Westlake Farms v. County Sanitation District etc. CA2/6 ( 2024 )

Filed 10/24/24 Westlake Farms v. County Sanitation District etc. 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NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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has not been certified for publication or ordered published for purposes of rule 8.1115.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
WESTLAKE FARMS, INC., 2d Civil No. B322095
et al., (Super. Ct. Nos. 16CV-0244,
16CV-0283)
Plaintiffs, Respondents, and (San Luis Obispo County)
Cross-Appellants,
v.
COUNTY SANITATION
DISTRICT NO. 2 OF LOS
ANGELES COUNTY,
Defendant, Appellant and
Cross-Respondent.
Appellant and cross-respondent County Sanitation District
No. 2 of Los Angeles County (District) bought over 14,500 acres of
land—the area of Manhattan—from respondents and cross-
appellants Westlake Farms, Inc. (Westlake) in 2001. They signed
a leaseback agreement allowing Westlake to continue farming
the land while the District built an onsite facility to compost
sterilized “biosolids” extracted from treated wastewater. When
finished, the facility would provide Westlake with compost to use
on the leased land. The parties considered the deal a win-win.
The District secured a long-term disposal option for its biosolids;
cash-strapped Westlake received a capital infusion and free
compost for its multi-generational cotton farming operation.
The District spent 15 years designing and constructing the
facility. It began operating in 2016 but produced much less
compost than Westlake expected. Litigation followed. Westlake
alleged the District downsized the facility and delayed
construction when it learned how costly it would be to operate.
The District alleged Westlake violated the lease by assigning its
interests to a longtime opponent of the facility, selling water, and
constructing a pipeline on the property.
A jury awarded Westlake $36,660,664 in lost profits. The
District appeals the resulting judgment. Westlake cross-appeals
the trial court’s denial of recission as a remedy in the bifurcated
equitable proceedings. We will affirm.
FACTUAL AND PROCEDURAL HISTORY
The Parties
The District processes the wastewater of five million Los
Angeles County residents. A quarter century ago it faced a
problem: where to send hundreds of thousands of tons of
sterilized organic material, or “biosolids,” left over from the
treatment process each year. Kern County had recently banned
farmers from applying biosolids directly to the soil as a fertilizer.
Puente Hills landfill, another recipient, was nearing the end of its
operational life and considering a biosolids ban in the interim.
Westlake Farms was grappling with a different problem
around the same time in Kings County, located about 200 miles
north of the District’s headquarters. Several generations of Ceil
Howe, Jr.’s family had built Westlake into one of California’s
2
largest cotton producers. Rising costs and mounting debts now
forced Howe to list a portion of his family’s 60,000 acres of land
for sale. There were no takers after several years on the market.
The Tulare Lake Compost Facility
A neighboring cotton farmer introduced Howe to the
District’s then-Chief Engineer, Jim Stahl, in early 2000. Stahl
was in Kings County scouting agricultural properties where the
District could apply its biosolids. Howe offered to sell the District
land on the perimeter of the Tulare Lake basin owned by
Westlake and three affiliated entities: Rancho Azul, Rancho
Blanco, and Rancho Lago (the Rancho entities). He proposed
Westlake leasing back the land and growing crops using biosolids
as fertilizer. When Kings County also banned direct application
of biosolids, Howe and the District formed a more ambitious plan:
building a state of the art composting facility that could
transform biosolids into a compliant soil amendment using wood
chips and other agricultural waste.
The Lease and Purchase Agreement
The District agreed to buy over 14,500 acres of farmland
from Westlake and the Rancho entities for $27,375,000. Two
documents memorialized their transaction: (1) an “Agreement for
Purchase and Sale of Real Property and Escrow Instructions”
dated August 22, 2001 (Purchase Agreement), and (2) an
“Agricultural Lease” of the same date (Lease).
The Purchase Agreement conditioned the sale on Westlake
obtaining the permits needed “to construct and operate a
composting facility” based on an attached “Draft Conceptual
Design.” The design specified a peak processing capacity of
900,000 wet tons of biosolids and green waste annually, but
stated it would operate at about 600,000 tons so the District could
accept locally generated biosolids and organic waste as needed.
