Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of San Diego County No. GIC 870908, John S. Meyer, Judge.
Huffman, Acting P. J.
Jack D. Zemer appeals from a judgment entered against him in his lawsuit against Daniel Schreiber and David Perez (sometimes defendants) following a trial conducted by a referee stipulated to by the parties. (Code Civ. Proc., § 638, subd. (a).) Zemer contends the Referee erred in ruling that (1) an agreement entered into by the parties was not sufficiently definite and certain to constitute a binding contract, and (2) Zemer is not entitled to equitable relief that would recognize such an agreement was created on the basis of promissory estoppel. We conclude that the Referee's decision is well supported by the record and applicable law, because these parties did not create a binding agreement and Zemer's claim of promissory estoppel is without merit. We affirm the judgment.
FACTUAL AND PROCEDURAL BACKGROUND
A. Transactional Facts Up to and Including July 26 Meeting and Document
On appeal, the parties each accept the detailed factual statement prepared by the Referee in his statement of decision, and we do likewise. In 2004, Zemer, Schreiber and Perez formed American International Alliance, LLC (AIA) to make private equity investments. They executed an operating agreement for AIA to conduct such business. Zemer and Schreiber contributed equal amounts of cash to capitalize AIA, and Perez contributed " 'sweat equity' " through his management of AIA. AIA subsequently invested in two companies — an entertainment enterprise and a lighting business.
In November 2004, Perez became a full time corporate officer of Surge Global Energy (Surge), which is a publicly traded oil and gas company doing business in Canada and Argentina. By virtue of his position at Surge, Perez was granted stock options. He also held stock in a Surge subsidiary, Signet Energy, Inc. (Signet). Perez convinced Zemer to purchase $1.8 million of Surge stock in several transactions. Zemer put a substantial portion of the Surge stock that he purchased in his family trust, which he controlled with his wife, and transferred some of it to his two adult sons, who also put some of it in their trusts. Schreiber also became involved with Surge as a member of its board of directors, for which he received stock options.
All references to Surge shares also include those of its subsidiaries, Signet, unless indicated otherwise; no separate issues are argued regarding Signet.
In the spring of 2006, Zemer and Perez were at odds, and efforts at resolving their differences had failed. A July 27, 2006 meeting of Surge's shareholders was approaching. Zemer wanted to utilize his interest in Surge to conduct a proxy contest and thereby remove Perez from his positions as chief executive officer and chairman of Surge. Likewise, Zemer sought to remove Schreiber from the Surge board.
In response, Perez called a meeting with Zemer and Schreiber on the morning of July 26. According to Perez, the purpose of the meeting was to reach an agreement in order to stop Zemer's " 'shenanigans,' " get Perez reelected as Surge chief executive officer and chairman, and have Schreiber and the rest of Perez's slate of directors elected to Surge's board. Prior to the meeting, Perez prepared a spreadsheet detailing his estimates of the three partners' and families' stock, stock options and warrants held in Surge (and Signet). The spreadsheet lists some of the stock as held in Zemer's trust and in another trust on behalf of the sons. Some of Schreiber's shares are identified as being derived from the board or from an individual named Jamie Schloss. (See pt. IIIC, post.)
The meeting lasted 60 to 90 minutes, with Schreiber attending only portions of the meeting. Perez proposed that he, Zemer and Schreiber each place the assets listed on the spreadsheet into their existing LLC, AIA, and Schreiber would pay $900,000 to Zemer to equalize their capital contributions with respect to the Surge (and Signet) assets. Perez's attorney, Steve Anapoell, attended much of the meeting by speakerphone. During the meeting, Anapoell recommended the creation of additional LLC's (limited liability company) to separate the Surge assets from those of AIA's other two investments (entertainment and lighting companies). Anapoell advised the parties that a multiplicity of issues needed to be resolved in a final agreement, including taxes, asset distribution, capital contribution, transfer or marketability, management, control and limited liability.
During the meeting, Perez modified the spreadsheet that listed the three partners' and family interests in Surge (and Signet) to include a column entitled "capital split" (reflecting that 50 percent of the Zemer family's $1.8 million investment would be $900,000) and to add the four following lines:
"Schreiber owes Zemer $900,000.00 towards the capital account of AIA[.]
"Zemer, Schreiber and Perez will contribute all shares, options and warrants to [AIA, LLC].
"All parties will sign a Mutual General Release and waivers of Civil Code section 1542 with respect to future claims.
"Agreed upon on July 26, 2006[.]"
During the meeting Zemer, Schreiber and Perez each signed the modified spreadsheet (here called "the July 26 document"). Zemer refused to leave the meeting without a $900,000 check. Perez and Schreiber made out a check to Zemer for $900,000, drawn on the AIA account, although all three men understood that the account contained no funds and that Schreiber would place $900,000 of his own funds in the AIA account within a few days to cover the check.
As Zemer left the meeting, Perez asked if he would be at the Surge shareholders' meeting the next day. Zemer stated that he would try to attend. According to Zemer, he thought he could no longer vote his Surge shares at the shareholders' meeting because they now belonged to AIA.
B. Transactional Facts Following the July 26 Meeting; "Breakdown"
At 2:00 p.m. the same day, Zemer's attorney, Ken Polin, sent an e-mail to Perez's attorney, Anapoell, stating that Zemer "felt that we needed to sign a document and funding needs to be done before tomorrow's Surge shareholder meeting." Perez then e-mailed Zemer at 3:12 p.m. and stated, "I am confused, are you now changing your mind again, or am I reading into this wrong. We gave you everything you asked for today." At 4:23 p.m. Zemer replied, "Nothing change no panic. I was advised by my family and [lawyer] due to this history to go hard ASAP. So have Anapol [sic] work overtime and secure the 900K." At 4:28 p.m. Perez replied, "We can put the money in escrow if required. I am counting on you showing up with all the proxies and your votes tomorrow." Zemer did not respond.
Perez testified that "[i]n the financial business, going hard is... place the order... print that ticket today, not tomorrow, today. We want the money today, now. Hard is by close of business day."
Anapoell continued to work on the documents for the deal, exchanging e-mails with Zemer's lawyer Ken Polin. He told Polin, "There are many securities and tax issues we are working through in connection with the proposed [LLC] Agreement of Surge/Signet Investments, LLC. As you can imagine, it is not a plain vanilla LLC agreement." Anapoell said the earliest he would be able to finish the documents was the end of the next day (Thursday), and that they would be completed, at the latest, by Friday.
The next morning, prior to the Surge shareholders' meeting, Perez stopped payment on the $900,000 check. He also sent an e-mail to Anapoell stating that it "seems [Zemer] has breached our agreement." According to Perez, Zemer had "told shareholders to not show up this morning." Zemer did not attend the meeting, but neither did he disrupt it. At the shareholders' meeting on July 27, 2006, a quorum was present, and Perez and Schreiber were reelected as corporate officers of Surge.
The next day, Zemer's attorney contacted Anapoell to ask when the July 26 deal documents would be ready. Perez instructed Anapoell not to respond because he and Schreiber were rethinking whether they wanted to settle with Zemer. On July 31, 2006, Perez informed his attorney, "My desire is to not proceed with Zemer in any way except a court of law." On August 2, 2006, Zemer learned that payment had been stopped on the $900,000 check. According to Schreiber, he had not intended to fund the $900,000 check until definitive documents were signed with respect to the deal reflected in the July 26 document.
C. Litigation
On August 15, 2006, Zemer filed suit against Perez and Schreiber. He alleged causes of action for breach of contract, breach of the covenant of good faith and fair dealing, breach of fiduciary duty and constructive fraud (as well as specific performance against Perez, regarding transfer to AIA of his Surge/Signet shares). Zemer alleged that the July 26 document constituted a binding settlement agreement and that Perez and Schreiber had breached the agreement by stopping payment on the $900,000 check. Zemer sought damages in the amount of $900,000, plus additional consequential and punitive damages.
The parties stipulated to an order of general reference of the lawsuit to the Honorable J. Richard Haden (the Referee). All three were represented by experienced trial counsel at the three-day trial, and counsel each argued that the parties were sophisticated business persons in their dealings with each other. Each party and the transactional attorneys testified about the events leading up to and after the July 26 meeting. The Referee issued a tentative statement of decision, and took objections and comments from the parties. Zemer argued for the first time that the doctrine of promissory estoppel should provide an alternate ground for recovery.
D. Ruling; Judgment
After hearing oral argument, the Referee issued a final statement of decision in favor of Perez and Schreiber. He included an extensive statement of facts that described the parties, their July 26, 2006 meeting, and "the breakdown." The Referee ruled that the July 26 document was not a binding contract. First, the Referee found that because the parties had not reached mutual assent to all of the material terms of their agreement, the July 26 document was too indefinite and uncertain to be enforced. In particular, the court stated that all three parties understood that their attorneys would be working together to provide final documents, regarding tax consequences, management and control, and to create a new LLC or two, in order to separate Surge's assets from those of AIA's other businesses. (The AIA operating agreement was not designed to accommodate publicly traded Surge stock, but only private equity investments.) The July 26 document does not contain any agreement about how to handle subsequent documentation.
The Referee also noted that Zemer had told the parties that afternoon that the funding of the check would have to take place before the Surge shareholder meeting, although at the morning meeting, Schreiber was given several days to fund the check.
