Klein v. Safyari CA2/2

Filed 10/2/20 Klein v. Safyari CA2/2
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION TWO
JOE KLEIN, B280661, B282572
Plaintiff and Respondent, (Los Angeles County
Super. Ct. No. BC498733)
v.
BEN SAFYARI,
Defendant and Appellant.
APPEAL from a judgment of the Superior Court of Los
Angeles County. Gregory Keosian, Judge. Modified and
affirmed.
Bahar|Law Office and Sarvenaz Bahar for Defendant and
Appellant.
Davidovitch Stein Law Group, Niv V. Davidovich and Mark
S. Oknyansky for Plaintiff and Respondent.
_________________________________
Ben Safyari appeals from a judgment against him following
a jury trial.
Safyari and respondent Joe Klein were partners in a
venture to develop several parcels of real estate. Klein acquired
the properties and began development. Unfortunately, the
economic situation in 2008–2009 made construction financing
difficult to obtain. Klein promised Safyari a 20 percent interest
in the profits from part of the project if Safyari could find a
construction loan. Klein later increased Safyari’s interest to
50 percent of the entire project in return for a $400,000 loan that
Safyari said he had procured to pay off an existing loan that was
in default.
Evidence at trial showed that Safyari lied about the source
of this $400,000 loan and concealed from Klein the only
construction loan commitment that Safyari was able to procure.
Safyari told Klein that his cousin had loaned the $400,000 at
20 percent interest; in reality Safyari had borrowed the money
from his own equity line at 4.75 percent interest. Safyari also
falsely claimed that his cousin demanded that Safyari be given a
50 percent interest in the profits from the project in return for
the loan. And Klein testified that Safyari never told him about
the one construction loan Safyari was able to arrange, even
though Klein was desperate for a construction loan to build the
planned houses.
Safyari eventually sold his interest in the project to an
acquaintance of Klein’s, Albert Malka,1 recouping the $400,000
he had put into the project along with an additional $401,000 in
1 Malka was originally a defendant in this action but
settled before trial.
2
promissory notes from Malka and Klein. Klein provided notes
worth $301,000 for the ostensible purpose of paying outstanding
interest on the purported loan from Safyari’s “cousin.”
The jury returned a special verdict in favor of Klein on his
claims against Safyari for breach of contract, breach of fiduciary
duties, and fraud, awarding total compensatory damages of
$1,058,000 and punitive damages of $42,000. The trial court
subsequently ordered an offset of $281,250 based upon value that
Klein received from his settlement with Malka, resulting in a
final judgment against Safyari of $818,750.
On appeal, Safyari argues that: (1) the jury’s special
verdict was inconsistent in finding that Klein failed to mitigate
his damages while identifying no damages that Klein could have
avoided; (2) the trial court erred in excluding evidence relating to
interpretation of indemnification provisions and the profitability
of the development project; (3) the indemnification provisions
should be interpreted to bar Klein’s claims against Safyari;
(4) the damages the jury awarded for Klein’s promissory notes to
Safyari were speculative, as those notes remain unpaid; and,
(5) the compensatory damages the jury awarded for the loss of
Klein’s right to be reimbursed for his precontract expenses should
be reduced by half.
We agree with Safyari’s last two arguments. The contract
terms do not support the jury’s award of the full amount of
Klein’s precontract expenses. Klein’s damage theory was that he
lost the right to be reimbursed for his precontract expenses
because he was forced to make a deal with Malka after Safyari
failed to honor his commitments. The Klein/Safyari deal treated
Klein’s precontract expenses as a partnership expense, even
though those expenses occurred before the partnership. The
3
Klein/Malka deal did not. But in the Klein/Safyari deal, Klein’s
precontract expenses would have been paid with partnership
funds. Half of those partnership funds would have been
Safyari’s. So Klein actually lost only the right to payment of half
his precontract expenses.
With respect to the jury’s award of $301,000 for Klein’s
promissory notes to Safyari, the evidence does not support any
damages. Klein has not actually suffered any financial loss
because he has not yet paid Safyari anything on those notes.
However, the jury’s finding that Safyari procured those notes
through fraud does support a declaration that the notes may not
be enforced. Klein requested such relief, and the evidence
supports it.
We therefore will modify the judgment to: (1) reduce the
damages by $679,500 (including $378,500 in damages for Klein’s
precontract investment and $301,000 for Klein’s promissory notes
to Safyari); and (2) declare Klein’s promissory notes to Safyari to
be invalid and unenforceable.
BACKGROUND
1. The Properties2
In around 2007, Klein acquired two properties in the
Hollywood Hills to develop. One property (Multiview) permitted
only a single house, but Klein planned to obtain regulatory
approval to adjust the lot line to allow street access, which would
permit building two houses. Klein intended to build another
2 We summarize the facts by interpreting the evidence in
favor of Klein as the prevailing party. (See Meister v. Mensinger
(2014) 230 Cal.App.4th 381, 387.)
4
house on the other property (Mulholland), for a total of three
houses to sell.
Klein met Safyari in 2007 when Klein retained him as an
“expediter” to help obtain approval for the lot line adjustment on
Multiview and to obtain building permits. In addition to his work
with Klein, Safyari worked full time as an engineer with the
California Department of Transportation. He also had another
side business consulting as a civil engineer.
Klein and Safyari were successful in obtaining a
modification of the lot line on Multiview to permit construction of
two houses. They also obtained building permits for construction
of the houses.
Unfortunately, the Great Recession intervened, and by
2009 Klein was out of money.
Klein had obtained two loans for the development project:
one from “Story Lending Financial” (Story) for $300,000 (the
Story loan) and one from West Coast Financial for $120,000. The
Story loan was secured by the Multiview and Mulholland
properties.
Klein had originally arranged to obtain a construction loan
from Story to fund the home construction, but Story backed out in
2008. Due to Klein’s own difficult financial and credit situation
and the state of the economy, Klein was unable to find another
construction loan.
Safyari offered to find a construction loan for the project in
return for 20 percent of the profits from the sale of the two
Multiview houses. Klein agreed, and the parties put the
agreement in writing on March 9, 2009. The typed agreement
contained a handwritten interlineation stating, “Ben [Safyari]
5
will get a construction loan to build the 2 homes for the 20% after
all expenses are paid. No loan no 20%.”
