Opinion
A150554
08-03-2018
BRITT MILLER, Plaintiff and Respondent, v. WILLIAM FLEMING, Defendant and Appellant.
ORDER MODIFYING OPINION AND DENYING REHEARING NO CHANGE IN JUDGMENT THE COURT:
It is ordered that the opinion filed herein on August 3, 2018, be modified as follows:
1. On page 12, part II.B., after the first sentence of that section which begins "The key question," add as footnote 6 the following footnote, which will require renumbering of all subsequent
6 In his opening brief and petition for rehearing, Fleming argues this court should look to the California Supreme Court's decision in City of Hope National Medical Center v. Genentech, Inc. (2008) 43 Cal.4th 375, 386, to assess whether a fiduciary relationship existed in this case. Neither our majority opinion nor the dissent discussed that authority in the opinion filed on August 3, 2018. We add this footnote to explain we did not address the case previously because it is factually inapposite and unhelpful to the resolution of this appeal. In City of Hope, the California Supreme Court considered whether "an agreement to develop, patent, and commercially exploit a secret scientific discovery in exchange for the payment of royalties is the type of relationship"
which imposes a fiduciary obligation as a matter of law. (Id. at p. 386.) Our high court observed that while partnerships and joint ventures are illustrative of the type of relationships which impose fiduciary duties by law, the contract in that case expressly stated the parties' relationship was not a "joint venture, partnership, or agency" and City of Hope conceded the fiduciary relationship did not rest on that basis. (Ibid.) The court did not analyze or discuss the question we consider here—whether substantial evidence supported the trial court's finding of a partnership.
There is no change in the judgment.
Appellant's petition for rehearing is denied. Dated:
/s/_________
Margulies, Acting P.J.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (San Mateo County Super. Ct. No. CIV480548)
Plaintiff Britt Miller sued William Fleming for breach of fiduciary duty and breach of oral contract, alleging he had entered an oral partnership with Fleming to share profits on commercial real estate opportunities they agreed to pursue together. Following a bench trial, the trial court found in Miller's favor on his breach of fiduciary duty claim and awarded him $3.7 million in compensatory damages. Fleming challenges the trial court's decision, arguing no substantial evidence supported the finding Miller and Fleming had entered a partnership, and the damages award is both excessive and unsupported by the evidence. Fleming also argues the trial court erred in awarding expert fees based on an invalid Code of Civil Procedure section 998 (section 998) offer. We reverse the order awarding costs under section 998, but otherwise affirm.
I. BACKGROUND
A. Factual Background
1. Britt Miller and William Fleming
Britt Miller met William Fleming in 2005, when Miller was working as analyst and underwriter for Steelhead Capital, a mortgage brokerage. Steelhead Capital shared an office space with several other companies, including Virtu Investments, LLC (Virtu Investments), a real estate investment company. The year before he met Miller, Fleming's own company, California Acquisition and Development Company, LLC (CADC), entered a joint venture with Virtu Investments called Virtu Commercial, LLC (Virtu Commercial) to acquire, manage, and sell commercial real estate projects. Virtu Commercial was located in the same office space as Virtu Investments and Steelhead Capital.
Over the course of several months, Fleming began trying to convince Miller to join him at Virtu Commercial "to go and buy real estate and really grow that side of the business." Fleming told Miller he wanted to take a " 'team approach' " to the Virtu Commercial platform, and have Miller join him as an actual member or owner at Virtu Commercial. During their discussions, however, Fleming complained to Miller about the difficulty of making money under his arrangement with Virtu Commercial for two reasons: (1) there was a cap on his ability to earn asset management fees, such that more deals did not result in higher pay, and (2) the strict requirements for internal return on investment meant he had to pass on potentially profitable opportunities. Fleming told Miller the way to address that "was to create between [Miller and Fleming], a partnership that would pursue properties that Virtu would not move forward on." Fleming explained that for any opportunity he or Miller brought in, they would take it to Virtu. If Virtu decided not to pursue the opportunity, Fleming and Miller could move forward.
In November 2006, Miller sent Fleming an e-mail, asking him to "put together some rough numbers of potential deal flow (based on what you know right now & forecast), compensation, B share upside, and any other income opp's (realistically) that could materialize from our 'entity' within the Virtu model." Fleming responded with an estimate of potential compensation from Virtu Commercial deals, and added, "In three years or sooner, if we were doing even $20 million of our own deals (core deals with lower fees) you could be making an additional $150,000-$200,000/yr."
Although Miller referred at times to their entity "within Virtu Commercial," he explained their partnership to pursue deals Virtu passed on was separate from Virtu Commercial. He used the term "within" because he and Fleming were to bring business opportunities to Virtu Commercial first and pursue only those it turned down.
Shortly thereafter, Fleming and Miller met for lunch to discuss, among other things, how their proposed entity to pursue side deals would work. Fleming explained they would be compensated for purchases they would be doing outside of Virtu Commercial by a combination of "the B shares, the promote and asset management fees," and told Miller they would both be "participating." Though they did not discuss specifically how they would finance the deals, Fleming made clear that both he and Miller would have to work to obtain the debt or equity for the projects.
In January 2007, Miller and Fleming went to a real estate conference in Sacramento. During the drive to the conference they further discussed "opportunities within Virtu Commercial that Virtu passed on, what that would look like, what expectations were." Fleming coined the phrase "WFBM," a combination of their initials, to describe their partnership to pursue side deals Virtu did not want. At dinner in Sacramento with four friends of Miller's who were involved in real estate, Fleming told Miller's friends, "I'm trying to recruit your buddy here as my partner, but he's a tough sell."
While they were in Sacramento, Miller also introduced Fleming to some of his friends who were involved in real estate. Miller and Fleming met with Kevin Partington, a real estate broker. Fleming told Partington about properties (1) Virtu Commercial would be interested in; and (2) properties that did not fit Virtu Commercial's criteria, which Fleming and Miller would want to purchase outside of Virtu Commercial. Fleming asked Partington to look for properties he and Miller could pursue.
During the first three months of 2007, Miller discussed with Fleming how compensation would work both under the Virtu Commercial platform and through "WFBM." Miller consulted with Sean Aguilar, a colleague at Steelhead Capital, who agreed with Miller the projected asset management fees from deals with Virtu Commercial would not be sufficient income. When he conveyed that information to Fleming, Fleming told Miller the "solution" was that they would "be buying 20 to 30 million WFBM that Virtu Commercial passed on."
Miller testified: "[W]hen going through 20 million in acquisitions for WFBM and working through those numbers with [Fleming], we went through everything from asset management fee to what the promote would be to the acquisition fee. We arrived at a number and we spoke there about splitting it 50/50." As far as the "terms" of the WFBM arrangement, Miller and Fleming discussed "we were going to do 20 million, and that we'd both be responsible for everything from getting the debt, we'd have to raise equity, we'd both be responsible and we'd be partners." Regarding the type of properties they would be pursuing, Miller and Fleming discussed "look[ing] at everything under commercial real estate; it was that broad. Anything that we could make money on that fell under . . . commercial real estate." Miller testified he and Fleming formally agreed to form the WFBM partnership in Fleming's office in June 2007, and Fleming consistently referred to Miller as his "partner" in the months thereafter. Miller went to work for Virtu Commercial in July 2007.
2. "WFBM" Work
Although they never purchased a property together, Miller and Fleming evaluated a number of properties as possible WFBM transactions. While at the real estate conference in Sacramento, they visited four properties and specifically discussed pursuing one of them, Lincoln Village, as their first deal for the WFBM partnership. Fleming told Miller he liked the diversity of the tenant mix and price per square foot at Lincoln Village. Though the return on investment was not high enough for Virtu Commercial, Fleming thought he and Miller could pursue it and obtain a good return. Fleming wrote an e-mail to Miller saying in relevant part: "We should write an offer next week based on what the model looks like; this deal will not meet Virtu's 25% IRR. Would you want to run this project if we could get control? If we buy it and you were the asset manager, it could probably pay $ $2,500 to 3,000/mo. in fees." Fleming was excited about the Lincoln Village property, and told Miller it was a great property for the two of them to own if Virtu passed on it. Fleming said it was both a good opportunity for Miller to get fees and for Fleming and Miller to further build their network and number of properties under management.
On May 3, 2007, Fleming sent Miller an e-mail that said: "Rome was not built in a day! We need to start building our empire! I'd like to start discussing a business plan." Miller and Fleming discussed their business plan, including what markets they would be targeting, what brokers they would engage, and what Miller would be doing—from performing underwriting, to "prospecting" himself, to looking at buildings. Miller testified they were "drilling down on how [they] were going to ramp up very quickly," and immediately after that WFBM had three to four properties that fit its criteria.
In June or July 2007, Kevin Partington sent Miller a prospectus about the Bradshaw office park building in response to Fleming's request for leads on WFBM opportunities. Fleming and Miller exchanged e-mails about preparing a letter of intent with respect to the Bradshaw property as a WFBM purchase. Fleming asked Miller if he had talked with Partington, and wrote: " 'I think it makes sense at $120-square foot, but I do want to know how we finance it before we draft an offer.' " Miller testified that unlike a Virtu Commercial deal, Fleming and Miller were both responsible for figuring out how to finance the potential purchase. Fleming and Miller talked to one broker Fleming knew and Miller reached out to other brokers about what type of debt could be supported to acquire the property.
Fleming and Miller also discussed acquiring One Empire, a Dallas, Texas multi-tenant office building, as a WFBM deal. Fleming told Miller he had approached Mike Green about Fleming and Miller pursuing it together outside of Virtu Commercial. Fleming sent Miller an e-mail which said: "I didn't get to the Argus run for One Empire, but I did speak with Mike and he told me to do whatever I wanted. If we do it and Virtu doesn't, we agreed to work it out. Let's look at the numbers and make a final decision. The broker told me we have to get the contract back by tomorrow or they are going with another buyer." Miller testified the e-mail meant he and Fleming were analyzing the numbers to see if they could afford the property, how much money they could make, and if it would be worth it for the two of them under WFBM.
Michael "Mike" Green was one of the owners of Virtu Investments.
Argus was a real estate software program Miller and Fleming used to underwrite commercial properties.
Starting in June 2007, Fleming and Miller also began to look at ILIF Industrial Business Park (ILIF) as a WFBM deal. Fleming had previously visited the property in April 2007, when looking at it as a possible Virtu Commercial transaction, but the numbers did not make sense for Virtu Commercial. Fleming told Miller he had already talked to Mike Green about the deal, Virtu Commercial was not interested, and they could pursue it. Together, Miller and Fleming spent two or three weeks doing due diligence and going over the financials for the property, the quality of the tenants, and reviewing the lease terms for various tenants of the office park. Over the course of another two days, they worked together on an Excel spreadsheet in Fleming's office, modeling different scenarios for their acquisition fee and the split they would do with investors. They discussed purchasing the property as a WFBM opportunity, agreed to split the total compensation between the two of them, and agreed both of them would be responsible for raising equal amounts of the $2.7 million in equity to acquire the property. In August 2007, they flew out to Denver together to tour the property so Miller could see it and they could look more closely at the tenants to decide whether to move forward with the purchase.
When Fleming and Miller were flying out to Denver to look at the ILIF property, Miller told Fleming about what he described as an "awkward situation" with Mike Green. Green had come to Miller and told him Virtu Investments was considering purchasing a $15 million commercial property in Grand Rapids, Michigan. Green asked Miller to underwrite the property for Virtu Investments, and offered to pay him to do it. When Miller told Fleming this, Fleming said, "You got to be kidding me." When Miller said, "No, I'm not kidding you," Fleming responded: "We're partners, buddy. You got my back. That's bullshit." Miller agreed, and testified he never underwrote the property for Virtu Investments, because he wanted to support Fleming.
Miller and Fleming discussed at least one other property, Cherry Creek medical office, outside of Denver, Colorado, as a potential WFBM deal, but Fleming was not interested.
3. The Fortune Data Center Project
In April 2007, Miller's friend, Brandon Abbey, introduced him to John Sheputis. Sheputis was the majority owner of Fortune Drive Associates, LLC (FDA). FDA was seeking to purchase an industrial building in San Jose, California, which it intended to develop into a data center (Fortune data center). Sheputis told Miller he was looking to raise equity for the project and asked if Miller was interested in helping find investors. Miller discussed the data center project with Fleming and some others, but Fleming told Miller he had no interest.
Over the July 4th weekend, Miller was with Sheputis and Abbey in Lake Tahoe. Sheputis told Miller he would pay 1 to 2 percent to anyone who could help locate financing for the Fortune data center project. Meanwhile, a venture capitalist named John Russo had approached Fleming about partnering with a real estate investment group to purchase and operate data centers. Russo thought Fleming could help because Fleming was a real estate professional who had raised money for the "data center business." Fleming forwarded e-mails to Miller regarding this idea and particular data centers. Miller, believing Sheputis was having difficulty locating funding for the data center, had the idea to introduce Sheputis to Fleming and Russo. Miller and Abbey arranged a meeting between themselves, Sheputis, Fleming, and Russo, that took place at Virtu's office in San Francisco on August 29, 2007.
