Opinion
B218283
10-26-2011
HORMOZ FARYAB et al., Plaintiffs, Appellants, and Respondents, v. PINN BROTHERS FINE HOMES, INC., Defendant, Respondent and Appellant.
Gieleghem Law Office, Neil Gieleghem and Philip A. Metson, for Plaintiffs, Appellants and Respondents. The Keegan Law Firm and William J. Keegan for Defendant, Respondent and Appellant.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
(Los Angeles County Super. Ct. No. BC360607)
APPEAL from a judgment of the Superior Court of Los Angeles County, Rolf M. Treu and Ronald M. Sohigian, Judges. Affirmed in part, reversed in part.
Gieleghem Law Office, Neil Gieleghem and Philip A. Metson, for Plaintiffs, Appellants and Respondents.
The Keegan Law Firm and William J. Keegan for Defendant, Respondent and Appellant.
This appeal arises from a failed deal to develop land in Los Banos, California. Appellants Hormoz Faryab and Mehrdad Farzinpour (Faryab and Farzinpour) and others assigned their rights to purchase and develop the Rotondaro property to respondent Pinn Brothers Fine Homes, Inc. (Pinn Brothers). Eventually Pinn Brothers abandoned its efforts to develop the property without obtaining a tentative tract map from the City of Los Banos. The trial court entered judgment for Pinn Brothers on Faryab and Farzinpour's action for breach of contract on three alternative grounds: that Pinn Brothers was not obligated to obtain the tentative tract map, that Pinn Brothers had been fraudulently induced to enter into the assignment, and that the conduct of respondents had rendered performance by Pinn Brothers impossible, impractical, and had frustrated the purpose of the assignment.
Faryab and Farzinpour appeal, asserting the trial court erred in finding Pinn Brothers had no obligation to obtain the tract map. They also contend that the trial court's rulings on the affirmative defenses of fraud in the inducement, impossibility, impracticality and frustration of purpose were improperly based on parol evidence barred by the integration clause of the assignment agreement.
We conclude that evidence was admissible to establish that Pinn Brothers was fraudulently induced to enter into the assignment agreement. The trial court properly concluded that the agreement was voidable on that basis and that Pinn Brothers had no obligation to perform. In light of that conclusion, we need not and do not reach the issues as to which party was obligated to obtain the tract map and the alternative affirmative defense of frustration of purpose.
We also conclude that the trial court erred in denying the motion by Pinn Brothers for leave to file a compulsory cross-complaint. Pinn Brothers is entitled to its attorney fees under the Rotondaro assignment agreement. We deny Pinn Brothers's motion for sanctions against Faryab and Farzinpour for bringing a frivolous appeal.
FACTUAL AND PROCEDURAL SUMMARY
The property at issue is a 14.5 acre tract of undeveloped land in Los Banos, California. In January 2005, the owners, members of the Rotondaro family, entered into a written purchase agreement (Rotondaro purchase agreement) to sell the Rotondaro property to B & G Holdings, Ltd., LLC. (B & G Holdings). Under the terms of that purchase agreement, escrow was to close within 30 days after the City of Los Banos approved a tentative subdivision map "or no later than five hundred and forty-five days (545) from acceptance of this agreement ('Outside Closing Date')."
Faryab and Farzinpour are real estate investors. In early 2005, Iyad Naffa made them aware of an opportunity to invest in the Rotondaro property. Previously they had had other transactions with Naffa, including investments in two pieces of undeveloped property at Naffa's suggestion. In February 2005, Faryab and Farzinpour entered into a tenants in common agreement with B & G Holdings, and Naffa which gave each a 25 percent ownership interest in the Rotondaro property. Their plan was to assign their rights to develop the Rotondaro property to a developer before the close of escrow on the Rotondaro purchase agreement.
