Opinion
H024684.
10-24-2003
MARK MIGDAL, Plaintiff and Appellant, v. BHUPENDRA B. PATEL, et al., Defendants and Respondents.
The trial court granted defendants summary judgment motion on grounds that plaintiff was unable to establish triable factual issues as to the elements of his causes of action for breach of fiduciary duty, fraud and conspiracy, in connection with a business transaction involving the purchase of real estate. Plaintiff appeals from the judgment and from a post-judgment order awarding attorneys fees.
BACKGROUND
The property involved in this case was a 10-acre parcel located at 4290 El Camino Real in Palo Alto. A Hyatt hotel was located on the front part of the property. The rear portion, approximately three and a half acres, was suitable for residential development.
On February 5, 1996, plaintiff Mark Migdal entered into an agreement to purchase the property for the purchase price of $8.5 million. The agreement provided that the purchaser would make a $2 million downpayment and that the seller would finance $6.5 million. Migdal gave an earnest money deposit of $10,000 to hold the property during a 30-day "feasibility period" that would end on March 6, 1996, at which time an additional $490,000 was due. At the close of escrow, scheduled for June 4, 1996, the remaining $1.5 million of the downpayment was due. The agreement provided that the buyer could not assign his rights under the contract without the express written consent of the seller.
Migdal was initially represented by real estate agent Efi Luzon, with the residential division of Cornish & Carey realtors. Migdal was primarily a developer of residential real estate and had worked with Luzon on other development projects. Migdals interest in the Hyatt property was in developing the rear portion of the property for residences. Migdal told Luzon that he could purchase the property by himself, but that he wanted to find a partner to provide the funds necessary to close the sale and to finance the rest of the project, including renovating or replacing the hotel and subdividing lots for residential development. Luzon recommended Michael Tevis, a realtor with the commercial division of Cornish & Carey, as someone who had the contacts to locate a suitable partner to participate in the project. Migdal met with Luzon and Tevis and agreed to pay Cornish & Carey a commission of $400,000 upon the successful completion of the purchase of the property.
In mid-February, Tevis told Migdal that he had found an investor, Bhupendra Patel, who was very interested in the project. Tevis introduced the two men. Neither Tevis nor Patel informed Migdal that Tevis had previously worked with Patel or that during the past year Patel had made two unsuccessful attempts to purchase the Hyatt property. Migdal and Patel met several times with both real estate agents to discuss the terms of a possible joint acquisition and development of the Hyatt property. They eventually came to an agreement regarding the essential terms of such an undertaking on February 22, 1996, at which time Tevis prepared a memorandum setting forth the agreed-upon terms.
The February 22, 1996 memorandum was entitled "Proposal for Joint Acquisition of Hyatt Property." It provided that the parties to the transaction were Patel and Migdal "in a partnership or corporation to be formed." The stated plan was "[t]o redevelop the existing hotel on the property and subdivide off 2 to 6 acres of land to the rear of the property for residential development." Migdal was to contribute $100,000, in addition to his rights in the existing purchase contract, and Patel would provide the balance of the downpayment to purchase the property, and would also provide the funding for development. Patel was to have 100 percent ownership interest in the property. However, Migdal was to have "consultation" regarding the residential portion, and after the residential portion was subdivided, Migdal was to have an option to purchase the residential land at cost. As to "Initial Acquisition," the memorandum provided that the parties would close escrow "through an entity to be determined," provided that the seller approved of an assignment from Migdal to the new entity prior to the time the balance of the non-refundable deposit was due. In a section entitled "Term," the memorandum provided that "[t]his agreement shall terminate upon execution of a Legal Agreement between Migdal and Patel or March 7, 1996 unless earlier terminated in writing by the parties. The commencement date shall be upon execution hereunder." Both parties signed the memorandum on February 22, 1996. Above the signatures, the memorandum provided that "[t]his agreement is not intended to be legally binding and shall only be a legal document when executed in a final legal agreement. The parties, upon execution hereunder, shall work in good faith to execute a definitive legal agreement to be prepared and reviewed by each partys legal counsel."
The following day, February 23, 1996, Migdal signed another memorandum, entitled "Response to Proposal for Joint Acquisition of Hyatt Property," which contained proposed modifications to the previous proposal. It provided, among other things, that the $10,000 earnest money deposited in escrow by Migdal would be refunded to him at the close of escrow, along with costs he had incurred for legal expenses; that Patel would pay 100 percent of the downpayment for the purchase of the property; that Patels 100 percent ownership of the property would be "subject to the requirement for Migdal to retain a position as a general partner in accordance with the assignment provisions of the Purchase Agreement;" that Migdal would have final decision-making control over the residential portion of the property; and that Patel would loan Migdal $650,000, secured by deeds of trust on other property. This memorandum provided that it would expire if not accepted on or before February 26, 1996. Tevis presented it to Patel, who did not sign it, and according to Tevis did not receive it well.
Negotiations continued back and forth over the next week. At least one further memorandum was generated, dated February 29, 1996, and addressed to Patel from Tevis. This memorandum was not signed by either Migdal or Patel. It indicated that "Mark Migdal will proceed with a transaction with BB Patel based upon the following possible deal structures." It set forth two options: one was for Patel to completely buy out Migdal 30 days after the close of escrow for $500,000; the other was for Patel to pay Migdal $250,000 and give Migdal a contract to buy the residential lots from Patel at cost. The memorandum further provided that "[t]he other terms of the negotiations as outlined in the previous memorandums shall be discussed in a meeting after agreement regarding the above business terms." Patel did not agree to either option presented in the February 29, 1996 memorandum. However, counter-proposals including smaller figures and additional terms were penciled in on this memorandum at some later time.
