Opinion
NOT TO BE PUBLISHED
Appeal from a judgment of the Superior Court of Orange County, No. 07CC06568, Corey S. Cramin, Judge.
Tanya M. Acker; Finestone & Richter and John J. Waller, Jr. for Plaintiff and Appellant.
Goodkin & Lynch, Daniel L. Goodkin, Steven S. Yamin, and Marshal P. Wilke for Defendant and Respondent Extengine Transport Systems, LLC.
Wood, Smith, Henning & Berman, Stacey Friedman Blank, and R. Gregory Amundson for Defendant and Respondent Birdwell Holdings, L.P.
OPINION
O’LEARY, J.
A jury entered a special verdict in favor of defendants Extengine Transport Systems (Extengine) and Birdwell Holdings (Birdwell). On appeal, Hunt Investors (Hunt) seeks to overturn the jury’s verdict, arguing there is insufficient evidence to support it and consequently the trial court should have granted its motion for new trial and/or judgment notwithstanding the verdict. Hunt asserts that if this court agrees there should be a new trial, we should permit Hunt to assert its punitive damages claim when the case is retried. We conclude sufficient evidence supports the jury’s special verdict findings. The judgment is affirmed.
In this appeal, Hunt challenges the denial of its motion for JNOV and motion for new trial. In such appeals, we state the facts in the light most favorable to Extengine and Birdwell who were the prevailing parties below. (Gibbs v. American Airlines, Inc. (1999) 74 Cal.App.4th 1, 4, fn. 1.)
Olson Ecologic Labs (Olson), an engine testing laboratory, measures vehicle emissions from all types of vehicles in accordance with federal and state requirements. Don Olson (Don) runs the lab and is one of the few people in California to be certified by the California Air Resources Board for testing emissions. Don owned 20 percent of the lab. Extengine owned the other 80 percent. Extengine had a small board of directors: Matt Fragner, Phil Roberts, and Brad Birdwell (Brad), a part-owner of Birdwell.
Birdwell was owned by Gene Birdwell (Gene), and his two sons, Brad and Steve Birdwell (Steve). Birdwell invested in Extengine, loaning it nearly $3.9 million. One of the loans was secured by a UCC-1 filing showing the lab equipment was used as collateral for a $210,000 loan.
Hunt, a holding company, was established to invest in clear air technology companies such as Olson. Hunt’s board members include Thomas Girdlestone, J. Nicholson Thomas, and its appellate counsel, Tanya Acker.
In the fall of 2006, Girdlestone, on behalf of Hunt, contacted Gene about purchasing part of Olson. Girdlestone submitted a purchase proposal to Birdwell because he knew Birdwell loaned a great deal of money to Extengine, which owned 80 percent of Olson. He also had been told one of the notes “somewhere south of a million dollars, was coming due.” However, Hunt learned Birdwell could only influence a sale via Brad’s position on Extengine’s board. It did not have authority to sell Olson.
In December 2006, Don met with Roberts and Fragner. Don said he had a financial partner who wanted to back him buying out the 80 percent interest in Olson held by Extengine. He proposed a $3 million dollar cash purchase price. The two Extengine board members agreed a sale was something Extengine should consider. Roberts and Fragner prepared a term sheet for the buyout [Exhibit 210]. Fragner stated they did not contemplate the deal would involve a new loan.
Fragner and Roberts emailed Brad (the third Extengine board member) to inform him about the proposed sale and offered opinions on the “advantages and disadvantages to selling the lab.” During a later teleconference, all the board members agreed Extengine “should move forward to see what kind of deal we could do.”
In early January 2007, Don contacted Hunt about purchasing the 80 percent of the lab owned by Extengine. On January 22, Roberts received a Letter of Intent (LOI) from Hunt.
Relevant to this appeal, the LOI contained the following terms: “As a result of our discussions on Monday, January 15th, Hunt... provides the following revised terms, in bullet point form, for the purchase of the 80 [percent] equity interest held by Extengine... in Olson....”
“Cash purchase price of $3 [million] payable at the closing.”
“At closing, all indebtedness owed to [Extengine] and its affiliates by [Olson] shall be extinguished, including the $210,000 reflected in the UCC-1 filing, and any liens recorded against [Olson’s] assets.”
“At closing [Olson] will have a minimum of at least $200,000 in [Extengine] deposits for future engine testing services to be set forth in more detail in a more definitive agreement.”
“The definitive agreements shall contain such representations, warranties, conditions, indemnities and [word illegible] as are standard and customary for transactions of this type.”
“During the term of this letter agreement [Extengine] and its affiliates will negotiate in good faith exclusively with [Hunt] to enter into definitive agreements concerning the transactions contemplated herein and [Extengine] and its affiliates shall not solicit or discuss with any third party any proposals to purchase or acquire any portion of or all of [Extengine’s] interest in [Olson].”
“The closing of the transactions contemplated herein shall occur on or before February 5, 2007. If the closing has not occurred by such time... either party may terminate this letter agreement. This letter agreement is not legally binding on the parties (other than the obligation for [Extengine] to exclusively negotiate with [Hunt] during the term of this letter agreement) and shall create no enforceable rights or obligations for either party until the definitive documentation has been entered into and [Hunt] has completed its due diligence.”
Two days after receiving the LOI, Extengine held another board meeting and the board members unanimously passed a formal resolution to proceed with negotiations with Hunt. Roberts explained he held this meeting because it was his fiduciary duty to keep everyone informed, particularly Birdwell, who held the UCC-1 loan.