Klein was willing to give up 20 percent of the profits from
his deal because of the pressure he felt to obtain a construction
loan. The construction permits that Klein and Safyari had
obtained were valid only for about a year, with the possibility of
another year’s extension.
2. The Klein/Safyari Partnership
In April 2009 Klein received a notice of default on the Story
loan. Klein had not made a payment on that loan for three
months.
Klein discussed the default notice with Safyari. Safyari
told Klein that he might have a way to pay off the Story loan.
Safyari said that he had a cousin in the Middle East who was
willing to provide a loan for $400,000, which would be enough to
pay off the Story loan and to maintain the properties until they
obtained a construction loan. However, Safyari’s cousin
purportedly insisted on charging 20 percent interest on the loan
as well as receiving $7,500 in points. The cousin also supposedly
insisted that Safyari be made a 50 percent partner and be put on
title for the properties as a 50 percent owner.
Safyari assured Klein that Safyari himself was receiving
nothing on the loan. He also assured Klein that, with Safyari’s
connections and credit score, he should be able to arrange a
construction loan in a short period of time.
In fact, there was no loan from a cousin in the Middle East.
Klein learned for the first time at Safyari’s deposition in this case
that Safyari actually provided the $400,000 loan himself by
borrowing from an equity line on his home at 4.75 percent, not
20 percent.
6
Klein and Safyari agreed on the terms of a new deal. In
return for the $400,000 interim loan and for arranging a
construction loan, Safyari would receive a 50 percent interest in
the profits from all three houses. The project would pay the
20 percent interest and points on the purported cousin loan and
would ultimately repay that loan. And, because Safyari would
have his $400,000 loan returned, Klein also insisted that he be
reimbursed upfront for the expenses that he had incurred before
entering into the deal with Safyari (Precontract Expenses). After
all expenses were paid, Klein and Safyari would split the profits
equally.
Klein and Safyari included most of these terms in two
substantially identical written agreements, one in July 2009 and
one in February 2010 (the February 2010 Agreement.)3 The
February 2010 Agreement identified $757,000 in Precontract
Expenses for which Klein would be reimbursed before the parties
would split the profits.4
3 The written agreements did not refer to Safyari’s
obligation to obtain a construction loan. However, Klein testified
that he would not have entered into the deal with Safyari without
Safyari’s commitment to obtain such a loan. Klein explained that
he would have simply sold one of the properties instead. Klein
claimed at trial that the parties’ contract was partially oral and
partially written, and that Safyari breached the contract and
defrauded Klein by failing to bring a construction loan to the
project and by lying about his efforts to do so.
4Klein was to be paid $500,000 for his investment in
Multiview, $217,000 for his investment in Mulholland, and
$40,000 for money he borrowed to finish the construction permits.
7
3. The Adler Loan
Klein referred Safyari to Lane Adler, a mortgage broker, as
a possible lead for a construction loan. In September 2010 Adler
obtained approval for a construction loan of $2 million from Mid
Valley Financial. Adler discussed the loan with Safyari, who
expressed interest. Safyari later asked Adler to increase the loan
commitment so that construction could proceed on both the
Multiview and Mulholland lots at the same time.
Adler was successful in obtaining a larger loan in
November 2010. However, one condition for the increased loan
amount was that Safyari agree to use his personal residence as
security. Safyari told Adler that his wife was uncomfortable with
this condition and asked Adler to speak with his wife about it.
Adler did so. Safyari continued to move forward with the loan
after that conversation.
Once the loan was approved and Adler was ready to have
the loan documents prepared, Safyari failed to respond to Adler’s
calls and e-mails. Adler tried to reach him for three or four
weeks without success. Adler eventually received a letter from
Safyari’s attorney claiming that Adler had never arranged the
loan. Adler finally sued Safyari to enforce his commission
agreement and obtained a judgment against him.
Safyari never told Klein about the loans that Adler had
arranged.5
5 Safyari claimed that he did tell Klein about the Adler
loans, and that Safyari turned down the loan because Klein was
against it. Presumably the jury did not believe that testimony.
8
4. The Land Loan Proposal
Meanwhile, without a construction loan, the project was
again in difficult financial circumstances. When the Mulholland
property was threatened with foreclosure, Safyari presented
Klein with a proposal for a land loan to avoid the foreclosure.6
However, that loan would have been even more expensive than
the existing loan, and the parties still would have needed to
obtain a construction loan to complete the project. Klein
therefore rejected the proposal.7
5. The Klein/Malka Deal
Around this same time, Safyari told Klein that he wanted
out of the deal. Klein was acquainted with Malka from his
children’s school. Malka lived near the Multiview property, and
Klein spoke with him about the development project. Malka said
he was sure he could get a construction loan. Klein told Safyari
that Malka was interested in the project.
Malka and Safyari negotiated apart from Klein. Malka and
Safyari reached a deal, and all three parties then signed a
written agreement dated February 20, 2011 (the February 2011
Agreement).
In that agreement, Malka agreed to buy Safyari’s
50 percent ownership interest in the three properties for
6Klein explained that a land loan is a loan secured by the
property itself and is not for the purpose of funding construction.
7 The land loan proposal was referenced in an e-mail from
Klein that described the proposal as a “land loan” and explained
that a construction loan would still be necessary. Safyari
nevertheless testified that this e-mail actually referred to the
Adler loan and was evidence that Klein rejected that loan. Again,
the jury presumably did not believe that testimony.
9
$500,000, including a payment of $400,000 and a promissory note
for $100,000 to be paid upon completion of the construction and
sale of the Multiview properties. Klein agreed to give Safyari
three promissory notes of $100,000 each, payable upon
completion of construction and sale of each of the three
properties. Klein testified that he agreed to the three promissory
notes because Safyari told him that was about the amount of
interest that would be due on the purported loan from his cousin.
Like the February 2010 Agreement between Klein and
Safyari, the February 2011 Agreement between Klein and Malka
provided for a 50–50 partnership. However, unlike the February
2010 Agreement, the February 2011 Agreement did not give
Klein the right to be reimbursed for his Precontract Expenses.