Two days later, Fleming and Miller met with Sheputis and Fortune Data Center's chief financial officer to express their interest in getting involved to raise equity for the project and review the offering memorandum. By that point, Miller and Fleming had agreed they "would start collaborating and working on [the project], and [they] would figure out how [they] would get involved." Fleming told Miller he had talked to Mike Green and Green told him Virtu had no interest in pursuing the data center. Fleming and Miller discussed whether they would pursue the deal. Fleming told Miller, "Hey, let's start going through this and figure out how we're going to get compensated and the role that we could play." Miller testified he and Fleming had "specific conversations in his office" about how they would be compensated for their work on the project and whether they would be raising equity or debt. Fleming told Miller they would pursue the data center opportunity under their WFBM partnership.
After their August meetings, Sheputis told Miller he was impressed with Fleming and sought Miller's help to get Fleming involved in the project to "make it A) more likely to happen and B) happen on better terms for the [general partnership]." Fleming and Miller met several times with Sheputis regarding the project. In late August and early September, Miller also talked with Fleming to get him "up-to-speed on where things were at the data center." Fleming and Miller began "looking at the numbers" for the data center, which were showing very high rates of return. They discussed possible sources of funding for the project, and reviewed how they would be compensated. Miller reached out to his friend in the private equity real estate business about whether he would be interested in the project. By this point, Miller and Fleming were both spending the majority of their time on the Fortune data center project.
Around the second week of September, Fleming told Miller: "Let me handle this. We cannot afford to put all of our eggs in one basket. I need you focused on the Virtu Commercial platform, and focused on other WFBM opportunities that are out there for us." Miller and Fleming agreed that Fleming would "take [the] lead" on the Fortune data center project, while Miller would keep the day-to-day business of Virtu Commercial "up and running." For the next several months, Miller spent about 50 percent of his time on Virtu Commercial business, and 25 to 30 percent of his time on WFBM business. Miller focused on underwriting properties for Virtu Commercial and "carrying out the day-to-day" of what he and Fleming had been doing the previous five or six months.
Whenever Miller asked Fleming about the Fortune data center project, Fleming would respond it was "a very tough assignment" with "a very low probability of getting anything done." Fleming told Miller he needed him "focused on the things that we do every day." In the meantime, unbeknownst to Miller, Fleming continued to work closely with Sheputis on locating funding for the data center, and eventually negotiated and entered a joint venture agreement with FDA to provide advice, obtain debt and equity financing for the data center, and invest his own money in the data center project.
In October 2007, Miller sent Fleming an e-mail to have an "up-front conversation" with him about the Fortune data center project, "where it was at," and how Miller "was going to participate." Miller wrote: "Will—we are in agreement that we need to do deals on the side to do the deal flow to make this more sustainable." He continued: "We have never discussed how we would structure deals that we do on our own. It may be premature, but I also think its [sic] helpful to spell it out so we are clear. I realize you have the experience, contacts, etc right now. However, I want to be as involved as possible, including raising money where I can—not only from my own contacts, but going out with you and meeting equity funds and family office. When you have some time, I suggest we identify the structure so that when we do in fact pull the trigger on an asset, these details have already been addressed. [¶] Lastly, in terms of Fortune, I am not adding any value for what you are doing today, however, depending on how entrenched you get, I would like to know if there is any upside for me especially if it is taking time away from the office side (and of course I can help if you need any assistance). I am not opposed to putting money in if it is sizing up to be a good deal, but what is your take on me participating on some level if you get the deal done—outside of my own equity?"
A few days later, Miller had a conversation with Fleming about the e-mail. Fleming again told Miller the Fortune deal was a "low probability" and a "tougher assignment than [he] thought." Fleming mentioned he had reached out to about 10 equity investors unsuccessfully, but did not tell Miller he had located a potential equity source through John Russo and that Fleming had a joint venture with FDA.
In December, Brandon Abbey called Miller to tell him Fleming had located an equity source for the Fortune data center. Miller immediately went to Fleming's office, where the two had a conversation about what Miller described as an "awkward situation." Miller confronted Fleming about the status of the project. Fleming said something about the deal not being final, and Miller responded, "I want to know what my participation is and how I'm getting compensated for this." Fleming got red, looked at Miller, and said, "There's nothing here for you." When Miller expressed surprise and told Fleming he never would have come across the opportunity on his own, Fleming said, "You have nothing in writing. You don't have shit."
A few days later, on December 18, 2007, Miller sent Fleming another e-mail complaining about being cut out of the Fortune data center deal and offering reasons "why [he] should be in" the deal. Miller commented: "My understanding was we (Will and Britt) were a 'team' both on Virtu deals . . . and deals 'outside'—WF/BM deals—I was your 'partner' as you put it. Shame on me for not clarifying my split on the front end for the Fortune deal, but I thought it was a little premature." After sending the e-mail, Miller again went to talk to Fleming. Fleming told Miller, "Why don't you make me an offer because I'm not going to make you an offer." On December 26, 2007, Miller sent Fleming an e-mail proposing "two different approaches for [his] compensation"—offering to accept either $225,000 as a "finders fee" or 7 percent of Fleming's interest in the deal. Fleming did not respond.
By January 2008, Miller told both Fleming and Mike Green he could no longer work with Fleming. Green eventually suggested to Fleming they should "part ways" as well, and there were no further transactions between Virtu Commercial and Virtu Investments. In 2013, Fleming sold his interest in the Fortune data center project for $7.3 million. B. Procedural Background
Miller filed the operative amended complaint in 2009, alleging two causes of action against Fleming and CADC for (1) breach of oral contract/declaratory relief/constructive trust and (2) breach of fiduciary obligations. The bench trial began in August 2012 and continued through February 2013. In September 2015, the trial court issued its first final statement of decision, which concluded the parties had an oral partnership agreement and Fleming had breached his fiduciary duty to Miller. The 2015 statement of decision awarded Miller compensatory damages of $848,095 and 7 percent prejudgment interest. The court also determined Miller had proved malice and fraud by clear and convincing evidence.
At a subsequent trial on punitive damages in early 2016, the court awarded Miller $2.5 million in punitive damages. Both parties moved for a new trial. The trial court vacated its judgment under Code of Civil Procedure section 662, and reopened the case on damages and the finding of malice, oppression, or fraud. After further proceedings, the trial court issued a proposed statement of decision again finding an oral partnership, and awarding $3.6 million in compensatory damages, but no prejudgment interest or punitive damages. After both parties filed objections, the trial court issued a final amended statement of decision (hereafter final statement of decision). It found "Miller has proven by a preponderance of the evidence his claims against Defendant William Fleming on the basis that they entered into an oral partnership or joint venture, and Fleming breached his fiduciary obligations to his partner, Miller . . . ." The court increased the compensatory damages award to $3.7 million, and entered judgment on December 15, 2016.
It appears the court did not decide the breach of contract cause of action, as it determined "All other claims subject to Court Trial by Plaintiff Miller against Defendant Fleming are MOOT as duplicative of the claims upon which Plaintiff prevailed and the damages awarded."
Shortly thereafter, the court awarded Miller $60,023.90 in expert witness fees based on his pretrial section 998 offer.
Fleming represents this was the amount of the award, which Miller does not dispute. The parties did not include Miller's memorandum of costs in the record, so we are unable to verify the amount of the award.
II. DISCUSSION
A. Standard of Review
Fleming contends the judgment must be reversed because there is no substantial evidence of a "meeting of the minds" on the required elements of a partnership between Miller and Fleming. Though the principles of substantial evidence review have been reiterated countless times by California courts, we summarize them again here. We belabor the point because it is crucial to understanding where we differ with our dissenting colleague in our assessment of this case.
Our task on substantial evidence review differs considerably from that of the trial court. This difference derives from our distinct roles—the trial court resolves disputed questions of fact, while we resolve disputed questions of law. Accordingly, "[w]hen a trial court's factual determination is attacked on the ground that there is no substantial evidence to sustain it, the power of an appellate court begins and ends with the determination as to whether, on the entire record, there is substantial evidence, contradicted or uncontradicted, which will support the determination, and when two or more inferences can reasonably be deduced from the facts, a reviewing court is without power to substitute its deductions for those of the trial court. If such substantial evidence be found, it is of no consequence that the trial court believing other evidence, or drawing other reasonable inferences, might have reached a contrary conclusion." (Bowers v. Bernards (1984) 150 Cal.App.3d 870, 873-874.) We resolve all conflicts in the evidence in favor of the prevailing party, and draw all reasonable inferences in a manner that upholds the judgment. (Holmes v. Lerner (1999) 74 Cal.App.4th 442, 445 (Holmes).) B. Breach of Fiduciary Duty
The key question in the resolution of this appeal is whether the trial court erred in finding Miller and Fleming formed an oral partnership. "[T]he association of two or more persons to carry on as coowners [of] a business for profit forms a partnership, whether or not the persons intend to form a partnership." (Corp. Code, § 16202, subd. (a).) Under California law, the basic elements of a joint venture are the same as those of a partnership. (See Chambers v. Kay (2002) 29 Cal.4th 142, 151; Bank of California v. Connolly (1973) 36 Cal.App.3d 350, 364.) A partnership or joint venture exists "where there is an 'agreement between the parties under which they have a community of interest, that is, a joint interest, in a common business undertaking, an understanding as to the sharing of profits and losses, and a right of joint control.' " (Bank of California, at p. 364; Simmons v. Ware (2013) 213 Cal.App.4th 1035, 1056.) "The ultimate test of the existence of a partnership is the intention of the parties to carry on a definite business as coowners. Such intention may be determined from the terms of the parties' agreement or from the surrounding circumstances." (Greene v. Brooks (1965) 235 Cal.App.2d 161, 165-166; Holmes, supra, 74 Cal.App.4th at p. 454 ["the rules to establish the existence of a partnership in [the Uniform Partnership Act] should be viewed in the light of the crucial factor of the intent of the parties revealed in the terms of their agreement, conduct, and the surrounding circumstances when determining whether a partnership exists"].) A partnership or joint venture can be created with little formality, so long as there is a basis for determining the existence of a breach and a rational basis for the assessment of damages. (Bustamante v. Intuit, Inc. (2006) 141 Cal.App.4th 199, 209, 215 (Bustamante); Boyd v. Bevilacqua (1966) 247 Cal.App.2d 272, 285, 287-288 [joint venture can be created with little formality and indefiniteness in details and may be implied from conduct of the parties].) The existence of a partnership or joint venture is a question of fact we review for substantial evidence. (Bank of California, at p. 364; Holmes, at p. 445.)
After close scrutiny of the record, and construing the facts in the light most favorable to the judgment as we must, we conclude sufficient evidence supports the trial court's finding the parties entered an oral partnership agreement based on both their words and their conduct. Miller was seeking to advance his career and pursue more interesting, profitable real estate opportunities. Fleming was looking for a way to make more money given the restrictions on his income earning potential presented by the Virtu Commercial operating agreement. Fleming told Miller the solution "was to create between [the two of them], a partnership that would pursue properties that Virtu would not move forward on." For several months, they discussed how they would work together and modeled compensation scenarios. They visited potential properties together, and analyzed prospective deals together. Fleming coined the term "WFBM" for their partnership, and called Miller his partner. Fleming told Miller they would implement a " 'team approach' " unlike Virtu where each person was compensated only for what he brought in. They discussed they would "do 20 million" in deals outside the Virtu Commercial platform and they would "both be responsible for everything . . . and [they would] be partners." The two discussed sharing profits equally.
Specifically, with respect to the Fortune data center deal, Fleming told Miller he had discussed it with Mike Green, Virtu had no interest in it, and Fleming and Miller would pursue it under their WFBM partnership. Miller discussed the project (including negotiation of a fee) at length with Fleming, brought Fleming "up-to-speed on where things were at the data center," reviewed internal rates of return with Fleming, discussed Fortune's business plan and possible sources of equity for the data center with Fleming, and spent the majority of his time working on the Fortune deal until Fleming expressly told him to focus on daily operations for Virtu Commercial and their other WFBM deals, while Fleming handled the data center. Such delegation of responsibilities is appropriate in a partnership or joint venture. (Scottsdale Ins. Co. v. Essex Ins. Co. (2002) 98 Cal.App.4th 86, 93; Orosco v. Sun-Diamond Corp. (1997) 51 Cal.App.4th 1659, 1666 [members of joint venture must have joint control, though they may delegate it].) Substantial evidence shows Miller and Fleming agreed to work together to create a business for profit, both participated in efforts to analyze deals they could pursue, referred to each other as "partners," agreed to split profits, and exercised joint control in their efforts and decisionmaking. Miller also testified that Fleming told him Virtu had passed on the Fortune data center deal, and that the two of them would pursue it under their WFBM partnership.