Next, the Referee concluded that the July 26 document was not an enforceable agreement because the consent of several third parties was necessary before it would become binding. Specifically, the stock that Zemer agreed to transfer to AIA could not be transferred from the trusts without the consent of his wife and his sons, and Schreiber and Perez would need the consent of the Surge board of directors to transfer their stock options to AIA. The Referee relied on the requirement that the parties obtain the consent of third parties, to find that since they anticipated obtaining such approvals, the agreement had not taken effect and "the contract is not complete until the third party has approved. Until that happens neither party is bound by the agreement." (Santa Clara-San Benito etc. Elec. Contractors' Assn. v. Local Union No. 332 (1974) 40 Cal.App.3d 431, 436 (Santa Clara).)
The Referee concluded that no further proceedings were required, since Zemer was not entitled to equitable relief in the form of either specific performance or relief under the doctrine of promissory estoppel. The Referee stated, "[E]quitable remedies require the inadequacy of a legal remedy, terms which are sufficiently definite and certain, and performance by Plaintiff. Here money damages would suffice, many terms were left for further negotiation, and Plaintiff reneged on the agreement first, then never tendered his own performance by transferring shares." The Referee's final statement of decision does not specifically rule on the causes of action for breach of fiduciary duty or constructive fraud, nor expressly include findings on the appropriate scope of the release and waiver of claims found in the July 26 document. (Civ. Code, § 1542.)
The Referee's final statement of decision was filed with the trial court, and judgment was entered in accordance with Code of Civil Procedure section 644, subdivision (a), as a final judgment resolving the lawsuit. Zemer appeals.
DISCUSSION
I
INTRODUCTION AND CONTRACT INTERPRETATION PRINCIPLES
The parties do not dispute the dispositive facts as set forth in the Referee's statement of decision. "Where [a] statement of decision sets forth the factual and legal basis for the decision, any conflict in the evidence or reasonable inferences to be drawn from the facts will be resolved in support of the determination of the trial court decision. [Citations.]" (In re Marriage of Hoffmeister (1987) 191 Cal.App.3d 351, 358; Eisenberg, et al., Cal. Practice Guide: Civil Appeals and Writs (The Rutter Group 2008) ¶ 8:62, pp. 8-26 to 8 27.) Our first task is to determine whether, on those undisputed facts, the July 26 document on its face contains the essential material terms of contract to enable it to be recognized as a binding contractual arrangement that could be enforced by a court. Such an inquiry is conducted de novo, by applying legal principles to the undisputed facts. "Whether a contract term is sufficiently definite to be enforceable is a question of law for the court[,]" to which we apply a de novo standard of review. (Ladas v. California State Auto. Assn. (1993) 19 Cal.App.4th 761, 770, fn. 2 (Ladas); see also Patel v. Liebermensch (2008) 45 Cal.4th 344, 348, fn. 1 ["Whether a contract is certain enough to be enforced is a question of law for the court"].) A related inquiry is identifying the actual contract terms agreed upon. " 'Although the terms of a contract need not be stated in the minutest detail, it is requisite to enforceability that it must evidence a meeting of the minds upon the essential features of the agreement, and that the scope of the duty and limits of acceptable performance be at least sufficiently defined to provide a rational basis for the assessment of damages....' " (Robinson & Wilson, Inc. v. Stone (1973) 35 Cal.App.3d 396, 407; Bustamante v. Intuit, Inc. (2006) 141 Cal.App.4th 199, 208-209, 215 (Bustamante).)
Not only a simple de novo analysis is required on this record, however, because of the manner in which this particular trial was conducted. All parties presented comprehensive and extensive evidence about their views of the circumstances of all the transactional dealings among the parties, and their effect upon their legal obligations toward each other. The Referee received all this evidence without objection, summarized it in terms of the original meeting and its "breakdown," and analyzed all the evidence in an effort to give meaning to the terms appearing on the face of the document, and did this for purposes of analyzing contract formation. Hence, although the briefs on appeal discuss issues of extrinsic evidence in aid of interpretation of the contract, our focus must be upon the formation stage of the contract, and this utilizes an objective standard. (2 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts, § 116, p. 155 ["mutual consent is gathered from the reasonable meaning of the words and acts of the parties, and not from their unexpressed intentions or understanding"].)
We accordingly seek to clarify that our analysis of the record is directed toward determining whether the Referee's conclusions about the extent of agreement reached by the parties, as demonstrated by their activities surrounding the transaction, are well founded in the evidence presented. Although there is authority that allows a contract to be interpreted and constructed, through examination of the conduct of the parties, such authority presupposes there is an existing contract, not just an agreement to agree: " 'A contract may be explained by reference to the circumstances under which it was made, and the matter to which it relates.' " (1 Witkin, Summary of Cal. Law, supra, Contracts, § 748, p. 836; Civ. Code, §§ 1647, 1636.) Thus, "[a]cts of the parties, subsequent to the execution of the contract and before any controversy has arisen as to its effect, may be looked to in determining the meaning.... " (1 Witkin, Summary of Cal. Law, supra, Contracts, § 749, p. 838, italics added.) "When the parties to a contract perform under it and demonstrate by their conduct that they knew what they were talking about the courts should enforce that intent." (Crestview Cemetery Assn. v. Dieden (1960) 54 Cal.2d 744, 754.)
"Interpretation of a contract consists in ascertaining the meaning to be given to the expression of the parties. [Citations.]" (1 Witkin, Summary of Cal. Law, supra, Contracts, § 741, pp. 827-829.) Extrinsic or parol evidence is admissible to interpret an integrated contract, under certain complex limitations. (2 Witkin, Cal. Evidence (4th ed. 2000) Documentary Evidence, § 74, pp. 192-194.) But, the Referee found the parties never got to that stage, or in the alternative, he ruled that promissory estoppel principles did not apply to create an enforceable agreement.
Experienced trial counsel presented extensive and wide-ranging evidence about all the circumstances of the transaction, and the Referee, a retired superior court judge, was likewise very sophisticated in trial procedure. The Referee could properly evaluate and believe those portions of the evidence that were consistent with the respective, and also the alternative, theories of the case presented by the parties. On review of the undisputed factual record, and the factual and legal conclusions drawn by the Referee, this court may appropriately consider whether the July 26 document contains ambiguous terms, in connection with our use of an objective standard to determine whether the July 26 document contains all the essential contract terms for such circumstances of settling a dispute. (Lindsay v. Lewandowski (2006) 139 Cal.App.4th 1618, 1622 ["A settlement agreement, like any other contract, is unenforceable if the parties fail to agree on a material term or if a material term is not reasonably certain."]; also see 1 Witkin, Summary of Cal. Law, supra, Contracts, § 741, pp. 827-829 [a trial court's determination of whether an ambiguity exists in a contract, or resolution of it, presents questions of law subject to independent review on appeal, where the evidence is not in conflict].)
Before embarking on our contract analysis, we take note that Zemer's complaint alleged not only contract-based causes of action (including breach of the covenant of good faith and fair dealing and specific performance), but also breach of fiduciary duty and constructive fraud. The Referee's decision adjudicated all causes of action without separately ruling on breach of fiduciary duty or constructive fraud, and the record contains no indication that Zemer objected to that approach. Similarly, on appeal Zemer does not separately address the latter theories, and we treat those tort issues as waived.
II
MATERIAL/ESSENTIAL TERMS OF CONTRACT
A. Background
" 'It is essential to the existence of a contract that there should be: 1. Parties capable of contracting; 2. Their consent; 3. A lawful object; and 4. A sufficient cause or consideration.' " (1 Witkin, Summary of Cal. Law, supra, Contracts, § 3, p. 61, citing Civ. Code, § 1550; Weddington Productions v. Flick (1998) 60 Cal.App.4th 793, 811 (Weddington).) The parties need not reach a "subjective meeting of the minds; in the absence of fraud, mistake, etc. [citation], the outward manifestation or expression of consent is controlling." (1 Witkin, Summary of Cal. Law, supra, Contracts, § 116, p. 155; Brant v. California Dairies (1935) 4 Cal.2d 128, 133.) We seek to determine whether the parties consented to the same things in the same sense. (Civ. Code, § 1580.) An obligation will not be enforceable unless its terms are sufficiently definite so that the performance promised is reasonably certain. The courts are to determine whether the terms provide an adequate basis for determining the existence of a breach and providing an appropriate remedy. (Weddington, supra, at p. 811.) "To be enforceable, a promise must be definite enough that a court can determine the scope of the duty and the limits of performance must be sufficiently defined to provide a rational basis for the assessment of damages." (Ladas, supra, 19 Cal.App.4th 761, 770.)
The July 26 document was intended to resolve certain unspecified disagreements between the parties, and it references a "Mutual General Release," even though there was no pending litigation between the parties at that time that might have been the subject of a release of claims. The parties' briefing refers to the July 26 document as a "settlement agreement," and that is a fair characterization of that document. In the context of settling this dispute, the material terms on the face of this document included the amount of payment that Zemer wanted, transfer of stock to AIA, and some kind of release of claims among the parties. (See Kohn v. Jaymar-Ruby Inc. (1994) 23 Cal.App.4th 1530, 1534; Stewart v. Preston Pipeline Inc. (2005) 134 Cal.App.4th 1565, 1584; Harris v. Rudin, Richman & Appel (1999) 74 Cal.App.4th 299, 308 ["Whether the parties intended their communications to be a binding settlement agreement or an agreement to further negotiate after a formal draft was prepared is a factual question not properly the subject of a demurrer"].) We will examine those three sets of settlement terms separately to determine if the agreement containing them was an enforceable and complete one. First, however, we examine comparable situations in which the necessary enforceability may be found lacking.
