iLink Technology v. Zalinda Farms CA4/1

Filed 4/22/15 iLink Technology v. Zalinda Farms CA4/1
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COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
ILINK TECHNOLOGY, INC., D064901
Plaintiff and Appellant,
v. (Super. Ct. No. 37-2012-00054465-
CU-BC-NC)
ZALINDA FARMS, INC., et al.,
Defendants and Respondents.
APPEAL from a judgment of the Superior Court of San Diego County, Robert P.
Dahlquist, Judge. Affirmed.
Tardiff Law Offices, Shea S. Murphy and Neil S. Tardiff for Plaintiff and
Appellant.
Law Office of Donald Barker and Donald M. Barker for Defendants and
Respondents.
iLink Technology, Inc. (iLink) entered into a contract with Zalinda Farms, Inc.
(Zalinda Farms) whereby iLink agreed to perform certain information technology (IT)
related services for Zalinda Farms. As part of the services iLink provided, Zalinda Farms
asked iLink to review the work of Burton G. Wilkins (Wilkins), with whom Zalinda
Farms had contracted to create a software program for Zalinda Farms. iLink pointed out
some of the problems with Wilkins's work and agreed to provide Zalinda Farms
additional services related to the implementation of Wilkins's software. Zalinda Farms
ultimately decided not to pay Wilkins for his work.
Wilkins brought suit against Zalinda Farms and its officer Christian Zaleschuk
(Christian) for, among other claims, breach of contract. Wilkins also sued iLink and its
officer Brian Korn for intentional interference with economic relations and negligent
interference with economic relations. iLink and Korn tendered the defense of the action
to Zalinda Farms under the indemnity provision of iLink's contract with Zalinda Farms.
Zalinda Farms did not agree to defend iLink or Korn.
Wilkins's action eventually settled and the parties entered into a settlement
agreement, which was put on the record in court. As part of the settlement, the parties
agreed to "waive all claims against each other."
After Wilkins's action was settled, iLink brought suit against Zalinda Farms and
Victor Zaleschuk (Victor) for breach of contract, breach of express indemnity, and
intentional misrepresentation. The gravamen of iLink's suit was Zalinda Farms's refusal
to indemnify iLink for its legal fees and costs in defending Wilkins's action as well as
iLink's settlement payment to settle with Wilkins.
iLink's action proceeded to a bench trial and the trial court found in favor of
Zalinda Farms. The court entered judgment in favor of Zalinda Farms and Victor, which
included an award of attorney fees and costs.
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iLink appeals, contending the trial court erred in finding Zalinda Farms was not
liable to iLink under the indemnity clause of their contract for the costs and fees it
incurred in litigating and settling Wilkins's action. In addition, iLink asserts it did not
waive its right to seek indemnity when it settled Wilkins's action.
We conclude that iLink waived all of its claims, including any indemnity claims,
against Zalinda Farms when it settled Wilkins's action. As such, we do not reach iLink's
remaining arguments regarding the interpretation of its contract with Zalinda Farms and
the scope of the subject indemnity provision. We therefore affirm.
FACTUAL AND PROCEDURAL BACKGROUND
Zalinda Farms was a plant nursery that grew and sold plants both retail and
wholesale. Victor owned and was the president of Zalinda Farms while Christian
managed the company's day-to-day operations. iLink provides IT consulting, computer
repair and other IT related work. Brian Korn is the president of iLink and works as a
field technician, an officer, director, and shareholder of iLink. Zalinda Farms and iLink
entered into an agreement on December 26, 2007 (iLink Agreement) whereby iLink
would install, repair, and/or provide maintenance of Zalinda Farms's computers,
hardware, software, peripherals, and network systems.
The iLink Agreement included an indemnity provision: "[Zalinda Farms] agrees
to release, indemnify, and hold iLink Technology, its Officers, Employees, Directors,
Shareholders, Independent Contractors, Agents . . . harmless from and against any and all
claims, liabilities, losses and expenses, including reasonable attorney's fees and court
costs, arising out of or attributable to [Zalinda Farms] or the use by [Zalinda Farms] of
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the products and services iLink Technology provides, relating to or arising under this
Agreement."
Prior to entering into the iLink Agreement, Zalinda Farms signed a contract with
Wilkins whereby Wilkins would "design, code, test, construct, and install customized
software on [Zalinda Farms'] computers and servers . . . ." Specifically, Zalinda Farms
tasked Wilkins with writing a program to manage Zalinda Farms's plant nursery
operations.