3
The Purchase Agreement’s recitals included the following: “In
connection with the construction and operation of the Composting
Facility and the continued agricultural use of the remainder of
the Property, the Parties also wish to enter into a Leaseback
Agreement pursuant to which [Westlake] will lease, operate, and
farm a portion of the Property and will apply compost generated
by the Composting Facility.”
The Lease entitled Westlake to “conduct all agricultural
operations” on the property for 30 years. Westlake agreed to
grow “crops suitable for the use of compost produced by the
Composting Facility.” It would pay a minimum annual rent of
$310,000 subject to adjustment once compost deliveries began.
Westlake would also pay “all other impositions, taxes,
assessments, liens, charges or expenses of any nature” on the
property. Westlake could not assign or sublet its interest without
the District’s written consent. In return, Westlake would receive
up to 80 percent of the compost produced by the District and an
exclusive license to water rights “for farming activities consistent
with past practices.”
Applying for a Conditional Use Permit
The District needed a conditional use permit from the
Kings County Planning Commission to begin construction.
Westlake hired a consulting firm to prepare the required
environmental impact report (EIR). The EIR estimated the
facility would occupy about 1,000 acres, with the remaining land
dedicated to farming crops with the compost it generated. The
District’s stated goal for the first year of operation was reaching
an annual processing capacity of 300,000 wet tons of biosolids
and green waste. This would produce about 107,000 tons of
finished compost. Its goal for the second year was reaching
590,000 wet tons, producing about 210,000 tons of compost. The
4
EIR evaluated the impacts of processing 900,000 wet tons but
stated the facility “may not actually achieve [its] maximum
capacity . . . by the end of the first 24-month period.” It explained
the District’s wastewater plants produced enough biosolids to
operate at maximum capacity but the amount of materials
processed would depend on “a number of factors . . . including
markets for finished compost, and availability of the bulking
agents.”
Howe and Stahl appeared before the Planning Commission
in February of 2004. Howe spoke about his family’s history of
farming in the Tulare Lake Basin and how the parties conceived
the idea of a composting facility as a cleaner alternative to
applying biosolids directly to the land. He emphasized the
project would create more than 100 well-paying jobs in an area
plagued by high unemployment.
Stahl spoke to the Commission after Howe. He said “[i]t
would take [the District] approximately, once you would grant
the [conditional use permit], a year for design, a year for
construction, and I dare say optimistically a year for phase-up or
phase-in of the start-up, ramp-up of the operation.” Stahl
referred to the EIR as “our best[,] most candid effort to project to
you what we think things are going to look like.”
The Parties Amend the Lease and Purchase Agreement
Westlake needed money to pay creditors while it waited for
the conditional use permit. The District agreed to amend the
Lease and Purchase Agreement by dividing the purchase into two
parts. It paid $5 million for 4,000 acres in June of 2004. It paid
the balance in June of 2006 after Westlake obtained the
conditional use permit. The parties agreed the District would
5
thereafter take over responsibility for obtaining the other permits
needed to operate the facility.1
Construction Begins
The District designed the facility in-house. Planning and
research began in 2004. It constructed a 2.5 mile driveway
linking the building site to the nearest public road in late 2005.
District engineers identified geotechnical and soil drainage issues
as among the biggest design challenges. The District eventually
settled on a five-phase plan that increased operating capacity
from 100,000 tons (phase 1) to 500,000 tons (phase 5). It finished
the design of phase 1 in mid-2010 and broke ground later that
year.
Westlake Enters into a Side Agreement With Sandridge
Three years passed. Howe told the District in 2013 that he
needed compost and was “extremely disappointed” about the
“continual and ongoing delays of startup.” He requested they
restructure the Lease and Purchase Agreement to ease the
financial stress of the ongoing drought. The District responded
that Westlake needed to pay overdue rent before the District
would consider doing so. This prompted Westlake to sell
Sandridge Partners, L.P. (Sandridge), among other things, an 80
percent interest in the Lease and 26,000 acres of unrelated
farmland for $68 million in 2014. The managing partner of
Sandridge, John Vidovich, had originally opposed the facility’s
1 The “First Amendment to the Amended and Restated
Agreement for Purchase and Sale of Real Property and Joint
Escrow Instructions” authorized the District to withhold $2
million from Westlake until permits were issued from the San
Joaquin Valley Air Pollution Control District, the Central Valley
Regional Water Quality Control Board, and the California
Integrated Waste Management Board.
