” (Bold and
capitalization omitted.) The law allowed Morongo and Buhrman
to make a noticed post-trial motion for attorney fees. Appellants
have not referred us to anything in the record showing that,
before or during the trial, the court warned the parties that
38
attorney fees would be waived unless the issue was presented
and litigated during the trial.
The rescission of the Settlement Agreement, which
contained a prevailing-party attorney fee provision, does not bar
Morongo from recovering its reasonable attorney fees.1 “[A]n
action for fraud seeking damages sounds in tort, and is not ‘on a
contract’ for purposes of an attorney fee award, even though the
underlying transaction in which the fraud occurred involved a
contract containing an attorney fee clause. [Citation.] However,
where the plaintiff's claim instead seeks rescission based on
fraud, the courts have concluded such claim does sound in
contract and permits the award of fees.” (Super 7 Motel
Associates v. Wang (1993) 16 Cal.App.4th 541, 549; see also Reyes
v. Beneficial State Bank (2022) 76 Cal.App.5th 596, 619 [“Courts
have determined that actions for rescission or cancellation of a
contract may be considered actions ‘on a contract’ for purposes of
[Civil Code] section 1717”].)
Furthermore, “[i]t is now settled that a party is entitled to
attorney fees under [Civil Code] section 1717 ‘even when the
party prevails on grounds the contract is inapplicable, invalid,
unenforceable or nonexistent, if the other party would have been
entitled to attorney's fees had it prevailed.’” (Hsu v. Abbara
(1995) 9 Cal.4th 863, 870.) Appellants would have been entitled
to attorney fees had they prevailed on their breach of contract
claims. Accordingly, we reject appellants’ contention that
1 The settlement agreement provided: “ATTORNEYS’
FEES. If any action is commenced to construe this Settlement or
enforce the rights and duties set forth herein, then the party
prevailing in that action shall be entitled to recover its costs and
fees in that action, as well as the costs and fees of enforcing any
judgment entered therein.”
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Morongo is not entitled to attorney fees because its “cross-claim
for fraudulent inducement seeking rescission . . . clearly sounds
in tort.”
Appellants argue: “[Morongo’s] and Buhrman’s arguments
fail because neither of them filed a post-trial motion for
attorneys’ fees.” “Under these circumstances, [Morongo] and
Buhrman forfeited any ability to recover attorneys’ fees.” In view
of the trial court’s denial of attorney fees in its statement of
decision and phase-one judgment, it would have been futile for
them to file such a motion. “The law neither does nor requires
idle acts.” (Civ. Code, § 3532; see also Glaser, Weil, Fink, Jacobs
& Shapiro, LLP v. Goff (2011) 194 Cal.App.4th 423, 445
[“considerations of judicial economy weigh heavily against
requiring (or even allowing) a party to present the same
argument repeatedly to a decision maker who has already
rejected it”].)
Finally, appellants maintain that Buhrman forfeited his
right to recover attorney fees because he “has not developed any
argument on appeal as to how he would have been entitled to
recover attorneys’ fees as a matter of law.” We have reviewed
Buhrman’s briefs and conclude that he developed an adequate
argument.2
2 In his cross-appellant’s reply brief, Buhrman requests
that he “be awarded his appellate . . . [attorney] fees as the
‘prevailing party’ on this appeal.” We do not decide this issue
here. In the trial court the prevailing parties may request
attorney fees on appeal as provided in rule 3.1702 of the
California Rules of Court. (See Serrano v. Unruh (1982) 32
Cal.3d 621, 637 [“it is established that fees, if recoverable at all—
pursuant either to statute or parties' agreement—are available
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Disposition
We deem SIL and Morongo to have withdrawn their motion
to dismiss ECO’s appeal from the phase-one judgment. We treat
ECO’s appeal as a petition for an extraordinary writ. The
petition is denied.
We reverse the trial court’s phase-one judgment to the
extent it barred Morongo and Buhrman from recovering their
reasonable, contractual attorney fees. The matter is remanded to
the trial court with directions to conduct further proceedings on
the attorney fees issue consistent with the views expressed in
this opinion. Buhrman and Morongo may file a noticed motion
“to claim attorney fees for services up to and including the
rendition of judgment in the trial court.” (Cal. Rules of Court,
rule 3.1702(b)(1).)
In all other respects, the phase-one judgment is affirmed.
Buhrman is awarded costs on appeal against Owens,
MacFarlane, Newby, and Walker. SIL and Morongo are awarded
costs on appeal against ECO, Owens, MacFarlane, Newby, and
Walker.
NOT TO BE PUBLISHED.
YEGAN, J.
We concur:
GILBERT, P. J.
BALTODANO, J.
for services at trial and on appeal”].)
41
Thomas P. Anderle, Judge
Superior Court County of Santa Barbara
______________________________
Annigian Ryan and James T. Ryan and Jason D. Annigian;
Weinberg Gonser Frost and Shahrokh Sheik, for Eco Property
Group, MacFarlane, Owens, Newby and Walker.
Armstrong Law Group and John R. Armstrong, for Brent
Buhrman.
Reicker, Pfau, Pyle and McRoy and Alan A. Blakeboro,
Robert B. Forouzandeh and Andrew W. Hazlett, for Morongo
Equity Partners and Snider Investments.