Schellinger Brothers v. Cotter

Filed 8/26/16
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION TWO
SCHELLINGER BROTHERS et al.,
Plaintiffs and Respondents,
A142201
v.
JAMES F. COTTER, (Sonoma County
Super. Ct. No. SCV-253161)
Defendant and Appellant.
This is the third appeal involving a frustrated attempt by respondent Schellinger
Brothers1 to develop a large tract of real property in the City of Sebastopol (the City) it
had agreed to purchase from appellant James F. Cotter. We opened our opinion in the
second appeal with the following:
“In Schellinger Brothers v. City of Sebastopol (2009) 179 Cal. App. 4th 1245
(Schellinger I), this court first encountered the controversy surrounding a proposed
commercial development that had become ensnared in a bureaucratic and politically
charged morass that saw the certification of an environmental impact report (EIR)
stymied for five years. The frustrated developer sued the municipality for a writ of
administrative mandate to halt the seemingly endless proceedings under the California
Environmental Quality Act (Pub. Resources Code, § 21000 et seq. (CEQA)). We held
that none of the developer’s statutory arguments could ‘be used to halt the
decisionmaking process specified by CEQA that is still ongoing.’ (Schellinger I, supra,
1
Schellinger Brothers is a partnership of actual brothers William and Frank.
Individually, and as the partnership, they are the plaintiffs herein. For simplicity, they
will hereafter collectively be designated as Schellinger except when there is a reference
to a specific individual.
1
at p. 1250.) We specifically rejected Schellinger’s central contention that one provision
of CEQA—Public Resources Code section 21151.1—imposed a ‘mandatory,
nonwaivable jurisdictional deadline’ of one year for approval of an EIR. (Id. at pp.
1259–1261.)
“In the course of developing the developer’s statutory claims, we stated that ‘the
developer’s active participation in that process . . . amounts to laches,’ an additional
ground for denying relief. (Schellinger I, supra, at p. 1250.) We explained that ‘a
significant portion of the extended delay was solely attributable to Schellinger, which
was repeatedly revising the scope of its proposal,’ thereby adding ‘a dimension of
complications that distinguished this proposed project from the run-of-the-mill
development.’ (Id. at pp. 1268, 1270–1271.)
“Those statements were the basis for this collateral, follow-up litigation between
James F. Cotter, the owner of the land, and Schellinger Brothers, the proposed developer
of the project. Cotter sued Schellinger for breach of the contract to purchase the
property. Cotter’s position was that Schellinger I established as a matter of law that
Schellinger breached the contract by taking an unreasonably long period of time to secure
approval of the project. The trial court disagreed with this reading of Schellinger I, and
after a bench trial, concluded that Schellinger’s actions were reasonable. As part of its
judgment, the court fixed a date by which Schellinger must secure final approval of the
project by the municipality.” (Cotter v. Brothers (Aug. 5, 2013, A135014) [nonpub.
opn.] (Schellinger II.)
We affirmed that judgment, noting that “the history of this dispute would bring
tears to the eyes of a brass monkey.” (Schellinger II, at pp. 1–2.) We spoke too soon, for
a third round of litigation commenced by Schellinger was already under way. Following
a bench trial of Schellinger’s complaint against Cotter for breaching the contract between
them, the Honorable Elliot Lee Daum entered a money judgment for $2,855,431.77 in
favor of Schellinger, and then an order awarding costs and attorney fees.
Cotter appeals from the judgment and from the order. He contends: (1) Judge
Daum misinterpreted the contract; (2) Judge Daum’s finding that Cotter breached the
2
contract is both legally erroneous and not supported by substantial evidence; and
(3) Judge Daum erred in concluding that Schellinger was entitled to consequential
damages that were the proximate result of Cotter’s breach. Assuming that he will prevail
with these arguments, Cotter argues that the cost and fee order must also be reversed. We
are in full agreement with Judge Daum’s ultimate conclusions: (1) Cotter committed an
egregious breach of his contract with Schellinger, a breach animated by egregious bad
faith; and (2) Schellinger suffered damages proximately caused by Cotter’s breach in the
amount fixed by the trial court. And although the amount of damages appears to be of
unprecedented size, the distinct circumstances of the transaction put them within “the
expenses properly incurred in preparing to enter upon the land” and consequential
damages, both made recoverable by Civil Code section 3306. We thus affirm.
BACKGROUND
This cause was the subject of a five-day bench trial with 11 people who testified in
person, one who testified via deposition, and dozens of exhibits. The statement of
decision prepared by Judge Daum figures prominently in this appeal. With minor,
nonsubstantive editorial changes we have made to the text, and footnotes we have added
for context, the statement deserves quotation almost in its entirety:
“This case involved the contract for sale of commercial property in Sebastopol,
California, an approximately 21 acre tract known as Laguna Vista. Seller is defendant
James Cotter. The buyers are known as The Schellinger Brothers, plaintiffs in this case.
Mr. Cotter is 80 years old, a self-described, self-made man who came to Sonoma County
in 1964 and started a commercial real estate business that spread to many other parts of
the country. [Plaintiffs] have confined most of their construction and development to
Northern California where they have been in business for about 35 years.
“After plaintiff’s opening (defendant deferred) Scott Kincaid was called to testify,
inter alia, that as [Schellinger’s] senior loan officer at Community Bank, he had prepared
the necessary documents so plaintiffs would have the funds to purchase the subject
property. He described the lengthy history of lending to [Schellinger] for numerous
projects. It appears to the court that [Schellinger’s] credit history with the bank is
3
impeccable and longstanding. While ‘tender’ has been made something of an issue, this
Court has no doubt that [Schellinger was] ready, willing, and, most significantly, able to
consummate this deal with more than adequate funding. According to witness Kincaid,
the bank was willing to collateralize the loan with other holding[s] of [Schellinger],
eschewing the need for security in the form of the subject property itself, a nearly 21 acre
piece of land with apparently increasing value. Plaintiff Bill Schellinger’s testimony that
a $3 million dollar loan ‘is not a big deal to us’ is a very credible claim and the court
accepts that characterization. Tender was simply not a problem for [Schellinger].
“After a protracted trial before Judge [Rene] Chouteau in 2011, the plaintiffs were
given 2 years to obtain the necessary subdivision Map that would make the project worth
while and viable. The Court takes plaintiff Bill Schellinger’s comment that ‘everybody
knew we weren’t going to get the Map’ at his word.
“At issue, therefore, was [Schellinger’s] determination to go forward without the
Map, the force and effect of which would be a waiver.
“The negotiations for the sale commenced in August of 1997. After numerous
delays and efforts to smooth out the many wrinkles of permits through the City of
Sebastopol and other jurisdictional agencies, [Cotter] made efforts to sell the property to
a different buyer, Tux Tuxhorn in 2005.[2]
2
According to Bill Schellinger, “Mr. Tuxhorn called me up and told me that Mr.
Cotter was trying to sell him our property . . . . [¶] . . . [¶] He wanted to know what the
status was, if we were still going ahead or what we were doing with it.” Already,
Schellinger’s frustration had reached the point it was willing to drop the project if Cotter
“wanted to sell it to somebody else, he could buy us out. And he [Cotter] said, no, that
wasn’t his intention and for us to carry on.” Judge Daum clearly did not credit Cotter’s
testimony that “I had nothing whatsoever to do with this Tuxhorn thing. I never heard of
him.”
But the topic of a new strategy clearly was on Cotter’s mind. There was evidence
in the form of an appraisal commissioned by Cotter that since the agreement was signed
in 1998, the value of the undeveloped property had more than doubled to $6 million, and
would quadruple to $12 million if it was developed. About this time, in July of 2005,
Cotter wrote Schellinger a letter in which he stated “I . . . consider the contract terminated
due to the long time that has passed,” but he was “willing to enter into a new contract for
4
“Among the key requirements for execution of the contract and consummation of
the sale was 1) the necessity of obtaining a subdivision Map approval through the City;
and 2) the completion of Lot Line Adjustments that definitively circumscribe the metes
and bounds of the various parcels that were to make up the 21 acre total. In 1999 the Lot
Line Adjustment was apparently completed, but [Cotter] apparently refused to sign it and
the application expired.
“These key requirements were negotiated as part of the contract in the following
provisions:
“[Schellinger’s] obligation to close escrow was expressly conditioned on the
occurrence of, among other things, two events—the approval by the City and recordation
of a final subdivision map. The Agreement[3] provides:
“ ‘Section C: The intent of this Agreement is that upon the successful completion
of an approved final map recordation, seller [Cotter] shall retain the front commercial
parcels . . . . [I]t is mutually understood that the exact size of the parcels can not be
determined until the project is mapped, surveyed, and has certified approval . . . .