Both Fleming and the dissent rely heavily on Bustamante, supra, 141 Cal.App.4th 199, to argue the terms of the alleged agreement were too indefinite to support a finding Miller and Fleming were partners, and their conduct evidenced at best an " 'agreement to agree' " in future. In Bustamante, the plaintiff sought a partnership with Intuit to develop a market for Intuit's QuickBooks product in Mexico. (Id. at pp. 201-202.) The plaintiff met with a senior vice-president and members of his business development team, who told him they would need to secure third party financing before proceeding. (Id. at p. 202.) Subsequently, the parties developed a " 'phased approach' " for their " 'evaluation' " of the project, but eventually decided not to pursue it because they were unable to obtain the necessary third party funding. (Id. at pp. 203, 206.)
The Court of Appeal affirmed the trial court's order granting summary judgment, observing "the parties always understood that it would not be possible to 'form and launch' Intuit Mexico without significant third party involvement in the enterprise. Clearly there was no expression of mutual consent to create a company without investor financing, which in turn could not be obtained without first ironing out the details of the contemplated network of relationships. Because essential terms were only sketched out, with their final form to be agreed upon in the future (and contingent upon third party approval), the parties had at best an 'agreement to agree,' which is unenforceable under California law." (Bustamante, supra, 141 Cal.App.4th at p. 213.) The court concluded the "undisputed facts" showed "no meeting of the minds as to the essential structure and operation of the alleged joint venture, even if there was agreement on some of the terms." (Id. at p. 215.)
We find Bustamante distinguishable from this case. First, Bustamante involved a motion for summary judgment on undisputed facts. As a result, the appellate court was necessarily reviewing those undisputed facts de novo and exercising its independent judgment. (Bustamante, supra, 141 Cal.App.4th at p. 208.) Here, the trial court entered judgment after a trial on contested facts, and we are required to defer to the trial court's factual findings if they are supported by substantial evidence in the record. Second, in Bustamante it was undisputed that before the parties could enter a joint venture, investors needed to be located and financing needed to be secured. The parties had to work out their relationship(s) with third party investors and obtain their approval, including agreement to terms Bustamante himself represented as material, such as "the form and amount of [his] compensation; the extent, duration, and nature of his management role, if any; the amount of Intuit's royalty; the equity percentage held by him, . . . Intuit, and outside investors, and the liquidity path for both Bustamante and investors." (Id. at p. 211.) As the court explained, "obtaining contractual business relationships with third parties was an essential condition that both parties understood was necessary in order to complete the negotiations and create a binding business relationship." (Id. at p. 212.) Here, the trial court found, as Miller testified, that Miller and Fleming agreed they would form a partnership to pursue deals Virtu passed on, they would work together to implement their partnership, and they would share profits equally. Their agreement was not dependent on the approval or involvement of an outside party, nor did Miller concede that there were material terms that had to be agreed upon before the partnership formed.
Like the trial court, we find Holmes, supra, 74 Cal.App.4th 442, analogous to the circumstances in this case. There, Sandra Lerner was a wealthy businesswoman; her personal friend, Patricia Holmes, was not. When the two women were traveling together, Holmes created a nail polish color Lerner admired. After they returned from their trip, they sat at Lerner's kitchen table, experimenting with nail polish colors. The two women agreed to form a company, which became the popular Urban Decay brand. They began to work together on their concept doing market research and meeting frequently to discuss the development of their business. (Id. at pp. 445-447.) Holmes participated in "board meetings" and worked in their warehouse without pay, but was increasingly marginalized. (Id. at pp. 448-449.) When Holmes eventually asked to memorialize her partnership arrangement with Lerner, which she understood to be 50-50 coownership, she was told she had at most a 5 percent interest in the company. (Ibid.) She sued, and a jury found Lerner and Holmes had formed a partnership and that Lerner had breached their agreement and violated her fiduciary duties. (Id. at pp. 451-452.)
The Holmes court found the evidence supported the verdict and rejected Lerner's argument that the oral agreement was too indefinite to enforce. The parties' oral partnership agreement was "evidenced by Lerner's statements: 'We will do . . . everything,' '[i]t's going to be our baby, and we're going to work on it together.' . . . 'We will hire people to work for us.' 'We will do . . . everything we can to get the company going . . . .' The additional terms were filled in as the two women immediately began to work on the multitude of details necessary to bring their idea to fruition." (Holmes, supra, 74 Cal.App.4th at pp. 458-459.) In rejecting the argument that the parties' agreement was too indefinite, the court emphasized, "Holmes was not seeking specific enforcement of a single vague term of the agreement. She was frozen out of the business altogether, and her agreement with Lerner was completely renounced. The agreement that was made and the subsequent acts of the parties supply sufficient certainty to determine the existence of a breach and a remedy." (Id. at p. 459.)
Here, too, Miller is not seeking to enforce a single vague term of an agreement, but to prove the existence of a partnership that Fleming has completely denied. (Holmes, supra, 74 Cal.App.4th at p. 459.) And also like Holmes, Miller and Fleming did not spell out all the details of their partnership in their discussions with one another, but agreed to work together on deals Virtu passed on, discussed splitting profits evenly, and began working together to pursue potential opportunities based on that mutual understanding. Their conduct supplied the details of their agreement. (Id. at p. 457.)
The dissent argues Holmes is distinguishable from this case because the parties there "actually agreed to create a business to sell a specific product," as opposed to the "broad conceptual business agenda" involved in this case. We fail to see how the purpose of the business is particularly relevant to their formation of the agreement—in Holmes, the parties agreed to create a cosmetics brand, here the parties agreed to work together to pursue commercial deals Virtu passed on. In both cases, the oral agreement to form a partnership consisted of only vague representations about a commitment to work together. Indeed, in Holmes the agreement was arguably even more vague than the agreement here because Holmes conceded there was no discussion of sharing of profits during the " 'kitchen table' " conversation that started their partnership. (Holmes, supra, 74 Cal.App.4th at p. 453.) In both cases, the terms of the partnership were filled in by the conduct of the parties as they worked together to bring their idea to fruition. Indeed, the dissent concedes the record shows Miller and Fleming worked together, were equally dedicated to the WFBM venture, and were engaged in "joint decisionmaking" through August 2007. The dissent notes this case is different from Holmes because Miller and Fleming did not have the same level of joint involvement in their relationship "at least as to the Fortune Drive project," but ignores evidence suggesting Fleming deliberately cut Miller out of the Fortune deal and lied to him about Fleming's own involvement and success, similar to Lerner's efforts to marginalize and exclude Holmes.
This case is also like Holmes for another reason. As the court observed in that case, the evidence here " 'is flatly and irreconcilably conflicting. A finding that no partnership had been formed, had one been made, would have had considerable evidentiary support. As the finding which was made of the formation and the existence of the partnership has ample support in evidence which was accepted by the trial judge as substantial and which was taken as true by [her], we cannot disturb the judgment here.' " (Holmes, supra, 74 Cal.App.4th at p. 459, citing Lyon v. MacQuarrie (1941) 46 Cal.App.2d 119, 126.)
Fleming and the dissent also assert the e-mails Miller sent to Fleming in October and December 2007 demonstrate that the parties failed to agree on the structure of their partnership or reach a meeting of the minds. We agree the evidence is troubling to say the least, and appears to contradict Miller's version of events. In the October 2007 e-mail, Miller says to Fleming: "We have never discussed how we would structure deals that we do on our own." He continues: "[I]n terms of Fortune, I am not adding any value for what you are doing today, however, depending on how entrenched you get, I would like to know if there is any upside for me . . . . I am not opposed to putting money in if it is sizing up to be a good deal, but what is your take on me participating on some level if you get the deal done—outside of my own equity?" (Italics added.) Miller does not mention the WFBM partnership, instead referring to "you" and "me" as though Fleming was pursuing the deal and Miller was asking to be a part of it. As Fleming notes, this e-mail was sent before Miller learned of Fleming's joint venture with FDA, when he would have no reason to suspect Fleming was excluding him from the Fortune data center deal. Miller's own words suggest he and Fleming either had not finalized their WFBM partnership ("We have never discussed how we would structure deals that we do on our own"), or had not agreed whether the Fortune data center deal would be part of their partnership ("[I]n terms of Fortune, . . . what is your take on me participating on some level . . . ?").
The two e-mails Miller sent Fleming in December 2007 likewise suggest the parties had not reached a "meeting of the minds" about Miller's role in the Fortune data center deal or how he would be compensated. In the e-mail sent December 18, Miller writes, "I will bullet point why I should be in this deal." (Italics added.) He also says, "Shame on me for not clarifying my split on the front end for the Fortune deal, but I thought it was a little premature." Though Miller writes, "My understanding was we (Will and Britt) were a 'team' both on Virtu deals . . . and deals 'outside'—WF/BM deals—I was your 'partner' as you put it," he does not assert he is entitled to 50 percent of profits. Several days later, he wrote to Fleming again "about what [he was] proposing for [his] interest in Fortune." He wrote, "I don't think its [sic] necessary to touch on again why I feel I should be participating in the Fortune Data Center venture . . . ." Miller then suggested Fleming either pay him a "Finders fee" of $225,000 or 7 percent "of Will Fleming's interest" in the Fortune deal, substantially less than the 50 percent to which he now claims he was entitled under the terms of the WFBM partnership.
Neither the trial court in its statement of decision, nor Miller's counsel in respondent's brief, explores the meaning of these e-mails and explains their significance in terms of the mutual understanding between Fleming and Miller about pursuing the Fortune data center deal under their WFBM partnership. At oral argument, Miller's counsel suggested the e-mails were essentially settlement offers, in which Miller proposed to take less than he was entitled to take (50 percent) in order to resolve his dispute with Fleming. Miller's counsel did not explain, however, why Miller would be proposing to accept less than 50 percent before he was even aware Fleming had cut him out of the deal in October 2007.
Like the dissent, we have serious difficulties with Miller's version of events and theory of the case. We are especially bothered by the three e-mails which appear to contradict Miller's testimony the parties shared a mutual understanding they were equal partners and were pursuing the Fortune deal as part of their WFBM partnership. Were we confronted with the same evidence as the trier of fact, we might well reach a different outcome. Finding facts, however, is not our role. The e-mails are evidence the trial court was tasked with weighing and using to evaluate Miller's credibility. That substantial conflicting evidence may be found in the record, or that we might reasonably come to a different conclusion than the trial court, is irrelevant. (In re Ana C. (2012) 204 Cal.App.4th 1317, 1329 [that trial court might reasonably assess credibility "less favorably" or appellate court could make a different assessment of credibility is not grounds for reversal]; Teacher v. Leddel (1966) 247 Cal.App.2d 95, 101-102 ["self-contradictions and inconsistencies in the testimony of a witness are matters which present merely questions for the trier of facts; they do not stamp the testimony of such a witness as 'inherently incredible' "].) Again, it bears emphasis that "When a trial court's factual determination is attacked on the ground that there is no substantial evidence to sustain it, the power of an appellate court begins and ends with the determination as to whether, on the entire record, there is substantial evidence, contradicted or uncontradicted, which will support the determination . . . ." (Bowers v. Bernards, supra, 150 Cal.App.3d 870, 873-874.) We are not permitted to assess the credibility of the witnesses; the test is not whether there is a substantial conflict in the evidence but instead whether there is substantial evidence which supports the trial court's ruling. (9 Witkin, Cal. Procedure (5th ed. 2008) Appeal, § 370, pp. 427-428.) Indeed, if such substantial evidence exists, the ruling must be affirmed even if it appears to us to be against the overwhelming weight of the evidence. (Ibid.; see Buckhantz v. R. G. Hamilton & Co. (1945) 71 Cal.App.2d 777, 780 ["this court will not extend its inquiry for the purpose of determining whether appellant's evidence is as 'overwhelming' as he claims in his brief"].) Literally hundreds of California cases have stated and applied this basic doctrine of substantial evidence and we are not about to abandon it now. (See 9 Witkin, Cal. Procedure, supra, Appeal, § 365, pp. 422-423.)
The dissent references the burden on Miller to prove the existence of an oral partnership by a preponderance of the evidence. While that was certainly true below, on appeal we consider only whether substantial evidence supports the trial court's findings. (In re Corey (1964) 230 Cal.App.2d 813, 823-824 ["It is elementary that an appellate court cannot examine evidence to determine where the preponderance of the evidence lies. [Citations.] Our function is to determine whether the record contains any substantial evidence tending to support the finding of the trial court."].)
The dissent observes that Fleming denied any partnership relationship with Miller in the Fortune project. Noting "It is otherwise difficult to prove a negative, especially when the case involves denial of an oral contract," the dissent states that "as an appellate court, we can look for circumstantial evidence to support Fleming's position." But that is exactly what we cannot do. "Under the substantial evidence rule, we must accept the evidence most favorable to the order as true and discard the unfavorable evidence as not having sufficient verity to be accepted by the trier of fact." (In re Casey D. (1999) 70 Cal.App.4th 38, 53, italics added.)
