Opinion
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
APPEAL from a judgment of the Superior Court of San Diego County Ct. No. GIC845130, John S. Meyer, Judge. Reversed.
BENKE, Acting P. J.
After it discovered the management company operating its hotel was not paying invoices in a timely manner, was not reporting the financial condition of the hotel accurately and the principal member of the management company hired 11 members of his family to operate the hotel, the owner of the hotel terminated the management company's contract without notice. In response, the management company retained $1.35 million of the hotel's funds, which it asserted were due as management fees and as liquidated damages. The hotel sued the management company to recover the retained funds, and the management company filed a cross-complaint in which it sought to recover the entire $5 million in liquidated damages provided for in the management contract.
Without considering extrinsic evidence offered by the management company, the trial court rejected the management company's argument it was entitled to notice and an opportunity to cure any alleged deficiencies in its performance. A jury then determined the hotel had cause to terminate the management contract. Accordingly, the hotel was permitted to recover the retained funds, and no liquidated damages were awarded to the management company. The trial court awarded the management company its attorney fees.
We reverse. On its face the agreement governing management of the hotel is ambiguous and the trial court should have permitted the management company to offer extrinsic evidence in support of its contention that it was entitled to notice and an opportunity to cure.
FACTUAL SUMMARY
1. The Parties and Their Agreements
Defendant and appellant Michael Gallegos is the sole shareholder of defendant and appellant American Property Management Corporation (APMC), a New Mexico corporation doing business in San Diego. Gallegos is also the sole owner and managing member of defendant and appellant APMC San Diego Hotel Management, LLC (APMC-SD), a California limited liability company with its principal place of business in San Diego.
For purposes of clarity, unless otherwise indicated, any reference to APMC includes Gallegos and APMC-SD.
Plaintiff and appellant U.S. Grant Hotel Ventures, LLC (U.S. Grant), is a California limited liability company, which is wholly owned and controlled by the Sycuan Band of the Kumeyaay Nation (Sycuan), a federally-recognized Indian tribe.
U.S. Grant is wholly owned by Sycuan Investors-U.S. Grant, LLC (Sycuan Investors), which in turn is wholly owned by American Property Investors-U.S. Grant, LLC (American Property Investors), which in turn is wholly owned by Sycuan Tribal Development Corporation (STDC). STDC was formed under Sycuan's tribal laws. Unless otherwise indicated all references to Sycuan include Sycuan Investors, American Property Investors and STDC.
In 2003 Gallegos urged U.S. Grant to purchase the U.S. Grant Hotel (the hotel) in downtown San Diego. Upon U.S. Grant's acquisition of the hotel, APMC entered into a management agreement with U.S. Grant. The management agreement had a 10-year term. However, U.S. Grant retained the right to terminate the management agreement without notice for cause. The management agreement defined "cause" as, among other circumstances, "the occurrence of a default under this Management Agreement that is not cured within any grace or cure period provided herein."
APMC entered into a separate operating agreement with Sycuan.
Under the management agreement, APMC received three percent of the gross revenues of the hotel as well incentives based on the amount of distributable cash produced by the hotel. APMC was given control over all day-to-day operations of the hotel and was responsible for all receipts from hotel operations and paying all the expenses of the hotel. In managing the hotel, APMC promised to use "commercially reasonable efforts to manage and operate the Hotel, its businesses, services and sales in accordance with industry standards for hotels of similar size and quality."
2. Operation of the Hotel
Shortly after Gallegos, acting through APMC, began operating the hotel, he hired a number of his relatives to work there. He hired two of his brothers to act as successive general managers, a sister to act as director of operations, another sister to act as guest services manager, a nephew to act as director of human resources, a niece and nephew to act as guest services agents, his niece's brother to act assistant guest services manager, a nephew's partner to act as controller and his girlfriend to act as revenue manager. According to Gallegos, prior to execution of the management agreement, he advised Sycuan and U.S. Grant that his company was a family business and his relatives all were competent hospitality professionals who were hard working and loyal.