Later, Naffa went to Pinn Brothers and proposed that it purchase the rights to develop both the Rotondaro property and the adjacent 31.9 acre Spadafore property. As we shall discuss, the court found that Naffa was acting on behalf of Faryab and Farzinpour. Al Pinn, president of Pinn Brothers, had dealt with Naffa for 20 years on various projects. Naffa represented to Pinn Brothers that he had secured the consent of all necessary parties to assign the contract rights on the Rotondaro property for a price equal to $36,000 per approved tentative map unit, and that he had secured the consent of all necessary parties to assign the contract rights on the Spadafore property to Pinn Brothers for a price equal to $70,000 per approved tentative map lot. Al Pinn understood that the Spadafore and Rotondaro properties would be a package deal. It was Naffa who proposed the concept of purchasing the rights to both the Rotondaro and Spadafore properties. All planned development, including a proposed access road that would overlap both properties, was based on this understanding. Al Pinn relied on Naffa's representations in paying $300,000 on the Rotondaro project and in starting to pay professionals to work on the project.
B & G Holdings, Faryab and Farzinpour entered into an assignment agreement with Pinn Brothers, assigning their rights to the Rotondaro property under the purchase agreement to Pinn Brothers (Rontondaro assignment agreement). Al Pinn executed an assignment agreement for the Spadafore property dated July 22, 2005, as assignee, but the assignors did not execute this agreement. He testified that after he executed the Spadafore assignment agreement he learned there was a difference of opinion between the partners [assignors] about the purchase price. The Spadafore assignors proposed a price increase to $77,000 per lot. Al Pinn agreed to this increase, but then learned that one of the assignors would not agree to that figure. Then the Spadafore assignors demanded $85,000 per lot, which Al Pinn rejected in early 2006.
Pinn Brothers also was involved in two other development projects in Los Banos which are not the subject of this litigation.
In the meantime, Pinn Brothers made the $300,000 deposit payment to the assignors as was required under the Rotondaro assignment agreement and began planning to develop that property. Although the assignors had contemplated constructing apartments on the Rotondaro property, in April or May 2005, Pinn Brothers decided that a condominium development would be preferable. An amendment of the Los Banos General Plan and rezoning was required to build condominiums on that property. On May 25, 2006, Pinn Brothers submitted to Los Banos an application for the general plan amendment and rezoning for the Rotondaro property.
Then, in May 2006, the Rotondaro assignors proposed an amendment to their assignment agreement with Pinn Brothers, which would have required Pinn Brothers to pay liquidated damages of $500,000 if it failed to consummate the transaction for any reason. As of late May 2006, only two months remained on the outside date for the Rotondaro purchase agreement to close, which was not enough time to redesign the project to proceed alone without development of the Spadafore project. Pinn Brothers rejected the proposed amendment as unacceptable. A short time later Pinn Brothers notified the City of Los Banos that it wished to withdraw from the Spadafore and Rotondaro projects and a third Los Banos project. Later that year Pinn Brothers also withdrew the fourth Los Banos project. None of the four projects was ever built by Pinn Brothers and escrow did not close on any of them.
Faryab and Farzinpour sued Pinn, alleging a single cause of action for breach of the Rotondaro assignment agreement. The action was filed in Los Angeles County Superior Court No. BC360607. It alleged Faryab and Farzinpour each were entitled to recover their 25 percent share of the unpaid portion of an assignment fee (over $1 million) owed by Pinn under the assignment agreement. The trial court denied Pinn Brothers's motion for leave to file a compulsory cross-complaint, but allowed it to file an amended answer. A bench trial was conducted over four days in early 2009. The trial court issued its tentative decision, and in June 2009 filed its formal statement of decision and judgment in favor of Pinn Brothers. Pinn Brothers filed a motion to fix attorney fees and costs, which was opposed by Faryab and Farzinpour. The motion was denied by the trial court.
The Rotondaro assignment agreement provided that in any litigation arising from the agreement, venue and jurisdiction would be in Los Angeles County.