As we have explained above, Miller testified that he and Fleming agreed to form a business for profit called a WFBM partnership, Fleming repeatedly called Miller his "partner," and the two discussed splitting profits evenly between themselves. Their conduct also evidenced their partnership agreement. Together they visited properties, underwrote and analyzed potential deals, discussed how they might finance transactions, modeled compensation scenarios, and jointly decided whether to pursue specific opportunities. Fleming told Miller he ran several potential deals (including the Fortune data center project) by Mike Green, who was not interested, after which Fleming told Miller they could pursue the deals under their WFBM partnership. Critically, Miller testified that Fleming told Miller they would pursue the Fortune data center project under their WFBM partnership. Though Miller spent most of his time working on the Fortune project in late August and early September 2007, he stopped when Fleming told Miller he would take the lead on Fortune so Miller could focus on the other business of Virtu Commercial and their WFBM partnership. In its role as finder of fact, the trial court concluded those facts were true. In performing our constitutional function as an appellate court, we do not usurp that role and independently redetermine those factual controversies or decide whether a different set of facts is more convincing. Instead, we assume those facts are true if supported by evidence which the law deems sufficient, such as the direct testimony about the occurrence or nonoccurrence of events by a single witness—here, Miller—who was in a position to know whether the events did or did not occur. (Evid. Code, § 411 ["the direct evidence of one witness who is entitled to full credit is sufficient for proof of any fact"]; Thompson v. Asimos (2016) 6 Cal.App.5th 970, 981.) On this record, under a substantial evidence standard of review, we are without power to substitute our judgment for that of the trial court and conclude as a matter of law that the October and December 2007 e-mails show there was never a meeting of the minds between Fleming and Miller.
The dissent states: "Since the Fortune project was never presented to Virtu Commercial, it was not within the scope of items the purported WFBM partnership would review, per the first amended complaint." Miller testified at trial, however, that Fleming told Miller he presented the Fortune project to Mike Green, who said Virtu had no interest.
Fleming also challenges the trial court's finding that Fleming's September 2007 proposal to Miller that Fleming take the lead on the Fortune data center deal and Miller concentrate on running the business at Virtu Commercial and for the WFBM partnership "was an oral partnership or joint venture between Miller and Fleming, and a natural extension of their existing 'partnership.' " (Italics added.) Fleming argues this amounts to a new theory of liability that went beyond the pleadings and violated his due process rights. The dissent is also troubled by this finding, and characterizes it as a determination by the trial court that there was "another" partnership in order to justify damages from the Fortune deal.
We are not persuaded. As the dissent points out, the theory of a second partnership specific to the Fortune deal is not supported by the pleadings. Nor, however, is it found in the trial court's own words. The final statement of decision states the trial court found Miller and Fleming "entered into an oral partnership or joint venture . . . ." (Italics added.) The use of the singular article "an" suggests there was only one partnership. In describing the September 2007 conversation regarding the Fortune deal under a heading "Further Oral Partnership and/or Joint Venture Between Miller and Fleming," the trial court quoted Fleming's statement to Miller: " 'Let me handle this. You (Miller) handle the business for Virtu and the partnership.' " The court then wrote: "That's what they decided to do, and that's what they did, with the understanding that any fees earned on the FDA deal would be split 50%/50% between the two of them—just as they had originally agreed to equally split all profits from their WFBM partnership. This was an oral partnership or joint venture between Miller and Fleming, and a natural extension of their existing 'partnership.' "
The trial court did not describe the September conversation as creating a separate partnership other than the WFBM partnership. Rather, the statement that the September 2007 discussion was "a natural extension of their existing 'partnership' " suggests the trial court found it was further evidence of the WFBM oral partnership agreement. At most the trial court's statement is ambiguous, and it is well settled we resolve ambiguities in a statement of decision in favor of upholding a judgment unless a party timely objects to them. (Code Civ. Proc., § 634; see In re Marriage of Arceneaux (1990) 51 Cal.3d 1130, 1133-1137.) Here, there is no evidence Fleming objected to the trial court's purported finding of a separate partnership based on the September 2007 conversation, in his motion for a new trial or otherwise.
The dissent also emphasizes the fact that no deal ever materialized from Miller and Fleming's joint efforts and they experienced no demonstrable success when working together. The key to the existence of a partnership, however, is not the level of success the partners experience, but whether the partners intended—as shown by their words and actions—to carry on a business for profit as coowners. (Corp. Code, § 16202; Greene v. Brooks, supra, 235 Cal.App.2d 161, 165-166.) The dissent also focuses on Miller's lack of investment in the Fortune deal, but again, this is not a legal requirement. (See, e.g., Holmes, supra, 74 Cal.App.4th at p. 448 [neither Holmes nor Lerner invested any of their personal funds in their partnership to form a cosmetics company].)
In sum, we agree with the dissent there is substantial—if not "overwhelming"—evidence in the record supporting findings contrary to those made by the trial court. That, however, is not the appropriate inquiry on substantial evidence review. Because there is also substantial evidence in support of the trial court's finding Miller and Fleming formed an oral partnership and pursued the Fortune deal as part of that partnership, we are compelled to affirm. B. Damages
Fleming next contends the trial court's damages award must be reversed because the record supports an inference the trial court impermissibly sought to punish Fleming with its compensatory damages award, and the award is not supported by substantial evidence. He also requests we reverse the punitive damages findings, because even though the trial court declined to award punitive damages, the unsupported findings are damaging to his reputation and ability to engage in his real estate livelihood.
First, we reject Fleming's argument the trial court committed per se structural error with its damages award. Fleming asks us to infer the trial court sought to punish him because (1) the final judgment is almost identical to the initial total award but with inexplicable changes in the punitive and compensatory damages categories; (2) the trial court did not explain why it changed its compensatory damages award; and (3) the trial court's unexplained final addition of $100,000 in the final statement of decision demonstrates hostility toward Fleming.
We see no basis, however, for inferring the trial court was seeking to punish Fleming. As Fleming concedes, the trial court properly reopened the case for the further proceedings and the introduction of additional evidence. (Code Civ. Proc., § 662 [in ruling on new trial motion, court may reopen case for further proceedings and additional evidence].) After doing so, it explained why it was changing the damages award. The trial court noted its prior award was based on expert opinion testimony regarding the present value of Fleming's ownership interest in the Fortune data center project. After Fleming sold his interest, the court received evidence of the actual dollars paid to Fleming, which was "more persuasive evidence than valuation extrapolations from historical data."
Fleming nonetheless complains the trial court's 2015 statement of decision awarded compensatory damages based on 50 percent of revenues received by Fleming or CADC only through April 2012, while the final judgment awards compensatory damages based on amounts received from 2008 to 2014. Further, he notes, Miller's expert's earlier estimate of the potential value of Fleming's interest in the Fortune project ($11.7 million) was higher than the actual value ($9.8 million). On this basis, Fleming apparently contends the compensatory damages award should have decreased once the court heard the additional evidence. After deciding to vacate its prior judgment and reopen the case, however, the trial court was not bound by its reasoning in the prior statement of decision. (Code Civ. Proc., § 662; Warren Southwest, Inc. v. Wicks (1969) 276 Cal.App.2d 152, 155 [trial court can reweigh evidence, make new findings, and reconsider prior legal rulings under § 662]; Spier v. Lang (1935) 4 Cal.2d 711, 714 [trial court has broad power to change findings and modify judgment to serve ends of justice and avoid delay and expense of new trial or appeal].) The trial court recalculated the damages award based on "evidence of the actual dollars paid to [Fleming] for all fees, investment returns, etc., including the actual sale of the property, the business, and the proprietary name of the business." The court added the total actual dollars received by Fleming and divided it in half to reach a figure of $4,667,557. The court declined to award prejudgment interest though it had awarded such damages in the 2015 statement of decision, and determined, based on "its equitable powers and as the trier of fact on damages, that it would be unfair to give [Miller] the entire 50% of all proceeds obtained by Fleming over the past several years, given the reality that Fleming did personally do work to obtain a funding for the FDA project, did help with development and management of the data center, and did invest $450,000 in the data center project . . . while [Miller] did not because he was not involved." The trial court then reduced the 50 percent amount by almost $1 million to $3.7 million, and declined to award punitive damages because "The compensatory damages 'punish' Defendant Fleming enough." Based on this explanation, supported by evidence in the record, we are unable to conclude the award demonstrates antipathy toward Fleming or assume, as the dissent suggests, that the trial court transmuted the punitive damages award to compensatory damages.
Nor are we persuaded the trial court's final award of $3.7 million rather than the $3.6 million announced in the tentative decision is evidence of hostility toward Fleming. The court calculated 50 percent of Fleming's profit from the Fortune data center project as $4,667,557, but decided based on "its equitable powers and as the trier of fact on damages" that it would be unfair to give Miller 50 percent of all profits in light of the amount of work Fleming did on the project and his personal investment of $450,000. The $3.7 million the court finally awarded was still substantially less than 50 percent of the actual payments to Fleming.
We also note Fleming did not point out the change from $3.6 million to $3.7 million in his motion for new trial challenging the damages, when the trial court still had the opportunity to change the amount or explain its reasoning. Fleming has thus waived this argument regarding excessiveness of the damage award. (Greenwich S.F., LLC v. Wong (2010) 190 Cal.App.4th 739, 759, 767 [claimed error regarding amount of damages can and should be resolved at trial court level; failure to raise issue below waives challenge on appeal].)
Second, we disagree the trial court's award was unsupported by substantial evidence. (See Mendoza v. City of West Covina (2012) 206 Cal.App.4th 702, 720-721.) Fleming argues it is "undisputed that Miller and Fleming never agreed to a 50%-50% share of profits with respect the Fortune deal (or even with respect to the 'WFBM' 'understanding')." (Italics omitted.) To the contrary, however, this was a sharply contested fact. Miller testified he and Fleming discussed splitting profits evenly in their WFBM partnership, and they agreed to pursue the Fortune data center project under that partnership. As discussed above, the fact Miller later sent e-mails which arguably contradicted that testimony was a credibility issue for the trial court to resolve.
Fleming also argues Miller is bound by his interrogatory response in which he said he "would jointly profit from any opportunity that WF/BM pursued in accordance with the roles each assumed with respect to the opportunity, such as identifying the opportunity, finding investors, sourcing debt funding, managing the asset after acquisition," and that he was "not aware of any modifications" to those terms. Fleming contends this response means Fleming and Miller would apportion their profits according to the amount of work each did in connection with any given opportunity. While this is a possible interpretation, because Miller was not asked about his interrogatory response during trial, we do not have the benefit of his explanation. In any event, to the extent his interrogatory response contradicts his trial testimony, the trial court could reject the interrogatory response. (See, e.g., People v. Maxwell (1979) 94 Cal.App.3d 562, 576-577 [trier of fact may receive and weigh contradictory testimony, and accept as true one of the contradictory answers].)
Fleming suggests Miller's interrogatory response was a "binding admission," but his argument is unsupported by legal authority. While a response to a request for admission would be binding, the same is not true of his interrogatory response. (Code Civ. Proc., § 2033.410; Phillips v. Cooper Laboratories (1989) 215 Cal.App.3d 1648, 1661 [absent significant prejudice to an opponent, a party may present evidence at variance with prior answers to interrogatories]; Wegner et al., Cal. Practice Guide: Civil Trials and Evidence (The Rutter Group 2017) ¶ 8:1245, p. 8D-71 [party may contradict or explain interrogatory answers at trial], ¶ 8:828, p. 8C-165 [unlike interrogatories and deposition testimony, admission in response to request for admission is deemed conclusively established].)
We likewise decline Fleming's request to reverse the trial court's punitive damage findings. In its final statement of decision, the trial court concluded Miller had proved fraud by clear and convincing evidence because "Fleming lied to and concealed from Miller his efforts in regard to [FDA], including the status of the project and the negotiation of personal benefits for Fleming, that he had entered into creation of the FDCA joint venture with Sheputis, and that he had indeed obtained funding for the project . . . —all to keep Miller from any interference in his personal plan, while keeping Miller focused upon [doing] all of Fleming's existing job in the meantime." Fleming's argument these findings should be reversed amounts to disagreement with the trial court's factual determinations on what he asserts was a "debatable legal issue." Because the trial court's findings were supported by substantial evidence, however, we must affirm. C. Section 998 Offer
Fleming's final contention of error concerns the trial court's award of expert witness fees to Miller on the basis of his statutory settlement offer under section 998. Before trial, Miller served a single section 998 offer on Fleming and CADC. The offer stated, "Defendants shall pay to Miller [$300,000]" on or before specified dates, and either "jointly and severally pay to Miller" $1 million over the course of 36 months or hold certain interests in trust for Miller. After entry of judgment, the trial court denied in part Fleming's motion to tax Miller's request for expert costs based on Fleming's rejection of the section 998 offer, finding the section 998 offer was valid.
We review the interpretation and application of a section 998 offer on undisputed facts de novo, and strictly construe the offer in favor of the party sought to be subjected to its operation. (Sanford v. Rasnick (2016) 246 Cal.App.4th 1121, 1129-1130.)