Wilkins had some difficulty installing his program, and Zalinda Farms asked iLink
to outline any technical insights it should consider in connection with the installation of
Wilkins's program. iLink did so, and to this end, Korn sent an e-mail to Susan Field,
Zalinda Farms's office manager, detailing Korn's conversation with Wilkins about the
issues Wilkins was experiencing, Korn's concerns about Wilkins's program and abilities,
and suggesting Zalinda Farms conduct a "project refocus." As part of this project, Korn
recommended that the objectives for Wilkins's computer program project be identified,
the scope of the work to be completed clearly defined, and the system and software
requirements Wilkins would need to complete his work identified.
Christian then contacted Wilkins and told him to stop all work on the computer
program project so that Zalinda Farms could have an opportunity to identify the problems
Wilkins was encountering, and formulate a plan to proceed. In response, Wilkins
submitted two invoices to Zalinda Farms, the first for $23,425.50, and the second for
$2,104.50.
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Zalinda Farms believed that that the invoices contained inappropriate billing. It
thus disputed the amount it owed Wilkins for his work. Ultimately, Zalinda Farms did
not pay the invoices.
In early March 2008, Zalinda Farms requested that iLink move forward with its
recommended project refocus. As part of this project, Zalinda Farms asked iLink to
review Wilkins's software project, identify any issues, and make a suggestion about
whether Zalinda Farms should continue with the project, at what cost, and how long it
should take to complete. To facilitate iLink's evaluation, Zalinda Farms provided iLink
documents and information related to Wilkins's programming work, including Zalinda
Farms's contract with Wilkins and Wilkins's invoices.
iLink agreed to provide the requested work and eventually Korn sent an e-mail
(Project Refocus E-mail) to Zalinda Farms in which iLink set forth responses to the
questions and issues raised by Zalinda Farms regarding Wilkins's work. The Project
Refocus E-mail provided a set of questions for Zalinda Farms to consider, and
concomitant courses of action to follow depending on how Zalinda Farms answered those
questions. As part of iLink's recommendations, it suggested that Zalinda Farms
implement "damage control" in dealing with Wilkins going forward. In addition, iLink
pointed out that it might be preferable for Zalinda Farms to "[cut its] losses" with Wilkins
and pursue other means of achieving its objective. To this end, iLink suggested that
Zalinda Farms retain a "good Contract Attorney" to provide legal guidance on the
contract with Wilkins and advise "how to get out of it if [Zalinda Farms] determine[d]
this a necessary direction."
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On June 11, 2008, Wilkins filed a complaint in Riverside Superior Court, case No.
RIC500067 (Wilkins Lawsuit). The operative complaint alleged claims for breach of
contract and quantum meruit against Zalinda Farms, conspiracy to breach contract against
Christian (as officer and/or director of Zalinda Farms), iLink, and Korn; and both
intentional and negligent interference with economic relations against iLink and Korn.
Wilkins claimed damages in the amount of $26,282.71 for all his claims. This
amount was identical to the amount Wilkins stated he was owed under his contract with
Zalinda Farms. The allegations supporting the three claims against iLink focused on
communications from iLink to Zalinda Farms, which were aimed to give Zalinda Farms
"a step-by-step guide on how [it] could breach the [agreement with Wilkins] so that
[iLink] could step in and take over the project." The complaint repeated the phrases
"damage control" and "cutting their losses" that appeared in the Project Refocus E-mail.
iLink tendered the defense of the Wilkins Lawsuit to Zalinda Farms. Although at
one point it appeared Zalinda Farms would retain an attorney to defend itself and iLink,
ultimately Zalinda Farms did not accept iLink's tender and iLink hired its own counsel.
iLink therefore incurred legal fees and costs in defending the action.
After retaining its own counsel, iLink informed Zalinda Farms that it intended to
file a cross-complaint against Zalinda Farms for indemnity pursuant to the
indemnification provision in the iLink Agreement. Zalinda Farms requested that iLink
refrain from filing a cross-complaint for indemnity, stating that it would interfere with
efforts to settle the Wilkins Lawsuit. Zalinda Farms and iLink agreed that iLink would
not file a cross-complaint at that time for tactical reasons, and in exchange, Zalinda
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Farms would not oppose iLink filing a cross-complaint for indemnity at a later time. This
agreement was memorialized in a letter iLink's counsel sent to Zalinda Farms's counsel,
which provided in relevant part:
"This is to confirm that Zalinda Farms, Inc. and Victor Zaleschuck
[sic] have agreed that no opposition would be filed in the event a
cross-complaint for indemnity on behalf of my clients is filed in the
future. We are informed and believe there have been some informal
settlement discussions between the plaintiff and your clients,
however we understand that no agreement has been worked out
between the parties."