At the outset of operations by APMC, the parties expected the hotel would undergo substantial renovations in an effort to restore its status as a luxury hotel. According to Gallegos, APMC faced considerable challenges in operating the hotel on a profitable basis while the planning and execution of the renovations were taking place. APMC argued that notwithstanding these difficulties, it was able to operate the hotel on a profitable basis.
According to Sycuan officials, Gallegos and APMC's operation of the hotel did not meet U.S. Grant's expectations in a number of respects. In particular, Gallegos and AMPC did not provide U.S. Grant or Sycuan with accurate reports of the hotel's financial performance. In June 2004 Sycuan's chief financial officer Mark Woelfel, asked Gallegos if the hotel would need any additional contribution of capital from the tribe in the form of a cash call. According to Woelfel, Gallegos assured the tribe and U.S. Grant there would be no cash call. However, one month later, APMC overdrew the hotel's operating bank account by $350,000. In addition to cash needed to cover the overdraft, AMPC needed an additional $60,000 to pay the City of San Diego transient occupancy taxes. Neither Gallegos nor any other employee of AMPC advised U.S. Grant or Sycuan about the overdraft or the pending transient occupancy tax bill.
According to Woelfel, in the fall of 2004 Sycuan started receiving complaints from vendors about unpaid invoices. In December 2004 Sycuan attempted to resolve the hotel's cash flow problems by meeting with Gallegos and AMPC and agreeing to provide the hotel with further capital by way of a cash call. During this period of time, Sycuan also received an anonymous letter from a hotel employee complaining about AMPC's management of the hotel. The letter reported the hotel was suffering from financial difficulties, the hotel's restaurant, the Grant Grill, was closed by the health department, and employees who were not related to the Gallegoses had a difficult time reporting problems. At trial Jeff Gillick, the hotel's director of group sales, testified he sent the anonymous letter.
At or near the time of the Gillick letter, Mark Dibella, the hotel's director of sales and marketing, sent a letter to Sycuan's tribal chairman. Dibella's letter detailed a number of instances when members of the Gallegos family stayed at the hotel free of charge.
In response to the employee letters, Woelfel and other representatives of U.S. Grant met with Gillick, Dibella and Celia Nisenbaum, the director of catering and meeting services. Woelfel arranged the meeting with these non-Gallegos family members in an effort to determine whether the complaints the tribe received were legitimate. Following the meeting, U.S. Grant hired a hotel management company, G.F. Management, to investigate the employees' allegations and AMPC's management of the hotel. U.S. Grant also hired an accounting firm to conduct an audit of the hotel.
3. Termination of Management Agreement
In early 2005, because of the scope of renovations Sycuan was making to the hotel, the hotel was not open to the public. In light of that fact and the information it had about APMC's operation of the hotel, on February 4, 2005, U.S. Grant terminated the management agreement without notice. U.S. Grant advised APMC it was terminating the agreement based on APMC's mismanagement, misappropriation of funds and breach of fiduciary duty.
The hotel's notice of termination instructed APMC to preserve all of the hotel's records. Notwithstanding this instruction, on February 5, 2005, APMC retained an information technology firm which deleted all the e-mails on computers used by members of the Gallegos family. Following the termination, Gallegos family members were also observed shredding documents.
After APMC was terminated, U.S. Grant hired G.F. Management to operate the hotel.
In March 2005 Woelfel was still getting calls from hotel vendors who were not paid. In particular, Woelfel discovered the hotel's property insurer was owed $227,000. In an effort to get the insurer, among other vendors, promptly paid, Woelfel contacted Gilbert Preciado, APMC's controller, because the information needed to pay all the vendors was still under APMC's control. At Woelfel's request, Preciado prepared checks for the vendors and showed the checks to Woelfel. The checks were drawn on a hotel operating account still controlled by APMC. The account only had a balance of $200,000, which was not sufficient to cover the checks Preciado prepared. To cover the checks, Woelfel then arranged to have $1.15 million transferred from Sycuan to the operating account controlled by APMC.