"In general, 'a section 998 offer made to multiple parties is valid only if it is expressly apportioned among them and not conditioned on acceptance by all of them.' " (Burch v. Children's Hospital of Orange County Thrift Stores, Inc. (2003) 109 Cal.App.4th 537, 544 (Burch).) There is no dispute Miller's section 998 offer was unapportioned between Fleming and CADC, but Miller contends it was nonetheless valid because a section 998 offer to multiple defendants need not be apportioned where the defendants are jointly and severally liable. (See, e.g., Steinfeld v. Foote-Goldman Proctologic Medical Group, Inc. (1996) 50 Cal.App.4th 1542, 1550 ["Where . . . there is a singular theory of liability alleged against two defendants for a single injury, and where as joint tortfeasors they would be jointly and severally liable, an unapportioned section 998 settlement offer made to both is valid."].)
Miller's complaint, however, did not allege Fleming and CADC were jointly and severally liable on either his tort or contract claims, nor did the conclusory allegation that Fleming and CADC were "co-conspirators" suffice to establish joint and several liability. (See, e.g., Burch, supra, 109 Cal.App.4th at pp. 549, 551 [unapportioned offer to multiple defendants invalid even though complaint contained "sweeping allegations of liability under the doctrines of respondeat superior and vicarious liability"]; Textron Financial Corp. v National Union Fire Ins. Co. (2004) 118 Cal.App.4th 1061, 1076-1077 [trial court appropriately denied recovery of expert witness fees based on joint § 998 offer to two defendants where they were not jointly and severally liable on breach of contract, bad faith, and fraud causes of action], disapproved on other grounds in Zhang v. Superior Court (2013) 57 Cal.4th 364, 378-382.) Miller apparently suggests we rely on the trial court's "implied finding" that CADC "aided and abetted" Fleming because it found he used CADC as a "conduit for funds" Miller sought to recoup in this lawsuit. Even if Miller's characterization of the trial court's statements were correct, however, we determine the validity of a section 998 offer at the time it was served, not at the time of judgment. (Burch, at pp. 548-549.) Strictly construing the section 998 offer in favor of Fleming, as we must, we conclude the unapportioned offer was invalid.
III. DISPOSITION
The award of expert costs pursuant to the section 998 offer is reversed. The judgment is otherwise affirmed. Each party is to bear their own costs on appeal.
/s/_________
Margulies, J. I concur: /s/_________
Humes, P.J. DISSENT OF DONDERO, J.
This is an appeal by defendant William Fleming after the trial court ruled in favor of plaintiff Britt Miller following a bench trial. The trial court found Fleming had breached an oral partnership agreement between Fleming and Miller, and also that Fleming breached his fiduciary duties to Miller. The alleged partnership involved the creation and financing of a data center project. Because the evidence fails to establish a meeting of the minds by the two parties to be partners in this project, I dissent.
I. Fleming and Miller Allegedly Form the WFMB Partnership
Fleming created a company called California Acquisitions Development Company (CADC) by 2004. The company's purpose was to find and develop investment projects. Around the same time, Fleming started working for a business called Virtu Investments, which developed real estate projects, primarily of a residential nature. Fleming had no ownership interest in Virtu Investments.
Fleming and Miller met in 2005. By this time, Fleming was involved in Virtu Commercial LLC, which was a joint venture between Virtu Investments and CADC. The purpose of Virtu Commercial was to purchase and manage multi-tenant office buildings. The two principals, CADC and Virtu Investments, were to split equally the profits and fees generated by any Virtu Commercial project one-third to CADC/Fleming and two-thirds to Virtu Investments. Miller was a home mortgage broker employed by Steelhead Capital, which was owned by the two men who also owned Virtu Investments, Michael Green and Scott McWhorter. Steelhead Capital was the primary lending source for Virtu Investments.
Within one year of working together on deals for Virtu Investments, Miller and Fleming discussed the possibility of Miller transitioning from Steelhead Capital to Virtu Commercial. Fleming suggested Miller speak with Green about joining Virtu Commercial. Fleming also encouraged Miller to obtain legal advice on the potential transition, which Miller did.
On July 30, 2007, Miller entered into a profit sharing agreement with Virtu Commercial. Under the terms of this agreement, Miller would receive a 7 percent share of Virtue Commercial's profit and carried interest on future acquisitions. CADC would realize 31 percent of the profit and interest, and Virtu Investments would receive 62 percent. Miller had no objection to CADC getting this 31 percent draw. Miller believed he would benefit professionally from Fleming's mentorship. In the July 30, 2007 e-mail documenting this agreement, Miller and Green agreed that Miller would eventually obtain membership under the Virtu Commercial operating agreement. However, Miller never finalized this step.
The trial court's December 15, 2016 Final Statement of Decision (FSOD) states that Green advised Miller that Miller's share of future profits from Virtu Commercial would come out of CADC's share. However, this statement is inconsistent with the July 30, 2007 e-mail establishing the agreement, and contradicts Miller's testimony, as well as the allegations in the complaint.
The FSOD also states that Fleming "baited" Miller with representations that he would assist Miller in becoming a financial partner in Virtu Commercial even though he knew his partners would not agree to take on any other partners in this joint venture. In fact, there is no evidence Virtu Commercial would have refused to make Miller a "partner." Miller acknowledged at trial that Green was willing to include him in the operating agreement, but Miller himself did not follow up.
At trial, Miller stated he and Fleming agreed in June 2007 that they would build up the Virtu Commercial business platform, and also develop, as partners, their own side deals on properties Virtu Commercial rejected. They called their partnership "WFBM." Fleming also agreed they would be involved in side deals pertaining to commercial properties specifically rejected by Virtu. Consistent with this understanding, Fleming authored letters of intent on behalf of Virtu Commercial concerning property sites in Sacramento, Denver, and Dallas. Miller testified he and Fleming traveled to these properties to assess them as potential WFBM partnership projects. Yet they did not attempt to arrange any deals on these properties outside of Virtu Commercial. Fleming and Miller simply had no third party lender relationship which would permit the level of financing necessary to undertake the kind of investment needed for side deals turned down by Virtu. Fleming also understood Miller's commercial property background was quite limited. Miller lacked underwriting experience in commercial acquisitions. Neither Fleming nor Miller had the money to do side deals, which Miller agreed was true. WFBM never initiated a letter of intent to attain these properties, or took any other steps, such as developing a purchase agreement with the vendor, securing title or environmental reports, or surveying the property lots. Importantly, Miller never made any effort to pursue these properties when he was the partner in charge of WFBM's operations during the time Fleming was immersed in the Fortune Drive project, discussed below. Furthermore, there are no details in this record as to Miller's financial involvement in WFBM.
II. The Fortune Drive Project
During April 2007, a colleague of Miller named Brandon Abbey introduced Miller to John Sheputis. At the time, Abbey was assisting Sheputis in an investment project to develop a data center on Fortune Drive in San Jose. Sheputis had acquired an option to buy the property through his company, Fortune Drive Associates (FDA). At their meeting, Sheputis gave Miller a booklet for potential investors and told Miller he was seeking $10 million in funding. He asked Miller if he was interested in investing in the project, or in identifying other potential investors. While he did not agree to become involved, Miller did send a copy of the booklet to Fleming and others. Miller expected "compensation" from Sheputis if any of his connections, including Fleming, decided to invest in FDA. Miller testified he did not consider the FDA project as a WFBM opportunity. After reviewing the materials, Fleming advised Miller that he was not interested in the project.
In July 2007, Miller was still in contact with Sheputis. During the July 4 weekend, Sheputis advised Miller and Abbey that he would offer 1 to 2 percent to any person who found an equity partner for FDA, and later told Miller via phone message that he would guarantee Miller a fee for finding an equity source. Miller never advised Fleming of these conversations.
Around this time, an entrepreneur named John Russo approached Fleming about developing data centers. Russo knew that Fleming had previously operated a telecom fund and had knowledge regarding the "data center business." Fleming passed Russo's information on to Miller. Knowing of Sheputis's financial needs, Miller suggested Sheputis meet with Russo and Fleming. Miller anticipated receiving the finder's fee Sheputis had offered him if the meeting led to an equity investment.
On August 29, 2007, Fleming, Russo, Sheputis, Abbey, and Miller met in the Virtu offices in San Francisco to discuss the Fortune Drive project. Miller testified he believed Fleming would work well with Sheputis based on his talent and experience. Two days after this meeting, Miller and Fleming met with Sheputis and Bruce McLean, FDA's chief financial officer. Fleming thoroughly reviewed FDA's offering papers and pointed out the need for significant changes.
Following these two meetings, Sheputis was in regular contact with Fleming. He was impressed by Fleming's individual talents. Sheputis even contacted Miller for assistance in getting Fleming to join in the Fortune Drive project. Sheputis told Miller: "As you know, . . . Fleming is a super impressive guy, and my sense is that having him involved in this transaction will make it A) more likely to happen and B) happen on better terms for the GP." Importantly, Sheputis testified he did not see these discussions with Miller as an offer for joint services involving Miller and Fleming—only Fleming. Even Miller understood this point and concluded it was not necessary to discuss his involvement with Fleming since it was too premature. At no time did Miller tell Sheputis about WFBM or his contractual arrangement with Fleming. He did discuss potential compensation arrangements for Fleming.
Fleming told Russo he was very interested in the Fortune Drive project. Russo was not interested and advised Fleming that he would not work with Sheputis. Russo did not want to raise capital for another person and was concerned about the feasibility of a data center in Silicon Valley.
At trial, Miller was asked the extent of his personal activity in the Fortune Drive project. He related that he and Fleming discussed potential equity sources over a 45-minute period on one occasion, obligating Fleming to solicit investors personally. When asked at trial, Miller could not recall any investors he connected with Fleming. Miller did call a friend with whom he had not spoken in 15 years named David Kidder, but Kidder was not interested due to the speculative nature of the offer. Also, Miller sat in on a conference call with Fleming, Sheputis, McLean, and a capital funder called HFF. Miller did not recall participating in the conversation. This appears to be the sum total of Miller's efforts to secure financing for the Fortune Drive project.
At trial, Miller testified that in September 2007, Fleming told him: "Let me handle this [the funding for Fortune Drive]. We cannot afford to put all of our eggs in one basket. I need you focused on the Virtu Commercial platform, and focused on other WFBM opportunities that are out there for us." Miller was to "keep the day-to-day of Virtu Commercial on the properties that we were looking at and underwriting." This is remarkable because the record is literally devoid of any actual underwriting activities by WFBM during the last half of 2007. Furthermore, there is no evidence that the parties ever discussed whether revenues derived from the Fortune Drive project would be shared. There is no evidence Miller invested any money in the project. In fact, other than introducing Fleming to Sheputis, Miller never contributed any labor or capital to the Fortune Drive project. Miller testified, "Shame on me for not clarifying my split upon the front end of the Fortune deal, but I thought it was a little premature." The two purported partners never discussed how they would structure the Fortune Drive deal between themselves. Rather, it was Sheputis who had previously discussed a finder's fee arrangement of $200,000 to $300,000 based on the original offer to Miller of 2 to 3 percent for finding equity sources and possibly an additional 1 to 2 percent for assisting in signing up a new equity partner.
According to Sheputis, Miller "never even asked to help in any way" with the Fortune Drive project. Regarding his assignment from Fleming to keep WFBM viable, Miller made no money through Virtu Commercial or WFBM, and he was unable to identify his involvement in any investments, letters of intent or deals during the period from September 1, 2007 to December 31, 2007. Instead, he spent his time on residential loans to pay the bills "for [himself]."
Miller occasionally asked Fleming how the Fortune Drive venture was progressing; he received the general response that there was a low probability of success. This prognosis was reinforced by his conversations with Sheputis and others. It also appears the two "partners" could not agree on the terms of WFBM side deals. This problem was brought home in an e-mail from Miller to Fleming sent October 15, 2007, in which he stated, "We have never discussed how we would structure deals that we do on our own. It may be premature, but I also think its [sic] helpful to spell it out so we are clear. I realize you have the experience, contacts, etc. right now. However, I want to be as involved as possible, including raising money where I can—not only from my own contacts, but going out with you and meeting equity funds and family office. When you have some time, I suggest we identify the structure so that when we do in fact pull the trigger on a[n] asset, these details have already been addressed." This e-mail indicates how indefinite the business relationship between Miller and Fleming was. As will be discussed below, true partners, especially in the context of an oral partnership contract, are not uncertain as to what their goals and obligations entail. His concession here of basic uncertainty as to his "part" in the venture cannot support a finding of mutual assent by the two "members" of WFBM. The fact that the trial court's FSOD makes no mention of Miller's concessions in these e-mails speaks volumes. It is a substantial legal hurdle to any claim that Miller and Fleming mutually assented to form a "joint venture" or partnership in connection with the Fortune Drive project. The e-mails reflect that in October 2007 Miller is pleading for certainty and structure while acknowledging he may be "premature." And this is one month after Miller claims an agreement to a 50/50 split solidified the partnership.