The Wilkins Lawsuit settled prior to trial. Zalinda Farms and Christian agreed to
pay Wilkins $27,500, and iLink and Korn agreed to pay Wilkins $2,500. Although no
written settlement agreement was signed by the parties, they put the terms of the
settlement agreement on the record. In reciting the terms for the court, Wilkins's counsel
stated, in addition to the payment terms, "[p]arties waive all claims against each other."
Later the court repeated the terms to ensure all parties understood the settlement
agreement they were entering:
"So as I understand it, again, the terms are that $2500 will be paid by
Mr. Korn within seven days. Upon those payments, he will be
entitled to a dismissal with prejudice. [¶] The remaining balance as
stated by [Wilkins's counsel], 7500, July 31st, $2000 on or about
September 1st, and every month thereafter for nine months is the
responsibility solely of Zalinda Farms and Mr. Zaleschuck [sic].
And upon that payment then he will be entitled to a judgment -- or,
I'm sorry -- a dismissal with prejudice. [¶] Each side waive their
own fees and costs -- or bear their own fees and costs. [¶] Five-day
grace and three days notice to cure. [¶] Is that the full settlement?"
Only Wilkins's attorney responded to the court's question to clarify that the parties had
waived all claims between each other: "And the parties waive all claims against each
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other." Neither Zalinda Farms's counsel nor iLink or Korn's counsel clarified the scope
of the waiver. Specifically, there was no mention whatsoever of iLink's indemnity claim
against Zalinda Farms.
All parties then agreed on the record to the settlement. Indeed, Korn, who
admitted he was the president of iLink, represented to the court that he understood the
terms of the settlement and would abide by its terms. Korn and iLink's counsel requested
clarification of the timing of the dismissal of the lawsuit against his clients, but made no
mention of iLink's indemnity claim against Zalinda Farms.
As a result of the Wilkins Lawsuit, iLink paid $23,992.77 in attorney fees and
costs to defend the suit, plus $2,500 to settle the matter. After settling the lawsuit, iLink
demanded that Zalinda Farms reimburse it for its fees and costs in defending the Wilkins
Lawsuit and paying the settlement. Zalinda Farms refused to pay or reimburse iLink, and
iLink then filed the complaint in the instant action, alleging breach of contract, breach of
express indemnity, and intentional misrepresentation. Zalinda Farms answered the
complaint, denying all allegations.
The matter proceeded to a bench trial. After the close of evidence and closing
statements (including a written rebuttal statement submitted by iLink), the trial court
entered a decision after bench trial, rendering judgment in favor of Zalinda Farms. The
court found that the indemnity provision of the iLink Agreement was "confusing and
ambiguous" and the claims from the Wilkins Lawsuit did not fall under the indemnity
clause. It also found that iLink did not prove elements of its misrepresentation claim.
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The court subsequently entered judgment in favor of Zalinda Farms, which included an
award of attorney fees and costs to Zalinda Farms in the amount of $20,250.
iLink timely appealed.
DISCUSSION
iLink raises three issues on appeal. First, it argues the trial court erred in finding
the indemnity clause in the iLink Agreement did not apply to its defense and settlement
of the Wilkins Lawsuit. Second, iLink contends it did not waive its right to seek
indemnity from Zalinda Farms when it settled the Wilkins Lawsuit. Third, iLink asserts
the award of attorney fees and costs in Zalinda Farms's favor must be reversed if this
court determines the trial court erred.1
We address iLink's second argument only and determine that iLink waived its
right to seek indemnity when it settled the Wilkins Lawsuit. As such, we do not address
iLink's other arguments.
"A settlement agreement is a contract, and the legal principles which apply to
contracts generally apply to settlement contracts." (Weddington Productions, Inc. v.
Flick (1998) 60 Cal. App. 4th 793, 810.) We review the interpretation of a contract de
novo unless the interpretation turns on the credibility of extrinsic evidence. (Morgan v.
City of Los Angeles Bd. of Pension Comrs. (2000) 85 Cal. App. 4th 836, 843.)
1 iLink also brought a claim against Victor for intentional misrepresentation. The
court found that iLink did not prove the necessary elements of this claim. iLink has not
challenged this finding.