In paragraph 9 of the February 2011 Agreement, Klein and
Safyari agreed to “declare and disclose” to Malka “all existing,
and future obligations, liabilities and any liens that may exist on
the three (3) subject land properties.” Paragraph 11 of that
agreement then provided that Klein and Malka “shall indemnify
[Safyari] from any prior, existing and future obligations against
the three (3) subject properties mentioned above, unless it was
not declared and disclosed from provision 9.”
On March 11, 2011, Klein and Safyari subsequently signed
another agreement (the March 2011 Agreement) that again
outlined the basic terms of the deal, including the $300,000 in
promissory notes that Klein agreed to give Safyari. The March
2011 Agreement contained a similar indemnification provision.
10
Also on March 11, 2011, Klein executed the three
promissory notes in favor of Safyari.8
6. Proceedings in the Trial Court
Klein’s claims against Safyari for breach of contract, fraud,
and breach of fiduciary duty were tried to a jury in 2016. The
jury returned a special verdict that found in Klein’s favor on each
of his claims.
The jury awarded damages of $757,000 on Klein’s breach of
contract claim, representing the amount of Klein’s Precontract
Expenses identified in the February 2010 Agreement. The jury
awarded damages of $301,000 on Klein’s claim for fraud by
misrepresentation (reflecting the amount of the promissory notes
to Safyari), and $1,058,000 on each of Klein’s claims for fraud by
concealment and breach of fiduciary duty (reflecting the
combination of damages for Klein’s Precontract Expenses and the
promissory notes). The jury also found that Safyari “engage[d] in
the conduct with malice, oppression, or fraud by clear and
convincing evidence.”
With respect to each of Klein’s claims, the jury answered
“yes” to the question, “Did Joe Klein fail to mitigate his
damages?” However, with respect to each such claim, the jury
also responded to the next question, “What is the amount of
damages that Joe Klein could have reasonably mitigated” by
writing a zero. The trial court denied a motion by Safyari to
clarify these answers, concluding that the jury could have
reasonably found that Klein failed to mitigate his damages, but
8Two of the notes were for $100,000 and the third was for
$101,000.
11
that “there wasn’t sufficient evidence to make a monetary award
as to the amount mitigated.”
To avoid duplication of damages, the parties stipulated that
the damages the jury awarded on each claim should be combined
into a total of $1,058,000 in compensatory damages. In the
punitive damages phase of trial, the jury awarded damages of
$42,000.
Following posttrial motions, the trial court reduced the
damages by $281,250 to account for an offset from the Malka
settlement. The trial court consequently entered judgment in
Klein’s favor for total damages of $818,750.
DISCUSSION
1. The Jury’s Special Verdict Was Not Ambiguous
or Inconsistent
Safyari argues that: (1) the trial court should have directed
the jury to “correct or clarify its ambiguous verdict”; (2) this court
should interpret the verdict to mean that Klein is entitled to no
damages because Klein failed to mitigate; and (3) alternatively, if
we are not able to interpret the verdict, we should reverse and
remand for a new trial.
We review for abuse of discretion the trial court’s decision
not to ask the jury for clarification of its verdict. (McCoy v.
Gustafson (2009) 180 Cal.App.4th 56, 91.) However, we review
the correctness of the verdict de novo. (Ibid.) Because the
correctness of the verdict bears upon the trial court’s decision not
to ask for clarification, we consider that issue first.
Safyari argues that by entering a zero in response to the
question asking for “the amount of damages that Joe Klein could
have reasonably mitigated,” the jury must have meant that Klein
was entitled to no damages. He therefore requests that we
12
interpret the verdict in that manner and reverse the jury’s
damage award.
We reject the request. The interpretation that Safyari
suggests is unreasonable in light of the wording of the question
and the relevant instructions.
The verdict form asked what damages Klein could have
mitigated, not what damages he was entitled to recover.
Moreover, the trial court specifically explained the form in
responding to a jury question during deliberations. The jury
sent a note during deliberations asking for “clarification on the
wording” of the questions on the verdict form concerning whether
Klein had mitigated his damages. In response, the court
explained that, if the jury found that Klein failed to mitigate his
damages, the jury would then “need to calculate the damages
defendant showed plaintiff could have avoided.” (Italics added.)
We presume that the jury followed the instructions it was
given. (People v. Avila (2006) 38 Cal.4th 491, 575.) The jury
could not have reasonably interpreted a question asking what
damages Klein “could have avoided” to be a question about the
damages that the jury actually intended to award.
Moreover, the jury did award damages. It did so in
response to the straightforward question, “What are Joe Klein’s
damages?” Then, at the beginning of the punitive damage phase
of trial, the jury was instructed that “[y]ou have awarded or made
an award in this case due to the plaintiff and that award is the
one amount that is one million, fifty-eight thousand dollars. So
that is the judgment at this time in the case.” The jury did not
ask any question about this instruction, which would have been
likely if the jury had actually intended to reduce Klein’s
compensatory damages to zero. Thus, the jury instructions, the
13
questions on the verdict form, and the jury’s conduct all
contradict the interpretation of the verdict form that Safyari
urges.
Safyari also argues that if we do not adopt the
interpretation of the special verdict that he suggests, the jury’s
answers to the questions on mitigation were hopelessly
inconsistent, requiring a new trial. We also reject that argument.
A special verdict is inconsistent “if there is no possibility of
reconciling its findings with each other.” (Singh v. Southland
Stone, U.S.A., Inc. (2010) 186 Cal.App.4th 338, 357.) The jury’s
answers here can be reconciled.
The jury’s answers were not contradictory on their face. As
the trial court correctly concluded, the jury could logically have
found both that Klein failed to mitigate his damages and that
Safyari failed to prove that Klein could have avoided any specific
amount of loss.
Thus, the jury’s verdict was inconsistent only if the
evidence was insufficient to support such a finding. (See
Bermudez v. Ciolek (2015) 237 Cal.App.4th 1311, 1320–1323
(Ciolek) [analyzing the trial record to determine whether
sufficient evidence supported the jury’s special verdict where the
jury’s answers were not factually inconsistent].)