Roberts testified he spoke with Brad before the LOI was signed. Brad did not have any objections to selling the lab, but indicated Birdwell would want some of its loans paid back from the sale and it wanted to be informed about the terms of the sale. At the time, Birdwell was not interested in buying or purchasing the lab. Birdwell held a $3,325,000 promissory note for one loan to Extengine. In addition, Gene personally loaned Extengine $650,000, and Brad personally made the $210,000 loan subject to the UCC-1 lien. Roberts stated Hunt was aware of these loans, and Roberts knew Hunt had initially tried to do the deal with Birdwell before approaching Extengine. Roberts said he explained to Hunt’s principals that it was Extengine’s intention to pay off Birdwell’s loans from the sale of 80 percent of the lab.
It is undisputed the parties understood the LOI permitted Hunt to exclusively negotiate a deal with Extengine. Hunt would spend money to do due diligence on the company, and it would draft the necessary legal documents. Hunt spent over $200,000 negotiating and processing documents for the deal.
However, all did not proceed as planned. The deal was not finished by the LOI’s February 5th deadline. Hunt sent Extengine the first draft of a purchase agreement on February 4. Before sending the proposed definitive agreement, Thomas sent an email to Girdlestone and others at Hunt stating the proposal would make Extengine “scream” when they saw it. Thomas explained in the email, “None of these items have been discussed with Extengine to my knowledge and I’m sure they will resist on the size of the holdback, particularly if it is not escrowed and does not accrue interest.” He added, “[I]n truth, the document we are submitting is somewhat watered down from the typical purchase or favored agreement.” Girdlestone testified he agreed with Thomas’s assessment, stating, “The reason that... Extengine would scream about [it]—they always screamed about cash, they were very desperate for cash” Girdlestone acknowledged Extengine seemed to only want to “talk about cash and getting it as fast as possible, for whatever reason, I don’t know.”
As expected, Fragner and Roberts objected to the first draft: Fragner stated there were several problems with the agreement as “it contained a number of new business points that we didn’t think were appropriate and we couldn’t agree to. The specific one that I recollect is they... added a $600,000 hold back that was totally new to the negotiation and was in addition to a hold back that had previously been negotiated by... Roberts and... Girdlestone. [¶] There were also a lot of rep[resentation]s and warranties in this agreement that Hunt had submitted that we didn’t think we should have to make because we had not been actively involved in running the lab; that was Don.... [¶] So in the context of this deal where Don... came to us and said he and a financial partner were trying to buy the lab, it didn’t make sense that we would have to warrant something or guarantee something that they could get from Don.”
Fragner stated he assumed Don had already negotiated his deal with Hunt, or that they at least had deal points agreed upon. Fragner said the proposed deal was changed from what he originally thought. It no longer looked like an equity deal. Hunt was no longer proposing to be Don’s financial partner with cash to buy the 80 percent share of Olson.
Fragner testified about how this deal compared to the many others he had worked on. He stated, “Well, it’s a little bit like playing a sport. You can play within the rules, and you can play harder or not as hard. In this deal when... Thomas forwarded the first draft of the membership interest purchase agreement [he added] new deal points, [and] there was nothing to prevent him from doing that. He wasn’t violating the letter of intent. The letter of intent was not binding. So [he] could change the deal points just as we could theoretically change them as well. [¶] But when he pushed hard on things that hadn’t been negotiated before and were very material differences to us, because we were looking for operating cash, and I think he knew it, it set a tone that look, we are each going to follow the rules but not, you know, lend... big helping hands to the other side. [¶] So it wasn’t a surprise to me that they didn’t send us anything with their dealings with their lender or their dealings with Don... and it didn’t surprise me when Don... called me [and said] he [had] significant concerns. And it didn’t surprise me that [Don] thought they were changing the deal on him, because that’s what I thought they had done to us. [¶] But it also meant that we weren’t going to be sharing all of our internal business on our side, our internal discussions with our board members and the Birdwells, our affiliates, our largest owner, to them what was going on.”
On February 8, Roberts received a notice of default from Birdwell on the UCC-1 loan. On February 13, Roberts sent an email to Brad stating he was glad Gene was still supportive of their efforts to negotiate on the proposed lab sale. He stated, “I believe that we... have negotiated a good deal for us and that we are planning to work closely with you so that you may properly evaluate the terms of the lab sale prior to moving forward.”
On February 9, Hunt and Extengine held a face-to-face meeting. Fragner acted as counsel for Extengine. David Kennedy and Acker were representing Hunt. Girdlestone, Roberts, and Don also attended the meeting. Fragner stated that after receiving the first draft on February 4, there were many emails back and forth about the $600,000 holdback provision. Extengine did not want to agree to it and several other representations and warranties. At the meeting, Kennedy said they had to keep the holdback provision or convert the deal to an asset sale.
Fragner stated an asset sale did not make sense from a tax standpoint and it meant the deal would have to be approved by Don because he owned a percentage of the lab’s assets. Extengine wanted to sell the membership interest and get capital gain tax treatment. If Extengine were to sell the assets of its business, it would not get this tax benefit. Consequently, at the meeting Fragner stated Extengine was not interested in changing the deal, “and if [it was that] imperative to them as far as doing it, then we really had no deal....” He recalled this prompted Acker to become very upset and say repeatedly, “Jesus Fucking Christ.”
Roberts’s recollection of the meeting was the same. He testified there was a heated discussion about Hunt’s proposal to change the deal from an equity sale to an asset sale. He stated this was a significant change because rather than purchasing the lab and supplying capital to the business, Hunt wanted to fund the purchase with a massive loan, using the lab as collateral. At the meeting, the parties discussed how this change meant Hunt needed to subordinate Don’s interest in the lab to their loan. The parties were unable to reach any agreement with respect to the terms of the sale.