Meanwhile, Patels attorney was preparing a draft of a written partnership agreement, entitled "Agreement of Partnership," which ran to 50 pages in length. This agreement was to be effective March 5, 1996, and it provided for the formation of a general partnership known as the "4290 El Camino Partnership" between Migdal and a corporation formed by Patel. The stated purpose of the partnership was to purchase, hold and develop the Hyatt property. This agreement was never signed by either party.
On March 5, 1996, there was a meeting attended by Migdal, Patel, Luzon, Tevis, Patels attorney, Thomas Jacob, Patels architect, Tony Carrasco, and several others. Migdal believed that the purpose of this meeting was for the parties to sign a formal partnership agreement and to make arrangements for the deposit of the additional $490,000 into escrow. However, at the meeting Tevis informed Migdal that Patel was having reservations about proceeding with any type of partnership arrangement. Patel explained that he felt Migdal was not strong enough financially and that he, Patel, would have to finance the entire project. As this was the last day before the feasibility period was to expire, Migdal was unable to come up with the necessary $490,000 by himself to keep the purchase alive. He believed that he and Patel had a deal, and he had therefore stopped soliciting other possible investors. He testified that he was "shocked" and "in a state of disbelief" at this turn of events in the last moments before the deadline.
According to Migdal, Patel and Tevis were able to convince him that the deal would be lost entirely if the additional $ 490,000 were not placed in escrow that very day. Patel presented a proposal by which he would immediately buy Migdal out for $ 200,000 and Migdal would assign his rights to purchase the property to Patel, whereupon Patel would deposit the necessary $ 490,000 in escrow. Patel said that otherwise he was willing to walk away from the entire transaction. Believing this was his only option for realizing something from the deal, Migdal agreed to accept the $200,000, and he signed a handwritten assignment agreement that was prepared on the spot.
The handwritten assignment agreement signed by both parties on March 5, 1996, provided that Migdal would assign the purchase contract on 4290 El Camino Real to Patel, in consideration for which Patel would pay Migdal $75,000 within three days, another $75,000 at the close of escrow, and $50,000 six months after escrow closed. It further provided that "[t]his agreement will be replaced by a definitive legal document within 1 day of execution." A formal document, entitled "Assignment Agreement," was prepared and dated the next day, March 6, 1996. It set forth the terms of the assignment from Migdal to a limited partnership formed by Patel, known as 4290 El Camino Properties, L.P., of which a corporation formed by Patel was the general partner. It further provided that it "supersede[d] all prior and contemporaneous agreements and understandings between the parties hereto relating to the subject matter hereof." Migdal reviewed this agreement with his attorney and both he and Patel signed it March 6, 1996. A new commission agreement was entered into between Patel and the brokers.
Patel made the additional payment of $490,000 to escrow on March 6, 1996, and eventually closed the purchase of the property on May 1, 1996. He made the promised payments to Migdal under the assignment agreement. When the second payment of $75,000 was seven days late, Migdal wrote to Patel, asking for seven days of interest on the payment and reminding him that their assignment agreement had been entered into "in a good faith, with clear and open intentions, and with a good spirit."
Two and a half years later, on January 22, 1999, Migdal commenced this action against Michael Tevis and Cornish & Carey for breach of fiduciary duty and breach of contract, seeking in excess of $10 million in compensatory damages. He alleged that Tevis had breached fiduciary duties by working directly with Patel to secure a more favorable deal at the expense of his client, Migdal. In a first amended complaint filed January 10, 2000, Migdal added Luzon and Patel as defendants, as well as the two entities formed by Patel in connection with the project, namely 4290 El Camino Properties, L.P., and 4290 El Camino, Inc. As against Patel, Migdal alleged breach of a fiduciary duty on the basis of an oral agreement to jointly purchase and develop the property and share the profits. He alleged he was forced to assign his rights under the purchase contract and that he lost substantial profits he would have made as a partner in the joint venture. He sought rescission of the assignment agreement. In addition, he alleged a conspiracy among all defendants to breach a fiduciary duty, as well as unfair business practices against all defendants. A third amended complaint included a cause of action for fraud against all defendants, and alleged a constructive trust, an accounting, and unjust enrichment against Patel and the El Camino entities.
On December 20, 2001, Patel and the El Camino entities (collectively Patel) filed a motion for summary judgment. The real estate broker defendants filed a separate motion for summary judgment. Both motions were heard together on February 26, 2002. The court issued an order March 3, 2002, granting summary judgment in favor of Patel but denying the broker defendants summary judgment motion. As to Patels motion, the court found that Migdal had failed to establish a triable issue of material fact as to whether a fiduciary relationship existed between Patel and Migdal, and that Migdal had failed to establish a triable issue of material fact as to whether he had justifiably relied on any fraudulent representation made by Patel. Thus the causes of action against Patel for breach of fiduciary duty and for fraud failed. Finally, the court found that all of Migdals other claims against the Patel defendants failed by virtue of these two findings.
Following the entry of judgment on April 10, 2002, Migdal filed a motion for a new trial. The court denied the new trial motion on June 6, 2002. In a post-judgment motion for attorneys fees, the trial court awarded Patel attorneys fees in the amount of $180,000. Migdal appeals from the summary judgment and from the post-judgment award of attorney fees.
SUMMARY JUDGMENT STANDARD OF REVIEW
On appeal from a summary judgment, we conduct an independent review, applying the same three-step process as the trial court. (Burroughs v. Precision Airmotive Corp. (2000) 78 Cal.App.4th 681, 688.) We identify the causes of action for which relief is sought. We then examine the defendants motion to determine whether it shows that "one or more elements of the cause of action . . . cannot be established, or that there is a complete defense to that cause of action." (Code Civ. Proc., § 437c, subd. (p)(2).) If the defendant meets this burden, "the burden shifts to the plaintiff . . . to show that a triable issue of one or more material facts exists as to that cause of action or a defense thereto. The plaintiff . . . may not rely upon the mere allegations or denials of its pleadings to show that a triable issue of material fact exists but, instead, shall set forth the specific facts showing that a triable issue of material fact exists as to that cause of action or a defense thereto." (Code Civ. Proc., § 437c, subd. (p)(2).) "There is a triable issue of material fact if, and only if, the evidence would allow a reasonable trier of fact to find the underlying fact in favor of the party opposing the motion in accordance with the applicable standard of proof." (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850.)