Faryab and Farzinpour appealed from the judgment. Pinn Brothers appealed from the order denying its motion to fix attorney fees and costs and from the denial of leave to file a cross-complaint. Pinn Brothers moved for sanctions on appeal against Faryab and Farzinpour.
DISCUSSION
I
In their opening brief, Faryab and Farzinpour devote just over two pages to challenging the trial court's ruling granting Pinn Brothers a judgment on its affirmative defenses of fraud in the inducement and impossibility, impracticality, impossibility, and frustration of purpose. Their sole argument is that the trial court erred in admitting parol evidence as a basis for the judgment on the affirmative defenses because the Rotondaro assignment agreement was integrated, as the parties stipulated at trial. They assert the alleged representation by Naffa that was the basis of fraud in the inducement ruling was a matter covered by, or within the scope of the matters covered in, the integrated Rotondaro assignment agreement. Therefore the parol evidence rule bars admission of this evidence. In a footnote, Faryab and Farzinpour also cite the lengthy disclaimer and release contained in the Rotondaro assignment agreement in which Pinn Brothers disclaimed any reliance on information provided by or on behalf of the Rotondaro assignors. Absent the parol evidence, Faryab and Farzinpour argue there is no evidentiary support for the affirmative defenses.
As Pinn Brothers point out in a motion for sanctions, Faryab and Farzinpour's reply brief raises several new challenges to the trial court's rulings on the affirmative defenses which were not part of their opening brief. We agree with Pinn Brothers that this was improper and decline to consider these arguments for that reason. (Mansur v. Ford Motor Co. (2011) 197 Cal.App.4th 1365, 1387-1388; Las Lomas Land Co. LLC v. City of Los Angeles (2009) 177 Cal.App.4th 837, 855.)
This leaves the argument by Faryab and Farzinpour that the trial court erred in admitting what they term "parol evidence" as the basis for its finding that Pinn Brothers was entitled to judgment because the Rotondaro assignment agreement was fraudulently induced. There was no other challenge to the sufficiency of the evidence on this affirmative defense in the opening brief.
The trial court found that Naffa was the principal representative of, and spokesperson for, the Rotondaro assignors in the negotiations which led to the execution of the assignment agreement. The court found: "[I]n the course of the negotiations leading up to the execution of the [Rotondaro] Assignment Agreement, Mr. Naffa represented to Pinn Brothers that he had already secured the consent of all necessary parties to assign the contract rights on the Rotondaro property to Pinn Brothers for a price equal to $36,000 per approved tentative map unit, and had also already secured the consent of all necessary parties to assign the contract rights on the neighboring Spadafore property (immediately south of the Rotondaro propery) to Pinn Brothers for a price equal to $70,000 per approved tentative map lot."
The court found this representation was material to Pinn Brothers's in its decision to enter into the Rotondaro assignment agreement and would have been material to any reasonable person interested in developing these properties. It found that Naffa represented that the Spadafore and Rotondaro properties could be developed together, thereby allowing the properties to share an access road which would overlap both properties. In addition, Pinn Brothers would benefit from economies of scale and marketing advantages by developing the properties together. Pinn Brothers's reliance on these representations was found reasonable and justifiable. The trial court found that Naffa made the representation regarding the agreement of all necessary parties to the $70,000 per lot price on the Spadafore property with the intention of inducing Pinn Brothers to rely on it by executing the Rotondaro assignment agreement and commencing performance under that agreement. The court found that the representation was false and that Naffa knew it was false or was reckless in failing to recognize that he had not secured the consent of all necessary parties to sell the Spadafore property at that price. The court concluded that the Rotondaro assignment agreement was a voidable contract because it was induced by misrepresentation.