Roberts testified about the problem with the proposed holdback conditions. He explained Hunt twice introduced holdback provisions. The first one was incorporated into the LOI. Hunt wanted Extengine to leave $200,000 cash in the lab “so they would have that for operating capital, in effect, just to give them the money after we negotiated the $3 million as the sale price. [¶] And so we didn’t agree to that initially but then we went back and forth and we wanted to make the transaction happen, so we agreed to leave the money in as a deposit for future testing so they would still have capital. So that was the first change in the original negotiation. [¶] The second holdback came the day we were supposed to sign the agreement, which was February 4th where they added in a variety of different new provisions, [number one] being the $600,000 holdback, but also other rep[resentation]s and warranties that we weren’t able to feel comfortable putting there.”
When the long meeting ended, Kennedy stated he would revise the agreement. Fragner stated there were still several big deal points that needed to be negotiated and Hunt would have to do its own due diligence to determine the financial condition of the lab. Extengine indicated it was still interested in closing the deal. Fragner represented Extengine had all the necessary consents to move forward with negotiating the deal, subject to a board approval of the final agreement.
Fragner testified the February 9 meeting set the tone for further negotiations. He explained, “It was clear that the lawyers on the other side were going to take a very tough stance, were not going to concede anything.... And we needed to be strong enough back so that they didn’t think that they could push us into making concessions we didn’t think we should make.”
On February 14, Birdwell’s counsel, Tim DeSpain, sent an email to Fragner giving a list of the money owed to the “Birdwell group.” DeSpain added he had looked at the deal terms sent by Roberts, and “I am still unclear as to exactly how the $3 million in cash will be controlled.” Roberts stated he also was unclear at that time how the $3 million from Hunt was going to be controlled. Roberts explained his uncertainty stemmed from the fact Hunt had significantly changed the terms of the original deal. DeSpain conveyed he believed Birdwell would have to consent to any proposed sale as a lender.
On February 15, Fragner sent an email to DeSpain and Brad stating, “At the moment there’s disagreement as to whether the loan agreement between Birdwell... and Extengine requires the lender’s [(Birdwell’s)] consent to the sale of the membership interest in Olson....” In the email Fragner concluded, “We are not interested in being engaged in a dispute with you as our partners and lender, so rather than debate this point from a legal standpoint, we respectfully request you consent to conclude this transaction, which we think is the only clear way we can continue—we can guarantee the continued survival of Extengine as an ongoing business.”
On February 15, Extengine held another board meeting. They discussed the terms of the transaction, and voted to proceed forward and continue negotiating. At the meeting, Fragner testified they discussed Birdwell’s concerns over who had control of the money from the sale. Birdwell wanted several of its loans repaid and desired that its investment interests be protected. The board decided the sale proceeds would be put in a bank account that could not be withdrawn without the signatures of both Roberts and Brad.
On February 23, Birdwell sent Fragner an email threatening legal action. Gene wrote. “I intend to exercise my legal rights under the credit agreements should you enter into the contract to sell [Extengine’s] ownership interest in Olson... prior to obtaining my approval.” Fragner testified he did not believe he needed Birdwell’s consent because the loan agreement only required Birdwell’s approval if Extengine sold all or substantially all of its assets. Fragner did not believe the 80 percent interest in Olsen was substantially all of Extengine’s assets. Fragner wrote back to Birdwell stating Extengine did not think the consent of the lender was needed, but he did not want to fight and they would try to satisfy any concerns Birdwell had. Fragner proposed working together as partners and lenders for something that would be good for Extengine and the Birdwells.
Sometime during the last week of February, Don contacted Fragner and asked for his advice because Don’s attorney was in the hospital. Don said he was having a lot of problems negotiating a deal with Hunt. Don said the deal had changed and Hunt was no longer going to use its interest in the lab as security for its loan, but now wanted to use all of the lab’s assets. Indeed, Hunt asked Don to subordinate all his interest in the lab. This meant if the loan was not repaid, Don would lose his 20 percent interest in the lab. Don told Fragner that Hunt was borrowing all the money for the deal, and not putting up any cash itself. Don was very concerned the loan’s interest rate was too high and the lab would not make enough money to make the payments.
Don also contacted Roberts to discuss how his deal with Hunt had been changed. Don revealed he did not think the deal was going to move forward.
On March 5, Hunt contacted Roberts, requesting a pre-sale condition. Previously, as stated in the LOI, the parties anticipated the UCC-1 loan and other liens would be release “at closing.” Hunt told Roberts that Birdwell “had to sign the release [of] the UCC-1 prior to closing or there would be no deal.” Roberts testified that he heard Thomas sent an internal email to Girdlestone saying, “‘Show them no mercy on this[.]’”
A few days later, Girdlestone emailed Roberts, stating, “[Roberts], you’re right, we can’t close without it. I ask that you put as much pressure as you possibly can on the Birdwells today and obtain the UCC-1 release.” Roberts understood this to mean Hunt wanted him to work out something with Birdwell.