B. Agreements to Agree
" '[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 a 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.' " (Weddington, supra, 60 Cal.App.4th 793, 812.) "A contract which leaves an essential element for future agreement of the parties is usually held fatally uncertain and unenforceable." (Okun v. Morton (1988) 203 Cal.App.3d 805, 817.)
"Where any of the terms are left for future determination and it is understood that the agreement is not to be deemed complete until they are settled, or where it is understood that the agreement is incomplete until reduced to writing and signed by the parties, no contract results until this is done. [Citations.]" (1 Witkin, Summary of Cal. Law, supra, Contracts, § 134, p. 173.) In some contracts, a condition of completing an agreement is the obtaining of the signatures of all other parties, and such a contract is not binding upon those who sign until the others also sign. (Id. at § 135, p. 175.)
It is not necessary that all minor terms of a contract be spelled out, but rather only that all essential elements are agreed upon. (1 Witkin, Summary of Cal. Law, supra, Contracts, § 146, p. 185.) For example, "Parties may engage in preliminary negotiations, oral or written, in order to reach an agreement. These negotiations ordinarily result in a binding contract when all of the terms are definitely understood, even though the parties intended that a formal writing embodying these terms was to be executed later." (Id. at § 133, p. 172.) Likewise, " 'minor matters' in elaborate contracts" may be left to future agreement. (Weddington, supra, 60 Cal.App.4th at p. 813, quoting 1 Williston on Contracts (4th ed. 1990) § 4:28, pp. 602-605.) " 'Obviously, the question is one of degree; the question is whether the indefinite promise is so essential to the bargain that inability to enforce that promise strictly... makes it also unfair to enforce the remainder of the agreement. The more important the subject matter to be agreed upon, the more likely it is that the uncertainty will prevent or hinder enforcement. If the contract cannot be performed without settlement of the undetermined point... the entire contract may fail.' " (Ibid.)
Thus, an "agreement to agree" is not a contract if essential terms of the agreement are not specified. (See Copeland v. Baskin Robbins U.S.A. (2002) 96 Cal.App.4th 1251, 1256 ["where any of the essential elements of a promise are reserved for the future agreement of both parties, no legal obligation arises 'until such future agreement is made' "].) "Whether a term is 'essential' depends on its relative importance to the parties and whether its absence would make enforcing the remainder of the contract unfair to either party." (Id. at p. 1256, fn. 3; see 1 Witkin, Summary of Cal. Law, supra, Contracts, § 148, pp. 187-190 ["an agreement to agree is unenforceable, because, by the very terms of the promise, either party may refuse to agree on anything to which the other party will agree"].)
When parties reach agreement on broad settlement goals, but do not specify the means by which they will reach those goals, the agreement is not enforceable if the omitted "means" have an impact on items material to the agreement. (Terry v. Conlan (2005) 131 Cal.App.4th 1445, 1459 (Terry) [settlement agreement was unenforceable because it omitted the material term of how the trust should be structured for tax purposes].) In Terry, the court addressed whether a settlement agreement in a probate dispute over the disposition of three parcels of real property contained all of the material terms necessary to create an enforceable agreement. Although the "negotiations did lead to an agreement between the parties on the goals of the settlement" (including planned transfers of property), "the parties' mutual assent to the goals of the settlement" was "not sufficient to demonstrate the enforceability of the settlement agreement" because of the "failure to agree to the material means to achieve the goal of the settlement." (Id. at pp. 1458-1459, italics added.) The means of achieving a settlement may include creating a mechanism for management of the subject property, or the nature of holding title to the property. (Id. at pp. 1452, 1459.) These details are important to the method in which the goals of the settlement would be achieved, and those missing terms would have "significant financial impact on the parties." Thus, the court concluded that the settlement omitted material terms, which made it unenforceable. (Id. at p. 1459.)
It begs the question for Zemer to argue that the July 26 document is binding because it contains the words "agreed upon." Although those words may suggest that the parties intended to reach a settlement of their disputes, they do nothing to address whether the terms of the July 26 document are sufficiently definite and certain to constitute a binding contract. We next examine the face of the document, in light of the undisputed evidence, to determine whether any essential and material contractual terms had not yet been agreed to by the parties, as of July 26.
III
ANALYSIS: FACE OF CONTRACT; MEANINGFUL CONDUCT
The chief ground for the Referee's decision was that the July 26 document, on its face, was too indefinite and uncertain to constitute a binding agreement. The Referee reached this decision based on a plain reading of the document, in light of the evidence of the conduct of the parties as it seems to explain the terminology used in the document. We also follow this two-step approach in analyzing the record, to assess whether the July 26 document created a binding contract or only an agreement to agree.
Again, our focus is upon the formation stage of a contract, utilizing an objective standard. We ask whether these parties mutually consented to the same terms, in the same sense, at the relevant time, based on the reasonable and objective meaning of their words and acts, and we do not consider any unexpressed, subjective intentions that they may have had. (Civ. Code, §§ 1580, 1636; 1 Witkin, Summary of Cal. Law, supra, Contracts, § 116, p. 155.) The three significant categories of material terms are discussed separately.
A. LLC's Into Which the Surge Assets Would Be Transferred
In some cases, an overly general term used in a contract may be fleshed out by the use of statutory rules and regulations that set forth a procedure for making such a determination. In Elite Show Services, Inc. v. Staffpro, Inc. (2004) 119 Cal.App.4th 263, a pretrial offer of settlement referring to payment of " 'reasonable' " attorney fees was deemed to be sufficiently definite to be enforceable, because there are established procedures for determining a reasonable amount. (Id. at pp. 267-269.) Such procedures provide an independent basis for defining and determining the meaning of a contractual term.
It is undisputed that all of the parties understood from the comments of Anapoell during the July 26, 2006 meeting that, in order to limit liability, at least one new LLC would have to be created to separate the Surge assets from those of AIA's other two investments, and that the Surge assets would be placed directly into that new LLC rather than into the existing AIA. Thus, although the July 26 document states that the parties would contribute their Surge assets to AIA (the original LLC), the parties in fact knew that those same assets would be contributed to a new LLC that had not yet been formed, in which Perez, Zemer and Schreiber would hold equal interests.
The record shows that no new LLC was ever formed, nor any new operating agreement drafted. Thus, although the parties agreed to the general goal of contributing their Surge assets to an LLC in which they would hold equal interests, they had not come to any agreement on the terms by which that LLC would be set up and operate. Creating an LLC under such circumstances is not a simple, uncomplicated procedure that can be relied on, in place of specific agreements by the affected parties. During the follow up to the July 26 meeting, Anapoell told attorney Polin that this would not be a "plain vanilla" LLC. (See Bustamante, supra, 141 Cal.App.4th at p. 215 [a contract to create a joint venture requires a meeting of the minds on the essential structure and operation of the business entity, that would be sufficient to provide a basis for determining the existence of a breach and creating a remedy].)
According to the uncontradicted testimony of Anapoell, many issues would have to be resolved in setting up the new LLC. These items included "taxes, asset distribution, capital contribution, transfer or marketability, management, control, and limited liability." Further, the testimony of the parties supports an inference that at least some those items were essential and material terms. Schreiber, for instance, testified that tax issues, control over stock options and when the stock would be sold (all of which were to be set forth in the LLC documents) were material terms. (See Bustamante, supra, 141 Cal.App.4th 199, 210 [purported agreement to undertake a business enterprise that did not specify the source of control of the new company or other aspects of management and investment omitted material terms and was thus unenforceable].)
In its articles of organization, an LLC may specify how it is to be managed and may limit the management rights of certain members to the extent desired in the articles of organization or in an operating agreement. (Corp. Code, §§ 17150, 17151; see also Corp. Code, § 17059.)
Zemer also understood that tax consequences would have to be addressed, in structuring the LLC's. (See Terry, supra, 131 Cal.App.4th 1445, 1459 [settlement agreement was unenforceable because it omitted the material term of how the trust should be structured for tax purposes].) Anapoell's testimony confirmed that in such a deal, tax losses and allocations are "very real economic issues" that are important factors in documenting a deal. Even if the July 26 document is viewed as on its face reaching some kind of agreement on the broad outline of a settlement of their differences (that the Surge assets would be contributed to a new LLC in which the parties would hold equal interests), the document is insufficient on its face because it does not show agreement on forming a new LLC, or on its operating terms, and thus the parties did not come to an agreement on the means by which their agreed goal would be carried out. This record does not support an inference that no differences would have arisen on how the new LLC should be operated.
Similarly here, at the time the parties executed the July 26 document, other material terms were left open, including provisions as to who would control the exercise of the stock options and the sale of stock, and a means of determining tax consequences to the participants. Moreover, the language in the July 26 document implies that the exact scope of a release of claims will be set forth in a future document, as it states that the parties "will sign a Mutual General Release and waivers of Civil Code section 1542 with respect to future claims." (Italics added.) As in Terry, supra, 131 Cal.App.4th 1445, 1459, "the parties' assenting to the goals of the settlement, without agreeing to the means that were material to the settlement, demonstrates the parties never formed an enforceable contract."
Further, because the parties had not yet formed a new LLC to receive the Surge assets, a court would be unable as a practical matter to order the parties to perform the terms of the July 26 document. "[A] judge does not have the authority to create material terms of the settlement." (Terry, supra, 131 Cal.App.4th at p. 1460.) To implement the agreement that the parties contemplated, a court would have to create terms that the parties never agreed upon regarding the terms of the new LLC. Because " 'the contract [could not] be performed without settlement of the undetermined point,' " it is accordingly unenforceable. (Weddington, supra, 60 Cal.App.4th at p. 813.)