Contrary to the argument made by Faryab and Farzinpour, the evidence of Naffa's misrepresentations was properly admitted to establish that Pinn Brothers was fraudulently induced to enter into the Rotondaro assignment agreement. Code of Civil Procedure section 1856, subdivision (g) states that the parol evidence rule "does not exclude other evidence of the circumstances under which the agreement was made or to which it relates, as defined in section 1860, or to explain an extrinsic ambiguity or otherwise interpret the terms of the agreement, or to establish illegality or fraud." (Italics added.) It is true that parol evidence may not be offered to contradict the terms of an integrated written agreement. (Casa Herrera, Inc. v. Beydoun (2004) 32 Cal.4th 336, 346; Wang v. Massey Chevrolet (2002) 97 Cal.App.4th 856, 873.) But such evidence is admissible to prove fraud in the inducement.
Fraud in the inducement occurs when there is a "misrepresentation involving a contract in which 'the promisor knows what he or she is signing but consent is induced by fraud.' (1 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts, § 297, p. 324, italics omitted.)" (McClain v. Octagon Plaza, LLC (2008) 159 Cal.App.4th 784, 792 (McClain).)In Edwards v. Centex Real Estate Corp. (1997) 53 Cal.App.4th 15, the Court of Appeal contrasted the impact of the parol evidence rule on a cause of action alleging promissory fraud and one alleging fraud in the inducement. It explained that a claim for promissory fraud "based on alleged independent false promises . . . contradicting the terms of the release" is barred by the parol evidence rule. (Id. at p. 42, italics added.) But a claim for rescission is "based not on promissory fraud, but on fraud in the inducement or procurement through alleged misrepresentations of fact. ([Civ. Code,] § 1689, subd. (b)(1).) Evidence of such fraud is admissible in an action for rescission because it does not go to contradict the terms of the parties' integrated agreement, but to show instead that the purported instrument has no legal effect. [Citations.]" (Ibid.)
Here, the representation by Naffa that he had the agreement of all necessary parties to convey the adjacent Spadafore property at a price equal to $70,000 per approved lot was not inconsistent with any term of the Rotondaro assignment agreement. Faryab and Farzinpour cite no term of that agreement referencing the Spadafore purchase price and we have found none. This evidence was admissible and supported the judgment based on this affirmative defense.
The disclaimer provision in the Rotondaro assignment agreement cited by Faryab and Farzinpour does not change this result. "A party may claim fraud in the inducement of a contract containing a provision disclaiming any fraudulent misrepresentations and introduce parol evidence to show such fraud. ([Ron] Greenspan [Volkswagen, Inc. v. Ford Motor Land Development Corp. (1995) 32 Cal.App.4th 985, 992-995] [discussing cases holding a contract provision stating all representations are contained therein does not bar action for fraud]; id. at p. 985, [discussing cases allowing parol evidence to prove fraud]; Edwards v. Centex Real Estate Corp. (1997) 53 Cal.App.4th 15, 42 [parol evidence admissible on issue of fraud in the inducement].) Fraud in the inducement renders the entire contract voidable, including any provision in the contract providing the written contract is, for example, the sole agreement of the parties, that it contains their entire agreement and that there are no oral representations (integration/no oral representations clause). (Vai v. Bank of America Nat'l Trust & Sav. Assoc. (1961) 56 Cal.2d 329, 344; 1 Witkin, Summary of Cal. Law, supra, Contracts, § 304, p. 350.) As the court in Greenspan held, a per se rule that an integration/no oral representations clause establishes, as a matter of law, that a party claiming fraud did not reasonably rely on representations not contained in the contract is inconsistent with California law. (Greenspan, supra, at pp. 987, 996.)" (Hinesley v. Oakshade Town Center (2005) 135 Cal.App.4th 289, 301.)
We conclude the trial court properly relied on parol evidence of fraud in the inducement to enter judgment in favor of Pinn Brothers. In light of that conclusion, we need not and do not reach the alternative arguments regarding breach of the Rotondaro assignment agreement by Pinn Brothers or the affirmative defense that performance by Pinn Brothers became impossible and impractical and that the purpose of the Rotondaro assignment agreement had been frustrated by the demands of the Spadafore assignors to increase the purchase price for that property.