ANALYSIS
Eight causes of action were alleged against Patel: breach of fiduciary duty, fraud, conspiracy to breach a fiduciary duty, unfair business practices, rescission, accounting, constructive trust, and unjust enrichment. Migdal concedes that the last five claims are derivative of the first two. He contends, however, that the conspiracy cause of action stands alone. He thus challenges the trial courts ruling as to breach of fiduciary duty, fraud, and conspiracy.
Breach of Fiduciary Duty
The elements of this cause of action are: 1) the existence of a fiduciary duty; 2) a breach of the fiduciary duty; and 3) resulting damage. (City of Atascadero v. Merrill, Lynch, Pierce, Fenner & Smith, Inc. (1999) 68 Cal.App.4th 445, 483.) Migdal alleged in his third amended complaint that the parties orally agreed to form a joint venture, the essential terms of which were confirmed in the memorandum of February 22, 1996. He alleged that "in forming the joint venture, [he] and Patel created a fiduciary relationship between them." Patel breach his fiduciary duty to Migdal by misappropriating the only partnership asset, namely the contract to purchase the Hyatt property. Patel did this by refusing to perform at the last possible moment, thus forcing Migdal to sell out his partnership interest and lose substantial potential profits.
The existence of a fiduciary duty here depends on whether the parties were in a partnership relationship with each other, since partners or joint venturers have a fiduciary duty to act with the highest good faith towards each other regarding affairs of the partnership or joint venture. (BT-I v. Equitable Life Assurance Society (1999) 75 Cal.App.4th 1406, 1410-1411; Laux v. Freed (1960) 53 Cal.2d 512, 522.) The essential element of a partnership is an "association with the intent to carry on a business for profit." (Holmes v. Lerner (1999) 74 Cal.App.4th 442, 454; Corp. Code, § 16202, subd. (a).) Similarly, a joint venture is an undertaking by two or more persons to carry out a single business enterprise jointly for profit. (Nelson v. Abraham (1947) 29 Cal.2d 745, 749.) "The rights and liabilities of joint adventurers, as between themselves, are governed by the same rules which apply to partnerships." (Boyd v. Bevilacqua (1966) 247 Cal.App.2d 272, 288.) A partnership agreement can be "written, oral, or implied . . . ." (Corp. Code, § 16101, subd. (8).) A joint venture agreement may be informal or oral. (Fitzgerald v. Provines (1951) 102 Cal.App.2d 529, 538.) Whether a partnership or joint venture relationship exists is a question of fact, depending on the intention of the parties. (Billups v. Tiernan (1970) 11 Cal.App.3d 372; April Enterprises, Inc. v. KTTV (1983) 147 Cal.App.3d 805, 820; Boyd v. Bevilacqua, supra, 247 Cal.App.2d at p. 285.)
The basis for Patels summary judgment motion on this cause of action was that there was no relationship between Patel and Migdal giving rise to a fiduciary duty because no joint venture or partnership was ever formed. Patel relied primarily on the portion of the written memorandum of February 22, 1996 that provided it was "not intended to be legally binding and shall only be a legal document when executed in a final legal agreement." It further provided that the parties were to continue to "work in good faith to execute a definitive legal agreement to be prepared and viewed by each parties legal counsel." Patel contended that this language in the memorandum showed, as a matter of law, the parties intent not to be bound to any partnership or joint venture until a formal agreement was prepared and signed. According to Patel, the February 22, 1996 memorandum was simply the first step in a series of negotiations that evolved over the next two weeks and eventually culminated in the binding assignment agreement on March 6, 1996.
Tevis, who drafted the February 22, 1996 memorandum, testified in deposition that it was in the nature of a "term sheet[]," and that it showed the parties were trying to determine whether they could agree on the main business aspects of a joint venture. He explained that "what we were, as Cornish & Carey, trying to do was find out is there a template? Are there basic terms for Mr. Migdal and Mr. Patel? Are those basic terms out there that would make sense to go into a definitive legal agreement? And those basic terms came very close to being agreed to. [& para;] Then at that point, what would have happened, would I assume would have happened, is that Mr. Migdal and Mr. Patel would have gone to an attorney to draft up a legally binding agreement, a legally binding partnership agreement, and until such time that agreement is done, there is no agreement. There is intent to try to work something out. But there is no agreement . . . ." Tevis further explained that "in a buy or a sell or a joint venture, we would have a meeting and would take notes and transcribe them into whats called a nonbinding letter of intent or a memorandum, and there were a variety of those documents which were discussed and negotiated between the 15th of February and the 6th of March, when the assignment agreement was executed. The only agreement that I know was the assignment agreement."
To further support his position that no partnership relationship was formed by the February 22, 1996 memorandum, Patel relied on the memorandum of February 23, 1996, entitled "Response to Proposal for Joint Acquisition of Hyatt Property," in which Migdal proposed some changes in the terms outlined in the previous days memo. Patel contended this indicated that negotiations were in flux and that Migdal was not committed to the terms agreed upon the day before. Patel testified that when he received the February 23, 1996 memorandum, he began to question whether he wanted to be in partnership with Migdal.
As to the third memorandum, dated February 29, 1996, which set forth two proposed options for Patel to buy out Migdal, Patel contended that this memo reflected that the focus of the parties continuing negotiations had shifted from forming a partnership relationship to agreeing on the terms of a buy-out. Tevis stated that he prepared the memo to memorialize discussions he had with Migdal to the effect that Migdal would accept either of the two options to be bought out by Patel. Patel testified that when he saw this memorandum, he realized that the "partnership question is out of question."