The record contains sufficient evidence to support a
consistent verdict. The evidence suggests several ways that
Klein could have tried to avoid his losses, but without any proof
that his attempts would have been successful.
Klein’s losses resulted from the need to enter into the deal
with Malka. Klein could have made several decisions that would
have avoided at least the immediate need for that deal.
14
For example, the jury might have found that Klein should
have taken steps to generate working capital to keep the
development project alive without entering into the Malka deal.
Klein testified that he always had the option of selling one or
more of the properties to pay expenses. As mentioned, Safyari
also presented Klein with the option of obtaining a land loan just
prior to the deal with Malka. The jury could have concluded that
selling one of the properties or accepting the land loan would
have cured the immediate problem of threatened foreclosure on
the Mulholland property, and therefore would have avoided the
need to enter into the deal with Malka.
However, there was no evidence concerning how long the
money generated from such a sale or loan would have lasted, and
no proof that the money ultimately would have enabled Klein to
complete the development. Klein testified that, even if he had
sold one property, he still would have needed a construction loan.
Likewise, if Klein had agreed to accept the land loan that Safyari
proposed, Klein still would have needed to find a construction
loan to complete the development. Safyari did not provide any
evidence that the parties would have been successful in
arranging a construction loan in sufficient time to finish the
project.9 Their previous difficulties in finding such a loan suggest
that the prospects were uncertain.
9 Indeed, Safyari never attempted to prove that Klein
could have mitigated his damages at all. Rather, Safyari
defended the case by disputing liability. Safyari’s theory was
that the Malka deal was not necessary because Safyari never
deceived Klein or breached his agreement with him. Safyari
claimed that he arranged the Adler loan but that Klein did not
15
Or perhaps the jury concluded that Klein should have been
more active in protecting his own interests. For example, the
jury might have believed that Klein did not sufficiently monitor
Safyari’s work and should not have simply accepted Safyari’s
claim that Safyari was spending “thousands of hours” on
obtaining a construction loan without success (especially since
Safyari had two other jobs at the time). Or the jury might have
found that Klein should have participated in the negotiations for
the Malka deal and demanded an expense reimbursement
provision rather than leaving the negotiations to Malka and
Safyari. However, if the jury did find that Klein should have
made greater efforts to look out for his own interests, it might
also have concluded that the likely results of such hypothetical
efforts were impossible to discern from the evidence that Safyari
offered.
Thus, there was sufficient evidence to support factual
theories that logically explain the jury’s verdict. The verdict is
therefore not inconsistent. (See Ciolek, supra, 237 Cal.App.4th at
p. 1323 [“Given the record actually developed at trial, it cannot be
said that the special verdict was inconsistent or the findings
made therein were not supported by substantial evidence”].)
Because the jury’s answers to the questions concerning
mitigation of damages can be reconciled, there is no ground to
reverse for a new trial. And because the special verdict was
neither ambiguous nor inconsistent, the trial court did not abuse
want to accept it. In contrast, Klein claimed that Safyari
breached the contract and engaged in fraud in part by concealing
the Adler loan from him. The jury’s verdict shows that it believed
Klein.
16
its discretion in denying Safyari’s request to ask the jury to
clarify the verdict.
2. The Trial Court’s Evidentiary Rulings Do Not
Provide a Ground for Reversal
Safyari argues that, even if the jury had insufficient
evidence to calculate the amount of damages that Klein could
have mitigated, the absence of such evidence was due to
erroneous evidentiary rulings. Safyari claims that the trial court
improperly excluded evidence of “Klein’s post-joint venture
financial state,” which Safyari claims the jury could have used to
calculate the losses that Klein could have avoided.
Safyari also argues that the trial court erred in excluding
testimony concerning the meaning of the indemnification
provisions in the February 2011 Agreement and the March 2011
Agreement. Safyari claims that such testimony would have
supported his contention that the indemnity provisions operated
to release the claims that Klein asserted against him in this
lawsuit.
We review the trial court’s decision to exclude evidence for
abuse of discretion. (People v. Rodriguez (1999) 20 Cal.4th 1, 9–
10.) As discussed below, Safyari has not shown that the trial
court abused its discretion in any of its evidentiary rulings.
a. Testimony concerning profitability of the
development project
Safyari did not show at trial, and has not demonstrated on
appeal, that the financial results of the development project were
relevant to any particular theory of mitigation. Indeed, as
discussed above, Safyari did not pursue any theory of mitigation
at trial, but claimed instead that he fulfilled his obligation to find
a construction loan. That was a defense to liability on Klein’s
17
breach of contract and fraud claims, not a theory of mitigation.
In any event, the jury’s verdict shows that it rejected the defense.
The financial benefit that Klein received from the
development project might have been relevant if Safyari had
intended to compare it with the results of some particular
decision Klein could have made to mitigate his loss. For example,
if Klein had sold one of the properties and then successfully
completed the project with Safyari, Klein could have avoided the
deal with Malka and retained the right to recover his Precontract
Expenses. But that gain might have been offset by the loss of
profits that Klein would otherwise have enjoyed by developing
the property that he sold. In that event, it might have been
necessary to compare the actual profits from the completed
development project to the profits that Klein would have received
had he sold one of the properties.
However, Safyari did not argue that theory or any other
theory of mitigation that would have required the jury to consider
the profits Klein ultimately received from the project. Safyari
cannot complain that the evidence the trial court excluded was
relevant to a theory that he did not pursue.
Moreover, even if actual profits from the project were
relevant to some theory of mitigation, Safyari’s failure to explain
the relevance of the evidence during trial precludes him from
claiming error on appeal. An appellant may not argue that the
exclusion of relevant evidence was prejudicial error if the
appellant never told the trial court why the evidence should be
admitted. (Shaw v. County of Santa Cruz (2008) 170 Cal.App.4th
229, 282 (Shaw) [“the failure to make an adequate offer of proof
in the court below ordinarily precludes consideration on appeal of
an allegedly erroneous exclusion of evidence”].)
18
b. Testimony concerning the indemnification
provisions
The trial court sustained several objections to questions of
Klein and Safyari concerning their understanding of the
indemnification provisions in the February 2011 Agreement and
the March 2011 Agreement. The trial court did not abuse its
discretion in making these rulings.