We disagree with Zemer that the omission of these material terms in the July 26 document is not important because the preexisting AIA operating agreement could have covered many of the omitted items. The Referee explained, "[a]lthough the AIA Operating Agreement does contain some general language about management, control, dispute resolution and taxes, this language was inadequate when AIA attempted to take on Surge publicly traded stock." Although the AIA operating agreement permits the company "to engage in any and all lawful business activities," its terms are not specifically drafted to address the needs of a company that holds publicly traded securities. Thus, for example, it does not contain provisions important to the parties' management of the Surge assets, such as how to decide when to exercise stock options held by AIA, where the capital to exercise those options will come from, how a decision will be made to sell certain stock, and how to structure the transfer of the Surge assets so as to minimize tax consequences to the parties. Moreover, as we have explained, the evidence establishes that all of the parties understood from the outset that the Surge shares would not be contributed to the original LLC (AIA), but to a newly created LLC. Thus, the content of the AIA operating agreement is not dispositive.
B. Need to Obtain Agreement from Third Parties
From the face of the July 26 document, an obvious problem arises, as to how the parties "will contribute all shares, options and warrants to AIA." This language contemplates that other types of deal documents were required to be negotiated and drafted to spell out the means for Zemer to transfer his family's stock, by obtaining the approval of its co-owners, his wife and sons (whose trust and other ownership was reflected on the spreadsheet). Likewise, the Surge stock options that Schreiber was supposed to transfer were presumably subject to a consent requirement by Surge. Some of his shares came from the Board and some came from a third party, Schloss. Since the main consideration required by the July 26 document was this set of asset transfers that required third party consent, some indication on the face of the document to set forth how that third party consent would be obtained or what the parties' obligations would be if third party consent could not be obtained, such as in the form of conditions or covenants, would appear to be necessary.
Instead, the record reflects that the parties understood that some of the shares that Zemer had agreed to contribute to AIA were owned by his adult sons or their trusts, and other shares that Zemer had agreed to contribute were owned by his family trust. As the Referee found, the signatures of Zemer's adult sons and his wife were necessary before those shares could be transferred. The parties also understood that Schreiber and Perez would have to obtain approval from the Surge board of directors to transfer their stock options to AIA. It appears from the spreadsheet prepared by Perez as part of the July 26 document that the only assets that would not require third party approval for their transfer were Perez's Signet shares. We need not determine what was the subjective intent of the parties about how to transfer shares, because the July 26 document does not contain essential terms to accomplish that.
In his posthearing objections to the tentative statement of decision, Zemer asked the Referee to consider documents that he claimed were special and general powers of attorney with respect to his sons and his wife, which would allow him to transfer their assets without obtaining their consent. The Referee sustained an objection to the admission of the powers of attorney into evidence because they were not presented at trial and because they were not notarized or signed by two witnesses, as required by Probate Code section 4121, subdivision (c). On appeal, Zemer does not challenge this evidentiary ruling.
We conclude that the July 26 document on its face omits material and essential terms in that (1) it does not acknowledge the need to obtain approval from third parties to consummate the central subject matter of the transaction, and (2) it does not address whether the parties will continue to be bound by the other terms of the agreement if they are unable to obtain some or all of the necessary third party consent. (See Bustamante, supra,141 Cal.App.4th at p. 213 [when the parties understood that the formation and launch of a new company would require third parties to approve the essential terms of the agreement, "the parties had at best an 'agreement to agree,' which is unenforceable under California law"].)
Such a need for third party consent shows that the July 26 document omitted essential and material terms. (Santa Clara, supra, 40 Cal.App.3d 431, 436.) By analogy, we may look to Ersa Grae Corp. v. Fluor Corp. (1991) 1 Cal.App.4th 613 (Ersa Grae), in which a lease contract was deemed to be sufficiently definite to be enforceable because "[a]ll material terms are sufficiently set forth." (Id. at p. 623.) In that case, Fluor had a license and a land lease from a third party allowing Fluor to construct an office building on the third party's land. (Id. at p. 617.) Fluor was not permitted to transfer its interest until the building was completed. (Ibid.) Before the building was constructed, Fluor entered into an agreement with Ersa Grae under which Ersa Grae would provide funding for the building, Fluor would transfer its interest in the building to Ersa Grae upon its completion, and Ersa Grae would lease space in the building to Fluor. (Id. at pp. 618-619.) Fluor refused to perform and Ersa Grae sued for breach of contract. (Id. at pp. 616, 620.)
The court held that this contract did not omit a material term by failing to address the need to obtain the third party landowner's approval because, in fact, the parties had structured their deal in such a way that third party approval was not required. (Ersa Grae, supra, 1 Cal.App.4th at p. 624.) Also, the failure to specify the terms of the eventual lease that Ersa Grae would enter into with Fluor was not fatal to the contract's enforceability because the lease terms were not a material part of the agreement, and the agreement did commit the parties to complete the eventual lease documents in good faith. (Ibid.)
Unlike in Ersa Grae, supra, 1 Cal.App.4th 613, the failure of the July 26 document to address the need for third party approval is crucial because the parties could not have performed the agreement without that approval. Further, although the omitted detail concerning the lease agreement in Ersa Grae was an ancillary item, in this case the parties failed to agree on numerous items that, as we have explained, are material and essential (i.e., the creation of a new LLC, taxes, and control). In Ersa Grae, the court determined that the contract sufficiently set forth all of the material provisions, but here, we are unable to conclude the July 26 document stands alone as a binding contract.
C. Scope of the Release and Waiver
The July 26 document states that "[a]ll parties will sign a Mutual General Release and waivers of Civil Code section 1542 with respect to future claims." As the Referee found, the source of the release language that Perez inserted in the July 26 document is not clear, and Perez and Schreiber "claim no understanding of what it means." The evidence presented at trial does not clarify what the parties intended to release, such as disputes about AIA, or disputes about Surge/Signet, or both. At the time of the creation of this language, there was no litigation or threatened litigation between the parties, and the nature of the dispute between the parties leading up to the July 26 document is somewhat unclear on this record. It is also unclear why Zemer now argues that two named parties were to be excluded from the release (Jamie Schloss and Barry Nussbaum).
The "scope of release" has been identified as a material term of some settlement agreements. (See Kohn v. Jaymar-Ruby, Inc., supra, 23 Cal.App.4th 1530, 1534.) When a party signs an agreement containing a waiver of its rights with respect to unknown claims under Civil Code section 1542, the scope of the waiver of unknown claims remains a question of fact. (See Butler v. Vons Companies, Inc. (2006) 140 Cal.App.4th 943, 950.)
Although the July 26 document mentions "waivers of Civil Code section 1542 with respect to future claims," nothing in the July 26 document indicates the scope of unknown and future claims that the waiver is intended to cover. Merely referring to a "Mutual General Release" is not sufficiently definite to allow a court to ascertain what claims the parties intended to release regarding AIA, Surge/Signet, or both. In addition, the July 26 document is incomplete because it does not specify the individuals who will be parties to the release. The July 26 document requires the transfer of assets held by third parties, and both Zemer's sons and wife would have to consent to transfer those assets. However, the July 26 document does not specify whether the relatives will also be subject to the release.
This is not a case presenting a more or less simple dispute and release, such as Stewart v. Preston Pipeline Inc., supra, 134 Cal.App.4th 1565. In Stewart, the parties to a personal injury lawsuit entered into a settlement agreement stating "that the parties 'have reached a full and final settlement of all claims'; the insurer will pay plaintiff $54,200; plaintiff 'accepts said sum as full settlement of all claims'; '[p]laintiff is responsible for payment of all of plaintiff's attorney's fees and all of plaintiff's medical liens and bills'; and defense counsel 'will prepare a Release of All Claims form and a Request for Dismissal of the entire action with prejudice' to be sent to plaintiff's attorney." (Id. at p. 1586, fn. 24.) The court in Stewart concluded that there was "nothing vague about the settlement agreement," and it was thus enforceable. (Ibid.) Stewart is inapposite here because it concerned the relatively uncomplicated settlement of a personal injury litigation, not a complex and ongoing business arrangement to transfer publicly held securities and stock options, with third party involvement. It was sufficient in Stewart for the agreement to refer to a "release of all claims," because the parties' relationship was limited to one event of personal injury, making it clear what the parties intended to release. Here, in contrast, it is not at all evident what claims the parties intended to release.
Based on the existence of all three categories of omissions of material terms from the July 26 document, we conclude that the written agreement between the parties omits essential and material terms and thus is not a binding contract.
IV
DOCTRINE OF PROMISSORY ESTOPPEL
Zemer alternatively contends that even if the July 26 document is too indefinite and uncertain to be a binding contract, he should be permitted to recover under the doctrine of promissory estoppel. Zemer argues that he detrimentally relied on the terms set forth in the July 26 document because he declined to attend the July 27, 2006 shareholders' meeting, to personally pursue his opposition to the reelection of Perez and Schreiber to the Surge board of directors (although he apparently urged others not to attend).
In the Referee's statement of facts, he described not only the July 26, 2006 meeting and document, but also "the breakdown." The main ruling was that the July 26 document was not a binding contract. Nevertheless, the Referee considered all the evidence and concluded that equitable relief was not warranted because "money damages would suffice, many terms were left for further negotiation, and [Zemer] reneged on the agreement first, then never tendered his own performance by transferring shares." In particular, Zemer takes issue with the Referee's finding that he "reneged on the agreement first." Arguably, these conclusions are somewhat inconsistent. However, we review the Referee's decision, not his reasoning. (See Belair v. Riverside County Flood Control Dist. (1988) 47 Cal.3d 550, 568 ["If correct upon any theory of law applicable to the case, the judgment will be sustained regardless of the considerations that moved the lower court to its conclusion"].) We cannot fault the Referee for issuing a decision that accounts for all of the alternative theories presented to him, even if those theories are somewhat inconsistent.