Finally, Patel relied on the written assignment agreement of March 6, 1996, which was based on a handwritten agreement of the day before. The March 6, 1996 agreement was signed by both parties and provided that Patel would buy out Migdals contract rights in the property for $200,000. Patel contended this was the culmination of the parties negotiation process. It was reviewed by attorneys for both parties. And it expressly provided that it constituted "the entire agreement between the parties with respect to the purchase and sale of the Property" and that it "supersede[d] all prior and contemporaneous agreements and understandings between the parties hereto relating to the subject matter hereof." Patel pointed out that Migdal later referred to this assignment agreement as one entered into "with clear and open intentions. . . ."
We believe Patels motion was sufficient to show that the parties did not enter into a fiduciary relationship as partners or joint venturers on February 22, 1996. The burden therefore shifted to Migdal to produce evidence that would support a finding that a fiduciary relationship was created. Migdal contends that the February 22, 1996 memorandum reflected that the parties had agreed to be partners in a joint venture to purchase and develop the property, under terms that were mutually acceptable to both of them. He points out that this memorandum, which was two and a half pages long, covered in detail the salient points of their agreement. It set forth the purpose of the undertaking: to refurbish the existing hotel and to subdivide the acreage on the rear portion of the property for residential development. It identified the respective contributions the parties would make and the ownership interests each would have in the property. Although Patel was to be 100 percent owner of the property, Migdal was to have a "first right to purchase the subdivided land" under an option agreement to contain certain identified terms. The memorandum provided that Migdal would assign his rights in the current purchase contract to the new entity formed by the parties and that the seller must approve of any such an assignment. It defined the costs contemplated by the parties. And it referred in several places to the parties undertaking as "this joint venture."
Most telling, Migdal argues, was the "Term" provision, which stated that the parties agreement would commence "upon execution hereunder" and that it would terminate "upon execution of a Legal Agreement between Migdal and Patel or March 7, 1996 unless earlier terminated in writing by the parties." It thus contemplated that it would be effective during this time period or until replaced by a formal writing prepared by the attorneys, or until "terminated." Both parties signed on February 22, 1996, where the agreement designated "ACCEPTED AND AGREED." Migdal testified that he was familiar with letters of intent and had used them from time to time. He stated emphatically that this was not a letter of intent but rather was a binding agreement that was the result of days of face-to-face meetings and negotiations. As Migdal explained, "it was clear that we agreed; otherwise, we wouldnt have signed the document outlining this agreement."
The question whether a joint venture was formed, thus giving rise to fiduciary duties and responsibilities, depends on the parties intent. (Boyd v. Bevilacqua, supra, 247 Cal.App.2d at p. 285.) Where there is a writing setting forth the terms of an agreement, intent is determined first by an examination of the language; if the parties clearly express their intent in a writing, the language itself governs the interpretation of the writing. (Civ. Code, §§ 1638, 1639; Gerdlund v. Electronic Dispensers International (1987) 190 Cal.App.3d 263, 277; General Star Indemnity Co. v. Superior Court (1996) 47 Cal.App.4th 1586, 1592.) Here the February 22, 1996 memorandum, signed by both parties, clearly stated that it was "not intended to be legally binding and shall only be a legal document when executed in a final legal agreement." It further provided that the parties, upon signing the memorandum, "shall work in good faith to execute a definitive legal agreement to be prepared and reviewed by each parties legal counsel." Thus on its face the memorandum reflected that it was not a binding partnership/joint venture agreement. Rather it defined itself as an agreement on terms that would be acceptable to both parties for a joint venture to be formed at a later date, after further negotiation and upon execution of a formal agreement. In other words, it was an agreement to create a joint venture rather than an agreement creating a joint venture. (See, e.g., Pacific Hills Corp. v. Duggan (1962) 199 Cal.App.2d 806, 814 ["the parties have not entered into a joint venture; they have only agreed to do so."].)
Recognizing the obstacle posed by the express provision in the February 22, 1996 memorandum that it was "not intended to be legally binding" until a "definitive legal agreement" was prepared by the attorneys and executed by the parties, Migdal offers several responses. First, he argues that there was evidence showing that he and Patel formed a binding oral partnership agreement on February 22, 1996, even though they agreed to sign a more comprehensive writing later. Second, he argues that there was both a patent and a latent ambiguity in the February 22, 1996 memorandum agreement, and that the extrinsic evidence was in conflict as to the meaning of the language "not intended to be legally binding." Finally, he contends that even if no binding partnership agreement was formed, a fiduciary relationship can arise from negotiations to form a joint venture and there was evidence to support such a finding in this case.
As to the first point, appellant cites the rule that "when the parties orally agree upon all the terms and conditions of an agreement with the mutual intention that it shall thereupon become binding, the mere fact that a formal written agreement to the same effect is to be prepared and signed does not alter the binding validity of an oral agreement." (Stephan v. Maloof (1969) 274 Cal.App.2d 843, 848; Mann v. Mueller (1956) 140 Cal.App.2d 481, 487.) Numerous cases have applied this rule to find a binding contract where parties have entered into oral agreements or written memoranda based upon a mutual agreement on terms, but subject to a formal written agreement to be prepared at some later date. (Skirball v. R.K.O. Radio Pictures, Inc. (1955) 134 Cal.App.2d 843; Goad v. Rogers (1951) 103 Cal.App.2d 294; Woodward v. Schwartz (1960) 181 Cal.App.2d 360; Krantz v. BT Visual Images, L.L.C. (2001) 89 Cal.App.4th 164.) As respondent points out, however, in none of these cases was there also a writing signed by the parties containing an express provision that their agreement was not to be legally binding until the formal agreement was executed. In such a case, where the parties have expressed their intent in a writing, different rules apply.