“ ‘Section 6: Purchaser’s obligation to perform under this Agreement is subject to
the following conditions: (a) Purchaser’s obtaining all approvals for a final subdivision
map from City of Sebastopol, California for a Master Planned Development. Purchaser
shall promptly apply for and diligently attempt to obtain approvals from Sebastopol,
California . . . .
“ ‘Section 4: Escrow shall close within 30 days after recordation of final
subdivision map from the City of Sebastopol. . . .
$4,500,000 on the same basis as the old contract as amended with a specified closing date
that is not dependent on any approvals for development. The closing date will have to be
no later than September 30, 2005. [¶] If that proposal is not agreeable with you, I will
proceed with other plans for the property.”
3
Judge Daum was quoting from the parties’ May 1998 purchase and sale
agreement.
5
“ ‘Section 10: Closing Date. The conveyance of the Property to Purchaser and the
closing of this transaction (‘Close of Escrow’) shall take place within 30 days following
the satisfaction of the conditions set forth in Section 6 and 7.
“ ‘Section 15: (a) Seller’s Covenants. Commencing with the full execution of this
Agreement by both parties and until the Close of Escrow: (a) Seller shall not permit any
liens, encumbrances, or easements to be placed on the Property, other than the Approved
Exceptions, nor shall Seller enter into any agreement regarding the sale, rental,
management, repair, improvement, or any other matter affecting the Property that would
be binding on purchaser or the property after the Close of Escrow without the prior
written consent of Purchaser.
“ ‘(b) Seller shall not permit any act of waste or act that would tend to diminish
the value of the property for any reason. . . . [4]
“ ‘Section 28: This agreement shall inure to the benefit of and shall be binding
upon the parties to this agreement and their respective heirs, successor[s], and assigns.’
“In addenda executed by the parties [Schellinger] agreed to obtain a lot line
adjustment to sever that portion of the properties which were subject to the agreement
from the remainder of Cotter’s properties. Because Cotter had not kept property taxes
current because the City required that the taxes be paid for the Lot Line Adjustment,
[Schellinger] agreed to pay the property taxes for 1998 through June 2001, which totaled
$25,400.00. Even after the obligation ended, [Schellinger] voluntarily continued to pay
Cotter’s taxes because Cotter was not paying them and [Schellinger] was concerned that
outstanding taxes would negatively impact [its] map application. [Schellinger] finally
stopped paying the taxes after Cotter sued them in a case heard by Judge Rene Chouteau
in 2011 [i.e., Schellinger II].
4
The provision reads in full: “Seller shall not permit any act of waste or act that
would tend to diminish the value of the Property for any reason, except that caused by
ordinary wear and tear.” (And see fn. 12, post.)
6
“The lot line adjustment was ready to be finalized in 2002. It was never
completed when [Cotter] submitted escrow instructions not to record the lot line
adjustment until [Schellinger’s] subdivision Map was recorded.
“Despite prodigious efforts on the part of [Schellinger] to comply with the EIR
process in order to obtain the Map[5] and other necessary permits, [Schellinger was]
continually frustrated in their efforts by a combination of City denials and non-action.
“No doubt [Cotter] was frustrated, too, and he filed suit against [Schellinger] for
breach of contract and to, in essence, terminate the contract. Nonetheless Judge
Chouteau ruled, inter alia, as follows:
“ ‘My interpretation is that in the context of this lawsuit and the question of what
was reasonable, and that the Schellingers’ actions were reasonable in trying to
accommodate the community and the City in reducing the density of the development to
meet the needs of the community. The Court of Appeal decision [in Schellinger I]
although binding in this court has to be read in the context of the facts and the claims
before the court, and the issue in that case was whether the city had violated the statute
which requires approval to be within a year. In that context, the Court of Appeal
determined . . . that [it would be] unreasonable [to expect] the Schellingers to come into
court to sue the city as to the one-year limitation [when they] themselves had participated
in the process that extended beyond the year. I do not interpret that to mean that their
efforts to meet [the] needs [of] the community by revising the project in the abstract to be
unreasonable in any sense. I think the analysis of the mediation is similar. The
Schellingers, in order to try to deal with the issues raised by the community, carried on a
period of mediation that lasted approximately a year. As a matter of fact, it appeared to
5
Not only did the City never certify the EIR, the city council never even held a
scheduled vote on certifying it. (See Schellinger I, 179 Cal. App. 4th 1245, 1252–1253.)
Schellinger’s application for approval of the project, which included a tentative
subdivision map application, was deemed complete by the City in 2003. (Schellinger I,
at p. 1251.)
7
be successful and resulted in an agreement in the mediation only to be rejected by the
City Council.’[6]
“Cotter received no damages or other relief in the lawsuit, save and except,
perhaps, Judge Chouteau’s setting of a two year timeline for obtaining of the subdivision
Map, culminating in June of 2013. It was apparent to [Schellinger] that the 2 year
limitation would be insufficient, and they began to consider their option of simply
waiving that requirement. The Court finds specifically that it was theirs to waive under
traditional contract law and the terms of the original agreement, since the obtaining of the
Map would inure solely to their benefit and going through without it put only the
Schellingers, not Cotter, at risk. In the case of Johnson v. Lehtonen (1957)
151 Cal. App. 2d 579, [582,] the Court [of Appeal] observed: . . . ‘This provision is
obviously for the benefit of the buyer and might have been waived by him.’ [Citation.]
It was, nevertheless, still Cotter’s obligation to obtain the necessary Lot Line Adjustment
in order to circumscribe the property bounds as described above. He at least began the
process subsequent to his suit against the Schellingers, but it was never completed.[7]
“The Excavation Problem
“In the Winter of 2012[8] significant rains occasioned the hiring of one David
Ruffino, a landscape contractor from Chico, by . . . Cotter (who had hired Mr. Ruffino for
work in the Chico area on prior occasions) to ameliorate flooding and drainage problems
6
In Schellinger I we described a mediation that took almost a year to produce an
agreement that was then rejected by the Sebastopol City Council. As two members of the
council had participated in the mediation, Schellinger probably assumed council approval
was a mere formality. When the agreement was then rejected, “[f]or Schellinger, this
was the final straw. . . . Schellinger’s next move was to commence this litigation.”
(Schellinger I, 179 Cal. App. 4th 1245, 1253.)
7
Judge Daum had before him Judge Chouteau’s judgment, which included this
finding: “The failure to record a lot line adjustment . . . was caused by Mr. Cotter.”
Cotter’s pending motion to take judicial notice of other materials from Schellinger II is
denied because Judge Daum was never asked to notice these documents at trial.
(Haworth v. Superior Court (2010) 50 Cal. 4th 372, 379, fn. 2.)
8
It was actually January 2012, the month following entry of Judge Chouteau’s
judgment against Cotter in Schellinger II.
8
at the property. Ruffino worked without benefit of permit, but his work was halted by
personnel from the City of Sebastopol when they discovered Ruffino’s permitless status.
Though Ruffino did not testify at the trial, his deposition was used to supplement the
evidence in varying particulars by both sides. Sadly the lack of permit was only the tip of
the iceberg of difficulties created by his failed efforts.
“City Engineer Susan Kelly testified about the unauthorized ditch created by Mr.
Ruffino as did Stephen Bargsden from the [North Coast Region] Water Quality Control
Board [(Regional Board)] and Dr. Michael Josselyn, a Ph.D biologist from his firm
Wetland Research Associates. The entire project has been put into doubt by Mr.
Ruffino’s efforts because not only were they unpermitted, they jeopardized sensitive
wetlands areas. The exact consequences of these actions are not completely known, but
they include a 5 year monitoring period and the requirement of significant time and
expense for restoration of the habitat ostensibly destroyed by Mr. Ruffino. There is no
question but that Mr. Ruffino was the agent for [Cotter] and that [Cotter] is legally
responsible for his actions. (Clark Equipment Co. v. Wheat (1979) 92 Cal. App. 3d 503.)
In one of the more disturbing aspects of his deposition testimony, Mr. Ruffino stated:
‘Q. Mr. Cotter asked you to lie about what you knew about the trench? Correct?