The objections concerned questions that asked the
witnesses to interpret the language of the written agreements
and to explain their own understanding of what that language
meant. Such testimony was irrelevant.
“ ‘ “[E]vidence of the undisclosed subjective intent of the
parties is irrelevant to determining the meaning of contractual
language.” ’ ” (San Pasqual Band of Mission Indians v. State of
California (2015) 241 Cal.App.4th 746, 757 [testimony by the
chairperson of a party that the party did not intend to waive any
right to obtain damages in agreeing to a contractual provision
was irrelevant to interpretation of the contract], quoting Berman
v. Bromberg (1997) 56 Cal.App.4th 936, 948 (Berman); see Iqbal
v. Ziadeh (2017) 10 Cal.App.5th 1, 12 [testimony by counsel for a
party that his intent in drafting a release was that it would apply
to the defendant was irrelevant, as there was “no evidence
counsel expressed this intention to anyone”].)
That is because California recognizes the objective theory of
contracts. Under that theory, “it is the outward manifestation or
expression of assent that is controlling.” (Berman, supra, 56
Cal.App.4th at p. 948.) This means that, in interpreting a
contract, “ ‘[t]he true, subjective, but unexpressed intent of a
party is immaterial and irrelevant.’ ” (Ibid., quoting Vaillette v.
Fireman’s Fund Ins. Co. (1993) 18 Cal.App.4th 680, 690.)
19
The jury instructions in this case explained that principle.
The trial court instructed the jury that, in deciding whether a
contract was created, “You may not consider the parties’ hidden
intentions.”
The trial court did not abuse its discretion in sustaining
objections to irrelevant evidence. Moreover, Safyari never
explained to the trial court what admissible testimony he
expected to obtain by asking the parties about their
understanding of the indemnification provisions. As discussed
above, a trial court’s ruling excluding evidence generally cannot
be reviewed on appeal in the absence of an offer of proof
concerning what the evidence would be. (See Shaw, supra, 170
Cal.App.4th at p. 282.)
Safyari argues that no offer of proof was necessary here
because the trial court “categorically” excluded evidence relating
to interpretation of the indemnity provisions. (See Beneficial Fire
& Casualty Ins. Co. v. Kurt Hitke & Co. (1956) 46 Cal.2d 517, 522
[an offer of proof is unnecessary “[w]here an entire class of
evidence has been declared inadmissible or the trial court has
clearly intimated it will receive no evidence of a particular class
or upon a particular issue”].) The record does not support that
argument.
The record does not show that the trial court stated, or
even suggested, that it would exclude all parol evidence
concerning the meaning of the indemnification provisions. The
trial court merely sustained objections to specific questions
asking Klein or Safyari to interpret the language of the written
agreements. As discussed above, such testimony was irrelevant.
The trial court’s rulings excluding irrelevant evidence do not
show that the trial court would have sustained objections to
20
questions seeking relevant testimony, much less that the court
intended to exclude all parol evidence.
In lieu of a proffer, Safyari cites his testimony, later
stricken, explaining his understanding that the March 2011
Agreement “ends our relationship and, you know, we forget about
past and this is like release of—releasing each other from any
obligations.”10 Again, this testimony merely described Safyari’s
subjective understanding of the indemnification provision, which
was itself irrelevant. Safyari did not provide any proffer of
admissible parol evidence concerning communications among the
parties that might have assisted the jury in interpreting the
indemnification provision.
3. The Indemnification Provisions in the
February 2011 and March 2011 Agreements Do
Not Preclude Klein’s Claims
Interpretation of a contract is a judicial function when
there is no disputed extrinsic evidence. (Parsons v. Bristol
Development Co. (1965) 62 Cal.2d 861, 865 (Parsons).) As
discussed above, the trial court did not improperly exclude
extrinsic evidence concerning the parties’ uncommunicated
subjective intent. Safyari does not identify any other disputed
extrinsic evidence. We therefore interpret the indemnification
provisions de novo as an issue of law. (Id. at p. 866.)
Safyari argues that the indemnification provisions should
be interpreted to indemnify Safyari against all of Klein’s claims.
The trial court rejected that argument, concluding that the
indemnity provisions “clearly pertain[ ] only to obligations and
10 In his opening brief, Safyari erroneously attributes this
stricken testimony to Klein.
21
liens relating to the properties, not to claims by Klein against
Safyari himself for fraud.” We agree.
The provisions in question state that Klein “shall indemnify
[Safyari] from any prior, existing and future obligations and any
liens that may exist against the three (3) subject properties.”
(Italics added.) “Indemnity is a contract by which one engages to
save another from a legal consequence of the conduct of one of the
parties, or of some other person.” (Civ. Code, § 2772.) “A clause
which contains the words ‘indemnify’ and ‘hold harmless’ is an
indemnity clause which generally obligates the indemnitor to
reimburse the indemnitee for any damages the indemnitee
becomes obligated to pay third persons.” (Myers Building
Industries, Ltd. v. Interface Technology, Inc. (1993) 13
Cal.App.4th 949, 969.)
Under Safyari’s interpretation of the indemnity provisions,
the “conduct” that Klein agreed to indemnify Safyari against was
Klein’s own conduct in bringing a lawsuit against Safyari. (See
Civ. Code, § 2772.) Such an “indemnification” is
indistinguishable from a release. Nothing in the written
agreements between Klein and Safyari indicates that Klein
intended to give Safyari a release for any claims that Klein might
have against him for fraud, breach of contract, and the like.
The indemnification provisions are most reasonably
understood to protect Safyari from third party claims that might
be made against him based upon obligations incurred to develop
the Mulholland and Multiview properties. That interpretation is
supported by the language of the provisions.
22
Klein agreed to indemnify Safyari against obligations and
liens that “may exist against the three subject properties.”11
(Italics added.) Obligations “against” the properties is most
logically interpreted as obligations to vendors, lenders, or other
third parties that, like liens, the parties incurred in the course of
developing the properties.