Although the Referee analyzed together the equitable doctrines of specific performance and promissory estoppel, the ruling does not expressly lay out and apply the elements of promissory estoppel. Promissory estoppel requires "(1) a promise clear and unambiguous in its terms; (2) reliance by the party to whom the promise is made; (3) his reliance must be both reasonable and foreseeable; and (4) the party asserting the estoppel must be injured by his reliance." (Laks v. Coast Fed. Sav. & Loan Assn. (1976) 60 Cal.App.3d 885, 890 (Laks).)
Zemer argues that the Referee should have ordered specific performance as a remedy for Perez and Schreiber's alleged breach of the July 26 document. Specific performance is not available because such a remedy requires " 'an underlying contract' " and " 'contractual terms which are sufficiently definite to enable the court to know what it is to enforce.' " (Real Estate Analytics, LLC v. Vallas (2008) 160 Cal.App.4th 463, 472.) As we have explained, neither is present in this case.
"[T]he doctrine of promissory estoppel is essentially equitable in nature." (C&K Engineering Contractors v. Amber Steel Co. (1978) 23 Cal.3d 1, 8.) The doctrine "employs equitable principles to satisfy the requirement that consideration must be given in exchange for the promise sought to be enforced." (Raedeke v. Gibraltar Sav. & Loan Assn. (1974) 10 Cal.3d 665, 672. " 'Under this doctrine a promisor is bound when he should reasonably expect a substantial change of position, either by act or forbearance, in reliance on his promise, if injustice can be avoided only by its enforcement.' " (Id. at p. 672, fn. 1.) "The purpose of this doctrine is to make a promise binding, under certain circumstances, without consideration in the usual sense of something bargained for and given in exchange." (Youngman v. Nevada Irrigation Dist. (1969) 70 Cal.2d 240, 249.) " '[I]t it is only where the reliance was unbargained for that there is room for application of the doctrine of promissory estoppel.' " (Id. at p. 250.) "If the promisee's performance was requested at the time the promisor made his promise and that performance was bargained for, the doctrine is inapplicable." (Id. at p. 249.)
To be binding under the doctrine of promissory estoppel "the promise must be clear and unambiguous." (Laks, supra,60 Cal.App.3d at p. 890.) The Referee's ruling against the application of promissory estoppel was appropriate on this record, because the evidence did not support the creation of an express or otherwise enforceable agreement. The July 26 document set forth promises that were indefinite and uncertain. Because many material terms were omitted from the July 26 document, the promises made by Schreiber and Perez to Zemer during the July 26 meeting were neither clear nor unambiguous.
Moreover, this record does not clearly establish that Zemer reasonably and foreseeably relied on any representations by defendants, to his detriment. (Laks, supra, 60 Cal.App.3d 885, 890.) The conduct of the parties does not support such a finding. Zemer claims that Perez and Schreiber did not, while negotiating the July 26 document, bargain for him to abandon his plan to oppose their reelection to the Surge board of directors, and thus the doctrine of promissory estoppel is applicable. Perez and Schreiber contend that they did in fact bargain for Zemer to abandon his opposition to their election, and thus the doctrine of promissory estoppel does not apply. We need not resolve this dispute, as we find the doctrine of promissory estoppel to be otherwise inapplicable on these facts. The judgment correctly rules against Zemer on all the various theories tried.
DISPOSITION
The judgment is affirmed.
I CONCUR: HALLER, J.
Aaron, J., dissenting:
The following facts concerning the formation of the July 26 agreement lead me to conclude that the July 26 agreement is in fact binding and enforceable.
Zemer and Perez had been "at odds" over past and present business dealings between them, and Zemer had made known his intention to attempt to remove Perez from his position as CEO and Chairman of Surge and also to remove Perez's management team on the Surge Board, by staging a proxy fight at a shareholders' meeting scheduled for the morning of July 27. Perez wanted to retain his position as Surge CEO and Chairman, and also wanted to retain Schreiber and "the rest of his slate" on the Board. Perez believed that in order to achieve these goals, he would have to come to terms with Zemer. Thus, "[w]ith the July 27, 2006 Surge shareholder[s'] meeting looming and Mr. Perez concerned Mr. Zemer would vote his stock to unseat him and Mr. Schreiber, Mr. Perez called a meeting of the AIA owners (Perez, Schreiber and Zemer) for 8:00 a.m., July 26, 2006, in his Surge office."
AIA is the parties' existing LLC, which holds their various joint business interests.
Perez's express purpose in calling the July 26 meeting was to attempt to achieve "global peace before the annual meeting." Perez hoped to resolve all differences between himself and Zemer concerning their joint business affairs, so that Zemer would not attempt to have Perez and Schreiber voted out of their positions with Surge. "Mr. Perez explained the purpose of the meeting and the agreement was to stop Mr. Zemer's 'shenanigans,' get himself reelected as Surge CEO/Chairman, and get Mr. Schreiber and the rest of his slate elected to the Board." Perez testified, "'[O]therwise, why would I rush to do this before the annual meeting?'" The referee noted that, according to Schreiber, Perez, "was determined... to get a deal done before the Surge shareholder meeting."
Perez accomplished what he set out to do. According to Perez, the parties reached a "global resolution" at the meeting, agreeing to equalize their capital contributions to AIA. Specifically, the parties agreed that: (1) Zemer, who had previously invested $1.8 million in AIA, would get back $900,000, representing half of his investment, and Schreiber would fund the payment to Zemer by contributing $900,000 toward the capital account of AIA; (2) Zemer, Schreiber and Perez would contribute all of their shares, options, and warrants in Surge and in Signet, a subsidiary of Surge (Surge assets), to AIA; and (3) all three would sign mutual general releases, and waive the protections of Civil Code section 1542 (section 1542 waiver(s)) with respect to all future claims. The parties understood that as a result of having resolved their differences, Zemer would not oppose Perez and Schreiber's election at the shareholders' meeting the following day.
The AIA operating agreement, which Perez, Schreiber and Zemer signed in January, 2005, provided that each of them would have a one-third interest and control in that entity. However, prior to the July 26 meeting, Zemer had contributed more capital to AIA than either Schreiber or Perez had.
Perez, who had consulted with one of his attorneys before the meeting regarding what language to include in any agreement that the parties might reach, wrote these terms on a spread sheet on which he had previously listed all of the Surge assets to be transferred by each of the three parties. Below these terms, Perez added the following: "Agreed upon on July 26, 2006." All three men then signed the document, and Schreiber and Perez signed a check in the amount of $900,000, drawn on the AIA capital account and gave the check to Zemer, with the understanding that Schreiber would deposit funds to cover the check by Monday, July 31.
After all three parties had signed the document, Perez called Anapoell, one of his attorneys, and "announced, 'there is peace in the valley.'"
Perez achieved precisely what he had hoped for as a result of the parties' entering into the July 26 agreement ― Zemer's forbearance from staging a proxy fight at the shareholders' meeting the following morning, resulting in Perez and Schreiber's reelection.
Once it was clear to Perez that he would attain his goal, he and Schreiber repudiated their obligations to Zemer under the agreement. On the morning of July 27, Perez contacted the bank on which the $900,000 check was drawn to stop payment on it. After being reelected at the shareholders' meeting, Perez instructed Attorney Anapoell, who was in the process of preparing the final documents, to stop drafting, and not to respond to inquiries from Zemer's attorney regarding when the documents would be ready to sign. Perez told Anapoell that "he and [Schreiber] were rethinking whether they wanted to settle" with Zemer.
Perez admitted that he "panicked" when he received an e-mail from Zemer on the morning of July 27 in which Zemer stated that he wanted to "go hard today." Perez believed that Zemer might try to cash the $900,000 check immediately ― before Schreiber had deposited the funds to cover it ― and that the bank would take the funds out of Perez's personal account because Perez had "a couple of million dollars in the [same] bank." Perez stopped payment on the check despite the fact that, after receiving Zemer's e-mail, Perez sent an e-mail to Zemer to inquire whether Zemer was changing his mind about the deal and Zemer replied, "David, nothing changed. No panic." Zemer never attempted to cash the check.
Perez explained his actions in an e-mail that he sent to Attorney Anapoell on the morning of the shareholders' meeting. In that e-mail, Perez claimed that Zemer had "breached our agreement." Perez continued, "His agreement was that he would show up with his proxy today, and we gave him a check for $900,000 in good faith until the LLC agreements were executed. He was told to hold on to it until we signed off. As of this morning, I have placed a stop payment on the check, and let's press ahead with a complaint on all three of them."!(1 RT 136-137)!
Applying a traditional analysis of contract formation to the July 26 agreement, it is clear that the agreement is in fact binding and enforceable. The terms to which the parties agreed and affixed their signatures are definite, and all objective manifestations of the parties' intent in executing the agreement indicate that they intended the agreement to be binding. Contrary to the majority's assertions, neither the specifics of an as yet to be formed LLC nor issues concerning the consent of third parties are terms that are essential to that agreement. With respect to the release and waiver provision, the parties' agreement to execute mutual releases with section 1542 waivers makes it clear that they intended to release all claims involving their mutual business holdings.