Miller also confirmed he had no equal role in the Fortune Drive venture when he stated in the same October 2007 e-mail to Fleming: "I am not adding any value for what you are doing today. . . [;] I would like to know if there is any upside for me especially if it is taking time away from the office side. . . . I am not opposed to putting money in if it is sizing up to be a good deal, but what is your take on me participating on some level if you get the deal done—outside of my own equity?" This e-mail evidences certain realities about Miller and the project, namely, he has not invested in the deal, and he is not aware of critical details or where the venture is going. The October 2007 e-mail shows there was no common understanding between the two men on whether Miller would even be participating in the FDA venture. Certainly there was no meeting of the minds on the matter; Miller would not be asking the questions he presents in the e-mail if there was. Furthermore, there is no identification of any other value Miller is providing to WFBM. Miller concedes this when he states: "We have never discussed how we would structure deals that we do on our own." (Italics added.) The use of the plural tense supports the conclusion that there was no mutual understanding in the core features of the Fleming-Miller arrangement. And importantly, the FSOD is devoid of any analysis of Miller's acknowledgment of his own fundamental uncertainty as to the agreement from which he seeks to recover damages for its breach.
The trial court credited Miller's testimony that he had a "50-50" partnership with Miller based on a September 2007 conversation. Arguably, this may be true with respect to WFBM's mission to develop spin-off properties from Virtu Commercial. Fleming specifically denied in his testimony he agreed to a "50-50" partnership split with Miller on any individual success from the Fortune Drive project. This reflects Miller's prelitigation e-mails. However, without question, the October 2007 e-mail is the critical prelitigation declaration by Miller regarding his understanding of any "agreement" he had with Fleming as to the Fortune Drive venture.
Furthermore, Miller admitted in December 2007 that he and Fleming never discussed the partnership "split" for the Fortune Drive project. And during the trial, Miller and Fleming both acknowledged the two men did not discuss the financial arrangement for this project.
Rather than proceeding under WFBM, on his own Fleming continued to work with Sheputis in developing and financing the Fortune Drive project. The two men created a new joint venture named Fortune Data Center Associates, LLC (FDCA), which merged Sheputis's LLC (FDA) with Fleming's CADC. Under FDCA, Fleming courted investor sources, drafted an 85-page offering, pitched the data center to interested parties, and located a significant funding source, ASB Capital. In his testimony, Miller conceded he had nothing to do with ASB becoming involved in FDCA.
In December 2007, Abbey advised Miller that Fleming had obtained funding from ASB. Miller now asked Fleming, "I want to know what my participation is and how I'm getting compensated for this." This is four months after the September 2007 conversation that the FSOD found to have set the parties' 50-50 compensation schedule. Miller told Fleming he deserved something in return for having initiated the meeting between Sheputis and Fleming. Fleming responded, "You have nothing in writing." With that, Miller stormed out of Fleming's office. The very next day, Miller sent Fleming an e-mail to support "why I deserve to participate in the Fortune deal." Miller pointed out that Sheputis was in financial trouble in August 2007, and introducing Fleming to Sheputis was "VERY BENEFICIAL" to Sheputis: "[H]ats off to you for pulling off this very difficult task." "Shame on me for not clarifying my split on the front end for the Fortune deal, but I thought it was a little premature." Miller closed the message with, "Let me know your thoughts and how you feel I should be compensated in this Fortune Data Center Deal." Once again, Miller is seen pleading his case as a person deserving a finder's fee because he brought Sheputis and Fleming together, rather than as a partner in what Fleming has successfully done.
On December 26, 2007, Miller again e-mailed Fleming to state his view of a proper split: "After a lot of consideration and soliciting feedback from a few real estate people I really respect," Miller stated he would settle for a finder's fee of $225,000 or 7 percent of Fleming's interest in the Fortune deal. Miller said he would ask his attorney to document either option in writing. Fleming rejected Miller's offer.
It is worth noting Miller never sought to invest his own money in the Fortune Drive project. Miller's brother had advised him that it was not a good investment.
At the end of December 2007, the ASB deal was finalized. An operating agreement for the joint venture called ASB Fortune Data Center, LLC detailed the understanding between FDCA and ASB. Compensation for the venture was to come from leasing and management fees for the men who managed the venture—Sheputis, McLean, and Fleming. The other investors were allowed to share in the profits of this business. At the time of this deal, Fleming had invested $450,000 of his own money. He continued to work on the project until ASB bought out the business in 2013. After ASB made its payments, Fleming was compensated for his five years of effort in this initially risky project.
III. The Pleadings Also Refute the Trial Court's Findings
So far we have focused on the facts in showing that there was no meeting of the minds between Fleming and Miller regarding an oral partnership agreement, especially with respect to the Fortune Drive venture. Miller's pleadings provide additional support for this conclusion.
In the January 22, 2009 amended complaint focusing on the Miller-Fleming portion of the lawsuit, Miller alleged a breach of an oral contract claim as his 11th cause of action and a breach of fiduciary obligations in his 12th cause of action. Regarding the oral contract claim, Miller asserted "in or about June 2007" he and Fleming entered into an oral partnership agreement under the Uniform Partnership Act of 1994 (Corp. Code, § 16100 et seq.). The parties referred to the partnership as WFBM and "agreed they would share real estate investment opportunities brought to Virtu, regardless of whether the opportunity was pursued by Virtu, or separately from Virtu." Miller alleged Fleming and CADC breached the oral partnership because "the opportunity to seek funding and/or investors for FDA was an opportunity of the WF/BM partnership" and that "Fleming and CADC wrongfully appropriated the business opportunity [to obtain funding and/or investors for FDA] for themselves." Miller also claimed Fleming and CADC breached fiduciary duties by undertaking the Fortune Drive project and "not presenting it to Virtu; . . . pursuing investors and funding on their own; . . . secretly securing for themselves the benefits of finding investors for FDA; and . . . failing and refusing to inform Miller about the opportunity or sharing it with the WF/BM partnership."
In his sworn interrogatory responses, Miller defined the terms of the WFBM partnership as follows: "(i) Plaintiff and Will Fleming/CADC would jointly participate in all profits generated on a commercial transaction either of them brought to Virtu and which Virtu accepted; (ii) on any real estate opportunity either of them brought to Virtu that Virtu chose not to pursue, Plaintiff and Will Fleming/CADC would decide whether to pursue the opportunity together under their partnership, which they referred to as the WF/BM partnership; and (iii) Plaintiff and Will Fleming/CADC would jointly profit from any opportunity that WF/BM pursued in accordance with the roles each assumed with respect to the opportunity, such as identifying the opportunity, finding investors, sourcing debt financing, managing the asset after acquisition." Miller believed these terms had never been changed or modified. Additionally, Miller testified at trial that WFBM existed separate from Virtu Commercial because Miller-Fleming would pursue properties Virtu turned down. Since the Fortune project was never presented to Virtu Commercial, it was not within the scope of items the purported WFBM partnership would review, per the first amended complaint.
IV. The Inconsistent Trial Court Decisions
The matter was adjudicated in a bench trial. At the end of the trial, the court issued a tentative decision finding that Miller and Fleming had entered into an oral partnership contract and awarding compensatory damages of $738,000, and finding that Fleming had acted with malice.
More than two years later, the same trial court issued a proposed statement of decision. Both Miller and Fleming filed objections. The court then issued the FSOD. The court found, "[b]ased upon the representations of Fleming, Miller agreed to a separate oral partnership with Fleming to acquire, syndicate, and develop commercial properties that were rejected by Virtu . . . . [¶] . . . They agreed to work as a team to pursue deals for Virtu. . . . They also agreed to pursue side deals if the opportunity was presented to Virtu, and Virtu passed it up." The 2015 SOD (not the later FSOD) awarded compensatory damages of $848,095 and prejudgment interest of 7 percent to Miller, commenting, "[T]he Court does not award damages in perpetuity. The calculation ends with actual benefits to Fleming (directly or through his wholly owned entity CADC) as of April 2012. The Court is also mindful of the fact that Miller never invested in FDA LLC, although he was given the opportunity." (Italics added.) The court conducted a trial on punitive damages during February and March 2016. On May 10, 2016, the court awarded Miller punitive damages in the sum of $2.5 million. One month later, the court entered a judgment against Fleming for $3,594,344.61, including $1,094,344.61 in compensatory damages and prejudgment interest, and $2.5 million in punitive damages.
Naturally, Fleming moved to vacate the findings regarding punitive damages and moved for a new trial on the issue of liability and damages. On August 1, 2016, the court set aside and vacated the previous SODs and the judgment. The court reopened the case regarding compensatory damages. The hearing lasted three hours.
On November 23, 2016, the court issued a proposed amended statement of decision (2016 PSOD). The court repeated its findings that Fleming and Miller had agreed to an oral partnership called WFBM to pursue side deals on commercial properties that Virtu had rejected, and that Fleming and Miller entered into a second partnership in September 2007 to pursue the Fortune Drive project with a 50-50 split of any fees earned in the deal. This was a new concept introduced by the trial court; a reading of the first amended complaint discloses no mention of a "second" partnership. It is a creation made out of whole cloth by the court to create the result in the FSOD. It was not even suggested by the parties at trial! Also, remarkably, the 2016 PSOD awarded $3.6 million in compensatory damages to Miller while affirming the court's finding of malice against Fleming. The court shifted its award of punitive damages into compensatory damages in spite of its earlier 2015 conclusion that the compensatory damages were $848,095 plus interest.
On December 15, 2016, the trial court issued its new FSOD (2016 FSOD). It identified the original oral partnership agreement that created WFBM, but affirmed its determination that the parties had in September 2007 formed a second oral partnership regarding the Fortune Drive project, which the FSOD identified as a "natural extension of their existing 'partnership.' " The court further, without explanation, increased the compensatory damages from $3.6 million to $3.7 million, but awarded no prejudgment interest or punitive damages.
In summary, the record reflects the trial court was essentially searching for a dollar award in this matter. The range of compensatory damages awarded based on the same facts is remarkable but disparate. In the end, one must conclude the punitive damages were converted into compensatory damages in spite of the previous damages findings. The court was also searching to reflect a joint venture never alleged by Miller.
Before discussing the legal principles supporting my conclusion there was no mutual assent or meeting of the minds between Miller and Fleming regarding the Fortune Drive project, I believe it is important to focus on what Miller "did" to be awarded his $3.7 million as a partner here. From the creation of WFBM to December 2007, Miller was not able to identify a single property he presented to Virtu as a successful acquisition. He testified he made "zero" dollars from his efforts for Virtu Commercial or WFBM.
Regarding the Bradshaw property identified by Miller's attorney during oral argument as a property the partnership was involved in, Miller testified he could not remember anything regarding the matter. No documents on Bradshaw are part of this record. No letter of intent was submitted by either Virtu or WFBM on Bradshaw. As to the Cherry Creek medical property, an e-mail exchange between Fleming and Miller in November 2007 reflected the men had no financial interest in that venture. This is the single communication Miller recalls with Fleming discussing the deal. Miller could not recall WFBM doing anything specific regarding One Empire, another venture on which Miller did no analysis for WFBM. In the Denver Tower venture, while Miller considered it, he did not recall any specifics regarding underwriting on it and testified he did not recall any personal role he had in the deal. Finally, regarding a parcel called ILIFF, Miller recalled Fleming received the approval from Virtu to pursue ILIFF as a deal. Over a period of two days, both men worked the spreadsheet to consider financial scenarios for the property. In early August 2007 (before Fleming became fully involved in FDA) they flew to Denver to check the property. However, the trip also focused on other Virtu Commercial properties and the site inspection at ILIFF lasted two hours. In the end Miller and Fleming concluded it was too risky, and no expenses were incurred by WFBM. In summary, all these efforts are marked by Fleming and Miller engaging in joint decisionmaking—not Miller acting alone, as is suggested by the trial court.
ILIFF is a good example of the kind of funding WFBM would need to consider financial success. ILIFF was a $10 million deal, in which neither Miller nor Fleming had the means to be involved. ILIFF was viewed at the time in 2007 as a property opportunity for Virtu, not WFBM.
Miller testified he and Fleming never specifically discussed a 50-50 split with respect to these above-mentioned properties. Yet these commercial properties would seem to be within the scope of the purported WFBM agreement. Finally, and importantly, the record here reflects little specific activity and no monetary value "delivered" by Miller after the September 2007 division of labor, when Miller was handling WFBM deals and Fleming was focused on the Fortune Drive project.
The majority spends considerable time referencing what it calls "WFBM work" to support the position that Miller played his role in the alleged partnership while Fleming work diligently on Fortune Drive. There are several key problems with the narrative. First of all, the discussion covers months when Miller and Fleming were equally dedicated to Virtu Commercial and the WFBM venture. This was primarily before Fleming personally became involved with Russo and then Sheputis. The projects identified were mainly from March to August 2007, when both men were active with Virtu in screening real estate properties. I can accept that this was within the scope of the parties' agreement to assess properties turned down by Virtu Commercial. The summary presented demonstrates the central role Fleming had in this activity through the first half of 2007, but it also evidences that nothing really came of their efforts. The men reviewed properties and visited sites, but no financial transactions occurred during this entire period. Lots of discussion but no deals.