That interpretation is also supported by the context of the
indemnification provisions. Paragraph 9 of the February 2011
Agreement required Klein and Safyari to “declare and disclose” to
Malka “all existing, and future obligations, liabilities and any
liens that may exist on the three (3) subject land properties.”
Paragraph 11 then referred back to this disclosure obligation in
providing for indemnification against any “obligation[ ]” or “lien[
]” against the three properties, “unless it was not declared and
disclosed from provision 9.” The apparent intent of these
provisions was to require the existing partners—Klein and
Safyari—to identify all existing obligations against the properties
to the incoming partner, Malka. Malka agreed to assume
Safyari’s responsibility for half the amount of those obligations,
11 It is grammatically possible to interpret the phrase
“against the three (3) subject properties” to refer only to the
immediately preceding term “any liens” rather than to the prior
phrase “obligations and any liens.” (Italics added.) But
interpreting it in that fashion would mean that Klein (and
Malka) agreed to a completely open-ended obligation to
indemnify Safyari against “any prior, existing and future
obligations.” (Italics added.) The indemnification provisions
cannot reasonably be read to include an obligation by Klein to
indemnify Safyari forever against any obligation that Safyari
might incur, no matter the reason or context.
23
and Klein and Malka agreed to indemnify Safyari, but only
against those obligations that were specifically disclosed.12
Malka confirmed that interpretation in his testimony.
Malka explained that “the deal was, whatever liabilities that are
being declared at the time of the signing of the agreement
between the three of us, will be carried over and being
responsible between Klein and I 50 percent, 50–50.” Malka
specifically identified the obligations that the parties declared:
“they didn’t pay the architect about $34,000 that I had to pay,
they didn’t pay the structural engineer about $18,000 that I had
to pay, they didn’t pay the civil engineer that I had to pay, they
didn’t pay some—they didn’t pay loans and payments on loans,
mortgage loan on Mulholland, they were behind like over a year
maybe two years of payments—that’s why it went into
foreclosure— and Multiview, they were behind.”
There is no reason to interpret the indemnification
provision in the March 2011 Agreement any differently. The
February 2011 Agreement and the March 2011 Agreement were
executed around the same time, and in the same context of
negotiating the terms of Safyari’s exit from the deal. There is
12 This disclosure obligation is a further reason why
interpreting the indemnification provisions to apply to Klein’s
own claims in this lawsuit is unreasonable. The “obligation” that
Safyari claims Klein agreed to indemnify Safyari against was
Klein’s own claims in this lawsuit. The lawsuit of course did not
exist at the time Klein executed these agreements, and there was
therefore nothing to disclose. More fundamentally, the existence
of this disclosure obligation undermines any conclusion that the
parties intended the indemnification provisions to apply to future
claims among the parties.
24
therefore good reason to interpret the identical indemnification
language in the two agreements in the same way. (See Civ. Code,
§ 1642 [“Several contracts relating to the same matters, between
the same parties, and made as parts of substantially one
transaction, are to be taken together”]; Torrey Pines Bank v.
Hoffman (1991) 231 Cal.App.3d 308, 320 [considering together
several contracts between the parties relating to the same
transaction].)
Thus, the indemnification provisions do not bar Klein’s
claims against Safyari in this lawsuit.
4. The Jury’s Verdict Shows that Safyari
Procured Klein’s Promissory Notes Through
Fraud, and Those Notes Therefore Should Be
Declared Invalid and Unenforceable
As mentioned, the jury found that Safyari committed fraud
by misrepresentation and awarded damages of $301,000 on that
claim. The jury’s damage award—which equals the amount of
the promissory notes that Klein provided to Safyari—shows that
the jury concluded those notes were the result of Safyari’s
fraud.13
A party that is defrauded with respect to a severable
portion of a contract may elect to rescind only that portion.
“ ‘Where a good cause for rescission exists as to one part of a
divisible or separable contract, such portion may be rescinded in
equity without disturbing the remainder.’ ” (Simmons v.
13The jury awarded $1,058,000 on Klein’s claim for fraud
by concealment. The damage amount shows that the jury also
awarded damages for the promissory notes on that claim along
with the $757,000 in damages for Klein’s loss of his Precontract
Expenses ($301,000 + $757,000 = $1,058,000).
25
California Institute of Technology (1949) 34 Cal.2d 264, 275
(Simmons); see Persson v. Smart Inventions, Inc. (2005) 125
Cal.App.4th 1141, 1153 [“there is no support for, and we reject
out of hand, the notion that a court has no equitable power to set
aside a provision of a contract procured by fraud”].)
In Simmons, our Supreme Court held that a license and
royalty agreement between the California Institute of Technology
(Institute) and a staff member/inventor, Simmons, was separable
from a related license and royalty agreement between Simmons
and a company, Baldwin, concerning the use of Simmons’s
invention. The Institute obtained its contract with Simmons
through fraud, and Simmons therefore properly rescinded it.
However, Simmons did not rescind the contract with Baldwin.
The court concluded that “[n]o injustice is done the Institute by
Simmons’ failure to rescind as to Baldwin, and the Institute has
incurred no injury if Simmons and Baldwin, as between
themselves, elect to be bound” by their agreement. (Simmons,
supra, 34 Cal.2d at p. 276.)
The February 2011 Agreement similarly involved separate
and severable promises among three different parties. Klein’s
agreement to provide his three promissory notes to Safyari was
severable from the terms of Safyari’s sale of his interest to Malka
and from the terms of the new relationship between Klein and
Malka. Thus, rather than damages for Safyari’s fraudulent
procurement of Klein’s promissory notes, Klein could have sought
a judgment rescinding the notes on the basis of Safyari’s fraud.
Klein apparently assumed he could not obtain rescission
without amending his complaint to add a new cause of action.
Klein filed such a motion to amend during trial, but the trial
court denied it as untimely. In doing so the court stated that “if
26
it’s in the prayer, then that’s fine as part of the prayer, but I’m
not going to amend the complaint to add that as a cause of
action.”
A request to cancel the promissory notes was in fact
already in the prayer for relief in Klein’s existing complaint.
Klein’s operative first amended complaint (Complaint) requested
a judgment declaring the promissory notes to be “null and void.”