6
construction because it was “incompatible” with the crops he
grew on property south of Westlake’s.
Westlake and Sandridge kept their deal confidential. They
prepared an agreement showing Sandridge held only a 49 percent
interest in the Lease so they could “eliminate the [District] from
having any participation in the transfer.” They then signed a
“Memorandum of Understanding and Master Agreement”
acknowledging Sandridge would in reality receive an 80 percent
interest. Soon after, they laid an underground pipeline across
District land to supply Sandridge’s nearby pistachio groves with
water.
Westlake Files a Government Claim
Westlake offered to buy back the land around the facility in
the fall of 2015. It sent a letter of intent offering $20,250,000, or
$1,500 per acre, “less an agreed-upon allowance for damages
suffered by [Westlake] in connection with [the District’s] failure
to timely produce and deliver compost . . . including, but not
limited [to], damages for property rent, taxes and assessments,
water costs, and fertilizer and spreading costs.” (Italics omitted.)
The District declined the offer and denied any obligation to
produce or deliver compost by a certain date. It demanded
Westlake pay outstanding late charges on rent.
Westlake filed a government claim against the District in
November of 2015. The claim described the District’s failure to
deliver compost as a material failure of consideration that
warranted rescission of the Lease and the Purchase Agreement.
Westlake claimed unspecified “lost expected profits.” A few
weeks later the District told Westlake it planned to deliver only
16,000 tons of compost per year when the facility began
operating—about 8 percent of the amount contemplated when the
7
parties signed the Lease and Purchase Agreement 15 years
earlier.
Construction Ends, Litigation Begins
Construction of phase 1 finished in December of 2015. The
facility began processing biosolids and green waste in January of
2016. A dispute arose over Westlake’s obligation to provide
information to regulators about its farming activities on the
leased property. The District accused Westlake of willfully
breaching the Lease and set a deadline of May 16, 2016 to
provide the information. It sent a notice terminating the lease
when Westlake did not respond.
Westlake sued for breach of contract, injunctive relief, and
rescission of the Lease and Purchase Agreement. Howe sued for
rescission on behalf of the since-dissolved Rancho entities. The
District cross-complained for breach of the Lease, breach of a
joint use agreement relating to water rights on leased land, and
declaratory relief. Westlake became a nominal plaintiff when it
assigned Sandridge “all of [its] right, title and interests” in the
Lease and District-owned land in 2017.
Trial
The trial court granted the District’s motion for summary
adjudication on Westlake’s claims for rescission2, fraud, and
specific performance. A jury trial began on the remaining claims
and cross-claims in August of 2021. Westlake contended the
District purposefully delayed construction of the facility when it
became apparent its operating costs would far exceed other
disposal options for biosolids. It sought $43.6 million in lost
2 The court granted summary adjudication for Westlake’s
claim for rescission based upon mistake of fact and fraud, but not
failure of consideration.
8
profits caused by the District failing to deliver 107,000 wet tons
of compost in 2011 and 200,000 tons per year through 2020. In
the alternative, it sought unjust enrichment of nearly $150
million as the amount saved by the District by delaying
operations and terminating the Lease.
The District denied that it delayed the project for financial
reasons. Its engineers described the protracted design and
construction process as normal “for a large[,] complex[,] state-of-
the-art facility in a very difficult regulatory arena.” The facility’s
location in a former lake bed proved especially challenging
because the soil’s high clay content caused it to settle unevenly
when loaded. This required driving thousands of 50-foot canvas
wicks into the ground and pre-loading the site with large piles of
soil for six months before construction began. The District also
denied the Lease and Purchase Agreement required it to provide
compost. It introduced mostly undisputed evidence that
Westlake sold leasehold water to third parties, secretly assigned
the Lease to Sandridge, and built the pipeline on District land
without permission.