It is an established principle of contract formation that "[w]here . . . there is a manifest intention that the formal agreement is not to be complete until reduced to a formal writing to be executed, there is no binding contract until this is done." (Smissaert v. Chiodo (1958) 163 Cal.App.2d 827, 830-831; Store Properties, Inc. v. Neal (1945) 72 Cal.App.2d 112, 116 ["if parties contemplate a reduction to writing of their agreement before it can be considered complete, there is no contract until the writing is signed."]) " `When it is part of an understanding between the parties that the terms of the contract are to be reduced to writing and signed by them, there is no binding agreement until a written contract is signed. " (Forgeron Inc. v. Hansen (1957) 149 Cal.App.2d 352, 360; Louis Lesser Enterprises, Ltd. v. Roeder (1962) 209 Cal.App.2d 401; Kruse v. Bank of America (1988) 202 Cal.App.3d 38, 59.) Under these rules, as a matter of law, the parties oral agreement was not binding because the written expression of that agreement stated that it was not intended to be binding.
Appellant next claims that the February 22, 1996 memorandum was ambiguous and thus extrinsic evidence was admissible to show what the parties intended the writing to mean. He contends that it contained a patent ambiguity in that the provision that it was "not intended to be legally binding" was inconsistent with other language indicating that the parties had "ACCEPTED AND AGREED" to the terms, and that the agreement was to last at least until "terminated" by certain occurrences. Furthermore, he argues there was also a latent ambiguity in the "legally binding" provision because it was reasonably susceptible to his interpretation of its meaning. Migdal explained his interpretation of this provision as follows: "[W]e came up with agreement outlining relationship in the partnership to be formed. The agreement we signed on February 22, I believe, contemplated us using an attorney to convert this agreement in the form of partnership agreement in a recordable form for the office of Secretary of State, [] somewhere between that date and before 5th of March . . . ." "As far as Im concerned, we agreed on something. We shook hands. We had numerous meetings, one after another, where we were coming closer and closer to each others position, and finally, Mike Tevis summarized the meeting, which he, in his mind, assumed as a meeting of minds between me and Patel, put this on the paper, and then we signed it. . . . [& para;] . . . If I remember correctly, Mike Tevis advised me that the document in this form could not be filed with Secretary of State. He suggested that myself and Mr. Patel would use services of Tom Jacob in order to finish all this little paperwork around this and make it in the form legally fileable with Secretary of State." Thus in Migdals view, the "legally binding" language related to the filing requirements of a partnership with the Secretary of State, and did not mean that there was no binding joint venture formed between the parties.
In interpreting a written agreement, a court must first consider extrinsic evidence regarding the circumstances of the agreement in order to determine whether the agreement is reasonably susceptible to the interpretation contended for. (Pacific Gas & E. Co. v. G. W. Thomas Drayage etc. Co. (1968) 69 Cal.2d 33, 40; Winet v. Price (1992) 4 Cal.App.4th 1159, 1165.) If the court decides, after considering the evidence, that the language of the contract in light of all the circumstances is fairly susceptible of either of the two interpretations argued by the parties, there is an ambiguity and thus extrinsic evidence that is relevant to prove either of such meanings is admissible and the matter becomes an issue for the trier of fact. (Pacific Gas & E. Co. v. G. W. Thomas Drayage etc. Co., supra, 69 Cal.2d at p. 40; Gerdlund v. Electronic Dispensers International, supra, 190 Cal.App.3d at p. 272.) As to this threshold determination whether there was an ambiguity in the writing in light of the evidence, that is a legal determination that we review de novo on appeal from an order granting summary judgment. (City of Chino v. Jackson (2002) 97 Cal.App.4th 377, 385; Appleton v. Waessil (1994) 27 Cal.App.4th 551, 554-555.) Summary judgment is improper in a case based upon a written instrument if the writing contains an ambiguity that is reasonably susceptible to two different interpretations. (Solis v. Kirkwood Resort Co. (2001) 94 Cal.App.4th 354, 361; WYDA Associates v. Merner (1996) 42 Cal.App.4th 1702, 1710.)
Applying these rules, we conclude that Migdals evidence of the circumstances surrounding the drafting of the February 22, 1996 memorandum, including evidence that both parties thought they had a "deal," does not create an ambiguity in the provision stating that "this agreement is not intended to be legally binding." Extrinsic evidence can never be used to vary written terms or where it directly contradicts the usual and ordinary meaning of the language used. "Testimony of intention which is contrary to a contracts express terms . . . does not give meaning to the contract: rather it seeks to substitute a different meaning." (Gerdlund v. Electronic Dispensers International, supra, 190 Cal.App.3d at p. 273.) Furthermore, "[a] partys subjective intent cannot be used to create an ambiguity or a material factual issue." (Havstad v. Fidelity National Title Ins. Co . (1997) 58 Cal.App.4th 654, 661; Winet v. Price, supra, 4 Cal.App.4th at p. 1166; see also Yount v. Acuff Rose-Opryland (9th Cir. 1996) 103 F.3d 830 [evidence of subjective uncommunicated intent of one party to a contract cannot be used to later contradict express terms of the contract].) A court "will not strain to find an ambiguity where none exists . . . ." (Firemens Fund Ins.Co. v. Superior Court (1997) 65 Cal.App.4th 1205, 1212.) Here the "not . . . legally binding" language is a clear statement of the parties intent. It is not "reasonably susceptible" of the contrary interpretation that the parties did in fact intend the February 22, 1996 memorandum to be a binding joint venture agreement. (Pacific Gas & E. Co. v. G. W. Thomas Drayage etc Co., supra, 69 Cal.2d at p. 37.) Thus even though there may be conflicts in the extrinsic evidence offered by the parties, this is not sufficient to overcome summary judgment because such evidence is legally irrelevant and inadmissible. (Winet v. Price, supra, Cal.App.4th at pp. 1165-1166; Tahoe National Bank v. Phillips (1971) 4 Cal.3d 11, 23.)