More importantly, the list of projects seems to stop in the summer of 2007. The "work" of WFBM identified by the majority stops by August 2007; Fleming becomes involved with Russo and then Sheputis. Nothing is identified in this record to support a conclusion that Miller developed properties that Virtu passed on, or that he found potential properties while he was the "caretaker" for WFBM. On his own, it appears Miller made no money. We do not have any identification as to what Miller "managed" or "developed" from August 2007 onward. We do know much of what Fleming did, namely, developing a capital funding plan that put millions of dollars into the Fortune Project and created the basis for his final compensation. In the end, on this record, we are forced to ask, What did Miller do while Fleming labored on the Fortune Drive project?
DISCUSSION
My legal objection with the result in this case does not focus on the trial court's decision that Miller and Fleming engaged in an agreement to consider the development of commercial property rejected by Virtu Commercial. Indeed, the majority discusses at length the efforts of Miller and Fleming to assess properties rejected by Virtu. Unfortunately, the Fortune project was not within the scope of their agreement, based on an objective assessment of their oral partnership detailed in this record. Objectively, there was no mutual understanding or assent and therefore the decision by the trial court must be overturned.
Since this case involves establishing the existence of an oral contract, the burden is on respondent Miller to prove all elements necessary by a preponderance of the evidence. (Weiner v. Fleischman (1991) 54 Cal.3d 476, 483; Sully v. Kern Drilling Corp. (1954) 126 Cal.App.2d 651, 654.) In California, the legal requirement of mutual consent for a contract is determined by the objective standard. (Serafin v. Balco Properties, Ltd. LLC (2015) 235 Cal.App.4th 165, 173; Bustamante v. Intuit, Inc. (2006) 141 Cal.App.4th 199, 208 (Bustamante).) The objective standard considers the outward manifestations or expressions of the parties; it is the reasonable meaning of their words or acts, and not any unexpressed intentions or understandings. (Reigelsperger v. Siller (2007) 40 Cal.4th 574, 579-580; HM DG, Inc. v. Amini (2013) 219 Cal.App.4th 1100, 1109.) The subjective intent of a party is not relevant. (T.M. Cobb Co. v. Superior Court (1984) 36 Cal.3d 273, 282; Stewart v. Preston Pipeline Inc. (2005) 134 Cal.App.4th 1565, 1587.)
There is no mutual assent if the parties attach materially different meanings to their conduct and neither party knows or has reason to know the meaning attached to the other. A contract will be enforced if it is sufficiently definite for the court to ascertain the parties' obligations and determine whether those obligations have been performed or breached. But where the contract is so uncertain and indefinite that the intention of the parties in material particulars cannot be ascertained, the contract is void and unenforceable. (Bustamante, supra, 141 Cal.App.4th at p. 209; Ladas v. California State Auto. Assn. (1993) 19 Cal.App.4th 761, 770 (Ladas).) The meaning and intent of the parties must be placed beyond mere conjecture, and the agreed obligations must be clear enough to assess whether a breach has taken place. " '[T]he failure to reach a meeting of the minds on all material points prevents the formation of a contract even though the parties have orally agreed upon some of the terms, or have taken some action related to the contract.' " (Bustamante, at p. 215; see Bowers v. Raymond J. Lucia Companies, Inc. (2012) 206 Cal.App.4th 724, 732-733.)
In Weddington Productions, Inc. v. Flick (1998) 60 Cal.App.4th 793 (Weddington), the trial court's affirmance of a purported settlement was reversed by the Court of Appeal. (Id. at p. 819.) In the course of its ruling, the court noted that when some promises or understandings are left to be settled by future agreement, such provisions are often deemed to be " 'too indefinite for enforcement.' " (Id. at p. 812.) " '[I]f an essential element is reserved for the future agreement of both parties, as a general rule the promise can give rise to no legal obligation until such future agreement. Since either party in such case may, by the very terms of the promise, refuse to agree to anything to which the other party will agree, it is impossible for the law to affix any obligation to such a promise.' " (Ibid.) According to Weddington, there is no meeting of the minds unless both parties agree to the same thing in the same sense. (Weddington, at p. 811, citing Civ. Code, §§ 1550, 1565, 1580.)
Similarly, in Ladas the appellate court voided a contract where the employer was allegedly required to consider "parity" with other insurance contractors in setting compensation rates of insurance salespersons. (Ladas, supra, 19 Cal.App.4th at p. 767.) The alleged contract was found too uncertain to be enforceable: "An amorphous promise to 'consider' what employees at other companies are earning cannot rise to the level of a contractual duty." (Id. at p. 771.) Because the nature of the obligation asserted on the part of the employer provided no rational method for determining a breach, the court concluded there was no contract. (Ibid.; see Peterson Development Co. v. Torrey Pines Bank (1991) 233 Cal.App.3d 103, 115 [loan commitment not binding on lender unless it contains all the material terms of the loan, and the lender's obligation is unconditional].)
In this matter, we have allegations in the complaint and responses to interrogatories identifying the WFBM oral partnership agreement pertaining to Virtu Commercial-related properties. We then have the trial court concluding in its 2016 FSOD the Fortune Drive deal was another "oral partnership or joint venture between Miller and Fleming, and a natural extension of their existing 'partnership.' " (Italics added.) This "natural extension" was beyond the first amended complaint and responses to interrogatories by Miller. It allowed the trial court to justify a 50-50 split in spite of Miller's repeated acknowledgement in critical e-mails he had, before the lawsuit, no objective understanding of such a substantial share in the work Fleming did. Indeed, if the trial court adhered to the first amended complaint and objective evidence, it had to recognize there was no mutual assent for recovery of Fortune project profits.
In its 2016 FSOD, the trial court relied solely on Holmes v. Lerner (1999) 74 Cal.App.4th 442 (Holmes). In that case, Holmes sued Lerner alleging the breach of an oral partnership agreement concerning the creation of a cosmetics company. The trial court entered a judgment finding the defendant Lerner liable for damages. (Id. at p. 444.) The Court of Appeal found the parties had entered into an oral a partnership agreement. (Id. at p. 445.)
The Court of Appeal described Holmes as a fact-intensive case involving the creation of a business called Urban Decay. Lerner was a wealthy woman who, along with her husband, founded Cisco Systems. Holmes was a horse breeder. The two women traveled together and became friends. In 1995, Holmes wanted to create a purple color for her nails. In the presence of Lerner, Holmes fashioned an attractive purple polish with a manicuring kit. Lerner liked the color and they discussed developing a line of polish that was attractive to an urban female audience. Besides purple polish, the women discussed other unusual colors for the marketplace. The two women came up with a business name. When Lerner asked Holmes if the two should start a company, Holmes stated this was a " 'great idea.' " They agreed to do market research and decide how to have the polishes manufactured. (Holmes, supra, 19 Cal.App.4th at pp. 445-446.) They had "many things . . . to do." Lerner stated: " 'We will hire people to work for us. We will do everything we can to get the company going and then we'll be creative and other people will do the work, so we'll have time to continue riding the horses.' " (Id. at p. 446.) They planned to do all the work together in the start-up phase.
In Holmes's presence, Lerner called her business consultant to start legal process for the tradename of "Urban Decay." The women proceeded immediately to work together on the venture, doing market research by going to stores, talking to people about nail polish, checking the market for competitor products, and purchasing samples to compare as product. (Holmes, supra, 74 Cal.App.4th at p. 447.) The parties met frequently at the Lerner home during August and September 1995. They took pictures of various color mixing sessions, and met with a graphic artist for advertising purposes. (Ibid.)
Holmes and Lerner decided they would build up the business and then sell the company. (Holmes, supra, 19 Cal.App.4th at p. 447.) The two women had joint meetings with investors. Urban Decay had a capital campaign but neither women put personal funds into the project. They went to the Kirker Chemical Company in August 1995 to find out about the mixing and manufacturing of nail polish colors. They also met with a marketing specialist named Wendy Zomnir. (Id. at p. 448.) After the meeting, Lerner and a third-person investor named Soward offered Zomnir a financial interest in the company without advising Holmes. From August 1995 into February 1996, Holmes continued to have an active role in numerous details of the business. However, when it came to Holmes's financial position in the company, Soward advised Holmes she had a lesser role. Lerner was made CEO, Soward was made president, and Zomnir became the COO. Holmes was given a 1 percent interest in the company. (Id. at p. 450.) The lawsuit followed, alleging breach of an oral contract.
In sustaining the finding of breach of an oral contract, the appellate court noted Holmes was involved in Urban Decay from the beginning. The two women worked jointly during 1995 on a regular basis in all phases of Urban Decay. Each was involved together in a "multitude of details necessary to bring their idea to fruition." (Holmes, supra, 74 Cal.App.4th at p. 459.) Lerner and Soward never objected to the work done by Holmes, nor to her participation in board meetings and decisionmaking. They also did not challenge her exercise of authority in warehouse operations. In the decision, the court noted Lerner's remark that " '[i]t was not only my intention to give [Holmes] every opportunity to be a part of this, but I had hoped that she would.' " (Ibid.) "In the words of the court in Weddington[, supra, 60 Cal.App.4th at p. 811], the parties agreed on the ' "same thing in the same sense." ' " (Holmes, at p. 459, italics added.)
This detailed recitation of the facts in Holmes underscores why the trial court here erred in relying on this case to establish mutual assent for an oral contract. Holmes dealt with a single venture, the development of a specific cosmetic brand, where the two partners worked together on the singular effort to promote their new venture. Together they attended board meetings, developed consumer studies, made chemical plant visits, and solicited funding, even though they had no written partnership agreement. In Holmes, the appellate court confronted more than a broad conceptual business agenda; the parties actually agreed to create a business to sell a specific product. We do not have this same level of joint involvement in the relationship between Miller and Fleming—at least as to the Fortune Drive project. Miller may have earned a finder's fee because he introduced Fleming to Sheputis; he certainly had no role in the financial success Fortune Drive realized because of singular efforts of Fleming recognized in this record. The comparison between efforts by Holmes in Urban Decay and Miller in the Fortune project here is like night and day.
More like our situation is Bustamante. This case involved the alleged breach of an oral contract to establish a joint venture to market software in Mexico. (Bustamante, supra, 141 Cal.App.4th at p. 201.) During meetings with representatives of Intuit, Bustamante received e-mails indicating that if Intuit proceeded to "phase II" of negotiations, the contract would become " 'binding,' " " 'legal and technical,' " and " 'there was no way back for [Intuit].' " (Id. at p. 203.) One week later, Bustamante received an e-mail announcing Intuit had decided to proceed to phase II. (Ibid.) Yet the appellate court concluded there was no mutual assent and hence no valid oral contract. "We . . . are unconvinced by Bustamante's position. Whether the alleged contract is viewed as a simple agreement 'to form and launch' a company or as a composite of specific terms, the evidence reveals a lack of mutual consent to proceed with the project regardless of the financing obstacles." (Id. at p. 210.)
The appellate court reasoned that the failure to reach a meeting of the minds on all material points prevented the formation of a contract, even though the parties may have orally agreed to some of the terms or taken some action related to the agreement. The court noted: "The alleged agreement cannot withstand scrutiny even if it is considered as a composite of specific terms. First, rather than being definite, all of the following terms—which Bustamante represents as material—were actually unsettled both before and after the alleged commitment by Intuit: the form and amount of Bustamante's compensation; the extent, duration, and nature of his management role, if any; the amount of Intuit's royalty; the equity percentage held by [Bustamante] . . ., Intuit, and outside investors; and the liquidity path for both Bustamante and investors." (Bustamante, supra, 141 Cal.App.4th at p. 211.) Importantly, Bustamante distinguished the Holmes case by observing, "both parties had manifested their mutual intent to take Holmes's idea and make it concrete by forming a company and engaging in the business together. [Citation.] . . . [T]he subsequent acts of the parties as they worked out the details [of their agreement] provided sufficient certainty to determine the existence of a breach and a remedy." (Id. at p. 213, italics added.)
In reviewing the record in our case in light of Bustamante, Weddington, and Ladas, as well as Holmes, one naturally comes to the legal conclusion there was no oral partnership agreement as to the Fortune Drive venture. Fleming created CADC as a commercial entity before he even knew Miller. Fleming apparently continued to operate under CADC because when he contracted with Sheputis in a written agreement, Fleming did it as CADC. The agreement dated October 15, 2007, on CADC letterhead, was addressed to John Sheputis with the first sentence stating, "You have asked my company, [CADC] to assist Fortune Drive Associates, LLC ('FDA') with obtaining equity and debt financing for the Project described below and to further lend my experience and know-how to the Project." (Italics added.) The project entailed $11.4 million in equity funding and $35 million in debt financing. Both Sheputis and Fleming signed off on the agreement.
It also appears the relationship between Fleming and Miller was based on their association with Virtu Investments. The two agreed to form WFBM as a venture that would develop commercial properties Virtu Commercial decided were inadequate for its portfolio. I see no reason to challenge these features of the trial court ruling because the court's ruling and damage award do not focus on the parties' business relationship until the time when Fleming became involved in the Fortune Drive project. While the parties reviewed several properties, nothing of import came from these inquiries. Business people can discuss financial matters in the abstract at any time; a financial partnership needs considerably more to be deemed operational and viable—it needs an agreement to pursue a particular venture objectively established. "The ultimate test of the existence of a partnership is the intention of the parties to carry on a definite business as co-owners. Such intention may be determined from the terms of the parties' agreement or from the surrounding circumstances." (Green v. Brooks (1965) 235 Cal.App.2d 161, 165-166.) Miller and Fleming simply lacked an objective agreement when it came to the Fortune Drive project.