Roberts testified this “show no mercy” demand put Extengine “between a rock and a hard place.” He explained, “My dilemma was that we were trying to make the deal go forward and we believed we were doing everything as well as we could and what it came down to at the very end was that the Birdwells had a lien for $210,000 that had to be satisfied. [¶] We were planning on using the funds [from the sale] to satisfy that at closing, but then [Hunt demanded] that we had to have the Birdwells sign this UCC-1 release prior to closing. So it meant somehow we had to get the money, pay off the lien, get them to sign off the lien or they wouldn’t close. [¶] So that was the rock and the hard place. I was in a position where I couldn’t... get the Birdwells to sign off on the lien and now we had Hunt saying they weren’t going to close the deal while being told by Don... he thought that he wasn’t going to be able to do his deal with Hunt because they had changed the terms of their deal with him. [¶] So this was a relatively complicated deal, there were a lot of moving parts in there....”
DeSpain emailed Roberts offering a solution to his dilemma. He proposed Extengine transfer its share of Olson to Birdwell. Birdwell would forgive the $3.9 million in loans and pay $275,000 in cash to Extengine. Roberts said he was surprised by this proposal because, “We were never soliciting them for the sale of the lab, and I guess knowing that there were these challenges ahead, which were being imposed by Hunt on this UCC-1, it seemed as though that this would take care of the roadblock here... [and] would enable the deal to proceed forward....” Fragner also received this email, and decided with Roberts the offer should be considered as it might be a way to make the “overall deal work.” Fragner asked DeSpain whether the offer was part of Birdwell’s interest selling the lab to Hunt. DeSpain indicated that it was.
Roberts testified he also believed the transfer to Birdwell would help rather than hurt Hunt’s ability to purchase the lab because it enabled Birdwell to negotiate directly with Hunt and protect its investment. Roberts stated he thought “the reason why the Birdwells were negotiating so hard for this was because they wanted to get the $3 million back” by selling the lab to Hunt. Roberts reasoned Birdwell held control over the UCC-1 loan, and by taking control of the company, they eliminated the problem of getting a release of that loan before closing.
Fragner stated he did not feel it was necessary to discuss Birdwell’s proposal with Hunt because the LOI only restricted Extengine and its affiliates from negotiating with a third party, but did not prohibit discussions between Extengine and Birdwell, which he considered to be an affiliate. Fragner believed the transfer to Birdwell would remove any roadblocks for Hunt to complete the deal and purchase the 80 percent interest in Olson.
On March 8, Fragner replied to Thomas’s email inquiring about the deal and his request to have a meeting to “finalize” the purchase. Fragner replied they were still working on it and there was no point in meeting. Fragner testified he wrote this email because he felt there were many unresolved issues he could not yet discuss with Hunt, such as the UCC-1 dilemma, Birdwell’s threat of litigation, the uncertainty of Don’s arrangement with Hunt, and many other unresolved deal points contained in Hunt’s proposed purchase agreement. The deal was not ready for a final closing, but due to the tone Hunt had set during the negotiations, Fragner did not share all these details with Hunt.
On March 12, the deal with Birdwell was finalized. That same day, Thomas sent Don an email trying to resolve their differences. He wrote, “Don—there is no purpose in doing this deal unless you are happy, but of course there is no sense in Hunt doing this deal if it does not make economic sense. I understand that you are not comfortable by encumbering 100 [percent] of [Olson’s] assets with the loan, notwithstanding the Hunt guarantee, subordinating your 20 [percent] distribution right to the repayment of the loan.... [W]e have tried to understand and address your concerns as best we can given the framework of the loan....” Don, in turn, advised Girdlestone it was possible the lab purchase from Extengine was in jeopardy and to expect a call from Roberts. Don said it was not his role to say anything, but nevertheless revealed Extengine had met with Birdwell, which was “transferring [its] Extengine position to the lab.” Don said he “planned to move ahead with the Birdwell plan” as best as he could.
This new information prompted Thomas and Girdlestone to visit Don in the lab the following day. It did not go well. One of the lab workers told Roberts he thought about trying to break down the door because he was concerned for Don’s safety. He heard screaming and profanities. After the meeting, Don told Roberts he no longer wanted any further dealings with Hunt. He said Thomas and Girdlestone were unprofessional and aggressive. Don said they said bad things about Roberts and Fragner that were not true. He emailed Fragner to say, “I have no intention of dealing with [Thomas] again under any circumstances if I can avoid it.” He sent a second email to both Fragner and Roberts, stating Thomas “sounded off in a vicious tirade” After speaking with Don, Roberts believed any hope of the deal going forward was likely lost at this point.
On March 14, Fragner and Roberts teleconferenced with Thomas and Girdlestone to tell them the news about their deal with Birdwell. Fragner recalled the conversation as follows, “[W]e explained to them that we had transferred the Olson... membership interest to the Birdwells, and that the Birdwells had threatened litigation if we went ahead with the transaction without their approval. Even though we didn’t think that they had the right to do it, we felt that if we went ahead with the transaction and they, in fact, sued everybody, that all that would happen would be... everything would be tied up in litigation for years, and that the lab might not be able to survive if it was unclear who owned it. [¶] And we explained that this way... we had been told that the Birdwells were still interested in selling the lab if the terms were right, and that [we] encouraged them to immediately call... DeSpain to see if that deal could be structured and finalized.” Kennedy indicated they were going to talk to the Birdwells. Fragner recalled Thomas said he understood why Extengine could not close the transaction and thanked Fragner and Roberts for the explanation.
On March 16, Fragner sent an email to Hunt’s counsel (Kennedy) stating he had spoken with DeSpain, who on behalf of Birdwell was “willing to discuss the possible acquisition” of Olson. On March 19, Kennedy sent Fragner an email requesting DeSpain’s telephone number. Fragner sent him the number, and Kennedy thanked him. Roberts believed Kennedy was not upset about the transfer and intended to talk to DeSpain “about going through with the deal and dealing direct with the Birdwell Holdings’ attorneys.”