A. Yes. Q. He told you that you need to testify that you knew nothing about the trench;
correct? A. Yes. Q. And you refused to do that; correct? A. Well, I don’t lie. And, you
know, so that's it.’ Page 88, lines 1–9 [of Ruffino’s deposition].
“Not only does this testimony raise questions about the potential waste involved in
[Cotter’s] actions, but [Cotter’s] overall credibility is called into serious question thereby.
“The final witness who testified for [Schellinger] in this case is Lawrence
McLaughlin, City Attorney and City Manager of Sebastopol. Mr. McLaughlin testified
that while the Lotline Adjustment and Subdivision Map applications were
pending, . . . Cotter attempted to meet with him to discuss his offer to merely donate the
property to the City, in complete derogation of any rights of [Schellinger] and utterly
9
without regard to the contract for sale of the subject property.[9] Mr. McLaughlin was
appropriately concerned that any such talks would smack of bad faith and perhaps
interference with contract as a tort. [Schellinger] had spent 15 years and nearly three
million dollars by the time of [Cotter’s] last effort to simply give the property to the City
for a park in October of 2013. This seemingly magnanimous gesture would have pulled
the rug out from [Schellinger’s] earnest attempts to consummate the project and fulfill the
original terms of the contract. This scheme by [Cotter] was not magnanimous, indeed it
bordered on the unconscionable.
“It is the conclusion of this Court that [Cotter] has breached the contract and is
liable for the consequential damages suffered by [Schellinger] due to that breach.
“Remedy
“Things without all remedy should be held without regard. What’s done is done.
“Lady Macbeth
“Of course the Macbeths were unable to get out the ‘Damn spot’ and wash their
hands of blood, but where does the breach in this case leave the parties? While a
longstanding remedy for failure to appropriately complete a property sale by a seller is
specific performance, there are critical reasons why that won’t work in this case. As
[Cotter] took pains to point out during the trial, without the completion of the Lot Line
Adjustments, there is no realistic way to parse out precisely what the property lines
would be. There was testimony that two of the parcels could be definitively described,
but those comprise but 1 and 1/3 acres of the 21 acre whole. This Court is loath to delve
into the realm of surveying in an effort to formulate some equitable remedy.
“Even more significant than [Cotter’s] recalcitrance is the trench problem. The
uncertainty created by [Cotter’s] agent Ruffino makes the remedy of specific
9
Cotter made this offer while Schellinger and the City were engaged in the year-
long mediation. The offer was conveyed to one of the city council members who was
participating in the mediation. (See fn. 6, ante.) Cotter repeated the offer directly to City
Manager McLaughlin in October 2013.
10
performance illusory and ultimately no remedy at all. Through no fault of [Schellinger],
the property was rendered all but useless and will be for years and many dollars to come.
“Damages
“Plaintiff Bill Schellinger and his son Scott have testified credibly that they
expended $2,855,431.77 in pursuit of this project. They have been through a number of
lawsuits, a year’s worth of failed mediation, and the project is actually farther away [from
completion] than it was in 1999. It seems that it is time to walk away, but not without
recompense. Accordingly, this Court awards [Schellinger] their damages in the sum of
$2,855,431.77 plus costs according to proof.” (Bold type omitted.)
After a judgment for this amount was entered, Judge Daum denied Cotter’s dual
motion for new trial and vacation of the judgment, made on the grounds of excessive
damages and insufficient evidence to support the judgment.10 Thereafter the parties
stipulated to entry of an order fixing Schellinger’s costs and attorney fees at $74,360.
DISCUSSION
Cotter mounts a comprehensive attack on the judgment. He begins by contending
Judge Daum misinterpreted the agreement with Schellinger. This misinterpretation led
Judge Daum to create a nonexistent duty, which Cotter was found to have breached.
10
What Judge Daum said at the hearing where he orally denied the motion is
pertinent because it augments several points in his statement of decision: “[I]n this
case, . . . the Court found and does find that the credibility of the plaintiffs who testified,
not only the Schellinger Brothers but their [sic] son Scott’s testimony about what they
lost as a result of their efforts to make this project happen and what they lost as a result of
defendant Cotter’s transgressions with respect to the contract . . . were such that the Court
found those claims credible, found their description of their losses credible, and while
they may have referred to summaries and documentation to refresh their recollection of
their losses, it wasn’t the documents in this Court’s view that they were relying on, they
were relying on what their losses were that they knew that they had suffered that came
out of their pocket, . . . that they were very much aware of as the years went by. [¶] And
certainly the testimony throughout the trial, all the evidence . . . with all of the expenses
and the time and the delays and the efforts, that had apparently all gone for naught, and
that played a huge part in this Court’s consideration. It was their credibility. The
credibility was impeccable in the Court’s view, and in addition to everything else and all
of the other considerations . . . played an extremely important part and continues to.”
11
Next, assuming a legal duty was correctly identified by Judge Daum, there is insufficient
evidence to establish that he, Cotter, breached it. Then, if there was a duty and he did
breach it, the damages award should be overturned because Judge Daum applied an
incorrect standard for measuring damages, and erroneously concluded that any damages
were foreseeable or proximately caused by Cotter’s breach. Finally, Cotter tells us “there
is no substantial (or admissible) evidence supporting any award of damages to
Schellinger whatsoever.” (Italics added.)
The Subdivision Map Act
Cotter frames the first issue in his brief as follows: “Schellinger could not
unilaterally waive the final subdivision map condition. The finding he [sic] could
contradicts the express terms of the contract and renders it illegal and void in violation of
the Subdivision Map Act.” (Bold type and underscore omitted.) Cotter argues that that
statute “generally prohibits the sale, lease, or financing of any parcel of a subdivision
until the recordation of an approved map in full compliance” with it (Gardner v. County
of Sonoma (2003) 29 Cal. 4th 990, 999; see Gov. Code, § 66499.30), and contracts which
allow for waiver of that compliance are illegal and void. (Sixells, LLC v. Cannery
Business Park (2008) 170 Cal. App. 4th 648, 653–654; Black Hills Investments, Inc. v.
Albertson’s, Inc. (2007) 146 Cal. App. 4th 883, 893–894.) So, “[b]y interpreting the
Contract to permit Schellinger to waive the Map Condition, the trial court rendered it an
illegal and void contract.” Cotter concedes he is only now raising this issue, but urges
that we use our discretionary power to permit a change in the theory on which the case
was tried because the issue is purely one of law not involving the need to resolve a
conflict in the evidence. We decline to exercise our discretion in Cotter’s favor, for a
number of reasons.
First, we disagree that the issue is purely legal. While it is true, as Cotter states,
that the recitals in the original contract referred to the Subdivision Map Act, by the time
of Judge Chouteau’s decision in Schellinger II the terms of the original contract hardly
governed the relationship between the parties. And contrary to Cotter’s conclusory
12
statement that no extrinsic evidence was introduced on any Subdivision Map Act issue,11
Schellinger notes that evidence extrinsic to the contract was received at trial “establishing
Cotter’s obligation to obtain the LLA [Lot Line Adjustment] which was disputed and
outside the written agreement”—evidence we understand that could impact the Map Act
issue. In Schellinger’s words, “the heart of this case—the modification of the purchase
agreement based upon over 15 years of events, and intent of the parties—is subject to the
substantial evidence standard.”
We mention the above not to establish what standard of review we apply to the
issue, but rather to show how Cotter’s failure to raise the issue below precludes him from
raising it now. As the Supreme Court has observed, the rule against changing the theory
on which a case was tried “is to be stringently applied when the new theory depends on
controverted factual questions whose relevance thereto was not made to appear at trial.”
(Bogacki v. Board of Supervisors (1971) 5 Cal. 3d 771, 780.)
Second, it does not positively appear that Judge Daum actually ruled that on the
Subdivision Map issue in the way Cotter believes. To repeat, the relevant language in the
statement of decision was: “It was apparent to [Schellinger] that the 2 year limitation
would be insufficient, and they began to consider their option of simply waiving that
requirement. The Court finds specifically that it was theirs to waive under traditional
contract law and the terms of the original agreement, since the obtaining of the Map
would inure solely to their benefit and going through without it put only the Schellingers,
not Cotter, at risk.” The word “it” in the second sentence may be read to encompass
merely “the 2 year limitation” fixed in Schellinger II as the antecedent subject, with no
reference to compliance with the Subdivision Map Act. Again, proving a different
meaning to the word “it” would obviously move us away from a pristine question of law.