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For oral, as well as written, contracts, "[t]he fundamental goal of contractual
interpretation is to give effect to the mutual intention of the parties." (Bank of the West v.
Superior Court (1992) 2 Ca1.4th 1254, 1264; Civ. Code, § 1636.) That mutual intent is
determined by " 'objective manifestations of the parties' intent, including the words used
in the agreement, as well as extrinsic evidence of such objective matters as the
surrounding circumstances under which the parties negotiated or entered into the
contract; the object, nature and subject matter of the contract; and the subsequent conduct
of the parties.' " (People v. Shelton (2006) 37 Cal. 4th 759, 767.) "The question is what
the parties' objective manifestations of agreement or objective expressions of intent
would lead a reasonable person to believe." (Winograd v. American Broadcasting Co.
(1998) 68 Cal. App. 4th 624, 632.)
" 'When a dispute arises over the meaning of contract language, the first question
to be decided is whether the language is "reasonably susceptible" to the interpretation
urged by the party. If it is not, the case is over.' " (Oceanside 84, Ltd. v. Fidelity Federal
Bank (1997) 56 Cal. App. 4th 1441, 1448.) Here, the parties dispute the meaning of the
sentence: "And the parties waive all claims against each other." Zalinda Farms
maintains the sentence means that all parties to the settlement agreement, including iLink
and Korn, waived any claims they had against any other party to the settlement
agreement. As such, Zalinda Farms asserts iLink waived its indemnity claim against
Zalinda Farms when it settled the Wilkins Lawsuit and agreed to the term that "the parties
waive all claims against each other."
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iLink disagrees, arguing: (1) the parties only intended to resolve the dispute
between Wilkins on one hand and iLink and Zalinda Farms on the other; (2) at no point
during the litigation of the Wilkins Lawsuit did iLink assert any claim against Zalinda
Farms; (3) iLink and Zalinda Farms had previously agreed to preserve iLink's right to
bring a claim for indemnity against Zalinda Farms; and (4) as a matter of law, under the
facts in the record, iLink could not have waived its contractual indemnity claim. We
reject these contentions.
iLink asserts the parties to the settlement agreement only intended to resolve the
claims alleged by Wilkins against iLink and Zalinda Farms. Thus, iLink maintains that
the release only applied to Wilkins's claim. However, the plain language of the release
does not support iLink's interpretation. Just based on the words the parties agreed to on
the record, the waiver does not appear limited only to the claims made by Wilkins. If that
was the parties' intention, they easily could have limited it accordingly. The actual
language does not support this interpretation. Instead, the waiver language was much
more expansive and applied to all the parties and their claims against each other.
Accordingly, the meaning of the waiver provision of the settlement agreement is clear:
Each party, including iLink and Korn, waived its or his claims against the other parties.
iLink next argues that even if the waiver of claims applied to them, it could not
have waived its indemnity claim against Zalinda Farms because it had not asserted that
claim, or any claim, against Zalinda Farms during the pendency of the Wilkins Lawsuit.
Not so. iLink tendered its defense in the Wilkins Lawsuit to Zalinda Farms. After
Zalinda Farms did not accept the tender, iLink retained its own counsel. iLink
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subsequently threatened to file a cross-complaint for indemnity in the Wilkins Lawsuit
against Zalinda Farms. The fact that it did not do so does not negate the existence of that
claim. Therefore, although iLink did not file the cross-complaint, it cannot dispute that it
was aware of its indemnity claim at the time it entered into the settlement of the Wilkins
Lawsuit. When it did enter into that agreement, iLink agreed to language that waived its
claims against all other parties. It did not limit the waiver only to claims stated in the
complaint or cross-complaint in the Wilkins Lawsuit. As such, the waiver necessarily
included the indemnity claim unless it was somehow carved out of the settlement.
iLink claims its indemnity claim was outside the settlement agreement because the
parties agreed that Zalinda Farms would not oppose iLink filing a cross-complaint for
indemnity at a later time. To support this position, iLink points to its counsel's letter to
Zalinda Farms's counsel memorializing the agreement regarding the indemnity claim:
"This is to confirm that Zalinda Farms, Inc. and Victor Zaleschuck
[sic] have agreed that no opposition would be filed in the event a
cross-complaint for indemnity on behalf of my clients is filed in the
future. We are informed and believe there have been some informal
settlement discussions between the plaintiff and your clients,
however we understand that no agreement has been worked out
between the parties."