On March 19, Kennedy sent Fragner a letter demanding it rescind the transaction with Birdwell. Fragner found the letter confusing because in their last conversation Hunt was eager to deal with Birdwell and make a deal. Fragner replied with a letter encouraging Hunt to make a deal with Birdwell. However, feeling the threat of litigation, Fragner officially terminated the LOI.
Hunt filed this action against Extengine and Birdwell. After several demurrers, the final operative complaint alleged breach of contract, breach of the implied covenant of good faith and fair dealing, and misrepresentation against Extengine. It contained one claim against Birdwell for intentional interference with contractual relations. The court granted Birdwell’s motion to strike the allegations relating to malice, fraud, oppression, and recklessness with respect to Hunt’s punitive damage claims against Birdwell. The defendants’ summary judgment motions were denied.
The case proceeded to trial, where Hunt proceeded on the theory it expended over $200,000 based on Extengine’s assurances (1) it had exclusive authority to close the deal, and (2) it was negotiating exclusively with Hunt. Hunt presented evidence of the clandestine negotiations between Birdwell and Extengine, in breach of the agreement to negotiate with Hunt exclusively and in good faith.
Birdwell and Extengine presented a unified defense: They maintained the deal would never have closed with Hunt due to what transpired during negotiations. Hunt had not performed under the contract and Hunt’s actions and conduct caused its own damages.
The jury reached a unanimous special verdict in favor of Extengine and Birdwell. It made the following findings: (1) Hunt and Extengine entered into a contract; (2) Hunt did not do all of “the significant things that the contract required it to do[;]” (3) Extengine made a false representation of an important fact to Hunt;
(4) Extengine knew the representation was false at the time it was made and intended Hunt to rely on the representation; (5) Hunt reasonably relied on the representation, but its reliance was not a substantial factor in causing damages to Hunt; (6) Birdwell knew of the contract between Hunt and Extengine and intended to disrupt the performance of the contract; and (7) Birdwell disrupted the performance of the contract, but this conduct was not a substantial factor in causing Hunt harm. The court denied Hunt’s motion for judgment notwithstanding the verdict and motion for new trial.
Discussion
Hunt argues the court should have granted its motion for judgment notwithstanding the verdict, or alternatively, its motion for a new trial. Our standard of review is essentially the same for both rulings.
“‘A motion for judgment notwithstanding the verdict may be granted only if it appears from the evidence, viewed in the light most favorable to the party securing the verdict, that there is no substantial evidence in support.’ [Citations.] On appeal from the denial of a motion for judgment notwithstanding the verdict, we determine whether there is any substantial evidence, contradicted or uncontradicted, supporting the jury’s verdict. [Citations.] If there is, we must affirm the denial of the motion. [Citation.] If the appeal challenging the denial of the motion for judgment notwithstanding the verdict raises purely legal questions, however, our review is de novo. [Citation.]” (Wolf v. Walt Disney Pictures & Television (2008) 162 Cal.App.4th 1107, 1138.)
Likewise, a denial of a motion for new trial ordinarily “will not be disturbed unless a manifest and unmistakable abuse of discretion clearly appears.” (Hata v. Los Angeles County Harbor/UCLA Medical Center (1995) 31 Cal.App.4th 1791, 1800.) A motion for new trial may be granted for “[i]nsufficiency of the evidence to justify the verdict....” (Code Civ. Proc., § 657, subd. (6).) As this is the only basis Hunt offered to justify a new trial as to the verdict in favor of Birdwell and Extengine, we may reverse the denial of the motion only if the evidence was insufficient. The issue then is the same as that raised by the denial of the motion for judgment notwithstanding the verdict (JNOV) and by Hunt’s appeal from the judgment. We need not therefore separately address the issue of sufficiency of the evidence as it relates to either motion.
A. General Law Regarding Breach of a Contract to Negotiate
Generally, a cause of action for breach of contract requires proof of the following elements: (1) existence of the contract; (2) plaintiff’s performance or excuse for nonperformance; (3) defendant’s breach; and (4) damages to plaintiff as a result of the breach. (CDF Firefighters v. Maldonado (2008) 158 Cal.App.4th 1226, 1239.)
This case concerns a contract to negotiate. In Copeland v. Baskin Robbins U.S.A. (2002) 96 Cal.App.4th 1251, 1253, the court decided the unsettled question of law about the validity of contracts to negotiate. It held a contract to negotiate was distinguishable from an unenforceable “agreement to agree.” (Ibid.) The Copeland court explained, if parties enter into such a contract and, “despite their good faith efforts, [they] fail to reach ultimate agreement on the terms in issue the contract to negotiate is deemed performed and the parties are discharged from their obligations. Failure to agree is not, itself, a breach of the contract to negotiate. A party will be liable only if a failure to reach ultimate agreement resulted from a breach of that party’s obligation to negotiate or to negotiate in good faith.” (Id. at p. 1257, fns. omitted.)
The jury was instructed on these legal principles unique to contracts to negotiate. “To recover damages from Extengine for breach of contract, Hunt... must prove all of the following: [¶] 1. That the [LOI] that Hunt... and Extengine entered into constituted a contract; [¶] 2. That Hunt... did all, or substantially all of the significant things that the [LOI] required it to do or that it was excused from having to do those things; [¶] 3. That all conditions required for Hunt[’s]... performance has occurred; [¶] 4. That Extengine failed to do something that the [LOI] required it to do; and [¶] 5. That Hunt... was harmed by that failure.”