Third, Cotter never asked Judge Daum for clarification of the nature of the
reference in the statement of decision to the Subdivision Map Act. One of the reasons for
11
Cotter asserts that “[n]o witness testified about the intent of the parties regarding
the Map Condition, or who was the intended beneficiary of that condition. The court
considered only the Contract terms—an exercise that must be reviewed de novo here.”
13
the theory of trial preclusion is the manifest unfairness of attributing something to the
trial court that was never intended. (See Cable Connection, Inc. v. DIRECTV, Inc. (2008)
44 Cal. 4th 1334, 1351, fn. 12 and authorities cited.) A reviewing court will hesitate to
put words in a trial court’s mouth, particularly if those words amount to reversible error.
Such hesitation is doubled if the reversible error is giving judicial enforcement to an
illegal contract.
Fourth, there are a number of factors reflective of the unusual circumstances of
this entire dispute. Cotter’s attorney expressly argued to Judge Daum that the issue of
waiving the Subdivision Map Act belonged to Schellinger, which did not timely raise it
for the trial. Or, as Cotter’s counsel put it in closing argument, any issue of waiver has
“not been argued and it’s not been based on evidence.” Indeed, the issue of Schellinger’s
noncompliance with the Subdivision Map Act was not among the 53 affirmative defenses
set out in Cotter’s answer. In sum, the lesson we take from the totality of the
circumstances is that this appeal is simply way too late in this protracted dispute to add a
new issue.
Breach
Concerning the general issue of whether he breached the agreement, and under the
general caption of “There Is No Substantial Evidence to Support The Finding Cotter
Breached the Contract,” Cotter puts forth the following arguments: (1) “Cotter did not
anticipatorily breach the contract”; (2) “Schellinger did not tender”; (3) “Cotter did not
breach the contract by failing to obtain the Lot Line Adjustment” because (a)
“Schellinger had the duty to obtain the Lot Line Adjustment—not Cotter,” and (b) “Even
if Cotter had a duty to obtain the Lot Line Adjustment, there is no substantial evidence he
breached that duty resulting in damage to Schellinger”; and (4) “The trench issue cannot
support a finding of waste, nor support the court’s award of damages.” Cotter is
comprehensively incorrect.
The merest comparison of the briefs demonstrates that Cotter is in conspicuous
noncompliance with an elemental principle of appellate practice, namely, that a party
challenging the sufficiency of the evidence to support a factual determination made by
14
the trier of fact is required to set out all evidence pertinent to that determination, on
penalty of forfeiting review. (E.g., Foreman & Clark Corp. v. Fallon (1971) 3 Cal. 3d
875, 881.) It is not the first time Cotter has ignored the principle. He made similar
arguments in Schellinger II. Our response was as follows:
“[W]e presume the record contains sufficient evidence to sustain every factual
determination made by Judge Chouteau, and it is Cotter’s burden, as the appellant, to
demonstrate that this presumption is unsound. (E.g., In re Marriage of Fink (1979) 25
Cal. 3d 877, 887; Foreman & Clark Corp. v. Fallon (1971) 3 Cal. 3d 875, 881.) [¶]
Cotter makes only a token effort to shoulder this heavy burden. He does cite to some
favorable testimony in his brief, but the most cursory comparison with Schellinger’s brief
demonstrates just how much was left out. ‘ “A claim of insufficiency of the
evidence . . . consisting of mere assertion without a fair statement of the evidence, is
entitled to no consideration when it is apparent . . . that a substantial amount of evidence
was received on behalf of the respondents. Instead of a fair and sincere effort to show
that the trial court was wrong, appellant’s brief is a mere challenge to respondent’s to
prove that the court was right. . . . An appellant is not permitted to evade or shift his
responsibility in this manner.” ’ (Grand v. Griesinger (1958) 160 Cal. App. 2d 397, 403.)
Schellinger met Cotter’s challenge, but the disparity in evidentiary summaries is so great
that we summarily reject Cotter’s attempt to persuade us that substantial evidence does
not support Judge Chouteau’s finding . . . .” (Schellinger II, at p. 11.)
Although Cotter does cite to some of the evidence received by Judge Daum, the
references are nowhere near complete. For example, Sebastopol City Engineer Susan
Kelly’s testimony was cited by Judge Daum in connection with what Judge Daum termed
“the excavation problem,” but her sole appearance in Cotter’s brief is in connection with
the lot line adjustment issue. Not at all discussed are City Manager and City Attorney
Lawrence McLaughlin, Regional Board senior environmental scientist Stephen Bargsten,
or Dr. Michael Josselyn, who testified as an expert on environmental mitigation.
(Josselyn is referred to once, not by name, but simply as “Schellinger’s expert.”) Mr.
Ruffino’s sole appearance in Cotter’s opening brief is to be quoted in the statement of
15
decision. There is no mention of the testimony of Kenneth Cavin, who at different times
worked for both parties on the property, and who prepared Schellinger’s lot line
adjustment application that would have been submitted to the City if Cotter hadn’t
refused to sign it. Most glaringly, Cotter makes only three citations to his own testimony.
This is systematic evasion and omission. As this is the second time it has occurred, there
is no reason to exempt Cotter from strict application of the forfeiture rule.
In addition, and as a separate ground for our decision, if the point had been
preserved for review, Cotter would also lose on the merits. We emphasize that if what
follows appears truncated, it is because we do not want to extend our discussion beyond
establishing the substantial evidence that supports Judge Daum’s judgment, his express
findings, and whatever findings that may be implied from the statement of decision in
support of the judgment. (Kulko v. Superior Court (1977) 19 Cal. 3d 514, 519, fn. 1; In re
Marriage of Davenport (2011) 194 Cal. App. 4th 1507, 1531; SFPP v. Burlington
Northern & Santa Fe Ry. Co. (2004) 121 Cal. App. 4th 452, 462.)
What Cotter calls the trench issue—and which obviously refers to the work done
by contractor Ruffino in 2012—is dispositive.
As already noted, Cotter agreed not to “permit any act of waste or act that would
tend to diminish the value of the Property for any reason.” (See fn. 4, ante.) The
agreement does not define “waste,” the clear implication being that it was familiar to
Schellinger and Cotter, both of whom were impliedly found by Judge Daum to be parties
with considerable experience in the field of developing commercial property.12
Cotter views the notion of waste as simple and straightforward. In his words:
“Judge Daum never found the trench issue to constitute waste that could constitute a
12
There is some further mention of waste in the appendix to the agreement, which
defines the term “hazardous substances” to include: (1) “hazardous waste” and “solid
waste” as defined by federal authorities, in specified federal statutes “or under any other
Environmental Law;” (2) whatever “substances, materials, and wastes that are or become
regulated or classified as hazardous or toxic under federal, state, or local laws or
regulations;” and (3) any “material, waste, or substance” containing or constituting
petroleum, asbestos, PCBs, or “a flammable explosive.”
16
breach of Section 15(b) of the Contract. . . . Such a finding would be legally erroneous,
and could not support a damages award of $2,855,431.77. [¶] Waste occurs only when
the injury to real property is ‘sufficiently substantial and permanent.’ (Avalon [Pacific—
]Santa Ana, L.P. v. HD Supply Repair & Remodel, LLC (2011) 192 Cal. App. 4th 1183,
1215.) ‘Waste will [be] found only when the market value of property is permanently
diminished or depreciated.’ (Smith v. Cap Concrete, Inc. (1982) 133 Cal. App. 3d 769,
777.) Here, there was no evidence of permanent damage. At worst, the trench was a
problem costing $225,000 to fix, with five years of monitoring. Moreover, there was
zero evidence of diminution of value. No witness attempted to value the property
before/after the trench issue. Schellinger declined to offer an expert on property value.
No value opinion was offered by Mr. Cotter, the only witness who could have. (Evid.
Code § 813.) Having failed to prove diminution of value, Schellinger can recover
nothing.”
It seems clear from the context that by using the word “waste” the parties intended
to adopt the broad concept ordinarily attributed to Civil Code sections 818 and 2929 and
Code of Civil Procedure section 732, as any act or omission on the part of Cotter which
would substantially impair the utility or value of the property to be conveyed to
Schellinger. But the concept is considerably broader—and more subtle—than Cotter
portrays. The two decisions quoted by Cotter help in proving the point.