Notwithstanding the transfer of funds to the operating account, Woelfel continued to receive calls from unpaid vendors. Upon investigation, Woelfel discovered that Gallegos directed Preciado not to send the checks he prepared, and instead Gallegos had personally transferred all of the funds in the hotel operating account to an account unrelated to the hotel and controlled by APMC.
On March 25, 2005, APMC sent U.S. Grant a letter in which it claimed it was entitled to all of the $1.35 million Gallegos transferred from the hotel's operating account to its unrelated account. APMC claimed it was owed approximately $400,000 in management, accounting, promotional, marketing and legal fees. In addition, it claimed it was owed $5 million in liquidated damages under the terms of the management agreement because the agreement was terminated without cause and without the notice required by the management agreement. Arguably, Gallegos's diversion of funds was contemplated by paragraph 7(e) of the management agreement, which states: "In the event Operator is entitled to any pursuant to this Section, such amounts may be remitted by Operator directly to Operator from the Operating Accounts immediately upon notice of such Termination. To the extent funds are not available from the Operating Accounts, Owner shall pay the balance of the amount owed to Operator within ten (10) days of the effective date of such Termination."
4. Procedural History
On April 1, 2005, U.S. Grant filed a complaint against APMC in which it sought to recover the $1.35 million Gallegos transferred from the hotel's operating account. In addition, U.S. Grant sought an order preventing APMC from disposing of the disputed funds. The trial court granted the hotel's request for injunctive relief with respect to $950,000, pending resolution of the hotel's claim. Prior to trial, U.S. Grant amended its complaint to add, among other claims, causes of action for breach of contract and breach of fiduciary duty. APMC filed a cross-complaint against U.S. Grant. APMC alleged it was entitled to $5 million in liquidated damages because the management contract was terminated without cause and without notice.
Prior to trial and in response to pre-trial motions in which both U.S. Grant and APMC asked the court to interpret the management agreement, the trial court determined the agreement "does not require notice before the contract can be terminated [for cause]." Notwithstanding this ruling, at trial APMC offered testimony from the corporate officer who negotiated the agreements on its behalf in support of its contention that it was entitled to notice prior to termination. The trial court excluded the proferred evidence and instructed the jury that APMC was not entitled to notice.
At trial, the jury returned a verdict largely in favor of U.S. Grant. The jury found APMC breached the management and operating agreements. However, the jury found U.S. Grant did not suffer any damages as a result of the breaches of contract. The jury found APMC and Gallegos were guilty of breach of fiduciary duty and liable to U.S. Grant for $30,601 and $5,500 respectively, and APMC was liable for conversion of the $1.35 million taken from the operating account. The jury also denied APMC any relief on its cross-complaint for liquidated damages.
Following trial, APMC moved for a judgment notwithstanding the verdict and a new trial, which the trial court denied.
U.S. Grant moved for an award of attorney fees. The trial court found that with respect to the parties' claims under the management agreement, U.S. Grant was the prevailing party and entitled to $950,000 in attorney fees. By way of a separate order, the trial court awarded U.S. Grant an additional $52,500 in attorney fees and costs it incurred in opposing APMC's posttrial motions and in making its own attorney fees motion.
APMC filed a notice of appeal from the trial court's judgment, including the initial award of $950,000 in attorney fees. APMC filed a second notice of appeal from the order awarding $52,500 in attorney fees incurred with respect to the posttrial motions.
We have consolidated the appeals.
DISCUSSION
In its principal argument on appeal, APMC contends the trial court erred in determining U.S. Grant was not required to give notice before terminating the management agreement for cause. Alternatively, it argues the trial court erred in refusing to admit extrinsic evidence APMC offered in support of its interpretation that it was entitled to notice before termination. We agree with APMC's alternative argument. Because the face of the management agreement is ambiguous, the trial court should have considered the extrinsic evidence offered by APMC.