Because the July 26 agreement is, in my view, binding and enforceable, I would reverse the judgment.
I.
The July Agreement is Binding
A. The July 26 agreement contains all of the elements necessary to form a binding contract
"The test for enforceability of an agreement is: (1) whether both or all parties, with the capacity to contract, manifest objectively an intent to be bound by the agreement; (2) whether the essential terms of the agreement are sufficiently definite to be enforced; (3) whether there is consideration; and (4) whether the subject matter of the agreement and its performance are lawful." (1 Williston on Contracts (4th ed. 2007) § 3:2, pp. 259-260.)
All of the elements necessary to form a binding agreement are present in this case. First, Perez, Schreiber, and Zemer clearly objectively manifested an intention to be bound by the July 26 document, signing it under a statement that reads, "Agreed upon on July 26, 2006." In addition to signing the agreement, the parties' statements and conduct before the July 26 meeting, at that meeting, and in the immediate aftermath of the meeting, clearly establish that they intended the agreement to be binding. Perez called the meeting for the morning of July 26 for the express purpose of "get[ting] a deal done" to achieve "global peace" before the shareholders' meeting scheduled for the following morning. Timing was admittedly of the essence to Perez, since if the parties did not reach an agreement before the shareholders' meeting, Zemer would presumably follow through on his previously expressed intention to stage a proxy fight at that meeting to attempt to remove Perez and his management team. Perez admitted that he "rushed" to arrange a meeting with Zemer and Schreiber before the shareholders' meeting.
Later, in an e-mail to Attorney Anapoell, Perez referred to the July 26 agreement as "our agreement," and claimed that Zemer had "breached" it.
Clearly anticipating that the parties might arrive at an agreement at the July 26 meeting, Perez consulted with one of his attorneys just before the meeting. That attorney advised him to include language regarding mutual releases and section 1542 waivers in any agreement that the parties might reach that day, and to make sure that Zemer signed it. According to Schreiber, Perez "begged" Schreiber to sign the agreement and to give Zemer a check.
Second, the terms of the writing are sufficiently definite to be enforced. "Under California law, a contract will be enforced if it is sufficiently definite... for the court to ascertain the parties' obligations and to determine whether those obligations have been performed or breached. [Citations.]" (Ersa Grae Corp. v. Fluor Corp. (1991) 1 Cal.App.4th 613, 623 (Ersa Grae).) The essence of the July 26 agreement was to equalize the parties' capital contributions to AIA, in order to resolve all potential legal claims among the parties pertaining to their joint business affairs. They agreed that to accomplish this, Zemer would be paid $900,000, in the form of a check drawn on AIA's capital account, funded by Schreiber, and all three parties would contribute all of their Surge assets to AIA ― their existing LLC. All parties also agreed that they would release all claims against each other, thereby achieving, as Perez stated, a "global resolution" of their business affairs.
The terms to which the parties agreed and affixed their signatures are sufficiently certain such that a court could easily determine the existence of a breach. A breach would occur if Schreiber failed to fund the $900,000 check that he and Perez signed and gave to Zemer, if any of the three parties failed to transfer their Surge assets to their LLC, or if any party refused to execute mutual releases and a section 1542 waiver. The terms are also sufficiently certain to provide a basis for giving an appropriate remedy.
Third, the agreement provides for consideration. Schreiber agreed to fund a payment to Zemer, and all three parties agreed to contribute their Surge assets to AIA. In addition, the parties agreed to execute mutual releases and waivers of future claims. Each party thus gave up something of value in exchange for something else of value.
Finally, there is no contention that there is anything unlawful about the agreement or its performance.
This analysis should be the beginning and end of the court's inquiry. However, rather than examining the July 26 agreement, itself, together with the objective manifestations of the parties' intent, to determine whether the agreement is enforceable, the majority instead engages in a lengthy discussion of other "terms" not mentioned in the July 26 agreement, including the specifics concerning a new LLC to be formed at a future date; how the parties would obtain the consent of third parties so as to effectuate the transfer of their Surge assets; and what would happen if those third parties refused to give their consent. The majority appears to conclude that these terms ― none of which is mentioned in the written agreement that the parties executed on July 26 ― are "material and essential" to that agreement (Maj. opn. p. 24), and that their omission renders that agreement unenforceable. The majority further concludes that the failure to specify the scope of the mutual releases and section 1542 waivers constitutes the omission of a material term.
The majority also appears to conclude that the omission of these terms renders the July 26 agreement insufficiently definite and certain to constitute a binding agreement, such that the agreement is merely an "agreement to agree," and not enforceable. I address this conclusion in section II.C, post.
B. The July 26 agreement does not omit material terms
1. The terms of an as yet to be formed LLC are not material to the agreement
The majority asserts that the parties "agreed to the general goal of contributing their Surge assets to an LLC in which they would hold equal interests," but that they "had not come to any agreement on the terms by which that LLC would be set up and operate." (Maj. opn. ante, at p. 19.) Noting Attorney Anapoell's testimony that "many issues would have to be resolved in setting up the new LLC," including "'taxes, asset distribution, capital contribution, transfer or marketability, management, control, and limited liability" (maj. opn. ante, at p. 19), the majority concludes that the July 26 document, "is insufficient on its face because it does not show agreement on forming a new LLC, or on its operating terms, and thus the parties did not come to an agreement on the means by which their agreed goal would be carried out." (Maj. opn. ante, at p. 20.) The majority continues in this vein, citing Bustamante v. Intuit (2006) 141 Cal.App.4th 199, 215 for the proposition that "a contract to create a joint venture requires a meeting of the minds on the essential structure and operation of the business entity, that would be sufficient to provide a basis for determining the existence of a breach and creating a remedy." (Maj. opn. ante, at p. 19.)
The flaw in the majority's reasoning on this point is that the July 26 agreement is not, as the majority suggests, "a contract to create a joint venture." The majority loses sight of the fact that the central purpose of the July 26 agreement was to resolve differences among the parties pertaining to their joint business holdings by equalizing their capital contributions to AIA, not to form a new LLC. The material terms to which the parties agreed were a payment to Zemer in the amount of $900,000 and a transfer of all three parties' Surge assets to AIA ― their existing LLC. These terms are definite and enforceable standing alone.
In determining whether perceived omissions in an agreement prevent it from being enforceable, the critical issue is whether those omissions are in material terms, or instead, in collateral ones. The majority is of the view that the details concerning the formation of a new LLC constitute material terms of the July 26 agreement, and concludes that a court would be unable to enforce the July 26 agreement because "the parties had not yet formed the new LLC to receive the Surge assets...." (Maj. opn. ante, at p. 21.) However, the document that the parties signed on July 26 makes no mention of the formation of a new LLC. Rather, the agreement provides that the parties would contribute their Surge assets to AIA. While there was testimony that the parties discussed the possibility of forming a new LLC to hold their Surge assets rather than transferring those assets into AIA, this discussion did not take place until after they had signed the agreement. Further, there is no basis to conclude that a new LLC was needed in order for the parties to be able to perform their contractual obligations. The agreement called for the parties to transfer their Surge assets to AIA. A new LLC was discussed only as a possible alternative receptacle for their Surge assets.
The majority's reliance on Terry v. Conlan (2005) 131 Cal.App.4th 1445 (Terry) in this context, for the proposition that the omission of a material term renders the July 26 agreement unenforceable, is misplaced. Terry involved a dispute concerning the terms of a settlement agreement between a decedent's widow and his adult children involving the validity of the decedent's two competing trust instruments. The Terry court concluded that while the parties in that case had agreed as to the "goals of the settlement," the court could not enforce the agreement without the omitted terms, and thus, no contract had been formed. In reaching this conclusion, the Terry court observed that the parties' settlement discussions had "left ambiguities in the material terms, providing [the trial court] with no other option than to fill in the gaps of the agreement to enforce settlement," rather than merely interpreting the agreement.
The Terry court made it clear that its holding was based on the fact that in that case, the omitted terms were essential ones, and that their absence rendered the agreement unenforceable. However, the existence of some ambiguity as to precisely how contractual obligations will be achieved does not necessarily render an agreement unenforceable. For example, in Ersa Grae, supra, 1 Cal.App.4th at p. 623, the court asserted that a court will enforce a contract "if it is possible to reach a fair and just result even if, in the process, the court is required to fill in some gaps." (Italics added.)
The fact that the parties did not agree to the specifics of the structure of a new LLC does not render the July 26 agreement unenforceable; the structure and details concerning an as yet to be formed LLC are clearly collateral to the subject matter of the July 26 agreement, and thus cannot be deemed to be material terms of that agreement.
As the majority notes, the AIA operating agreement was still in effect as of July 26. That operating agreement permitted AIA "'to engage in any and all lawful business activities.'" (Maj. opn. ante, at p. 22.) While the operating agreement may not have been "specifically drafted to address the needs of a company that holds publicly traded securities" (maj.opn. ante, at p. 22), there is no evidence that a court could not have enforced the agreement by ordering payment to Zemer and transfer of assets to AIA.
2. Neither the failure to acknowledge the need to obtain the consent of third parties, nor the failure to address the consequences of a potential failure to obtain such consent, constitutes the omission of an essential, material term
The majority asserts, "From the face of the July 26 document, an obvious problem arises, as to how the parties 'will contribute all shares, options and warrants to AIA,'" citing the fact that Zemer's wife and sons co-own some shares, and speculating that Schreiber's stock options were "presumably subject to a consent requirement by Surge." (Maj. opn. ante, at p. 22.) The majority concludes that in failing to "acknowledge the need to obtain approval from third parties to consummate the central subject matter of the transaction," and not "address[ing] whether the parties will continue to be bound by the other terms of the agreement if they are unable to obtain some or all of the necessary third party consent," the July 26 agreement omits essential and material terms, and is thus unenforceable. (Maj. opn., ante, at p. 24.)