In the first, the Court of Appeal stated: “ ‘ “[W]aste is conduct (including in this
word both acts of commission and of omission) on the part of the person in possession of
land which is actionable at the behest of, and for protection of the reasonable
expectations of, another owner of an interest in the same land. . . .” ’ ”13 (Avalon
Pacific—Santa Ana, L.P. v. HD Supply Repair & Remodel, LLC, supra, 192 Cal. App. 4th
1183, 1211, quoting Cornelison v. Kornbluth (1975) 15 Cal. 3d 590, 597–598.) The
13
Cotter does not dispute that Schellinger possessed an equitable interest in the
property through its contract of purchase. (E.g., Miller & Lux v. Batz (1904) 142 Cal.
447, 451; Jackson and Thomas v. Torrence (1890) 83 Cal. 521, 537; Southern Pacific
Land Co. v. Kiggins (1930) 110 Cal. App. 56, 60.)
17
defendant must be “ ‘under a duty to preserve and protect the property involved.’ ” (Id.
at p. 1212; see Hickman v. Mulder (1976) 58 Cal. App. 3d 900, 908 [willful
mismanagement and neglect to do acts necessary to preserve property amount to bad faith
waste].)
The circumstances of the second decision cited by Cotter, Smith v. Cap Concrete,
Inc., supra, 133 Cal. App. 3d 769, are particularly instructive. There, more than 60
truckloads of “broken concrete material” was dumped on the property. “[T]he agreed
cost of removal of the concrete material was $6,000.” The owner sued the concrete
company. The case was tried on stipulated facts to the bench, which ruled against the
owner. (Id., at p. 773.) Division One of this district reversed, concluding that “[w]hile
loss of market value is the ultimate test [citation], it is a measure which will be applied
flexibly,” it will admit of “ ‘ “the possible exception of a few instances,” ’ ” “having in
mind the ‘quantity or quality of the estate, the nature and species of property, [and] the
relation to it of the person charged to have committed the wrong.’ ” (Id. at pp. 777, 775,
777.) “[I]t is enough that [defendant’s] conduct reduced the value of the subject property
. . . . The damage we discern is palpable. Depreciation of the market value of the
property in its present condition can easily be inferred from the stipulated facts.” (Id. at
pp. 777–778.)
In addition to the facts on the ground, Cotter’s mental state may be of
consequence. Our Supreme Court noted there may be instances of “waste committed in
bad faith,” where the plaintiff may point to the defendant as a “reckless, intentional,
and . . . even malicious despoiler[] of property,” causing damage that is unrelated to
financial fluctuations in the economy at large. (Cornelison v. Kornbluth, supra, 15
Cal. 3d 590, 604.) Yet proof of an overt destructional urge is not required. (See Fait v.
New Faze Development, Inc. (2012) 207 Cal. App. 4th 284, 299 [“we do not understand
the Cornelison decision to conclude that only such ‘despoilers of property’ can be liable
for ‘bad faith’ waste,” “defendants may have had the best of intentions, but that . . . does
not entitle them to escape liability for waste”], 300-301 [“ ‘bad faith’ waste under
Cornelison is any waste that is not the result of the economic pressures of a market
18
depression”].) As with ordinary non-bad faith waste, simple but intentional passivity can
suffice. (Nippon Credit Bank v. 1333 North Cal. Boulevard (2001) 86 Cal. App. 4th 486,
493–495 [failure to pay property taxes]; Osuna v. Albertson (1982) 134 Cal. App. 3d 71,
75 [same]; Hickman v. Mulder, supra, 58 Cal. App. 3d 900, 909 [“many occasions of
waste arise because of inaction . . . . [T]he failure to do what is needed can . . . be
described . . . as willful”].)14
Whether the defendant acted in bad faith “is within the province of the trier of fact
to determine . . . subject to review under the established rule of appellate review”
(Cornelison v. Kornbluth, supra, 15 Cal. 3d 590, 604; see Fait v. New Faze Development,
Inc., supra, 207 Cal. App. 4th 284, 296; Hickman v. Mulder, supra, 58 Cal. App. 3d 900,
909), meaning it would be a question of fact reviewed for substantial evidence.
We cannot agree that Judge Daum failed to identify Cotter’s authorizing the
digging of the trench as a material breach. That matter clearly occupies pride of place
among the discussion of Cotter’s various efforts to sabotage the contract with
14
The only mention of property taxes in the original agreement between Cotter
and Schellinger concerned how they were to be prorated at the close of escrow.
Thereafter, in the “Contract Supplement/Addendum No. Two” executed in September
2000, the parties agreed: “Because the close of escrow has been delayed by a lengthy
subdivision approval process, the Buyer agrees to pay the Seller’s real estate taxes on the
above properties (land portion only) for the period beginning June 22, 1998 and ending
June 22, 2001 in the amount of $25,400. Buyer shall immediately deposit $25,400 into
the existing escrow [account] . . . and immediately release said sum to the Seller.” The
obvious purpose of this provision was to clear up the arrearages mentioned by Judge
Daum.
However, Judge Daum also concluded that Schellinger continued to pay Cotter’s
property taxes for the next decade (eventually totaling about $128,000), even though
there was no contractual obligation to do so. Cotter testified that one of the aims behind a
2005 letter he sent to Schellinger (see fn. 2, ante) was “to put pressure on them [i.e.,
Schellinger] to do the taxes.” The obvious inference is that Schellinger paid the taxes
because Cotter would not. Wholly apart from any other factor, Cotter committed waste
for each year he did/would not pay the assessed ad valorem taxes on the parcels.
Although Judge Daum laid no particular emphasis on this point, the evidence on it was
uncontradicted, and thus the conclusion that Cotter allowed waste appears as a matter of
law. This conclusion is consistent with Judge Daum’s ultimate decision, and by itself
constitutes a basis for affirming the judgment.
19
Schellinger, meriting not only a separate section of the statement of decision (“The
Excavation Problem”), but reiteration under the discussion of “Remedy.” In light of the
sheer amount of space it occupies in the statement of decision, it is inconceivable that
Judge Daum treated it as anything other than a breach. It does not have to be the sole, or
most significant, breach. It can be one of several, so long as it is material. Judge Daum
clearly viewed it as such. It is that conclusion to which we now turn.
Whether a breach is material is usually left to the trier of fact “to determine from
all the facts and circumstances shown in evidence.” (Smith v. Empire Sanitary Dist.
(1954) 127 Cal. App. 2d 63, 73; see Superior Motels, Inc. v. Rinn Motor Hotels, Inc.
(1987) 195 Cal. App. 3d 1032, 1051–1052 and authorities cited.) As already noted, the
defendant’s mental state can be among those circumstances. (Cornelison v. Kornbluth,
supra, 15 Cal. 3d 590, 604; Smith v. Empire Sanitary Dist., supra, 127 Cal.App.2d at p.
73, citing Rest., Contracts, § 275 [“The willful, negligent or innocent behavior of the
party failing to perform” is “influential” in determining materiality]; Rest.2d. Contracts,
§ 241 [“the extent to which the behavior of the party failing to perform or to offer to
perform comports with standards of good faith and fair dealing” is “significant” in
determining materiality]) So can the timing of the breach. (Asso. Lathing etc. Co. v.
Louis C. Dunn, Inc. (1955) 135 Cal. App. 2d 40, 49–50.) All we have to do is determine
whether there is substantial evidence to support Judge Daum’s implied finding that what
Cotter did in connection with the trench constituted a material breach of his contract with
Schellinger.
Cotter’s bad faith was a recurring theme of the statement of decision. It went far
beyond his simple refusal—we cannot believe it was financial inability—to pay the taxes
on the property for 13 years, which alone is sufficient to establish waste. (Nippon Credit
Bank v. 1333 North Cal. Boulevard, supra, 86 Cal. App. 4th 486, 493; Osuna v. Albertson,
supra, 134 Cal. App. 3d 71, 75.) Judge Daum noted Cotter’s “recalcitrance” in refusing to
assist in securing the lot line adjustments. Twice Cotter took steps completely at odds
with his obligations to Schellinger: first when he negotiated to sell the property to Mr.
Tuxhorn, and second when he offered to give the property to the City. The latter drew
20
Judge Daum’s condemnation as a “scheme,” one that was in such “complete derogation
of any rights of [Schellinger] and utterly without regard to the contract for sale of the
subject property” that it “bordered on the unconscionable.” And indeed it did, for it is the
most elemental implied covenant to a contract for sale that the seller will not thereafter
convey the object of the contract to another. (See Brown v. Superior Court (1949) 34
Cal. 2d 559, 564–565 [“In every contract there is an implied covenant of good faith and
fair dealing that neither party will do anything which injures the right of the other to
receive the benefits of the agreement. [Citations.] Where the parties contract to make a
particular disposition of property . . . the agreement necessarily includes a promise not to
breach the contract by . . . failing to dispose of the property as agreed.”]; 1 Miller & Starr,
Cal. Real Estate (4th ed. 2015) §§ 1:66–1:67, pp. 1-217–1-218, 1-233–1-234.)