We acknowledge that the February 22, 1996 memorandum bears some indicia of a contract. It states throughout that it is an "agreement," it outlines a number of terms, and the parties both signed under the heading "ACCEPTED AND AGREED." However, this does not give rise to an ambiguity in the provision that it was not intended to be legally binding. Rather than creating a binding partnership relationship, the memorandum indicated that the parties had reached an understanding as to basic terms, and that they were willing to form an entity based upon those terms and/or others that might be negotiated in the process of developing a formal partnership agreement. It set forth "the terms and conditions of an agreement to be documented between the parties regarding development and acquisition of the [the property]." It identified the two parties and provided that they would participate in an entity "to be formed" and that escrow would close through "an entity to be determined." This language is characteristic of an agreement to agree. (See Louis Lesser Enterprises, Ltd. v. Roeder, supra, 209 Cal.App.2d 401.)
This brings us to appellants next argument, which is that an agreement to negotiate an agreement can give rise to fiduciary duties even if no formal partnership is formed, based on the principle that "[a] fiduciary or confidential relationship may arise whenever confidence is reposed by persons in the integrity and good faith of another." (City of Atascadero v. Merrill, Lynch, Pierce, Fenner & Smith, Inc., supra, 68 Cal.App.4th at p. 483.) If one person accepts the confidence of another, "he or she may not act so as to take advantage of the others interest without their knowledge or consent." (Ibid.) The City of Atascadero case is distinguishable from our case. Plaintiffs in that case were beneficiaries of a statutory investment trust who sued the investment firm that advised the trustee, alleging among other things active concealment, fraudulent misrepresentations, self-dealing for financial gain, and direct participation in the trustees breach of fiduciary duty to the beneficiaries. The court found these allegations sufficient to overcome a demurrer as to a cause of action for breach of a fiduciary duty, even though the investment firm was not a direct fiduciary of the beneficiaries.
The other case relied on by appellant is also distinguishable. (Solomont v. Polk Development Co. (1966) 245 Cal.App.2d 488.) In that case defendant solicited plaintiffs to purchase interests in a limited partnership for the purpose of developing and holding real property. Partnership agreements were signed but certain technicalities were not observed. The property was eventually developed and was transferred to the partnership, which operated it for approximately three years until it was lost on foreclosure. Plaintiffs then sued to recover their initial contributions and to rescind the original partnership agreement, contending that a partnership had never been validly formed and that defendant had misappropriated their contributions in the course of developing the property. The court of appeal found that the parties were in a fiduciary relationship with each other despite technicalities preventing the lawful formation of a partnership. The court observed that such a relationship "can arise during negotiations for the partnership." (Id. at p. 495.)
The facts of our case, however, are quite different from both Atascadero and Solomont. These were arms length negotiations between two experienced businessmen to acquire and develop property in some form of partnership. Migdal was not in the position of beneficiary of a trust, as in Atascadero. No partnership agreements or purported partnership agreements were signed as in Solomont. No monies exchanged hands. The parties agreed on basic terms, but expressly provided that their agreement was not to be legally binding. No trust or fiduciary relationship was formed by these circumstances.
Closely similar to our case is Rennick v. O.P.T.I.O.N. Care, Inc. (1996) 77 F.3d 309 (Rennick). In Rennick, the parties reached an understanding as to basic terms of a franchise agreement after lengthy negotiations. They "formalize[d] the deal by a handshake" " `before getting lawyers involved. " (Id. at pp. 311-312.) Thereafter a letter of intent was prepared memorializing the oral agreement. It provided that the understandings reached at the face-to-face meeting were "directed toward the creation of a binding interim agreement and other contracts designed to implement various proposed relationships among the parties." (Id. at p. 312.) It further provided that the signatories confirmed "their intent to continue good faith discussions directed toward the creation of formal written contracts that . . . will be executed. . . ." Finally, it provided that "this letter of intent is of no binding effect on any party hereto" and that, upon acceptance by both parties of the terms contained in the letter of intent, counsel would be directed to complete "the final formal documentation." (Id. at p. 313.) All parties signed the letter of intent. However, no formal agreement was ever signed and the deal fell through. As here, plaintiffs case in Rennick was based on the theory that a binding contractual relationship was formed at the meeting where all parties shook hands, and that this was evidenced by the agreement set forth in the letter of intent signed by the parties. Summary judgment was granted for defendants, and the court affirmed on appeal.
Applying California law, the court in Rennick found that no contract was made as a matter of law because the parties clearly indicated their intent not to be bound. A letter of intent, the court explained, is "a writing documenting the preliminary understandings of parties who intend in the future to enter into a contract." (Rennick, supra, 77 F.3d at p. 315.) Its purpose is " `to provide the initial framework from which the parties might later negotiate a final . . . agreement, if the deal works out. " (Ibid.) Commonly such a document is used "so that people negotiating toward an agreement, who do not yet have one, can get their preliminary inclinations down on paper without committing themselves. This avoids a misunderstanding that a commitment has been made. It also has value in preserving a common understanding of what has been talked about in earlier negotiations, before spending the time and money on later negotiations, and justifies further expenditures on attorneys and others." (Ibid.) "All these purposes are defeated if what was meant to be a nonbinding letter of intent is allowed to form the basis for a damages award. Letting a nonbinding letter of intent go to a jury as a possible basis for compensatory and perhaps punitive damages makes it too risky to sign one, so negotiators are deprived of this useful intermediate device between vague feelers and a binding contract." (Ibid.)