I
"We begin by noting the oft-stated rule that parol evidence is properly admitted to construe a written instrument when its language is ambiguous. The test of whether parol evidence is admissible to construe an ambiguity is not whether the language appears to the court to be unambiguous, but whether the evidence presented is relevant to prove a meaning to which the language is 'reasonably susceptible.' [Citation.]
"The decision whether to admit parol evidence involves a two-step process. First, the court provisionally receives (without actually admitting) all credible evidence concerning the parties' intentions to determine 'ambiguity,' i.e., whether the language is 'reasonably susceptible' to the interpretation urged by a party. If in light of the extrinsic evidence the court decides the language is 'reasonably susceptible' to the interpretation urged, the extrinsic evidence is then admitted to aid in the second step−interpreting the contract. [Citation.]
"Different standards of appellate review may be applicable to each of these two steps, depending upon the context in which an issue arises. The trial court's ruling on the threshold determination of 'ambiguity' (i.e., whether the proffered evidence is relevant to prove a meaning to which the language is reasonably susceptible) is a question of law, not of fact. [Citation.] Thus the threshold determination of ambiguity is subject to independent review. [Citation.]
"The second step−the ultimate construction placed upon the ambiguous language−may call for differing standards of review, depending upon the parol evidence used to construe the contract. When the competent parol evidence is in conflict, and thus requires resolution of credibility issues, any reasonable construction will be upheld as long as it is supported by substantial evidence. [Citation.] However, when no parol evidence is introduced (requiring construction of the instrument solely based on its own language) or when the competent parol evidence is not conflicting, construction of the instrument is a question of law, and the appellate court will independently construe the writing. [Citation.]" (Winet v. Price (1992) 4 Cal.App.4th 1159, 1165-1166.)
II
U.S. Grant's right to terminate the management agreement was set forth in paragraph 4.2 of the agreement. Under paragraph 4.2 (a), U.S. Grant was permitted to terminate the agreement without obligation to pay APMC any liquidated damages: for cause, as defined in the agreement (paragraph 4.2 (a)(i)); for failure of the hotel to generate sufficient distributable cash (paragraph 4.2 (a)(ii)); or if the hotel was sold or foreclosed upon (paragraph 4.2 (a)(iii).) Under paragraph 4.2(b), U.S. Grant could terminate the agreement without cause on 60 days' notice; however, if it terminated the agreement under paragraph 4.2(b), U.S. Grant would be obligated to pay a substantial amount in liquidated damages.
Paragraph 4.2 expressly provided, in pertinent part: "Termination By Owner. This Agreement may be terminated by Owner only in accordance with the following provisions:
"(a) Subject to compliance with any applicable notice period, Owner may terminate this Agreement without obligation to pay liquidated damages in the following circumstances:
"(i) Immediately, without notice, for 'Cause' as defined in this Agreement; provided however, to the extent the basis for such termination relates to clause (i) of the definition of Cause, and provided further, that such acts were not committed directly by a member of Operator, Operator shall have the right to cure or otherwise provide restitution to Owner for such matter as set forth in Section 12.10, in which case, Owner may not terminate this Agreement in such instance;
"(ii) Upon sixty (60) days' notice, in the event of the failure of the Hotel to generate annual Distributable Cash equal to not less than eighty-five percent (85 %) of the Distributable Cash as projected in the Annual Plan for such Fiscal Year . . . ."