Judge Daum also had a negative opinion of “Cotter’s overall credibility” based on
what he learned during the course of the trial. By contrast, the Schellinger evidence was
deemed credible, and its actions were repeatedly characterized as “reasonable.”
The timing of Cotter’s dispatch of Ruffino to the property was, from Schellinger’s
perspective, especially harmful. Summoning Ruffino to the project in late January
2012—a time unquestionably prior to the termination deadline of June 2013 fixed by
Judge Chouteau—Cotter pointed out the problem, which Ruffino at his deposition termed
“a big freaking mess,” as to which Cotter “instructed me to . . . dig a trench where the
water would drain out.” Ruffino estimated it would take a crew of least four workers a
week to fix the problem, at an estimated cost of $20,000. Ruffino’s crew started work on
January 27.
Cotter’s motive may be open to question, but the consequences are not.15 The
uncontroverted testimony was that the trench was approximately four feet wide, 200 feet
15
By “motive” we are here referring to the reason Cotter directed Ruffino to
perform certain work at the site. An additional “motive,” which clearly did factor into
Judge Daum’s negative opinion of Cotter’s veracity, was Cotter’s threat to Ruffino to
“come at me with everything that he’s got” if Ruffino did not testify at his deposition
“[t]hat I didn’t dig the trench down there on the property.” There was also evidence that
21
long, and encroached into a protected wetlands area. Because of this encroachment, in
July 2012 the Regional Board issued a draft abatement order and a proposed “cleanup”
plan.16 Cotter was ordered to “[s]ubmit a work plan . . . that describes and shows in detail
how [he] propose[s] to restore wetland functions . . . . The plan shall contain: . . . an
engineering and biological design for all wetland restoration components; a time schedule
for restoration activities; . . . and a monitoring proposal to evaluate whether the
restoration is successful.” Cotter’s counsel wrote that “It is Mr. Cotter’s intention to
cooperate with the public agencies that have jurisdiction over the matter.” But Cotter
never submitted a plan.
By the time of trial, the Regional Board had made a final abatement order and
imposed its own remediation plan. That order recites that when “staff inspected the Site
again on July 11, 2013” “[they] expected to see that work had been done at the site to
apply erosion control management best practices, as . . . had been discussed. There was
no visual evidence that erosion control efforts or best management practices had been
implemented . . . , and staff observed additional erosion within the area of . . . trenching”
that had destroyed or damaged wetlands by “altering the conditions that supported
wetland hydrology.”
Cotter did not pay Ruffino, and that he ignored repeated inquiries from City officials
attempting to confirm that Ruffino had acted at Cotter’s direction.
16
The Regional Board is one of the entities entrusted with enforcement of the
Porter-Cologne Water Quality Control Act (Wat. Code, § 13000 et seq.), including “the
prevention and abatement of water pollution,” and discharges of “waste.” (Id., § 13225,
subds. (a) and (b).) (We hasten to add that the definition of “waste” in the context of that
statutory scheme (see id., § 13050, subd. (d)) is completely consistent with the more
widespread and common use concept than the arcane concept we are considering here.)
However, the Regional Board construes this definition to include “sediment . . .
discharged [in]to waters of the state.” The Regional Board may require that any person
being investigated “shall furnish, under penalty of perjury, technical or monitoring
program reports” (id., § 13267, subd. (b)(1)), and may also order that person to “clean up
. . . or abate” the problem, including to “take other necessary remedial action”(id.,
§ 13304, subd. (a)).
22
According to Dr. Josselyn, the remediation process is complex: typically, “it’s a
planning process, a permitting process[, an] . . . implementation process and then a
monitoring process,” which can take 18 to 24 months. This would be followed by “a
lengthy compliance period,” “that . . . most often is a five-year period” at a minimum.
“[I]f you haven’t met the conditions at the end of five years, you need to undertake some
remediation.” The Regional Board may “require mitigation beyond what [is needed] to
replace the area that was disrupted,” such as “creation of more wetlands than what was . .
. impacted.” More particularly to this case, “by filing a clean up and abatement order, . .
. there’s a whole set of rules that come into play that the Regional Board can then
implement in terms of ordering the clean up.” The wording of the Regional Board’s
order suggested to Dr. Josselyn that “already the Board is recognizing there’s some
impacts that [go] beyond simply a restoration and may require additional wetlands to be
created.” Dr. Josselyn testified “in my experience, [the Regional Board] can request two-
to-one mitigation for impacts to waters,” meaning, “if it’s 200 yards of wetlands that
were disrupted by this ditch they may require 400 yards of wetlands to be provided to
mitigate.” Dr. Josselyn—who had worked on preparing the EIR for the City—testified
that not only would the EIR have to be redone, but that the City would defer all action on
the Schellinger’s pending application until the Regional Board issued a “closure letter”
following “completion of the work that was ordered by the board.” In that sense, the
consequences of the trenching ordered by Cotter had truly frozen further action on
Schellinger’s application to develop the property.
According to Dr. Josselyn, an additional point of potential aggravation was
Cotter’s failure to respond when the impropriety of Ruffino’s trenching was brought to
his attention: “In this particular case, we wouldn’t know what the board may require
because of the failure to act in the initial time that the owner was contacted.” However,
Dr. Josselyn did expect that the Regional Board would be “very strict” in enforcing
compliance with its order. Dr. Josselyn estimated the likely costs for the process on
Cotter’s property to be approximately as much as $265,000. This figure did not include
possible fines.
23
So, while the contract was still in force, Cotter was under a duty to preserve the
property for transfer to Schellinger. (Avalon Pacific—Santa Ana, L.P. v. HD Supply
Repair & Remodel, LLC, supra, 192 Cal. App. 4th 1183, 1211–1212; Hickman v. Mulder,
supra, 58 Cal. App. 3d 900, 909.) Instead of doing so, Cotter’s unilateral action set in
train a series of events that made it impossible for Schellinger to get what it bargained
for, at least by the time of the contract’s expiration date of June 2013 fixed by Judge
Chouteau. Indeed, the likely period of Regional Board oversight would be a minimum of
six years, through 2018. Cotter’s unilateral action had effectively put a cloud on the
property concerning what could be done with it until the Regional Board released its
hold. Given Cotter’s experience as a property developer and as California-licensed
general contractor, a claim of ignorance for obtaining a permit could not be entertained.
What remains is what appears to be the almost willful destruction of the purpose of the
contract, extinguishing any utility of the contract to Schellinger. In short, Cotter wrecked
the project for Schellinger.
Judge Daum could certainly treat that virtual destruction as a substantial
impairment of the property’s value. The damage was not permanent in the literal sense,
but it was more permanent than the concrete rubble in Smith v. Cap Concrete, Inc., supra,
133 Cal. App. 3d 769, which could be removed at any time. Here, the property is impaired
until the Regional Board says otherwise. Certainly Cotter’s “conduct reduced the value
of the subject property” (id., at p. 777) were it to be acquired subject to that restriction.
Together with Cotter’s demonstrated instances of bad faith and his nonpayment of taxes,
Judge Daum could readily conclude that Cotter had breached the contract by committing
waste, in violation of his agreement with Schellinger. (Cf. Bewick v. Mecham (1945) 26
Cal. 2d 92, 99 [“A party who prevents fulfillment . . . of his own obligation commits a
breach of contract”].) He could just as readily conclude that this breach was a material
one because it entailed the virtual and volitional destruction of the subject of the contract.
24
(Superior Motels, Inc. v. Rinn Motor Hotels, Inc., supra, 195 Cal. App. 3d 1032, 1051–
1052; Smith v. Empire Sanitary Dist., supra, 127 Cal. App. 2d 63, 73.)17
Something periodically restated by our Supreme Court seems almost designed
with this case in mind: “ ‘A party to a contract cannot take advantage of his own act or
omission to escape liability thereon. Where a party to a contract prevents the fulfillment
of a condition or its performance by the adverse party, he cannot rely on such condition
to defeat his liability.’ ” (Nelson v. Reisner (1958) 51 Cal. 2d 161, 171; accord, e.g.,
Pacific Venture Corporation v. Huey (1940) 15 Cal. 2d 711, 717; Wolf v. Marsh (1880) 54
Cal. 228, 232.)