II
In its cross-appeal, Pinn Brothers argues the trial court employed an incorrect legal standard in denying its motion for leave to file a compulsory cross-complaint. Trial of this action was continued from October 2007 to January 2009. In July 2008, Pinn Brothers moved for leave to file a compulsory cross-complaint.
In his declaration in support of the motion, counsel for Pinn Brothers explained that he had not realized there was a basis to hold Faryab and Farzinpour liable for the damages resulting from the misrepresentations by Naffa until he conducted research on that issue five to six weeks before bringing the motion. The agreement between the Spadafore assignors was a tenancy in common and they had disclaimed any partnership relationship. The proposed cross-complaint was based on the misrepresentations about the Spadafore property and the alleged bad faith exploitation of the situation by Faryab and Farzinpour. It alleged causes of action for intentional and negligent misrepresentation, bad faith breach of contract, and unjust enrichment against Faryab and Farzinpour, B & G Holdings and its principals, Robert Comes and Naffa, and the partnership formed by Faryab and Farzinpour, B & G Holdings and Naffa.
The trial court denied the motion to file the cross-complaint on the ground that such a cross-complaint must be filed concurrently with the answer. Pinn Brothers's answer was filed in December 2006 and the motion to file a cross-complaint was not filed until July 2008. The trial court acknowledged, "There is a safety [valve] on that pursuant to Code of Civil Procedure section 425.250 when there is excuseable [sic] neglect or other excuseable [sic] circumstances and so forth." But it found that "whatever circumstances there are leading up to the delay, this is just not excusable neglect. The facts have been on the table for a very, very long time as cases go in these courts. The explanation given by [counsel for Pinn Brothers], in the Court's view, does not establish any excuseable [sic]circumstances."
We take the court's reference to Code of Civil Procedure section 425.250 (which is not a section of the Code of Civil Procedure) to be a reference to Code of Civil Procedure section 426.50, which allows a party who fails to plead a cause of action in a compulsory cross-complaint, "whether through oversight, inadvertence, mistake, neglect, or other cause" to seek leave to file a cross-complaint to assert such cause "at any time during the course of the action." (Code Civ. Proc., § 426.50.) That statute continues: "The court, after notice to the adverse party, shall grant, upon such terms as may be just to the parties, leave to . . . file the cross-complaint, to assert such causes of action if the party who failed to plead the cause acted in good faith. This subdivision shall be liberally construed to avoid forfeiture of causes of action."
Code of Civil Procedure section 426.30, subdivision (a), "which defines compulsory cross-complaints, states: 'Except as otherwise provided by statute, if a party against whom a complaint has been filed and served fails to allege in a cross-complaint any related cause of action which (at the time of serving his answer to the complaint) he has against the plaintiff, such party may not thereafter in any other action assert against the plaintiff the related cause of action not pleaded.' 'Related cause of action' is defined in Code of Civil Procedure section 426.10, subdivision (c) as 'a cause of action which arises out of the same transaction, occurrence or series of transactions or occurrences as the cause of action which the plaintiff alleges in his complaint.'" (Crocker Nat. Bank v. Emerald (1990) 221 Cal.App.3d 852, 863.)
In light of these definitions, we conclude that the proposed cross-complaint by Pinn Brothers was compulsory. It related to the subject of the Rotondaro assignment and the causes of action which existed at the time Pinn Brothers served its answer to the Faryab and Farzinpour complaint. The trial court did not find that the actions of counsel for Pinn Brothers were not taken in good faith, as required by Code of Civil Procedure section 426.50 to deny a motion to file a compulsory cross-complaint. In light of the legislative mandate that we liberally construe this statute to avoid forfeiture, we conclude the trial court abused its discretion in denying the motion and reverse that order. (Carroll v. Import Motors, Inc. (1995) 33 Cal.App.4th 1429, 1436, fn. 12, quoting Silver Organizations Ltd. v. Frank (1990) 217 Cal.App.3d 94, 99 "['A motion to file a cross-complaint at any time during the course of the action must be granted unless bad faith of the moving party is demonstrated where forfeiture would otherwise result.']".)