"Cause" in turn was defined in paragraph 1.1(h), which stated: "Cause shall mean the occurrence at any time of (i) a legal finding by a court of competent jurisdiction of any act of fraud, misappropriation of funds, dishonesty, bad faith, gross negligence, or breach of fiduciary duty by Operator's general manager or of any of Operator's corporate-office senior management personnel in the management, operation, or maintenance of the Hotel in connection with its management of the Hotel (it being acknowledged that the receipt by Operator of any affiliate thereof of income from the Hotel other than as specified herein shall constitute a breach of this clause (i)), (ii) the voluntary bankruptcy of Operator of Operator's seeking of relief from creditors under any law for the protection of debtors, (iii) the involuntary bankruptcy of Operator or insolvency of Operator under any law for the protection of debtors that is not dismissed within sixty (60) days of the filing thereof, or (iv) the occurrence of a default under this Management Agreement that is not cured within any grace or cure period provided for herein."
Finally, we must also note paragraph 12.11, which provided: "Breach. Should either party fail to comply with any of the terms of this Agreement, the non-defaulting party will have the option to cancel this Agreement upon thirty (30) days' notice of the other party of the alleged breach and failure by such other party to cure such breach within such thirty-period, provided, however, that in the event the default is not curable within such thirty-day period, but the defaulting party has commenced efforts to cure the default within the thirty-day period, the time to cure the default shall be executed for a reasonable period of time. Notwithstanding the foregoing to the contrary, in the event the alleged breach involves the payment of money, the notice and cure periods shall be ten (10) days."
The provisions of paragraphs 4.2, paragraphs 1.1(h) and 12.11 create obvious ambiguity with respect to whether U.S. Grant was required to give notice when termination was for cause. The phrase "[s]ubject to compliance with any applicable notice period" in paragraph 4.2 (a) conflicts with the immediately following phrase in paragraph 4.2(a)(i), "[i]mmediately, without notice, for 'Cause'." This conflict is further complicated by the last phrase in paragraph 1.1(h), which defined "cause" as including a default that is not cured within "any grace or cure period provided for herein." As the trial court noted, some notice is implicated in any grace or cure period. This of course brings us to paragraph 12.11, which expressly requires notice and an opportunity to cure if one party wishes to "cancel" the agreement as the result of any default or breach.
We note that at one point in the proceedings, the trial court expressed its exasperation with the terms of the agreement and its own qualms about its interpretation. The trial court stated: "I'm not going to change horses now, I've ridden this horse into town and its my horse, I'm stuck with it. I don't like it, I've hated this thing because the contract makes no sense. It's the best I can do and I've got to do it, I'd rather just dump it into the jury's lap and I'm sure you would, too."
The trial court resolved these ambiguities by essentially finding that under the agreement, no notice was required for termination for cause unless there was some specifically applicable notice requirement elsewhere in the agreement. The trial court further found the notice and cure provisions of paragraph 12.11 were only optional and did not meet the conditions referenced in paragraph 1.1(h)(iv). The trial court found: "The plain language of Paragraph 4.2(a)(1) states that the contract can be terminated 'without notice' if it is for Cause as defined in the contract and subject to 'any applicable notice' requirements. Defendant APMC has not identified 'any applicable notice' requirement within the contract that applies to the facts and circumstances of this case.
"Paragraph 1.1(h)(iv) defines 'Cause' as 'the occurrence of a default under this Management Agreement that is not cured within any grace or cure period provided for herein.' 'Default' is synonymous with 'breach' as set forth in Paragraph 12.11. That paragraph provides for an optional notice and cure period by the non-defaulting party.
"Taken together, Paragraphs 4.2(a)(1) and 1.1(h)(iv) provide that the agreement may be terminated by the Owner 'immediately, without notice, for' 'the occurrence of a default under this Management Agreement that is not cured within any grace or cure period provided for herein.'"
"Defendant APMC contends that the phrase 'grace or cure period' must be read to require 'notice' and a 'grace or cure period.' Such an interpretation, however, would nullify the phrase 'immediately, without notice,' found in Paragraph 4.2(a)(1).
"While common sense dictates that a default cannot be cured within a grace or cure period without some notification of the default, such notification does not need to be formal 'notice' as defined in the agreement."