Damages
Judge Daum awarded Schellinger damages of $2,855,431.77. This figure derived
from Schellinger’s exhibit Nos. 34 and 35. Headed “Job Cost Journal” for Laguna Vista,
each is a computer-generated printout with a number of categories (e.g., “Property Tax”
“Civil Engineering” “City/County Fees”), and hundreds of individual entries. Schellinger
overhead was included, but payroll was not. Neither exhibit was itself admitted in
evidence. However, these exhibits were the basis for the testimony cited by Judge Daum.
Scott Schellinger is the son of William Schellinger. (See fn. 1, ante.) He testified
that he had been “involved in the Laguna Vista Project” from the day he first started
working for the family firm in 2001, that he “was actually hired at least in part to manage
this project.” Among his responsibilities—and his alone—were taking over for his father
the duty of “keeping track of what the costs have been [on] this . . . project.” “I manage
the invoices as they come into the office. I approve or question them. Then they go to
the accounting department. They’re entered into the computer system if they’re valid.
The checks are cut.” Exhibit 35 “represents all the invoices that I approved from the time
I started working on the project.” Prior to testifying, Scott Schellinger reviewed the
17
Because Cotter was in material breach of the contract, Schellinger was excused
from its duties of performance (e.g., De Burgh v. De Burgh (1952) 39 Cal. 2d 858, 863;
Hale v. Sharp Healthcare (2010) 183 Cal. App. 4th 1373, 1387), thus making the issue of
tender immaterial and academic.
25
figures for accuracy so that he could state under oath that exhibit 35 was an accurate
reflection of the costs associated with the project that have been paid by Schellinger since
he took over responsibility for the project.18
Both exhibits 34 and 35 were prepared by Scott Schellinger. In response to an
unsuccessful objection by Cotter that Scott Schellinger’s testimony lacked foundation “in
light of the fact they testified they have these documents and chose not to bring them” to
court, Schellinger’s counsel elicited the reason why: Schellinger did indeed still have
possession of “the documents that are related to the invoices and payments for the billing
that shows up on Exhibits 34 and 35,” “span[ning the] time from 1997 to the present,”
and filling 15 or 16 boxes when they were produced for Cotter at a deposition.
Exhibit 34 was the basis for the testimony of William Schellinger. It covered only
the project costs from 1997 up to when Scott Schellinger took over in 2001. His
testimony paralleled that of his son on the internal procedures for the figures set forth.
The bottom line on exhibit 34 was $146,331.20. The bottom line on exhibit 35
was $2,709,100.57.19 Together they account for the damages award of $2,855,431.77.
According to Cotter, the award “cannot stand because: (1) the trial court applied
the wrong measure of damages; (2) there is no substantial evidence that Schellinger’s
damages were proximately caused by Cotter’s alleged breach; (3) there is no substantial
evidence the damages awarded to Schellinger were foreseeable at the time of contracting;
18
Scott Schellinger also prepared exhibit 30, which included expenses incurred
before he began working on the project. After he had testified concerning the preparation
of exhibit 30, Schellinger moved for its admission in evidence. Cotter objected on the
ground of hearsay and because “there’s also no foundation because some of the entry
[sic] predate 2001.” Judge Daum sustained “the objection,” but with the proviso that his
ruling “doesn’t preclude consideration of further testimony by this witness as to the facts
set forth in it, if they’re from his personal knowledge.” The following day William
Schellinger testified about the newly prepared exhibit 34 and Scott Schellinger about the
revised version of exhibit 30, now renumbered exhibit 35.
19
When Schellinger moved for receipt of exhibits 34 and 35 in evidence, Judge
Daum sustained Cotter’s objections of “[h]earsay. . . . Also documents prepared for
litigation.”
26
and (4) there is no substantial (or admissible) evidence supporting any award of damages
to Schellinger whatsoever.” Each of these arguments is baseless.
Cotter states the award was “based solely upon the conclusory, oral testimony of
Bill and Scott Schellinger who merely read a grand total from an inadmissible summary.”
At a later point in his brief, Cotter disparaged the testimony as “consist[ing] only of Bill
and Scott Schellinger reading a total from an excluded summary of items they did not
independently recall, but which was characterized as all ‘cash out the door’ relating to the
project. Schellinger offered no evidence that each payment was properly recoverable as
damages.” Cotter continues: “By awarding Schellinger its total ‘cash out the door’
(without evidence of causation and foreseeability), the trial court went beyond the
measure of damages for contract cases, and beyond the broader (and inapplicable)
measure of damages for tort cases. (Civ. Code § 3333.) Rather, the trial court effectively
awarded Schellinger the inapplicable ‘out-of-pocket’ measure of damages available for
fraud under Civil Code section 3343.” And several pages later, Cotter asserts in his brief:
“Schellinger failed to offer admissible evidence of its damages. . . . [¶] Schellinger
provided no evidentiary support to demonstrate any of that total number was attributable
to expenses properly recoverable in this lawsuit. . . . [¶] Further, Schellinger provided
only a total dollar amount without providing any detail, categorization, facts, or other
support for the number.” No authority cited by Schellinger “excuses its failure of proof”
or “permits conclusory oral testimony.” “Schellinger’s testimony was not supported by
any admissible documentary evidence.”
There are several layers of erroneous reasoning in these statements.
First, Cotter is incorrect to state “Schellinger failed to offer admissible evidence of
its damages.” The unstated premise is that witnesses were merely uttering out loud the
hearsay conclusions of exhibits 34 and 35. Cotter seems unaware that this is not the first
commercial litigation that generated a lot of paper. California has an established and
sensibly tolerant approach for such cases.
What was commonly known as the voluminous writing rule allowed admission of
a statement or summary reflecting numerous accounts or documents “ ‘which cannot be
27
examined in court without great loss of time.’ ” (Globe Mfg. Co. v. Harvey (1921) 185
Cal. 255, 261 [quoting former Code Civ. Proc. § 1855]; accord, e.g., San Pedro Lumber
Co. v. Reynolds (1898) 121 Cal. 74, 86; Dallman Co. v. Southern Heater Co. (1968) 262
Cal. App. 2d 582, 595–596.) And that such a writing may itself be admissible appears still
to be the rule. (see Evid. Code, § 1523, subd. (c); Heaps v. Heaps (2004) 124
Cal. App. 4th 286, 293 [“since the schedule was a general compilation of documents that
could not be examined individually by the court without great loss of time, it was
admissible”]; cf. Greenwich S.F., LLC v. Wong (2010) 190 Cal. App. 4th 739, 749 [“the
court admitted into evidence a handwritten itemization prepared by [testifying witness]
Lee”]; Simons, Cal. Evidence Manual (2015) § 8:21, pp. 588–589).
But that is not a point that demands decision here, because Judge Daum did not
admit exhibits 34 and 35 in evidence. What was received was oral testimony concerning
the exhibits, as Judge Daum noted in the course of closing argument and again at the
argument on the motions. As Judge Daum described on the latter occasion, “while they
may have referred to summaries and documentation to refresh their recollection of their
losses, it wasn’t the documents in this Court’s view that they were relying on, they were
relying on what their losses were that they knew that they had suffered that came out of
their pocket, that came out of their coffers that they were very much aware of as the years
went by.” (See fn. 10 and accompanying text, ante.) This is expressly admissible
pursuant to Evidence Code section 1523, subdivision (d): “Oral testimony of the content
of a writing is not . . . inadmissible . . . if the writing consists of numerous accounts or
other writings that cannot be examined in court without great loss of time, and the
evidence sought from them is only the general result of the whole.” Both Scott and
William Schellinger testified to his personal knowledge and authentication of the
documents summarized in the exhibit he had prepared. (Evid. Code, § 1401.) Judge
Daum did not abuse his discretion in receiving their testimony, which is substantial
evidence for the amounts involved. (Evid. Code, § 411; Greenwich S.F., LLC v. Wong,
supra, 190 Cal. App. 4th 739, 767–768.)
28
With respect to the substantive point of recovery, there would be no dispute if this
were a general breach of contract situation that would ordinarily use Schellinger’s out-of-
pocket expenses—commonly known as “reliance damages”—as a measure of damages
under Civil Code section 3300. (See, e.g., Buxbom v. Smith (1944) 23 Cal. 2d 535, 541;
Agam v. Gavra (2015) 236 Cal. App. 4th 91, 105–106; 1 Witkin, Summary of Cal. Law
(10th ed. 2005) Contracts, § 883, p. 970.) But this is not the ordinary situation, and, as
we recently recognized, that general statute does not apply. (Greenwich S.F., LLC v.