That relief was supported by the fraud allegations in the
complaint. Safyari now concedes that Klein did not need to
amend his Complaint to seek rescission of the notes because
“ ‘rescission is a remedy, not a separate cause of action.’ ”
(Thompson v. Miller (2003) 112 Cal.App.4th 327, 334.) However,
rather than pressing for rescission at trial, Klein sought damages
in the amount of the promissory notes on the theory that Safyari
could later try to enforce those notes against him.
As a result of these events in the trial court, we are left
with the strange situation in which Klein has been awarded
damages to compensate him for the possibility that he might
someday be required to pay Safyari on promissory notes that
Safyari obtained through fraud.
Safyari argues that the possibility of such a future payment
is too speculative to support the damage award. We agree.
The mere possibility of a future claim against a plaintiff as
a result of a defendant’s wrongful conduct is ordinarily too
speculative to support a damage award, even when that claim
belongs to a third party. In Green Wood Industrial Co. v.
Forcemen Internat. Development Group, Inc. (2007) 156
Cal.App.4th 766, the court set aside damages that the plaintiff
had been awarded based upon a claim asserted against it by the
plaintiff’s customer. The plaintiff was a reseller who had
27
received a predelivery payment from the customer for goods that
the defendant seller had fraudulently promised to provide. In
setting aside the damages awarded for the customer’s claim, the
court explained that “the existence of a mere liability is not
necessarily the equivalent of actual damage. This is because the
fact of damage is inherently uncertain in such circumstances.
The fact that a third party has demanded payment by the
plaintiff of a particular liability and the plaintiff has admitted
such liability are not, by themselves, sufficient to support an
award of damages for that liability, because that third party may
never attempt to force the plaintiff to satisfy the alleged
obligation, and the plaintiff may never pay the obligation.” (Id.
at p. 776.)
Here, the possibility of future damage from enforcement of
the promissory notes is even more speculative, as the claim that
Klein might theoretically be obligated to pay would be asserted
by a defendant who obtained the claim through fraud. Moreover,
the claim exists only because the jury awarded damages to
account for the possibility that the claim might later be enforced.
If the trial court had simply declared the promissory notes
invalid as a result of Safyari’s fraud, there would be no possibility
of future enforcement. Thus, in an absurd circular fashion, the
damages that the jury awarded to account for a theoretical future
claim are themselves the only possible ground for such a claim.14
14 This court previously granted Safyari’s request for
judicial notice of records from a postjudgment action by Safyari to
enforce the promissory notes, in which Klein apparently
successfully asserted a defense based upon the judgment in this
28
As mentioned, Klein requested cancelation of the
promissory notes in his complaint. On appeal, Safyari proposes
similar relief as an alternative to the jury’s damage award.
Safyari suggests that this court “modify the judgment by striking
the jury’s $301,000 damage award to Klein as an offset against
Safyari’s right to enforce the notes.”15
Accordingly, we will modify the judgment to: (1) set aside
the jury’s damage award of $301,000 on the promissory notes,
and (2) declare the promissory notes invalid and unenforceable.
5. Klein’s Damages for Reimbursement of His
Precontract Expenses Must Be Reduced by Half
This court has the power to modify the judgment to set
aside the amount of damages that is not supported by the
evidence. (See Behr v. Redmond (2011) 193 Cal.App.4th 517, 533
[“When the evidence is sufficient to sustain some but not all
alleged damages, we will reduce the judgment to the amount
supported by the evidence”].) Safyari argues that the evidence
supports only half the amount of damages that the jury awarded
case. Because these records concern postjudgment events, we do
not rely upon them for our decision.
Klein also filed a motion requesting this court to take
judicial notice of various records concerning postjudgment
proceedings in which Safyari allegedly acted in bad faith. Those
records are not relevant to this appeal, and we therefore deny the
motion.
15 Presumably Safyari describes this proposed relief as an
“offset” against future enforcement of the promissory notes to
avoid characterizing the remedy as the cancelation of the
promissory notes due to Safyari’s own fraud. The result is the
same.
29
for Klein’s loss of the right to be reimbursed for his Precontract
Expenses. We agree.
The relevant evidence on this issue is the difference
between the terms of the February 2010 Agreement (between
Klein and Safyari) and the February 2011 Agreement (among
Klein, Safyari, and Malka). If there is no disputed extrinsic
evidence, interpretation of these contract terms is an issue of law.
(Parsons, supra, 62 Cal.2d at p. 865.)
There is no dispute on the key issue here: The February
2010 Agreement gave Klein the right to be reimbursed for his
Precontract Expenses before the parties split the profits, and the
February 2011 Agreement did not. As discussed below, this was
Klein’s own theory of damages, supported by his own testimony
as well as testimony from Malka. Thus, we consider de novo
whether the contractual terms support the damages that the jury
awarded. (Parsons, supra, 62 Cal.2d at p. 866.)16
Damages awarded for breach of contract “should, insofar as
possible, place the injured party in the same position it would
have held had the contract properly been performed, but such
damages may not exceed the benefit which it would have received
had the promisor performed.” (Brandon & Tibbs v. George
Kevorkian Accountancy Corp. (1990) 226 Cal.App.3d 442, 468;
Civ. Code, § 3358 [“Except as expressly provided by statute, no
person can recover a greater amount in damages for the breach of
16 Because the dispositive evidence here is the evidence
that Klein offered on the meaning and effect of the agreements,
we would reach the same result even if the substantial evidence
standard of review applied.
30
an obligation, than he could have gained by the full performance
thereof on both sides”].)
The jury awarded $757,000 in damages on Klein’s breach of
contract claim.17 This was the full amount of Precontract
Expenses for which Klein was entitled to be reimbursed under
the February 2010 Agreement. That agreement also stated that
Klein and Safyari were each “50% owner and liable for 50%
expenses,” and provided for an equal division of profits “[a]fter all
expenses are paid.”
The deal with Malka also provided for a 50 percent
partnership, but without any provision to reimburse Klein for his
Precontract Expenses. As discussed above, Malka explained that
as part of the February 2011 Agreement, he agreed to reimburse
only those expenses that Klein and Safyari specifically declared,
which did not include Klein’s Precontract Expenses. Klein
testified consistently, explaining that he lost money because he
had to enter into the deal with Malka, which required him to
“forfeit my investment.” Klein argued this theory of damages to
the jury, claiming that he was entitled to reimbursement for the
full amount of his Precontract Expenses.