Both the majority and the referee cite Santa Clara-San Benito etc. Elec. Contractors' Assn. v. Local Union No. 332 (1974) 40 Cal.App.3d 431, 436-437 (Santa Clara), for the proposition that "[w]here... the approval of third parties is required for the agreement to take effect, the contract is not complete until those third parties have approved." (Id. at p. 436; maj. opn. ante, at p. 24.) Santa Clara involved an action by the collective bargaining agent, Santa Clara-San Benito Chapter of the National Electrical Contractors' Association, Inc. (Association), against Local Union No. 332 (Local Union), to construe and enforce a collective bargaining agreement, and a request by the Local Union to confirm an arbitration award. The constitution of the International Brotherhood of Electrical Workers (International Union) provided that "any agreement entered into by a local union shall be 'null and void' until approved by the international union." (Santa Clara, supra, at p. 434.) The Association and the Local Union had negotiated a new draft of a collective bargaining agreement, which they forwarded to the International Union for approval. (Ibid.) The International Union "red-lined" several provisions and approved the agreement as modified. However, one of the changes that the International Union made was not incorporated into the new agreement.
The trial court determined that the language in the agreement was binding on the two parties to the agreement ― the Association and the Local Union. The Local Union appealed, claiming that the prior collective bargaining agreement applied rather than the new agreement, because the approval of the International Union was a condition precedent to the formation of the new agreement, and the International Union had never approved the disputed provision.
It was in this context that the Santa Clara court stated, "When, as in the present situation, two parties execute a contract with the understanding that the approval of a third party is necessary for the agreement to take effect, the contract is not complete until the third party has approved," (Santa Clara, supra, 40 Cal.App.3d at p. 436, italics added).
There is a critical factual and legal distinction between Santa Clara and the present case. In Santa Clara, the approval of the International Union was an express condition precedent to the formation of the contract. "'A condition precedent may relate either to the formation of contracts or to liability under them.'" (13 Williston on Contracts (4th ed. 2000) § 38:7, p. 397.) A condition precedent to the formation of a contract is "one that is to be performed before the agreement becomes effective, and which calls for the happening of some event or the performance of some act after the terms of the contract have been arrested on, before the contract shall be binding on the parties. (Black's Law Dict. (5th ed. 1979) p. 266, col. 1, italics added.)
In its discussions of Santa Clara and Ersa Grae, the majority conflates a condition precedent to the formation of a contract with a condition that must occur before a party will be required to perform its contractual obligations. This distinction is succinctly drawn in Jacobs v. Freeman (1980) 104 Cal.App.3d 177 (Jacobs I). In Jacobs I, appellants entered into contracts with Tenneco West, Inc. to purchase two properties. The escrow instructions contained the following provision: "[T]his escrow is subject to: A. Approval hereof by Seller's Board of Directors." When respondents failed to submit the escrow to its Board of Directors, appellants sued for breach of contract.
The majority's treatment of Ersa Grae illustrates this point. The majority notes that the Ersa Grae court held that the contract in that case "did not omit a material term by failing to address the need to obtain the third party landowner's approval because, in fact, the parties had structured their deal in such a way that third party approval was not required." (Maj. opn. ante, p. 25.) The majority continues, "Unlike in Ersa Grae,... the failure of the July 26 document to address the need for third party approval is crucial because the parties could not have performed the agreement without that approval." (Maj. opn. ante, at p. 25, italics added.)
At trial, the respondents moved for nonsuit on the ground that no contract had been formed since the Board had not approved of the sale. The trial court granted the motion. In reversing, the Jacobs I court concluded that "the condition of board approval of the proposed sale was intended to be a condition precedent to the seller's duty to convey title to the land rather than a condition precedent to the formation of a contract." (Jacobs I, supra, 104 Cal.App.3d at p. 189, italics added.) The court explained, "Respondents' argument that a contract does not arise when an agreement is executed with the understanding it will not become operative until approved by another person or body, begs the issue. It is only where it can be said that reasonable persons would have understood that the agreement would not be effective when originally signed that the rule applies." (Ibid.)
The Jacobs I court ultimately concluded that the question whether "board approval would have been forthcoming if the proposal had been submitted to it" was one of fact, and that the grant of nonsuit was thus error. In Jacobs v. Tenneco West, Inc. (1986) 186 Cal.App.3d 1413 (Jacobs II), Tenneco's appeal after a second trial, the court made it clear that Tenneco's claim that the board would not have approved the contracts was "an excuse for nonperformance" and was therefore an affirmative defense. (Id. at pp. 1418-1419.) The court held that it was thus Tenneco's burden to establish at trial that its breach "did not contribute materially to the nonoccurrence of the condition by showing that the board of directors would not have approved the contracts even had they been submitted to the board in a timely manner." (Id. at p. 1417.)
While the consent of third parties to the proposed transfer of Surge assets may have been necessary in order for the parties to the July 26 agreement to be able to perform by transferring their shares, there is no evidence that the consent of any third party was required before any party could enter into an agreement to transfer his shares. As in Jacobs I, there is nothing in the record that would support the conclusion that any reasonable person "would have understood that the [July 26] agreement would not be effective when originally signed." (Jacobs I, supra, 104 Cal.App.3d at p. 189.) In fact, all objective evidence is to the contrary. (See, Frankel v. Board of Dental Examiners (1996) 46 Cal.App.4th 534, 549-550 [settlement agreement requiring adoption by Board not a condition precedent to agreement taking effect; rather, a failure of the Board to approve would render Frankel's obligations no longer binding on him.].)
Further, it is implicit in the July 26 agreement ― as it would be in any contract ― that each party would attempt to obtain any necessary third party consent, pursuant to the covenant of good faith and fair dealing. (Jacobs I, supra, 104 Cal.App.3d at pp. 188-189 ["The implied covenant [of good faith and fair dealing] imposes upon the parties an obligation to do everything that the contract presupposes they will do to accomplish its purpose."]; see also, Carma Developers (Cal.), Inc. v. Marathon Development California, Inc. (1992) 2 Cal.4th 342, 371-372 ["'"Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement."' [Citation.]")
At oral argument, counsel for Perez and Schreiber argued that the failure to state in the agreement that Zemer would use his "best efforts" to obtain the consent of third parties who held shares constitutes the omission of a material term, and that an agreement to use his best efforts in this regard was not implicit in the July 26 agreement. This is an incorrect statement of the law. Jacobs I clearly holds that the covenant of good faith and fair dealing applies in precisely the situation that exists in this case, to require a party to do everything he can to obtain the approval of third parties if such approval is necessary to the party's ability to perform. (Jacobs I, supra, 104 Cal.App.3d at pp. 188-189.)
Based on the evidence in this case, one cannot conclude that the fact that the July 26 agreement does not address third party consent issues constitutes the omission of material terms.
3. Under the circumstances of this case, the scope of the agreement to execute mutual releases and waivers is sufficiently clear
The July 26 agreement provides, "All parties will sign a Mutual General Release and waivers of Civil Code section 1542 with respect to future claims." The majority concludes that the scope of the releases and waivers is unclear, and that this lack of clarity constitutes the omission of a material term, rendering the agreement unenforceable. (Maj. opn. ante, at pp. 25-26.) In support of its conclusion, the majority notes the referee's finding that Perez and Schreiber "claim no understanding of what [the waiver provision] means." (Maj. opn. ante, at p. 25.)
Perez's express purpose in calling the July 26 meeting was to resolve all differences between himself, Zemer and Schreiber, and in particular, between himself and Zemer, or as Perez put it, to achieve "global peace." Perez drafted the agreement, and included the provision concerning releases and section 1542 waivers at the insistence of his attorneys. Section 1542 provides, "A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor." When parties execute mutual releases and agree to waive section 1542 with respect to future claims, they are agreeing to release all potential claims against each other, both known and unknown ─ which is exactly what Perez wanted.
The only reasonable conclusion as to the scope of the release and waiver provision in the July 26 agreement is that the parties would agree to release all future claims related to their common business holdings. Neither the respondents nor the majority has cited any authority that would support the conclusion that the failure to further specify the scope of a general release under these circumstances, beyond stating that the parties would execute mutual general releases and section 1542 waivers, renders an agreement that contains such a provision unenforceable.
The majority cites Butler v. Vons Companies, Inc. (2006) 140 Cal.App.4th 943, for the proposition that the scope of a waiver of unknown claims is a question of fact. (Maj. Opn. ante, at p. 26.) However, the release agreement in Butler was ambiguous as to the scope of the section 1542 waiver, in that it was unclear whether the waiver applied only to a grievance that Butler's union had filed on his behalf over his suspension as a Vons employee, or whether it applied as well to personal claims that Butler might have against Vons. There were three parties to the release agreement ― Butler, Vons, and Butler's union, which, the court noted, suggested that the waiver applied only to matters related to the grievance, and not to Butler's personal claims against Vons. There is no such ambiguity in the present case.
With respect to Perez's claim that he does not understand what the release and waiver provision means, despite these claims, Perez acknowledged in his testimony that his attorneys advised him that if he wanted to achieve "global peace" with Zemer, it was critical that he include the language regarding mutual releases and section 1542 waivers in any agreement that the parties might sign at the July 26 meeting. It is disingenuous for Perez to now maintain that he does not understand the provision.