Jury Verdict and Statement of Decision
The jury awarded Westlake damages of $36,660,664. It
rejected the District’s breach of contract claims, finding the
District did not “do all, or substantially all, of the significant
things that the [Lease] required it to do.” It found the failure to
deliver adequate compost was a material failure of consideration
with respect to both the Lease and Purchase Agreement. In an
advisory verdict, the jury awarded Westlake unjust enrichment of
$88,803,000.
A bench trial on Westlake’s equitable claims followed. The
court declined to adopt the jury’s advisory unjust enrichment
verdict. It also declined to rescind the Lease and Purchase
9
Agreement. The court entered judgment on the damages award
and denied the District’s motion for judgment notwithstanding
the verdict.
DISCUSSION
Westlake’s Damages Award
The District contends the jury’s $36,660,664 verdict is not
supported by substantial evidence because no reasonable
interpretation of the Lease and Purchase Agreement required the
District to deliver compost to Westlake. “The trial court’s ruling
on the threshold determination of “ambiguity” (i.e., whether the
proffered evidence is relevant to prove a meaning to which the
language is reasonably susceptible) is a question of law, not of
fact. (Winet v. Price (1992) 4 Cal.App.4th 1159, 1165.) “[T]he
threshold determination of ambiguity is subject to independent
review.” (Ibid.)
The interpretation assumed by the jury’s damages award
finds ample support in the Lease and Purchase Agreement. The
production and use of compost figures prominently in both
documents. The Purchase Agreement’s sixth and final recital
states: “[T]he parties also wish to enter into a Leaseback
Agreement pursuant to which [Westlake] will lease, operate, and
farm a portion of the Property and apply compost generated by
the Composting Facility.” (Italics added.) It defines the
“Composting Facility” as one “authorized to use windrow and/or
aerated static pile technology, with an input capacity of
approximately nine hundred thousand tons per year of biosolids,
green waste, and other feedstocks.” The Purchase Agreement
conditioned the deal on Westlake signing and delivering the
Lease to escrow at closing. The parties signed the two documents
on the same day.
10
The District highlights a provision in the First Amendment
to the Lease stating that “[a]t no time can [the District]
guarantee the quantity of compost production in any particular
period in any given year.” One must read this in context with the
provisions before and after. The provision before states: “It is
the parties’ intent for [the District] to produce and distribute and
for Westlake to receive and utilize compost in a method and style
that is reasonable to all parties concerned, and they agree, in good
faith, to cooperate with each other and use their reasonably best
efforts to address and accommodate any changes in circumstances
concerning the production, storage, receipt, stock-piling, sale,
distribution and/or use of compost for agricultural use . . . .”
(Italics added.) The provision following it states: “[A]fter the
calendar year in which the Delivery Start Date occurs . . . [the
District] shall provide, for use by Westlake, all compost produced
by [the District] which can be reasonably used” except a 20
percent allowance for the District’s own use. We read these
provisions as creating mutual obligations: The District would
produce and deliver compost to Westlake; Westlake would receive
and use the compost on leased land; and they would work in good
faith to overcome the venture’s challenges.
Having determined the Purchase Agreement and Lease are
“susceptible,” at least, to the interpretation assumed by the
verdict, we next decide whether the extrinsic evidence supports
it. Where “[t]he proper interpretation of the parties’ written
agreement turns not only on the language of the agreement but
on the proper resolution of conflicting extrinsic evidence and
upon an evaluation of witness credibility,” “we are bound by the
trial court’s construction of the agreement if it is reasonably
susceptible to that interpretation.” (Glendale Fed. Sav. & Loan
Assn. v. Marina View Heights Dev. Co. (1977) 66 Cal.App.3d 101,
11
134.) We “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.” (Jessup Farms
v. Baldwin (1983) 33 Cal.3d 639, 660.) We will not disturb an
award of damages supported by substantial evidence. (Bermudez
v. Ciolek (2015) 237 Cal.App.4th 1311, 1324.)
Jurors heard testimony that the number of acres Westlake
sold to the District (about 14,500) “was derivative of what the
District estimated was going to be producing as to actual tonnage
of compost.” They attached the EIR’s “Conceptual Design” to the
Lease when they amended it in 2004. This document stated the
facility would process about 600,000 wet tons of combined
biosolids and bulking agents annually, with an “estimated
production of compost end product” of about 200,000 wet tons.