The jury was also specifically instructed that Extengine “contends... Hunt... did not perform all of the things that it was required to do under the contract, and therefore Extengine... did not have to perform its obligations under the contract. To overcome this contention, Hunt... must prove” it “made a good faith effort to comply with the contract....” Since the primary obligation under the LOI was to negotiate in good faith, the jury was asked to decide if Hunt proved it made “a good faith effort to comply with the contract” calling for good faith negotiations.
B. Substantial Evidence Supports the Jury’s Special Verdict Hunt Failed to Negotiate In Good Faith
On appeal, Hunt repeatedly states it is very concerned the jury’s verdict serves to destroy the validity of contracts to negotiate. It asserts the records shows there was no dispute the LOI was a valid contract to negotiate. It also maintains there was ample evidence Extengine acted in bad faith, breaching the contract by secretly negotiating a deal with Birdwell. Hunt suggests this undisputed evidence, standing alone, warranted overturning the jury’s verdict as a matter of law. It warns the “verdict does violence not merely to certain of the core principles underlying the enforceability and integrity of commercial agreements, it would, in effect, turn California law on its head.” It dramatically concludes, if this court “permits the judgment to stand, it will be sanctioning a repudiation of the legal effectiveness of letters of intent and of prospective purchasers’ reliance on them.”
We disagree. To accept Hunt’s argument would require us to completely ignore the jury’s special verdict, turning “California law on its head.” The jury only made two findings with respect to the breach of contract claim. The jury answered the special verdict’s question number one by finding “Yes” the parties entered into the contract. The jury answered question number two by finding “No, ” Hunt did not “do all, or substantially all, of the significant things that the contract required it to do[.]” The jury was then instructed to proceed to question 10 relating to the next cause of action. Consequently, no verdict was rendered on questions three through nine regarding the issue of whether Extengine breached the contract or if that breach caused Hunt damages. It appears that in Hunt’s zeal to protect the sanctity of agreements to negotiate, it fails to appreciate this court’s review is limited to whether sufficient evidence supports the jury’s dispositive finding Hunt failed to perform its obligation under the contract. Since the evidence was disputed on the issue of Extengine’s breach, we will not speculate and cannot make any assumptions about what the jury might have concluded after weighing the evidence. Thus, the many pages of briefing Hunt devotes attempting to convince us there was evidence of a breach are entirely of no use.
Hunt only briefly addresses the jury’s verdict finding it failed to perform under the contract, asserting the conclusion is “baffling” and unsupported by any evidence. It suggests the jury must have been “confused” when it rendered the special verdict Hunt failed to do all of “the significant things that the contract required it to do[.]” Hunt admits it had an “obligation to negotiate in good faith” under the contract, but it reasons the jury misunderstood the contract to mean Hunt had an obligation to close the deal. We disagree. There is nothing in the record to suggest the jury was confused about the difference between negotiating in good faith and closing the deal. Hunt does not challenge the clarity of the jury instructions or the special verdict form.
To the extent Hunt asserts the issue of its non-performance was never raised below, the contention is belied by the record. The jury was specifically instructed Extengine disputed whether Hunt made a good faith effort to comply with the contract. Since, the purpose of the agreement was for both parties to negotiate in good faith, evidence regarding the conduct of both parties was produced and discussed at great length during the trial. Indeed, in closing argument, Extengine’s counsel pointed out all the facts that indicated Hunt had not negotiated in good faith. For example, during counsel’s discussion of the first “definitive” agreement sent on February 4, he said “when [Hunt] talk[s] about who was negotiating in good faith or bad faith, Hunt [is] the one that submitted the document [it] knew was going to be screamed about. We didn’t.” Counsel asserted it was Hunt who was acting in bad faith by not discussing all the new deal points before sending the proposal, but rather tried to assert the terms were “standard.” Counsel asked the rhetorical question, “Again, is Extengine acting in bad faith or is it Hunt that’s acting in bad faith.” Counsel also highlighted the evidence that Thomas directed Hunt’s representatives to “show no mercy” with respect to the UCC-1 release issue and counsel concluded “negotiations stopped because of... Thomas, not because of anything Extengine did. In fact, Extengine is the one that did everything in their power to make sure the deal could go through.” The issue of non-performance was certainly raised by Extengine, and the issue was properly submitted for the jury’s consideration. As noted above, it was the second question listed on the jury’s special verdict form, before any questions regarding Extengine’s performance. Based on the record before us, Hunt’s alleged “bafflement” on this issue appears to be insincere.
Alternatively, Hunt asserts all the evidence supports the conclusion it acted in good faith simply because at all times during negotiations it desired to move forward with the deal. Hunt suggests bad faith negotiations occur only when one party unilaterally abandons negotiations, or one party secretly negotiates with a third party. (See Copeland, supra, 96 Cal.App.4th at p. 1258; Chanel Home Centers, Grace Retail v. Grossman (1986) 795 F.2d 291, 293-294.) Hunt points out it did not abandon the negotiations and it necessarily acted in good faith as a matter of law. As we will explain anon, this overly simplistic approach to the determination of whether a party negotiated in good faith is unsupported by any case authority.