The court acknowledged that a letter of intent could be binding under circumstances indicating it was so intended. However, as in our case, the parties letter in Rennick expressly stated that it was not intended to be binding. The court rejected appellants arguments that the language of the letter could also be read to indicate that mandatory obligations were meant to be imposed. In context, the court explained, this language indicated only that the obligations would be imposed if a binding contract were entered into after further negotiations. " `Preliminary negotiations or an agreement for future negotiations are not the functional equivalent of a valid, subsisting agreement." Rennick, supra, 77 F.3d at p. 315; quoting Kruse v. Bank of America, supra, 202 Cal.App.3d at p. 59.) "[T]here is no contract where the objective manifestations of intent demonstrate that the parties chose not to bind themselves until a subsequent agreement is made. (Rennick, supra, at p. 316; Beck v. American Health Group Internat. Inc. (1989) 211 Cal.App.3d 1555.)
One of the claims made by plaintiffs in the Rennick case, as here, was that defendant breached a fiduciary duty to them as joint venturers. Whether there was a joint venture, the court noted, depends wholly on the parties intent. (April Enterprises, Inc. v. KTTV, supra, 147 Cal.App.3d at p. 820 .) The court in Rennick found that the meeting where the parties shook hands on the basic terms and agreed to negotiate a formal contract did not create a joint venture because the letter of intent clearly indicated that defendants had not yet agreed to engage in a joint venture or any other kind of continuing relationship. The court squarely held that "[b]usiness negotiation does not create a fiduciary relationship." (Rennick, supra, 77 F.3d at p. 317.)
We find summary judgment was proper as to the cause of action for breach of fiduciary duty. The February 22, 1996 memorandum unambiguously provided that it did not create a binding joint venture or partnership relationship between the parties. Migdals evidence to the contrary is not sufficient to create a triable issue of fact in light of the nonbinding nature of the February 22, 1996 memorandum. No joint venture was ever formed between these parties. Thus no fiduciary duty arose under these circumstances as a matter of law.
Fraud
The elements of fraud are: (1) a misrepresentation of a material fact or concealment of a fact that defendant is under a duty to disclose, (2) knowledge of the falsity, (3) intent to defraud plaintiff and induce reliance, (4) justifiable reliance by plaintiff, and (5) resulting damage. (Lovejoy v. AT&T Corp. (2001) 92 Cal.App.4th 85, 93; Marketing West, Inc. v. Sanyo Fisher (USA) Corp. (1992) 6 Cal.App.4th 603, 612-613.) With regard to his ninth cause of action for fraud, Migdals third amended complaint alleged that Patel had represented that he agreed to the terms of a joint venture, including contributing the funding for the project, and that Patel had assured Migdal that a formal agreement would be executed on March 5, 1996. Patel further represented that he would deal fairly in their joint venture, that he would provide funding for the joint venture, and that the parties would share profits. Patel made these representations to induce Migdal to rely on them, and Migdal did rely by ceasing to look for other investors and by not making other arrangements to obtain the $490,000 by the end of the feasibility period. He relied on Patel being his partner and funding the project. Patel knew the representations were false and made them with intent to defraud and deceive Migdal.
At summary judgment defendants contended that there was no evidence of any material misrepresentation by Patel or justifiable reliance by Migdal. The parties had simply engaged in arms length negotiations. The February 22, 1996 memorandum represented an initial agreement as to one possible structure for the transaction, but the parties continued to negotiate. Their negotiations culminated in the March 6, 1996 assignment contract that evidenced the final expression of their agreement and expressly superseded all prior agreements. As Migdal himself later noted in a letter to Patel dated May 8, 1996, this assignment contract was "entered into . . . in a good faith, with clear and open intentions . . . ." According to Patel, there could be no justifiable reliance because the February 22, 1996 memorandum was expressly made nonbinding.
In his response to the summary judgment motion, Migdal contended that there were triable factual issues regarding misrepresentations by Tevis and Patel that raised further issues regarding reliance. He introduced evidence showing that Patel had been trying unsuccessfully for the past year to purchase the Hyatt property and that he had been previously represented by Tevis in these efforts. Migdal submitted further evidence that Tevis told him Patel was the only prospect, even though there were actually other investors available and willing besides Patel. According to Migdal, Tevis and Patel both assured him that Patel would be his partner in the Hyatt transaction and that he need not look any further for investors. They intended him to rely on these representations, knowing that Patel would refuse to perform at the last moment. Believing he had a partner, Migdal took no further steps to find other investors or to obtain the $490,000 himself. He was therefore unable to come up with the additional funds at the last minute and was forced to accept Patels offer of $200,000 in exchange for assigning all of his rights in the property. Meanwhile, unbeknownst to him, Patel had lined up another purchaser for the rear portion of the property that Migdal was to have received under the parties partnership agreement.
Reliance on promises made in an agreement that the parties acknowledge is not binding and enforceable is unreasonable as a matter of law. (Phillippe v. Shapell Industries, Inc. (1987) 43 Cal.3d 1247.) "If a party refuses to be bound, yet the other changes its position in reliance on the expectation that a contract will be made, reliance on the expectation cannot turn the non-promise into a contract." (Rennick v. O.P.T.I.O.N. Care, Inc., supra, 77 F.3d at p. 317.) In Kruse v. Bank of America, supra, 202 Cal.App.3d at pp. 47-48, plaintiff asserted that the bank had fraudulently repudiated a promise to fund a long-term loan. The court found that promises occurring in the course of negotiations or in an agreement for a future agreement were not enforceable promises. "The evidence of such contingent expectations and negotiations is far removed from a binding promise to lend money and also negates any reasonable reliance upon the banks alleged misrepresentations." (Id. at p. 64.)