However, analysis of the February 2010 Agreement and the
February 2011 Agreement shows that Klein was entitled to only
half of those expenses. As Safyari points out, although the
expense reimbursement provision in the February 2010
Agreement entitled Klein to be reimbursed for his $757,000 in
Precontract Expenses, Klein would “end up ultimately paying for
half of this reimbursement when the profits were split 50/50.”
17Safyari’s briefs sometimes mistakenly state this amount
as $775,000.
31
This is another way of saying that the profits from the sale of the
completed properties would be reduced by the amount of Klein’s
expense reimbursement. Because Klein was entitled to half of
those profits, he would experience half the reduction. This same
relationship between profits and the expense reimbursement
applies to the Klein/Malka deal. Like the Klein/Safyari deal, the
agreement between Klein and Malka called for the parties to split
profits and expenses 50–50. However, unlike the Klein/Safyari
deal, the Klein/Malka agreement did not provide for any
reimbursement of Klein’s Precontract Expenses. But the lack of
that reimbursement obligation meant that more profits would be
available for the parties to split. Klein would receive 50 percent
of those additional profits. Thus, instead of Klein “paying for” his
expense reimbursement in the Klein/Safyari deal by receiving his
half share of profits that were reduced by the amount of the
expense reimbursement, in the Klein/Malka deal Klein would
ultimately be paid more from his half share of profits that were
increased by the amount of the expense reimbursement.18
18 An example helps to explain the math. Klein estimated
that he would ultimately receive about $500,000 in profits from
sale of the Multiview Properties alone. Assume that total profits
on the development project were twice that, or $1 million, after
payment of all expenses, including Klein’s Precontract Expenses.
If there had been no contract breach and the Klein/Safyrai deal
had remained in place until the properties were sold, Klein and
Safyari would have split the $1 million in profits, giving Klein
$500,000. Combined with Klein’s $757,000 reimbursement, Klein
would have received a total of $1,257,000.
Now consider the Klein/Malka deal. Under that deal, Klein
would not receive the $757,000 expense reimbursement. But
32
Perhaps a simpler way to understand the expense
reimbursement is to consider the source of the funds that would
have been used to pay it. Under the Klein/Safyari deal, Klein’s
Precontract Expenses would have been paid with partnership
funds. Half of those partnership funds belonged to Safyari.
Thus, by losing the right to be reimbursed for his Precontract
Expenses, Klein actually lost only half of the amount of those
expenses.
Klein argues that there was no proof that there would
actually be any profits from the sale of the developed properties.
But in awarding Klein damages for his lost expense
reimbursement, the jury must have found there would be at least
enough revenues from the development project to cover Klein’s
$757,000 in Precontract Expenses. There was sufficient evidence
to support that finding.19 Whether the parties received profits
over that amount was immaterial.20
without that reimbursement, the profits available for the parties
to split would be $1,757,000 ($1,000,000 + $757,000). Klein’s half
of that amount would be $878,500. That is $378,500 less than
the amount he would have received if he had been paid the
upfront reimbursement. ($1,257,000 – $878,500 = $378,500.) Of
course, $378,500 is half of $757,000. Thus, Klein lost only half of
his precontract expenses by entering into the deal with Malka.
19 As mentioned, Klein estimated that he would receive a
profit of $500,000 just on the Multiview properties.
20 Again, in the Klein/Malka deal, rather than Klein
receiving the $757,000 as a reimbursement, that amount would
be available for the parties to split. Klein would receive $378,500
of that amount—half the amount he would have received as a
reimbursement in the Klein/Safyari deal. Klein’s damages would
therefore be $378,500, not $757,000.
33
Klein also argues that other expenses might have remained
after reimbursement of Klein’s Precontract Expenses. Whether
or not that could have occurred under the terms of the
Klein/Safyari agreement,21 the amount of the project’s expenses
is also immaterial to the calculation of damages.
The jury’s verdict establishes that, absent Safyari’s
wrongful conduct, Klein would have received his $757,000
reimbursement through the Klein/Safyari deal. The relevant
question then for purposes of the damage calculation is how the
deal that Klein has—i.e., the Klein/Malka deal—compares to the
deal that he lost—i.e., the Klein/Safyari deal. Under the
Klein/Malka deal, the $757,000 that would have been paid to
Klein from partnership funds under the Klein/Safyari deal would
be split by Klein and Malka. As equal partners, Klein and Malka
agreed to a split of expenses as well as profits. Klein would
benefit from his 50 percent of the $757,000, whether that amount
contributed to his half of the profits or reduced his half of the
remaining expenses.
Thus, under Klein’s own damage theory, he lost only half
the amount of his Precontract Expenses by entering into the deal
21 As Safyari points out, the February 2010 Agreement
provided that Klein’s expense reimbursement was to be paid
“after we pay all the liens and expenses, Mortgage Payments for
Mulholland Dr. and Multiview Dr. if any required, construction
costs, and segments of payments to Ben’s cousin . . . until Ben’s
cousin loan of Four Hundred Thirty Two Thousand and Two
Hundred Eighty Two Dollars ($432,282.00), which has been
borrowed from Ben’s Cousin up to January 01, 2010, Plus 20%
interest on the $432,282.00 loan from Ben’s Cousin, since
April 25, 2009, are paid in full.” (Italics added.)
34
with Malka. Klein was therefore entitled to only half the amount
of those expenses as damages.
DISPOSITION
The judgment is modified in the following respects:
(1) total damages in favor of respondent Klein are reduced by
$679,500 to a total of $139,250; and (2) the three promissory
notes by MJK, LLC (signed by Joe Klein, Manager) in favor of
Ben B. Safyari, dated March 11, 2011, and totaling $301,000, are
declared invalid and unenforceable. As modified, the judgment is
affirmed. The parties are responsible for their own costs on
appeal.
NOT TO BE PUBLISHED.
LUI, P. J.
We concur:
ASHMANN-GERST, J.
CHAVEZ, J.
35