The jury heard two months of testimony and received 150
exhibits related to the facility’s design and construction. The
language of these instruments and the great quantity of
conflicting evidence left the jury with considerable latitude. This
record supported a damages figure based on the assumption that
the District should have delivered 107,000 wet tons of compost to
Westlake in 2011 and 200,000 tons annually thereafter.
Westlake’s Alleged Breaches of Contract
The District contends Westlake’s own breaches “cut off” any
right to seek contractual damages and allowed the District to
terminate the Lease unilaterally. (See Martin v. U-Haul Co. of
Fresno (1988) 204 Cal.App.3d 396, 409 [termination clause in
contract limits recoverable damages to those reasonably
anticipated based on exercise of the clause].) It argues these
breaches were independent of any alleged failure to provide
compost. The District invites us to review these issues de novo
based on the “‘clear and explicit’” language of the Lease and the
12
undisputed evidence at trial. (See Colaco v. Cavotec SA (2018) 25
Cal.App.5th 1172, 1183 [“Where . . . the parties present no
extrinsic evidence on the meaning of their contract, we
independently interpret the contract to determine whether its
covenants are independent or dependent”].)
We would not describe the relevant Lease provisions as
clear and explicit. Jurors heard conflicting extrinsic evidence
about the parties’ intent and received instructions on contract
interpretation, conditions precedent, material performance, and
anticipatory breach. It then made findings of fact on the meaning
and materiality of the provisions at issue. Specifically, it found:
Westlake “[did] all, or substantially all, of the significant things”
required by the Lease and Purchase Agreement; and the District
was not “excused from performing the promise[s] required” under
those same two documents. We review these findings for
substantial evidence. (See, e.g., Brown v. Grimes (2011) 192
Cal.App.4th 265, 277 [“the question of whether a breach of an
obligation is a material breach, so as to excuse performance by
the other party, is a question of fact”].)
The District identifies three breaches of contract by
Westlake: (1) selling water to Sandridge starting in 2008,
(2) assigning its interest in the Lease to Sandridge in 2014; and
(3) constructing a pipeline across District land in 2015.
Westlake’s witnesses described these acts as compelled by
financial hardship caused by the District. The Lease states, “[the
District] and Westlake agree that the Property is being leased for
several interrelated uses. To realize the benefits of this [Lease],
both [the District] and Westlake are dependent on the parties’
creating and maintaining an integrated use of compost for
agricultural purposes in the manner set forth herein.” (Italics
added.) This language is reasonably susceptible to the
13
interpretation that Westlake’s performance of the Lease was
dependent on the District’s delivery of compost and thus excused
when that did not occur. In addition, the jury heard sufficient
evidence from the parties to conclude that Westlake’s alleged
breaches were not “significant” or “material” enough to excuse
the District from this obligation. We will not disturb the verdict.
In addition, the parties introduced conflicting evidence as
to whether Westlake’s water sales violated the Lease’s
requirement that leasehold water be used only for “farming
activities consistent with past practices.” This included
testimony from Howe describing his family’s practice of selling
water allocated to the leased properties beginning in the 1960s.
The Lease’s language is broad enough to require extrinsic
evidence on the issue. Howe’s testimony is substantial evidence
supporting the jury’s findings.
Evidence About Westlake’s Deal with Sandridge
The District characterizes Westlake’s $68 million asset sale
to Sandridge as a “benefit” of the District’s breach. It contends
the court inflated the damages verdict by excluding the sale price
from evidence. We review the ruling for abuse of discretion. (See
Pannu v. Land Rover North America, Inc. (2011) 191 Cal.App.4th
1298, 1317 [“Trial court rulings on the admissibility of evidence,
whether in limine or during trial, are generally reviewed for
abuse of discretion”].)