Importantly, once having found that the management agreement did not require notice, the trial court excluded the extrinsic evidence APMC offered in support of its interpretation. The trial court in effect found the management agreement was not susceptible to APMC's proposed interpretation. (See Winet v. Price, supra, 4 Cal.App.4th at p. 1165.) The trial court erred in doing so. (Ibid.) By its terms, paragraph 12.11 expressly provides a grace or cure period referred to in paragraph 1.1(h). Indeed, the trial court found the reference in paragraph 1.1(h)(iv) to the occurrence of any default was synonymous with the term "breach" as set forth in paragraph 12.11. Contrary to U.S. Grant's argument and the trial court's analysis, use of paragraph 12.11 as one of the grace periods to which APMC was entitled would not render meaningless the phrase "[i]mmediately, without notice, for Cause" in paragraph 4.1(a)(i). Arguably, immediate termination for cause was permissible under the contract when one of the judicial acts set forth in paragraph 1.1(h) occurred–a judgment for mismanagement or fraud, voluntary bankruptcy, or involuntary bankruptcy−or the 30-day cure period set forth in paragraph 12.11 expired.
Admittedly, under APMC's interpretation, U.S. Grant's right to terminate the contract without notice was severely constrained. Under APMC's interpretation, U.S. Grant could not terminate the agreement without risk, unless there was some judicial determination of its right to do so or some concession by APMC that it was unable to perform, either by way of bankruptcy or a failure to cure. However, this interpretation is supported by two rules of contract interpretation. First, it meets the requirement that any interpretation give every provision of the contract meaning. (See Royal Ins. Co. v. Caledonian Ins. Co. (1912) 20 Cal.App. 504, 506; Holz Rubber Co., Inc. v. American Star Ins.Co. (1975) 14 Cal.3d 45, 56-57.) As we have noted, one weakness with the trial court's interpretation is that it fails to give meaning to the notice and opportunity to cure provisions expressly set forth in paragraph 12.11. Secondly, APMC's interpretation is also consistent with the circumstances surrounding the contract. (See Hess v. Ford Motor Co. (2002)27 Cal.4th 516, 524 [we consider the circumstances under which the contract was made and the matter to which it relates]; see also Civ. Code, § 1647.) In this regard the opinion and holding in Woolley v. Embassy Suites, Inc. (1991) 227 Cal.App.3d 1520 (Woolley) are instructive.
In Woolley the owner of a hotel wanted to terminate the operator's management of its hotel but was prevented from doing so by a preliminary injunction issued by the trial court. The injunction was based on a provision in the operator's contract which required arbitration of any claim of breach of contract. The Court of Appeal reversed the order granting the injunction. The court found that although the parties' agreement might have constrained the owner's right to terminate the contract, it did not and could not interfere with the owner's power under the common law to terminate its agency relationship with the operator. The court stated: "Section 8.1 of the contract defines a permissible "terminating event" as the giving of notice by the owners of a material breach by the manager and the failure to cure such breach within 60 days (unless the breach is of such nature that cure within that time is impossible). Subparagraph (j) provides that in the event a notice of breach is given, the manager has the option of demanding arbitration on the issue, that 'the dispute shall be submitted promptly to arbitration,' and that 'such determination shall be binding upon both parties.' Subparagraph (i) confers an equal right upon the owner to demand arbitration in the event the manager declares a breach. Nowhere does the contract limit the ability of the manager to sever the relationship, or condition it on a successful outcome of the arbitration. Of course, by relieving Embassy of its duties before arbitration, the owner risks exposure to a substantial damage award for wrongful termination in the event Embassy ultimately prevails. However, nothing in the contract implicitly or expressly abrogates the unqualified common law right of either party to terminate the agency.