Hunt suggests neither the jury, nor this court, can find any fault with Hunt’s negotiation tactics as a matter of law. Hunt boldly asserts juries and the courts should not be permitted to meddle in “how the modern process of commercial negotiations works.” To support this contention, it relies on the following lengthy quote from Copeland: “Gone are the days when our ancestors sat around a fire and bargained for the exchange of stone axes for bear hides. Today the stakes are much higher and negotiations are much more complex. Deals are rarely made in a single negotiating session. Rather, they are the product of a gradual process in which agreements are reached piecemeal on a variety of issues in a series of face-to-face meetings, telephone calls, e-mails and letters involving corporate officers, lawyers, bankers, accountants, architects, engineers and others. As Professor Farnsworth observes, contracts today are not formed by discrete offers, counteroffers and acceptances. Instead they result from a gradual flow of information between the parties followed by a series of compromises and tentative agreements on major points which are finally refined into contract terms. (Copeland, supra, 96 Cal.App.4th at p. 1262, fns. omitted.) Based on this quote, Hunt asserts the insertion of new deal points and aggressive disagreements during negotiations are necessarily acceptable commercial deal making practices. Hunt concludes its conduct can “not, as a matter of law, be sufficient to support a finding of bad faith....” Again, we do not discern the concept of “good faith” to be so simple.
Whether a party “negotiated in good faith” is a somewhat vague standard. Just like the legal concepts of “justice” and “equity” it has an imprecise meaning and it is difficult to formulate stringent rules for its application. What constitutes good faith necessarily varies from case to case. Thus, contrary to Hunt’s assertion (which was unsupported by any legal authority) the issue cannot be decided as a matter of law.
The quote Hunt relies on from Copeland was referring to “sound public policy reasons for protecting parties to a business negotiation from bad faith practices by their negotiating partners.” (Copeland, supra, 96 Cal.App.4th at p. 1262.) The Copeland court never suggested there should be some sort of exception for complex commercial deals. It certainly did not supply a lesser legal standard for measuring good faith in the context of contracts to negotiate. The court simply gave several examples of what could be considered negotiating in bad faith. Specifically, it stated, “These slow contracts are not only time-consuming but costly. For these reasons, the parties should have some assurance ‘their investments in time and money and effort will not be wiped out by the other party’s footdragging or change of heart or taking advantage of a vulnerable position created by the negotiation.’” (Ibid., fn. omitted.) Contrary to Hunt’s view of the Copeland case, we find the court never intended to supply an exhaustive list of bad faith negotiation tactics.
In defining “good faith” many courts have focused on examples of bad faith based on the reasonable expectations of the parties. Other courts have focused on whether the action taken by the breaching party was arbitrary and capricious. We found instructive the Restatement Second of Contracts. It states the meaning of good faith will vary according to the context, but it does require more than mere honesty. “Subterfuges and evasions violate the obligation of good faith in performance even though the actor believes his conduct to be justified. But the obligation goes further: bad faith may be overt or may consist of inaction, and fair dealing may require more than honesty. A complete catalogue of types of bad faith is impossible, but the following types are among those which have been recognized in judicial decisions: evasion of the spirit of the bargain, lack of diligence and slacking off, willful rendering of imperfect performance, abuse of power to specify terms, and interference with or failure to cooperate in the other party’s performance. (Rest.2d Contracts, § 205, com. d.)
In this case, there was sufficient evidence from which the jury could reasonably conclude Hunt was not negotiating in good faith. Hunt knew Extengine was heavily in debt, owing over $3 million to Birdwell. It also knew Extengine needed cash quickly to fund its operations, and that is why it was anxious to sell its interest in Olson. The major deal points were verbally discussed, and some were listed in the LOI. The day before the deal was scheduled to close, Hunt sent a proposed agreement containing several new terms it knew would make Extengine “scream.” Without any apparent good cause, it added a second $600,000 holdback provision (after already negotiating a $200,000 holdback) and several inappropriate warranty provisions not previously discussed. It changed the deal from a payment of $3 million cash, to a $3.5 million dollar loan secured by all the lab’s assets. When the parties met face-to-face a few days later to discuss the proposal, Hunt appeared unwilling to compromise and was disinclined to share information about its loan terms or the status of its dealings with Don. There was no explanation given for the material contract term changes, and there was no evidence Hunt had any reason to modify the terms since it had not yet completed its due diligence or finalized its necessary side-agreement with Don. The jury could reasonably infer Hunt was abusing its power by specifying terms and refusing to cooperate because it believed Extengine needed cash to satisfy its large debt obligations and continue running the lab. In addition, by Hunt changing the deal from a cash purchase to a massive loan, it introduced a new unstable contingency to the deal, i.e., the deal now hinged on Don and Hunt reaching their own agreement about using the lab’s assets as collateral for the loan to fund the sale. The jury could reasonably conclude that Hunt, by its conduct, was evading the spirit of the original deal and consequently negotiating in bad faith.
There was other evidence to support the jury’s finding Hunt failed to negotiate in good faith. After one month of negotiating it became clear Extengine was not going to capitulate to all of Hunt’s uncompromising demands and bad faith tactics. Hunt therefore devised and imposed a new pre-sale condition that directly took advantage of Extengine’s vulnerable position with its lender, Birdwell. Hunt took a “show no mercy” stance and insisted Extengine pressure Birdwell to release the UCC-1 loan “before closing” or the deal would not go forward. The jury could reasonably conclude this entirely one-sided and materially different term evaded the spirit of the original deal and the parties’ reasonable expectations: Hunt knew Extengine needed to use cash from the sale to pay the UCC-1 loan and other loans due to Birdwell. As aptly noted by the court in Copeland, contracts today are formed by “a gradual flow of information between the parties followed by a series of compromises and tentative agreements on major points which are finally refined into contract terms.” (Copeland, supra, 96 Cal.App.4th at p. 1262.) Compromises necessarily require a willingness to find some middle ground and cannot occur when one side makes a hard line “show no mercy” kind of demand.