Wong, supra, 190 Cal. App. 4th 739, 751.)
The parties have always agreed that the correct measure of damages is the specific
rule established by Civil Code section 3306 (section 3306), which provides: “The
detriment caused by the breach of an agreement to convey an estate in real property, is
deemed to be the price paid, and the expenses properly incurred in examining the title and
preparing the necessary papers, the difference between the price agreed to be paid and the
value of the estate agreed to be conveyed at the time of the breach, the expenses properly
incurred in preparing to enter upon the land, consequential damages according to proof,
and interest.”20
It will be appreciated at once that the situation where contractual performance
hung fire for almost 15 years is about as atypical a situation as one is likely to see. Still,
the very novelty of the setting does not mean that section 3306 is unable to authorize the
damages awarded by Judge Daum with its language “expenses properly incurred in
preparing to enter upon the land [and] consequential damages.” Demonstrating this
conclusion requires comparison of the concepts of general and consequential damages.
20
The compilers of several leading practice guides believe there is authority
supporting their conclusion that “When the buyer’s damage claims are based on other
duties or promises and are not the direct result of the promise to convey land, the specific
damage limitations of [section] 3306 may not apply.” (1 Cal. Real Property Remedies
and Damages (Cont.Ed.Bar 2d ed. 2016) § 4.47, p. 4-70; Cal. Attorney’s Guide to
Damages (Cont.Ed.Bar 2d ed. 2015) § 2.10, p. 2-11.) As noted in the text, Schellinger
has not attempted to remove itself from section 3306.
29
“Contractual damages are of two types—general damages (sometimes called
direct damages) and special damages (sometimes called consequential damages).
[Citations.] [¶] . . . [¶] General damages are often characterized as those that flow
directly and necessarily from a breach of contract, or that are a natural result of a breach.
[Citations.] Because general damages are a natural and necessary consequence of a
contract breach, they are often said to be within the contemplation of the parties, meaning
that because their occurrence is sufficiently predictable the parties at the time of
contracting are ‘deemed’ to have contemplated them. [Citations.] [¶] . . . [¶] Unlike
general damages, special damages are those losses that do not arise directly and
inevitably from any similar breach of any similar agreement. Instead, they are secondary
or derivative losses arising from circumstances that are particular to the contract or to the
parties. Special damages are recoverable if the special or particular circumstances from
which they arise were actually communicated to or known by the breaching party (a
subjective test) or were matters of which the breaching party should have been aware at
the time of contracting (an objective test). [Citations.] Special damages ‘will not be
presumed from the mere breach’ but represent loss that ‘occurred by reason of injuries
following from’ the breach.” (Lewis Jorge Construction Management, Inc v. Pomona
Unified School Dist. (2004) 34 Cal. 4th 960, 968–969.)
Section 3306 obviously reaches some clear instances of general damages in
situations where specific performance is not ordered: (1) if paid by the buyer, the
purchase price; (2) regardless of whether specific performance is ordered, any
appreciation or depreciation of the property’s value occurring by reason of the breach; (3)
title and escrow expenses; (4) interest on these items; and (5) “expenses properly incurred
in preparing to enter upon the land.” The statutory language for the last item has only
once been the subject of anything approaching judicial interpretation.
In Crag Lumber Co. v. Crofoot (1956) 144 Cal. App. 2d 755 (Crag Lumber), the
plaintiff bought unimproved land from the defendant for $31,250, intending to mill the
timber on the acreage. The plaintiff spent $174,000 building a sawmill and “logging
roads” on the property, and felled almost a million board feet of trees, all before
30
discovering that the defendant did not own the land he had purported to sell. The Court
of Appeal held that the trial court had erred in awarding damages that included
approximately $41,500 for depreciation of the mill and the cost of building the logging
roads, stating:
“The trial court found that this item [the depreciation] was a cost for entry upon
the land and also that the building of access roads to and into the land for the purpose of
taking out timber from the land to the mill were costs expended in preparation for such
entry. But these costs were not expenditures incurred in preparing to enter upon the land.
They were expenditures made in accomplishing the general purposes for which the
property was bought, that is, expended in the use of the land. The phrase ‘to enter upon
the land’ refers to the taking of possession rather than to things done to put the land to
general use. This land was timber land. Its highest and best use was for the marketing or
manufacturing into lumber of the timber growing thereon. Nothing was expended in
preparing to enter upon the land. The expenditures were made for the use of the land and
that use continued for some time until, by reason of [defendant’s] breach . . . possession
was lost.” (Crag Lumber, supra, 144 Cal. App. 2d 755, 778–779.)
We agree with the Crag Lumber court that the phrase “to enter upon the land”
refers to the taking of possession rather than the use of the property. But the crucial fact
in Crag Lumber—which may account for its total absence from Cotter’s brief, and,
perhaps more surprisingly, from Schellinger’s—is that the buyer there had actually taken
possession of the property long before making the expenditures for the mill and roads, so
they could not possibly have been found to have been made in preparing to enter upon the
land. We further agree with Crag Lumber that the context of the contract may be
dispositive. So it proves here.
It cannot be too often emphasized that the agreement between Cotter and
Schellinger was not your run-of-the-mill contract for the sale of real property. It was a
negotiated resolution between experienced parties, who were clearly aware of the
ultimate intended use of the property. That goal was the commercial development of the
merged parcels, with choice bits being reconveyed back to Cotter. Both Cotter and
31
Schellinger understood that no date could be specified with any assurance that the
conditions for exchanging performances had been satisfied because so much was beyond
their control. The agreement also accepted that there would be considerable dealings
with local government, whose actions could not be put on a timetable. This explains the
use of the open-ended escrow. The agreement further accepted that the dealings with the
City of Sebastopol would be lengthy and handled by Schellinger, so lengthy that
Schellinger agreed to keep Cotter “informed in writing . . . on a quarterly basis” of
Schellinger’s “progress” in “obtaining all approvals” for the project, while Cotter
provided Schellinger with the power to “contact any federal, state, or local governmental
authority or agency” concerning “any matters relating to the Property.” Cotter also made
Schellinger his “ ‘attorney in fact’ to obtain the development approvals contemplated by
this Agreement.”
So, extensive interaction with local government was expressly contemplated by
the parties. Hardly less explicit was the understanding that the costs of that interaction
would be shouldered by Schellinger prior to taking formal possession at the close of the
escrow. Those costs would not be present in the usual breach of a contract for the sale of
real property, but they clearly would be in the context of this contract. Those costs would
qualify as losses foreseeable by Cotter in the event of his breaching the agreement. (See
Lewis Jorge Construction Management, Inc v. Pomona Unified School Dist., supra, 34
Cal. 4th 960, 969.) Accordingly, they could, and obviously in Judge Daum’s decision did,
qualify as both “expenses properly incurred [by Schellinger] in preparing to enter upon
the land” and consequential damages allowed by section 3306.
We conclude that Schellinger made the “proper showing” for consequential
damages under that statute, and produced substantial evidence that was credited by Judge
Daum. (Greenwich S.F., LLC v. Wong, supra, 190 Cal. App. 4th 739, 758, 767–768.) Our
examination has established as a matter of law that Schellinger’s losses were foreseeable
and proximately caused by Cotter’s breach. (See Hedlund v. Superior Court (1983) 34
Cal. 3d 695, 705 [“Although foreseeability is most often a question of fact . . . when there
is no room for a reasonable difference of opinion it may be decided as a question of
32
law”]; Capolungo v. Bondi (1986) 179 Cal. App. 3d 346, 354 [same for causation]; cf.
Smith v. Cap Concrete, Inc., supra, 133 Cal. App. 3d 769 [both issues apparently decided
as a matter of law by reviewing court].)
DISPOSITION
The judgment and the order are affirmed. Schellinger shall recover its costs on
appeal.
33
_________________________
Richman, J.
We concur:
_________________________
Kline, P.J.
_________________________
Miller, J.
A142201; Schellinger Bros. v. Cotter
34
Trial Court: Sonoma County Superior Court
Trial Judge: Hon. Elliot Lee Daum
Counsel:
Nossaman, Brendan F. Macaulay, Matthew J. Poole, for Defendant and Appellant.
Law Offices of Ethan A. Glaubiger, Ethan A. Glaubiger, for Plaintiffs and Respondents.
35