"Even if the contract did attempt to restrict the power of the owner to terminate the manager, such provision would be ineffective. The principal's power of revocation is absolute and applies even if doing so is a violation of the contract or the agency is characterized as 'irrevocable.' [Citations.] 'It is believed that it should always be within the power of the principal to manage his own business and that includes the power of the principal to reassume the control over his own business which he has but delegated to his agent.' [Citation.]" (Woolley, supra, 227 Cal.App.3d at pp. 1530-1531.)
Woolley is instructive because it demonstrates the management agreement did not prevent U.S. Grant from acting swiftly to protect its interests in the event it believed APMC seriously mismanaged the hotel and the level APMC's mismanagement could not be cured. It also is instructive in suggesting that in the hotel industry management contracts which protect operators by severely limiting the right to terminate, as opposed to the power to terminate, are in no sense novel.
Respondent U.S. Grant's motion to take judicial notice of the fact that in commercial transactions notice of default is not required even when a contract provides for the right to cure a default is denied. Such a legal proposition, which is subject to dispute, is not a fact subject to judicial notice.
In light of the foregoing circumstances, extrinsic evidence in support of APMC's theory was admissible. In light of the explicit references to notice in the management agreement and the holding in Woolley, the management agreement was plainly susceptible to APMC's proposed interpretation. Accordingly, the extrinsic evidence APMC offered in support of that interpretation should have been admitted (Winet v. Price, supra, 4 Cal.App.4th at p. 1165.)
The trial court's error in excluding the proffered evidence was prejudicial. Had the trial court considered the parol evidence, it may well have adopted APMC's interpretation and found that APMC was entitled to notice and further that with notice it would have been able to cure the defects in its performance. With respect to APMC's ability to cure, we note that at the time the management agreement was terminated the hotel was not open and the jury found that none of APMC's breaches of contract caused U.S. Grant any damage. Accordingly, we must reverse the trial court judgment and remand for further proceedings.
It bears noting that "when . . . ascertaining the intent of the parties at the time the contract was executed depends on the credibility of extrinsic evidence, that credibility determination and the interpretation of the contract are questions of fact that may properly be resolved by the jury [citation]." (City of Hope National Medical Center v. Genentech, Inc. (2008) 43 Cal.4th 375, 395.)
III
Our determination the trial court erred in failing to consider the extrinsic evidence proffered by APMC requires the judgment be reversed in its entirety. For purposes of providing guidance to the parties and the trial court on remand, we note the following:
Because APMC's responsibilities under the management agreement will have to be relitigated on remand, we need not and do not reach APMC's contentions that U.S. Grant failed to establish that any of its breaches were material breaches. On remand, APMC may reassert that contention.
Because U.S. Grant's breach of fiduciary duty claims might be subject to any right to cure APMC is able to establish, of necessity our reversal includes the jury's breach of fiduciary duty findings against APMC and Gallegos. On remand, APMC and Gallegos may assert any additional defenses to the breach of fiduciary duty claims they have, including those they have raised on appeal.
If on remand APMC is successful in showing that it was entitled to notice and an opportunity to cure, and that it would have been able to cure any alleged breaches, ultimately it may be successful in establishing its right to liquidated damages. APMC's right to liquidated damages in turn may, under paragraph 7(e) of the management agreement, provide it a defense to U.S. Grant's conversion claim. Thus, in addition to reversing that portion of the judgment determining APMC breached the management agreement, our disposition includes reversal of APMC's liability for conversion. On remand, APMC may reassert its contention that, separate from its right to liquidated damages, any liability for conversion should be reduced by the $400,000 in management fees it contends it was owed at the time the management agreement was terminated.
The trial court's determination U.S. Grant was the prevailing party and hence entitled to attorneys fees was predicated on the jury's verdict finding APMC breached the management agreement and was not entitled to any liquidated damages. Because that finding must be reversed, we must also reverse the award of attorney fees.
The judgment is reversed and remanded for further proceedings consistent with the views we have expressed. Appellants to recover their costs of appeal.
WE CONCUR: NARES, J., HALLER, J.