The court excluded the sale price as irrelevant because
Westlake sought damages for lost profits from farming operations
and not for “diminished value of other assets Westlake ultimately
had to sell . . . to avoid bankruptcy.” It also found the price would
unfairly prejudice the jury’s damages analysis. These evidentiary
calls were a proper exercise of discretion. Westlake sold a diverse
portfolio of assets to Sandridge. Their agreement did not allocate
14
or itemize the price of each asset. Inviting jurors to offset
Westlake’s alleged lost profits using the $68 million figure would
only invite speculation about the leasehold’s value in the context
of this larger transaction, which also included fee simple title to
26,000 acres of unrelated farmland. Such speculation might have
been appropriate if Westlake sought damages caused by a “fire
sale” of its property. It did not. Excluding the sale price ensured
jurors would not reduce the award simply because Westlake
received a large sum of money for assets that were, in large part,
not related to this litigation.
The trial court did in fact admit several exhibits relating to
Westlake’s deal with Sandridge. This included: the 2014 sale
agreement with the sale price redacted; the contemporaneous
“side agreement” containing the terms they did not wish to
include in the official transaction documents; and the email in
which Howe acknowledged the sale documents reflected
Sandridge’s interest as 49 percent only “to eliminate the [District]
from having any participation in the transfer.” In addition, the
court allowed the District to examine Howe and Vidovich about
the deal and how they concealed certain terms. This provided the
District with ample evidence to argue that Westlake: (1)
breached the Lease’s anti-assignment provisions, and (2) never
intended to actually farm the leased property. The jury did not
accept these arguments.
Westlake’s Cross-Appeal of Rescission Ruling
Westlake cross-appeals the trial court’s decision not to
rescind the Lease and Purchase Agreement. It contends the
jury’s finding of material failure of consideration and Westlake’s
election of rescission over contract damages “required the trial
court to fashion a rescission remedy.” “We review the trial court’s
decision whether to grant relief based on rescission for abuse of
15
discretion.” (Orozco v. WPV San Jose, LLC (2019) 36 Cal.App.5th
375, 401.) “‘“As to disputed factual issues, a reviewing court’s
role is simply to determine whether substantial evidence
supports the trial court’s findings of fact . . . . As to the trial
court’s conclusions of law, . . . review is de novo; a disposition that
rests on an error of law constitutes an abuse of discretion.”’”
(Ibid., quoting O’Gara Coach Co., LLC v. Ra (2019) 30
Cal.App.5th 1115, 1124.) “Where the evidence conflicts or is
capable of conflicting inferences, the appellate court will not
substitute its deductions for those of the fact finder.” (Eidsmore
v. RBB, Inc. (1994) 25 Cal.App.4th 189, 195.)
A material failure of consideration is grounds for rescinding
a contract. (Civ. Code, § 1689, subd. (b)(4).) “Rescission,
however, is an equitable remedy, with certain qualifications that
limit its application.” (Hailey v. California Physicians’ Service
(2007) 158 Cal.App.4th 452, 468 (Hailey).)
The jury’s finding did not require the trial court dispense
with its role as chancellor in equity. “A rescission will not be
enforced that would be inequitable. [Citation]. The equities of [a]
case [are] for the determination of the trial court.” (Joshua Tree
Townsite Co. v. Joshua Tree Land Co. (1950) 100 Cal.App.2d 590,
597, citing Papenfus v. Webb Products Co., Inc. (1938) 24
Cal.App.2d 559.)
The trial court decided the equities tipped in favor of the
District on Westlake’s cross-claim. The District bought land and
constructed the facility because it needed a long-term disposal
option for its biosolids. Rescinding the Purchase Agreement
would have left the facility in operation but deprived the District
of facility-adjacent lands to apply the compost it produced.
Further, it would give ownership of the land not to Westlake, but
to Sandridge, whose principal had opposed applying biosolids-
16
derived compost in the Tulare Lake basin since the project’s
inception. The purpose of rescission is to restore the parties to
their former position and bring substantial justice “despite the
fact that ‘the status quo cannot be exactly reproduced.’” (Runyan
v. Pacific Air Industries (1970) 2 Cal.3d 304, 316, quoting Lobdell
v. Miller (1952) 114 Cal.App.2d 328, 344.) The record supports
the trial court’s finding that substantial justice would not be
achieved by rescission under these facts. (See Hailey, supra, 158
Cal.App.4th at p. 468 [reversing rescission of health services
contract presenting “unique challenges to returning the parties to
the status quo, or achieving substantial justice”].)