C. The Misrepresentation Claim
The jury made the following findings with respect to the misrepresentation claim: (1) Extengine made a false representation of an important fact to Hunt; (2) Extengine knew the representation was false at the time it was made and intended Hunt to rely on the representation; and (3) Hunt reasonably relied on the representation, but its reliance was not a substantial factor in causing damages to Hunt.
The jury was instructed that if it determined Extengine made a false representation, it also must determine if Hunt’s reliance on the misrepresentation “caused it to continue to pursue the purchase of Extengine’s interest in Olson... and if it would probably not have done so without such misrepresentation.”
Hunt asserts “there is no evidence in the record” to support the finding Hunt’s reliance was not a substantial factor in causing damages. It argues Extengine misrepresented its ability to consummate the transaction and the exclusivity of its negotiations. It concludes damages would “not arise from the failure to close the deal but instead from its reliance on” the misrepresentation and Extengine offered “no evidence” to rebut the fact Hunt incurred damages negotiating the deal.
We conclude this argument is based on the faulty premise the jury concluded Extengine’s misrepresentations concerned both its ability to consummate the transaction as well as the exclusivity of its negotiations. The special verdict did not ask the jury to specify the nature of the false representation. Hunt fails to appreciate Extengine presented evidence disputing it made any misrepresentations, and it cannot be assumed the jury agreed with Hunt’s evidence suggesting the contrary.
The jury could have rejected all but one false representation was made by Extengine. If, for example, the jury found Extengine misrepresented the exclusivity of its negotiations, there was evidence this representation would not have caused Hunt to cease negotiations and incur additional damages. Extengine presented evidence that in March 2007, Hunt encouraged Extengine to consult with Birdwell and secure the UCC-1 release before the deal could close. There are emails supporting Extengine’s claim Hunt knew it was talking to Birdwell about the deal and there were problems securing the UCC-1 release. Birdwell responded to this pressure by making an offer to buy Extengine’s interest in Olson and thereby protect its investment. The jury could have reasonably concluded Extengine’s decision to pursue a deal with Birdwell without telling Hunt amounted to a false representation about exclusivity.
However, this was not the end of the story. Extengine presented evidence that both Roberts and Fragner stated they believed negotiating with Birdwell and transferring the 80 percent interest would ultimately help Hunt with the overall deal. The transfer effectively cleared the perceived roadblock caused by the UCC-1 loan and permitted Hunt to proceed forward and deal directly with Birdwell. Indeed, initially Hunt indicated it wished to push forward with the deal by contacting Birdwell about selling the Olson interest. It also continued to negotiate with Don to secure his 20 percent of the assets needed to fund the loan. Based on the above evidence, the jury could reasonably infer Hunt would not have ceased negotiations if it had learned 10 days earlier about Extengine’s dealings with its affiliate. There was undisputed evidence Hunt had tried to deal with Birdwell initially based on its knowledge Birdwell had invested a great deal of money in Extengine. And there was evidence it tried to make the deal again with Birdwell after Extengine made the transfer. It was reasonable to infer the negotiations would not have ceased if Hunt had been told sooner.
Moreover, Extengine provided evidence its negotiations with Birdwell occurred only after several months of exclusive negotiations with Hunt and only because Hunt imposed an unreasonable condition by requiring a pre-closing release of the UCC-1 loan. The jury could reasonably conclude Hunt incurred no additional costs for the 10 days it was kept in the dark about Extengine’s dealings with Birdwell, especially since Hunt thereafter attempted to resume negotiations with Birdwell. After the transfer to Birdwell, Extengine played no role in Hunt’s inability to make a deal with Don and Birdwell to buy Olson.
D. The Intentional Interference Claim Against Birdwell
In the special verdict the jury made the following findings: Birdwell knew of the contract between Hunt and Extengine, it intended to disrupt the performance of the contract, but this conduct was not a substantial factor in causing Hunt harm. It did not reach the question of whether Birdwell’s conduct was justified. The jury was instructed, “A substantial factor in causing harm is a factor that a reasonable person would consider to have contributed to the harm. It must be more than a remote or trivial factor. It does not have to be the only cause of the harm. [¶] Conduct is not a substantial factor in causing harm if the same harm would have occurred without that conduct.”
Hunt argues the jury’s conclusion Birdwell’s conduct was not a substantial factor in causing harm is not supported by any evidence. Not so. There was ample evidence the deal had fallen apart before Birdwell interfered by making an offer on March 5th. At the end of February, Don told Extengine his side deal with Hunt was not likely to happen because Hunt had substantially changed the terms of the deal. Don did not want to subrogate his 20 percent interest in the lab. Don thought the interest rate of Hunt’s loan was too high, and he did not want to risk his interest in the lab. Similarly, Hunt’s bad faith negotiation tactics and demands for materially new terms prevented it from reaching an agreement with Extengine. Roberts testified Hunt placed Extengine in between a rock and a hard place because it could not afford to satisfy Hunt’s pre-deal condition that it obtain a release of the UCC-1 loan. After over a month of negotiations, the parties still were not close to finalizing a deal. There was ample evidence Hunt’s injuries were not caused by Birdwell’s purchase offer, but caused by Hunt’s bad faith conduct and inability to reach an agreement with Extengine and Don.
E. Punitive Damages
Based on the above findings, we do not need to address Hunt’s request to litigate punitive damages if the case is remanded for a retrial.
Disposition
The judgment is affirmed. Respondents shall recover its costs on appeal.
WE CONCUR: RYLAARSDAM, ACTING P. J., BEDSWORTH, J.