It was only after Fleming began to work independently with Russo and then Sheputis that he experienced financial success. We should focus our attention on the period from the summer of 2007 to the end of 2007. Before that period, Miller himself was aware of the Fortune project and what Sheputis was planning, yet he contributed little personally or financially. In contrast, Fleming impressed the Fortune Drive team and their investors, and he worked hard to make Fortune a profitable venture. On this record, it is difficult to comprehend Miller's claim that he was a partner in this when he invested no funds, obtained no third-party equity sources, and was in many ways, by personal choice, outside the loop from September 2007 on. His position was, in a word, peripheral.
The limited nature of Miller's role during this period is preserved by the e-mails in this record. Without question, they support the view he was not acting as a partner, as required by the cases cited in this dissent. The e-mails demonstrate he was not deserving, nor expecting, the 50-50 split found by the trial court. Miller's written declarations in these documents verify my conclusions.
The e-mail designated as trial exhibit No. 1022 was transmitted by Miller on October 15, 2007. This was before much of the hullabaloo over Fortune arose. Miller articulates the amorphous relationship he may have had with Fleming—a relationship without any concrete basis by which to label it an oral partnership. The document is devoid of any evidence establishing the necessary level of mutual understanding mandated by the cases. He wrote: "We have never discussed how we would structure deals that we do on our own. It may be premature, but I also think its [sic] helpful to spell it out so we are clear. I realize you have the experience, contacts, etc. right now. However, I want to be as involved as possible, including raising money where I can . . . . When you have some time, I suggest we identify the structure so that when we do in fact pull the trigger on an asset, these details have already been addressed. [¶] Lastly, in terms of Fortune [FDA], I am not adding any value for what you are doing today . . . ." It bears emphasis that it is October 2007 and WFBM has allegedly been in existence for some period of time. Yet Miller is stating the parties' venture needs better definition because the two "have never discussed" the structure of their joint real estate deals. Perhaps this lack of agreement explains why the two men did not complete any real estate deals in this partnership! Miller acknowledges they need to "identify" the structure, i.e. business plan, before they "pull the trigger on an asset"—do a deal. We simply have no evidence Miller attempted to follow up on these concerns to facilitate the necessary mutual assent. To paraphrase Bustamante, there may be an agreement to agree, but that is it. Without question his concession that it is "premature" to discuss how to structure "deals" belies the trial court's conclusion the partnership was created in September.
Miller sent another important e-mail to Fleming on December 18, 2007. He acknowledges he has not been involved in the project (Fortune), but wants some role going forward since he introduced Sheputis to Fleming. Yet Miller does not identify what his role will be going forward. He points out his possible compensation could reflect what he did to get Fleming and Sheputis together (a finder's fee?); he considers himself a "fair person." What is omitted in the e-mail is any suggestion that he should be considered Fleming's partner in the Fortune deal, or that he deserves 50 percent of the benefit Fleming gets for his work. Instead, Miller affirmed the greater and substantial talent Fleming brought to the project.
A final e-mail was sent by Miller on December 26, 2007, roughly one week after the "I'm a fair person" email. He states he believes he should receive a particular level of compensation. Remarkably, he makes no reference to any 50-50 spilt. Instead, "after a lot of consideration and soliciting feedback from a few real estate people that I really respect" (italics added), Miller proposes compensation in the form of a finder's fee or a certain percentage interest in the deal like the Virtu deals of 7 percent. If anything, this indicates the Miller's own understanding of his role in the venture. The word "partner" is missing; there is no claim for a 50-50 split. The alternative nature of Miller's proposal speaks volumes on the lack of agreement from his perspective that a proper contractual relationship exists between him and Fleming. As Weddington and Bustamante declare, we should expect partners who have the "same understanding" of their relationship, not be posturing alternative ways to share profits; a predetermined understanding of profit-splitting being a key feature of most actual partnerships.
The majority spends considerable time restating the nature of the WFBM partnership and the hopes of Miller and Fleming while they worked side by side at Virtu Commercial. The men wanted to be successful in their efforts and evaluated properties regularly to achieve this goal. But where is the evidence of even a modicum of success by WFBM? Indeed, this lack of result may explain why Miller attempted to make some personal income pursuing finder's fee compensation from Sheputis; this appears to be a major focus of respondent during the fall of 2007 when Fleming is realizing his personal success in the Fortune Drive project. In fact, it appears each party saw the Fortune project as an opportunity for individual monetary gain.
The damages award in this case also must be reversed. When the trial court issued its first SOD in 2015, evidence of Miller's compensatory damages consisted of his expert witness's testimony that Fleming and CADC would receive $11.7 million based on the assumed sale of the Fortune project for $122 million and the revenue Fleming or CADC received through April 2012. The trial court set the compensatory damages of $848,095 (plus interest) based on a 50 percent share of the revenues Fleming and/or CADC had received for his work. The court stated: "The calculation ends with actual benefits to Fleming . . . as of April 2012. The Court is also mindful of the fact that Miller never invested in FDA LLC, although he was given the opportunity."
At the punitive damages trial in 2016, Miller presented evidence that ASB purchased Fleming's interest. Fleming received a sum of $9.8 million for his work from 2008 to 2014. Using this information, the trial court awarded punitive damages in the amount of $2.5 million. Fleming moved for a new trial, contending punitive damages were improper, arguing the $2.5 million award exceeded 10 percent of his net worth and was excessive as a matter of law. The trial court vacated the judgment based on "[n]ew evidence material to the issue of compensatory damages," as well as information supporting punitive damages determination. However, the "new" evidence was merely Miller's expert's tentative conclusion as to the amount Fleming or CADC would earn from the Fortune Drive venture, overstating the actual amounts by almost $2 million. This tentative estimate was based on projected revenues of $11.7 million, whereas the actual profit was $9.8 million.
After eliminating punitive damages, the trial court conducted a hearing for approximately three hours. The court then increased the compensatory damages award to $3.6 million, while reiterating its finding of fraud, malice, or oppression without imposing punitive damages. Then, in its final judgment, the court increased, without any explanation, compensatory damages to a total of $3.7 million.
It is correct we review a damage award for substantial evidence. (Mendoza v. City of West Covina (2012) 206 Cal.App.4th 702, 720-721.) Substantial evidence is evidence of " 'ponderable legal significance, evidence that is reasonable, credible and of solid value.' " (Markow v. Rosner (2016) 3 Cal.App.5th 1027, 1045 (Markow).) However, in this case, we are presented with a compensatory damage award that was quadrupled only after Fleming challenged the punitive damage determination in his motion for new trial. And the new compensatory award essentially replicated the trial court's punitive award. It was tantamount to "robbing Peter to pay Paul"!
The purpose of compensatory damages in civil jurisprudence is to make a party whole, not to punish another party. (Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 516.) A trial court should not answer a litigant's challenge to a punitive damage award by transmuting the award into a compensatory one. I think the inference that this took place is obvious. The total award in the FSOD is essentially the same as the total award in the 2015 SOD with the shift from punitive damages to compensatory damages being the only distinct feature of change. Also, the trial court failed to explain why it quadrupled the compensatory award. Additionally, the apparent judicial "disdain" is further heightened by the $100,000 addition to the award, again without explanation.
The trial court's damage conclusion assumes a 50-50 split from all monies Fleming or CADC received from April 2009 to June 2014, more than a five-year period. Supposedly, the court lowered that split because, as the court "stated," Fleming "personally [did] . . . work to obtain a funding for the FDA project, did help with development and management of the data center, and did invest $450,000 in the data center project." Yet, in spite of this five-year effort, the court awarded Miller, who did so little, compensatory damages of $3.7 million. Candidly, the award here is based on evidence that is illusory, lacking "credibil[ity] and solid value." (Markow, supra, 3 Cal.App.5th at p. 1045.)
The evidence shows there was no agreement to split the Fortune proceeds on a 50-50 basis; Miller acknowledge several times in 2007: "Shame on me for not clarifying my split on the front end of the Fortune deal, but I thought it was a little premature." See also Miller's interrogatory response limiting the parties' arrangement to profits from "any opportunity that WF/BM pursued." The generous but unfounded award by the trial court disregards the record regarding Miller's role in the case. Green, Miller's employer, testified Miller was an "associate level person" who could not create a deal himself and who needed help in understanding complex transactions. Sheputis opined Miller did not know very much about data centers and their technology, and did not have much interest for or expertise in raising substantial equity for the Fortune project. Even Miller's brother Brian, who discouraged him from getting involved in the Fortune Drive project, testified the only thing Miller did for the project was what he had an ability to do, namely, bring money sources to Fortune, so he could attempt to obtain his finder's fee from Sheputis. Apart from Fleming, the record is silent as to these money sources.
On the other hand, we know Fleming brought considerable individual talents to the table in the Fortune project. Perhaps that is why he chose to engage in the project through CADC, solo. Sheputis told Miller after his initial meetings with Fleming, "As you know, Will Fleming is a super impressive guy, and my sense of just having him involved in this transaction will make it A) more likely to happen; and B) happen on better terms for the GP." Miller conceded as much: "Will had more experience. He had a track record. He had specifically raised money before and been involved in a data center/telecom fund in the last seven years." Miller conceded that in August 2007, Sheputis was "in big trouble." However, by December 2007, Miller remarked Fleming earned "hats off . . . for pulling off this very difficult task." He did his " 'A' game . . . and it paid off."
Fleming's role merited the awe of Sheputis as he testified at the trial (but this testimony was omitted in the FSOD). Fleming exhibited "his expertise . . . how the project gets funded. The interest reserves that need to be set aside. He began to talk about the need for institutional equity, and that we were searching in the wrong places. [¶] He talked about how we should reformat the offering memorandum into something that looks like a presentation that an institutional equity house would expect. How to format the information we had, which was a significant amount of technological and financial information into something more in—into an expected format. [¶] Will sat through meeting[s] at San Jose City Hall, Will came to the site. Will set meetings. We attended meetings together. We pitched together. Of all these activities, I recall Mr. Miller sitting through, except for the one or two meetings we had at Virtu, none of those activities, zero percent. And perhaps more interest[ing], he never even asked to help in any way." (Italics added.) It is difficult to see any basis for a value of $3.7 million in compensatory damages on this record.
One could argue for the award of a finder's fee, and perhaps fault Fleming for not summarily providing such a fee since Sheputis did not. However, that is the maximum award under this record. Yet even this amount clearly was not assented to as a contractual matter between Fleming and Miller. The damage award must be reversed.
Finally, a word about appellate review of this trial court decision. I understand the role of substantial evidence in this review. However, this case is about an oral contract, not a written one. The elements of a contract, especially mutual assent, must be demonstrated in this record. In finding these elements, it is incumbent on the trial court in a bench trial to articulate the evidence that demonstrates these legal principles objectively, since that is required under the law of contracts in California. Fleming testified at length regarding his business relationship with Miller while the two men worked at Virtu and tried to hone deals for Virtu and for themselves. That relationship was defined in Miller's complaint and his answer to interrogatories. Fleming denied any partnership relationship with Miller in the Fortune project. It is otherwise difficult to prove a negative, especially when the case involves denial of an oral contract. However, as an appellate court, we can look for circumstantial evidence to support Fleming's position. In that regard, we have no tangible documentary evidence the "partnership" developed any commercial projects other than properties funded by Virtu. Miller presents no paper trial supporting his "role" in WFBM while Fleming is toiling to make Fortune Project successful. We have no recognition by Miller of a substantial nexus on his part with Fortune save his introduction of Fleming to Sheputis—no investment, no securing investors, no recognition of his role by other principals in Fortune. Finally, we have these e-mails authored by Miller that confirm he did not see himself as a partner with Fleming in the Fortune Project. He was prepared to rightfully receive a finder's fee as reflective of his earned work in the deal. These declarations by Miller are simply contrary to the trial court's factual conclusions in this case yet they are without reflection by the court in its analysis of the case. The majority opinion charitably only scolds the trial court for its failure to discuss this evidence. I would go further. The failure by the trial court to assess such critical evidence affecting elements of an oral contract amounts to a denial of a fair hearing. A litigant deserves to understand how a judicial fact finder views particular evidence that stands tall against the trial representations of a successful party.
We need to underscore these e-mails by Miller because they reflect his state of mind in 2007. They are prelitigation and not matters presented at trial after he has sued Fleming.
The trial court had substantial opportunity to assess the rank inconsistency between these 2007 e-mails and Miller's trial testimony five years later in 2012. Yet the FSOD presents not a word in its 43 pages in an effort to reconcile this variance in the evidence purporting to support the decision. I find this remarkable.
I dissent.
/s/_________
Dondero, J.