The trial court also denied rescission based on the doctrine
of unclean hands. Westlake argues the doctrine of unclean hands
is “legally irrelevant” to its equitable right of rescission but cites
no authority for this proposition. To the contrary, “Whether to
grant relief based on rescission ‘generally rests upon the sound
discretion of the trial court exercised in accord with the facts and
circumstances of the case [citations].’” (Wong v. Stoler (2015) 237
Cal.App.4th 1375, 1387.) “The unclean hands doctrine protects
judicial integrity and promotes justice. It protects judicial
integrity because allowing a plaintiff with unclean hands to
recover in an action creates doubts as to the justice provided by
the judicial system. Thus, precluding recovery to the unclean
plaintiff protects the court’s, rather than the opposing party’s,
interests.” (Kendall-Jackson Winery, Ltd. v. Superior Court
(1999) 76 Cal.App.4th 970, 978.)
Substantial evidence supported the trial court’s application
of the doctrine to bar rescission here. The District introduced
exhibits showing Westlake and Sandridge concealed the 2014
deal from the District, particularly those provisions requiring
Westlake to obtain written consent before assigning the Lease
17
and to pay additional rent. Howe acknowledged these provisions
in a 2014 email to Sandridge. He wrote: “We show Westlake
having a 51% and Sandridge 49% interest in the lease. We did
this to eliminate the Sanitation District from having any
participation in the transfer. If Westlake were to transfer more
than 50% ownership in the lease, the Sanitation District has the
right to deny the transfer or would take one half of the declared
value of the lease. We are doing this for convenience and not
meaning to ultimately change how the land and water would be
managed in the end.”
Westlake and Sandridge signed a memorandum of
understanding three months after Howe sent this email. The
memorandum stated: “You could call this a ‘Side Agreement’
because it has the intent of documenting some understandings
that are not necessarily covered in any of the other agreements.”
It described the transaction as “particularly complicated due to
factors beyond the control of the parties.” These factors included
a pending judgment against Sandridge and “contracts such as the
Sanitation contract and others.” The memorandum’s final
sentence forthrightly concludes, “[T]he agreements may state
that the interest in the Sanitation lease is 49%. The real
interest is effectively 80%.” The trial court exercised its
discretion properly when it found these efforts to conceal the
deal’s terms barred “any award in equity.” (See Burton v.
Sosinsky (1988) 203 Cal.App.3d 562, 573 [doctrine of unclean
hands “‘is a self-imposed ordinance that closes the doors of a
court of equity to one tainted with inequitableness or bad faith
18
relative to the matter in which he seeks relief, however improper
may have been the behavior of the defendant’”].)3
DISPOSITION
Judgment is affirmed. Neither party prevailed on their
appeal. The interest of justice are best served by requiring each
side to bear their own costs on appeal.
NOT TO BE PUBLISHED.
CODY, J.
We concur:
GILBERT, P. J.
YEGAN, J.
3 The trial court’s statement of decision on equitable issues
applies the doctrine of unclean hands in the section denying
Westlake’s claim for unjust enrichment. The doctrine applies
with equal force to the rescission claim. Westlake’s dealings with
Sandridge figure prominently in its analysis of both issues.
19
Barry T. LaBarbera, Judge
Superior Court County of San Luis Obispo
______________________________
Reed Smith, Kathryn M. Bayes, Raymond A. Cardozo,
Brian A. Sutherland, for Plaintiffs, Respondents, and Cross-
Appellants
Greines, Martin, Stein & Richland, Robin Meadow, Cynthia
E. Tobisman, Gary J. Wax, and Stefan C. Love; Lewis Brisbois
Bisgaard & Smith, Wesley G. Berlin, Daniel G. Bath, and Jessica
A. Lienau; Griswold, LaSalle, Cobb, Down & Gin, Robert M.
Dowd, Raymond L. Carlson, and Christina G. Di Filippo;
Beveridge & Diamond, Jacob P. Duginski, James B. Slaughter
(pro hac vice) and Eric L. Christensen (pro hac vice), for
Defendant, Appellant, and Cross-Respondent.