III
Pinn Brothers moved for an award of attorney fees as prevailing party under paragraph 13 of the Rotondaro assignment agreement which provides that Pinn Brothers would "save and hold harmless, indemnify and defend" the assignors for all costs and fees "including but not limited to, attorney's fees," "arising from, concerning, relating to and pertaining to (i)[Pinn Brothers's] breach or default with respect to its payments, duties and obligations under this Agreement, . . ." (Italics added.) The trial court denied the motion, concluding that this clause is an indemnity provision which does not trigger the right to an award of fees under Civil Code section 1717. Since no extrinsic evidence was relied upon by the trial court, the interpretation of the indemnity clause is a question of law which we review de novo. (Maryland Casualty Co. v. Bailey & Sons, Inc. (1995) 35 Cal.App.4th 856, 868.)
"Civil Code section 1717 applies to an indemnity provision that entitles the indemnitee to attorney fees incurred as the result of the indemnitor's breach of the contract that contains the indemnity provision. (Continental Heller Corp. v. Amtech Mechanical Services, Inc. (1997) 53 Cal.App.4th 500, 508-509 (Continental Heller); Baldwin Builders v. Coast Plastering Corp. (2005) 125 Cal.App.4th 1339, 1344-1346, (Baldwin Builders)[Civ. Code, § 1717 applies to provision in indemnity agreement requiring indemnitor to pay indemnitee's costs, including attorney fees, incurred in enforcing the indemnity agreement].)" (Silverado Modjeska Recreation & Park Dist. v. County of Orange (2011) 197 Cal.App.4th 282, 310, fn. 21.)
Here, because paragraph 13 specifically provides for recovery of attorney fees if Pinn Brothers breached the assignment agreement and Faryab and Farzinpour sued for breach of that agreement, Civil Code section 1717 applies. The trial court erred in concluding otherwise. The language of paragraph 13 distinguishes this case from Building Maintenance Service Co. v. AIL Systems, Inc. (1997) 55 Cal.App.4th 1014, on which Faryab and Farzinpour rely. In that case, the indemnity clause had no provision for recovery of fees for an action for breach of the agreement. The court held "there is no language in [the indemnity clause] which reasonably can be interpreted as addressing the issue of an action between the parties on the contract." (Id. at p. 1030.)
Civil Code section 1717, subdivision (a) provides that in any action on a contract, "where the contract specifically provides that attorney's fees and costs, which are incurred to enforce that contract, shall be awarded either to one of the parties or to the prevailing party, then the party who is determined to be the party prevailing on the contract, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorney's fees in addition to other costs." (See also Mepco Services, Inc. v. Saddleback Valley Unified School Dist. (2010) 189 Cal.App.4th 1027, 1045-1046 [Civ. Code, § 1717 enacted to establish mutuality of remedy where a contract clause makes recovery of attorney fees available for only one party].) As prevailing party Pinn Brothers was entitled to its reasonable attorney fees under Civil Code section 1717. We remand to allow the court to reconsider the fee motion and determine fees on appeal.
IV
Pinn Brothers moved for an award of sanctions of $31,322.50 for attorney fees incurred in responding to this appeal. It contends the appeal is frivolous because Faryab and Farzinpour failed to raise meritorious challenges to the affirmative defenses on which the trial court based its judgment. We conclude that an award of sanctions is not warranted on that theory. We also note that Pinn Brothers may seek its fees on appeal under Civil Code section 1717.
DISPOSITION
The judgment is affirmed. The order denying Pinn Brothers leave to file a compulsory cross-complaint is reversed. The order denying Pinn Brothers's motion for attorney fees is reversed. The motion for sanctions on appeal by Pinn Brothers is denied. Pinn Brothers is to have its fees and costs on appeal.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
EPSTEIN, P. J. We concur:
WILLHITE, J.
SUZUKAWA, J.