We, as did the trial court, do not share iLink's expansive reading of the subject letter. At
trial, the court found that Zalinda Farms had agreed that it would not oppose a request for
leave to file a cross-complaint seeking indemnity. The court did not find that Zalinda
Farms had agreed to indemnify iLink at a later time. We agree with the trial court's fair
and accurate reading of what the letter actually states.
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Nevertheless, iLink asserts that its delay in filing a cross-complaint was "done in
contemplation of, and in order to facilitate, the settlement of the Wilkins Lawsuit. As
such, the agreement between Zalinda Farms and iLink specifically contemplated iLink
bringing a cross-claim for indemnity after the Wilkins Lawsuit settled." iLink's position,
however, is undermined by the text of the subject letter and its actions at the hearing
where the settlement agreement was put on the record. The letter only speaks to the
possibility of filing a cross-complaint at a later date. It says nothing about filing an
indemnity claim after the Wilkins Lawsuit settled. Moreover, iLink never mentioned the
indemnity claim when the settlement agreement was put on the record. When the court
stated that iLink would be dismissed with prejudice after its payment of $2,500, iLink
said nothing about filing a cross-complaint for indemnity. And it did not ask that its
indemnity claim be exempted from the waiver of all claims by all parties. In fact, iLink's
attorney addressed the waiver issue with Korn, but there was no mention of the indemnity
claim:
"[iLink's counsel]: And there will be no further claim that any of the
parties will have against you --
"THE COURT: See, the problem, [iLink's counsel], is you're
looking that way instead of this way, and so we can't hear you.
"[iLink's counsel]: -- against any of the other parties. Do you
understand that?
"MR. KORN: Yes."
Although the exchange between Korn and iLink's counsel is less than clear, the attorney's
question does not appear to limit the claims being waived as only belonging to Wilkins.
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Accordingly, we do not agree with iLink that there is any evidence in the record that
iLink and Zalinda Farms agreed that iLink could and would file a complaint for
indemnity after all parties settled the Wilkins Lawsuit.
Finally, citing C.L. Peck Contractors v. Superior Court (1984) 159 Cal. App. 3d
828 (Peck), iLink maintains its contractual indemnity claim survived the settlement of the
Wilkins Lawsuit. Peck is not instructive here.
In Peck, one of the defendants settled with the plaintiff. Under Code of Civil
Procedure section 877.6, the settling defendant sought from the trial court a declaration
that the settlement was in good faith, and a dismissal of all cross-claims for
indemnification. The nonsettling defendants opposed dismissal of their cross-claim for
indemnity to the extent that the claims were provided for by contract with the settling
defendant. (Peck, supra, 159 Cal.3d at p. 831.) The Court of Appeal reversed the trial
court's granting of the settling defendant's motion, reasoning that a good faith settlement
does not relieve a settling tortfeasor of its obligations to a nonsettling defendant under the
terms of an express indemnification agreement. (Id. at p. 834.)
Here, the facts stand in stark contrast to Peck. In Peck, the nonsettling defendants,
who had existing cross-complaints for contractual indemnity, opposed the good faith
settlement motion, arguing that their claims could not be extinguished by the settlement.
Here, during the settlement of the Wilkins Lawsuit, iLink remained silent about its
indemnity claim or desire to file a complaint for indemnity after the settlement. In
addition, in Peck, the parties seeking the survival of their indemnity claims did not settle
with the plaintiff. In comparison, iLink was a settling defendant and had every
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opportunity to ensure that its indemnity claim was not included in the waiver agreed to by
all parties on the record. It did not take advantage of this opportunity, and Peck, supra,
159 Cal. 3d 828 is not the talisman to revive its waived claim.
In short, iLink agreed to a settlement agreement that contained a broad waiver
provision: "the parties waive all claims against each other." The only reasonable
interpretation of this provision is that the parties agreed to waive all known claims against
each other. Such a waiver included iLink's indemnity claim against Zalinda Farms. We
determine the wavier contained in the settlement agreement is not "reasonably
susceptible" to iLink's suggested interpretation that it only applied to Wilkins's claims in
the Wilkins Lawsuit or to claims stated in a complaint or cross-complaint in that action.
(See Oceanside 84, Ltd. v. Fidelity Federal Bank, supra, 56 Cal.App.4th at p. 1448.) As
such, iLink's claim for indemnity is barred by the settlement agreement.
DISPOSITION
The judgment is affirmed. Zalinda Farms and Victor Zaleschuk are awarded their
costs on this appeal.
HUFFMAN, Acting P. J.
WE CONCUR:
HALLER, J.
O'ROURKE, J.
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