We believe these rules apply here to negate Migdals cause of action for fraud against Patel. Migdal could not justifiably rely on promises made during discussions or negotiations because the written memorandum summarizing these discussions expressly stated that it was not binding. (See Laks v. Coast Fed. Sav. & Loan Assn. (1976) 60 Cal.App.3d 885, 893.) Furthermore, he himself stated that the assignment agreement of March 6, 1996, which superseded all previous agreements, was entered into in good faith and with "clear and open intentions." Summary judgment was proper on this cause of action.
Conspiracy
In order to maintain an action for conspiracy, plaintiff must allege that defendant had knowledge of and agreed to both the objective and the course of action that resulted in the injury, that there was a wrongful act committed pursuant to that agreement, and that there was resulting damage. (See, Quelimane Co., Inc. v. Stewart Title Guarantee Co. (1998) 19 Cal.4th 26, 47.) Civil conspiracy is not an independent tort. (Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 510-511.) Rather it is a " `legal doctrine that imposes liability on persons who, although not actually committing a tort themselves, share with the immediate tortfeasors a common plan or design in its perpetration. [Citation.]" (Kidron v. Movie Acquisition Corp. (1995) 40 Cal.App.4th 1571, 1581.)
The third cause of action in Migdals third amended complaint was entitled "Breach of Fiduciary Duty Based on Conspiracy." It alleged that Patel and the broker defendants conspired with each other to defraud Migdal and breach fiduciary duties owed to him, and to commit "other wrongful acts" for the purpose of forcing Migdal to lose his rights in the Hyatt property for their financial gain.
As discussed above, the negotiations between Migdal and Patel in this case did not give rise to any fiduciary duties. Furthermore a cause of action for fraud could not be alleged against Patel under the circumstances of this case because there could be no justifiable reliance as a matter of law on statements that were expressly made nonbinding. At summary judgment Patel argued that because Migdal could not maintain an action against him for breach of fiduciary duty or for fraud no cause of action for conspiracy to commit these torts could be alleged.
Migdal argues that the trial court committed error in granting summary judgment on this basis because a co-conspirator can be liable for all resulting damage even if he or she did not commit the tort that was the object of the conspiracy, so long as the co-conspirator knew of the unlawful objective of the conspiracy and intended to aid in achieving that objective. (Wyatt v. Union Mortgage Co. (1979) 24 Cal.3d 773, 784-786; Schick v. Lerner (1987) 193 Cal.App.3d 1321.) As Migdal recognizes, however, a co-conspirator cannot be liable for breach of a duty he does not legally owe. As explained by the Supreme Court, the "invocation of conspiracy does not alter th[e] fundamental allocation of duty. Conspiracy is not an independent tort; it cannot create a duty or abrogate an immunity. It allows tort recovery only against a party who already owes the duty and is not immune from liability based on applicable substantive tort law principles." (Applied Equipment Corp. v. Litton Saudi Arabia Ltd., supra, 7 Cal.4th at p. 514.) Simply put, "a nonfiduciary cannot conspire to breach a duty owed only by a fiduciary." (Kidron v. Movie Acquisition Corp., supra, 40 Cal.App.4th at p. 1597.)
Migdal argues that there is an exception to this rule where the co-conspirator, although himself owing no duty to plaintiff, "acts in furtherance of its own financial gain." (Mosier v. Southern California Physicians Insurance Exchange (1998) 63 Cal.App.4th 1022, 1048.) Recent authority clarifies, however, that this is an exception that applies only where the nonfiduciary is an employee or agent of the fiduciary. (Everest Investors 8 v. Whitehall Real Estate Limited Partnership XI (2002) 100 Cal.App.4th 1102, 1104.) Indeed the court in Mosier relied on authority discussing co-conspirator liability in the context of an agents immunity. (See, e.g., Doctors Co. v. Superior Court (1989) 49 Cal.3d 39, 44; Skarbrevik v. Cohen, England & Whitfield (1991) 231 Cal.App.3d 692, 709.) Furthermore, in Mosier, there was an independent basis for defendants liability for breach of fiduciary duties. We believe Everest correctly states the law. Since Patel was a "nonfiduciary [and] neither an employee nor agent of the fiduciary, [he] is not liable to the plaintiff on a conspiracy theory because a nonfiduciary is legally incapable of committing the tort underlying the claim of conspiracy (breach of fiduciary duty)." (Everest Investors 8 v. Whitehall Real Estate Limited Partnership XI, supra, 100 Cal.App.4th at p. 1104.) Summary judgment was therefore proper as to Migdals third cause of action for "Breach of Fiduciary Duty Based on Conspiracy."
To the extent that Migdals complaint alleged constructive fraud based on breaches of fiduciary duties of disclosure, these allegations cannot give rise to liability against Patel, under the rules stated above. To the extent that Migdal alleged that Patel participated in a conspiracy to commit actual fraud, his status as a nonfiduciary does not automatically shield him from liability. (See Applied Equipment Corp. v. Litton Saudi Arabia Ltd., supra, 7 Cal.4th at pp. 512-513; Younan v. Equifax Inc. (1980) 111 Cal.App.3d 498, 515-517.) Here, however, the core allegations were that Patel and the brokers perpetuated a fraudulent scheme to deprive him of his interest in the property by assuring him that Patel would participate in the joint venture and would provide the funding for the transaction. As we have discussed, Migdals reliance on these promises was not justifiable as a matter of law because they were expressly made nonbinding. Therefore a cause of action for conspiracy to defraud cannot lie.
Attorney Fees
Migdal separately appealed from the order granting attorneys fees to Patel. He argues only that the fee award must be reversed if this court reverses the summary judgment. Since we affirm the summary judgment, the fee award is also affirmed.
DISPOSITION
The judgment in favor of Patel is affirmed. The post-judgment order awarding attorneys fees to Patel is affirmed.
WE CONCUR: PREMO, ACTING P.J., and ELIA, J.
In the briefing on appeal Migdal represents that the brokers eventually settled with him.