More importantly, any claim by Perez and Schreiber that they do not understand the release and waiver provision is irrelevant to a determination as to whether they are bound by the provision. With respect to an executed agreement, "'"[t]he general rule is that when a person with a capacity of reading and understanding an instrument signs it, he is, in the absence of fraud and imposition, bound by its contents, and is estopped from saying that its provisions are contrary to his intentions or understanding...." [Citation]'" (Winet v. Price (1992) 4 Cal.App.4th 1159, 1168-1169); see Evidence Code § 622 [codifying estoppel by contract].) There is no allegation of fraud or coercion in this case. Further, the application of this rule is particularly appropriate where, as here, a party claiming not to understand a provision in an instrument is the party responsible for the inclusion of the language in question.
C. The July 26 agreement is not merely an agreement to agree
The majority, like the referee, appears to conclude that the July 26 agreement is merely an agreement to agree. In reaching this conclusion, both the referee and the majority mix two distinct legal concepts of contract law, resulting in a legally incorrect "hybrid" analysis. Specifically, both conclude that the agreement omits material terms, and proceed to conclude, on this basis, that the agreement is merely an agreement to agree.
As discussed in section II.B, ante, the agreement does not omit any material term.
Even if the agreement did omit material terms, this would not render it an "agreement to agree." Instead, as discussed in Terry, supra, 131 Cal.App.4th at p. 1459, the omission of a material term might render an agreement unenforceable. In order to constitute an agreement to agree as opposed to an agreement to perform, there must be objective evidence in the language of the agreement itself that establishes that the parties did not intend for it to be binding.
Whether a writing constitutes a final agreement or instead, merely an agreement to agree, depends primarily on the intention of the parties "as evidenced by the words of the instrument." (Beck v. Am. Health Group Internat., Inc. (1989) 211 Cal.App.3d 1555, 1562.) "The intent of the parties is to be determined by an objective standard and not by the unexpressed state of mind of the parties." (Smissaert v. Chiodo (1958) 163 Cal.App.2d 827, 830-831, italics added.) While an agreement will not be deemed to be binding where any term is expressly left for future determination or there is a manifest expression of the parties' intent that the agreement not be considered complete until it is reduced to a formal writing (ibid.), "in the absence of an expressed intent that no legal obligation shall exist, mutual assent, informally given, to make an exchange of acts or promises is sufficient" to form a binding contract." (1 Williston on Contracts (4th ed. 2007) § 4:11, p. 496.)
There is nothing in the words of the July 26 agreement, nor in any other objective manifestation of the parties' intentions, that indicates in any way that they intended the agreement to be anything other than immediately binding. There is no objective evidence that the parties left any essential term for future determination, nor is there any objective expression of the parties' intent that the agreement would not be binding upon execution. In fact, as discussed above, all of the objective evidence is to the contrary.
The contention that the July 26 agreement cannot be deemed binding because the parties all knew that their attorneys were going to draft formal documents, is without merit. "The question whether an oral or written agreement, including all the essential terms and conditions thereof, which according to the mutual understanding of the parties is subsequently to be reduced to a formal instrument shall take effect forthwith as a completed contract depends upon the intention of the parties to be determined by the surrounding facts and circumstances." (Schwartz v. Shapiro (1964) 229 Cal.App.2d 238, 248, citing 1 Witkin, Summary of California Law, Contracts, § 38, p. 46.) The only "evidence" of an intention that the agreement would not be binding until formal documents were signed is Perez and Schreiber's after the fact testimony concerning their alleged previously unexpressed subjective intent.
"The law imputes to a person an intention which corresponds to the reasonable meaning of his or her words and acts. Thus, where a person's words or acts, judged by a reasonable standard, manifest an intent to agree to a certain matter, that agreement is established, regardless of what may have been the person's real but unexpressed state of mind on the subject." (Brinton v. Bankers Pension Services, Inc. (1999) 76 Cal.App.4th 550, 560.) Perez and Schreiber's statements and actions during the relevant time period belie their later contentions at trial and on appeal that in executing the July 26 agreement, they intended only to agree to a "nonbinding term sheet."
Courts have cautioned against allowing parties to an agreement to claim that they did not intend the agreement to be binding until it was formalized. The Clarke court explained, "Any other rule would always permit a party who has entered into a contract like this... to violate it, whenever the understanding was that it should be reduced to another written form, by simply suggesting other and additional terms and conditions. If this were the rule the contract would never be completed in cases where, by changes in the market, or other events occurring subsequent to the written negotiations, it became in the interest of either party to adopt that course in order to escape or evade obligations incurred in the ordinary course of commercial business....'" (Clarke v. Fiedler (1941) 44 Cal.App.2d 838, 847, quoting Sanders v. Pottlitzer Bros. Fruit Co. (1984) 144 N.Y. 209; see also, Ersa Grae, supra, 1 Cal.App.4th at p. 624, ["The fact that an agreement contemplates subsequent documentation does not invalidate the agreement if the parties have agreed to its existing terms," quoting Clarke, supra, 44 Cal.App.2d at p. 624, on this point].)
Perez and Schreiber's attempt to avoid their obligations under the July 26 agreement on the ground that the agreement did not include "other and additional terms and conditions" that the parties might have included, but did not, is precisely the type of conduct against which the Clarke and Ersa Grae courts cautioned. Once Perez knew that his and Schreiber's positions with Surge were secure ― due to Zemer's forbearance from staging a proxy fight based on his reliance on the July 26 agreement ― Perez and Schreiber repudiated any obligation to Zemer. Significantly, at that time, Perez sent an e-mail to his attorney asserting that Zemer had "breached our agreement," thereby indicating his understanding that the agreement was, in fact, binding. It was only later, when the case was in litigation, that Perez and Schreiber claimed that they did not intend the agreement to be binding because, they maintained, there were other material terms that were not included in the agreement that they signed.
II
There is no evidence to support the referee's conclusion that Zemer "reneged on the agreement first, "and the referee's finding that "Zemer never tendered his own performance "is of no legal significance
Having concluded that the parties never reached a binding agreement, the referee proceeds to assert in the Statement of Decision that Zemer "reneged on the agreement first, then never tendered his own performance by transferring shares." I would reject this finding as an alternative ground for affirming the judgment, since there is no evidence to support the referee's conclusion that Zemer reneged on the agreement, much less that he did so first.
The referee's finding that Zemer "reneged on the agreement first" clearly contradicts his conclusion that the parties never reached a binding agreement, and instead implies that in fact there was an agreement. The statement that Zemer reneged first was not contained in the referee's tentative statement of decision, and consequently, the parties did not have an opportunity to address this finding in their objections to the tentative statement of decision.
While the factual basis of the referee's statement that Zemer reneged on the agreement is unclear, at oral argument, Perez and Schreiber's counsel maintained that Zemer breached the July 26 agreement by failing to show up at the shareholders' meeting on July 27 to vote his shares for Perez and Perez's slate. If this is the basis of the finding in question, other findings that the referee made directly contradict this conclusion, and the evidence in the record is clearly to the contrary. As noted above, while the referee found that Perez expected Zemer to attend the shareholders' meeting, the referee also specifically found that the only communication between the parties on that point was Perez's inquiring of Zemer ― after they had signed the agreement ― whether Zemer would be at the meeting the next day, and Zemer responding that he would try to attend. Perez admitted that there was no mention of the shareholders' meeting at the July 26 meeting prior to the parties' signing the agreement, and also admitted that he and Zemer did not discuss Zemer showing up at the shareholders' meeting and voting in favor of Perez's slate. Zemer testified that it was his understanding that once he signed the July 26 agreement, his shares became an AIA asset, and that Perez and Schreiber could determine how those shares would be voted at the shareholders' meeting. While the parties' expectations on this issue differed, the bottom line is that the parties never agreed that Zemer would attend the shareholders' meeting and vote his shares for Perez and his slate. Therefore, Zemer could not have breached the agreement by not attending the meeting to vote his shares for Perez.
The referee's conclusion that Zemer never tendered his performance because he never transferred his shares is simply wrong, both as a matter of fact and of law. In refraining from staging a proxy fight at the shareholders' meeting in conformance with his agreement to transfer his shares to AIA, Zemer conducted himself in a manner consistent with an intent to perform under the agreement. Zemer ultimately did not transfer his shares because he learned that Perez had already breached the agreement by stopping payment on the $900,000 check that Perez and Schreiber had given him, and because he learned that Perez's attorney would not return Zemer's attorney's calls inquiring as to when the final documents would be ready to sign. Based on this information, Zemer correctly inferred that Perez and Schreiber had backed out of the agreement.
Perez testified that after he was reelected at the shareholders' meeting, he was still considering going forward with the agreement, but that by the following Monday, July 31, after having consulted with his attorneys and with his brother-in-law over the weekend, Perez decided not to go through with the deal.!(3 RT 631-632)! Perez stated, "I realized after I talked to my brother-in-law that he advised me that there is no way you're going to bring peace here."!(3 RT 645)! This testimony supports the conclusion that Perez breached the agreement, not Zemer.
III
Promissory Estoppel
If, as the majority concludes, the terms of the July 26 agreement are deemed too indefinite or incomplete to constitute a binding agreement, the equitable doctrine of promissory estoppel should clearly apply to enforce Perez and Schreiber's promises to Zemer.
It is unclear how the majority can conclude that the omission of material terms renders the July 26 agreement too indefinite to be binding, but at the same time, deny the application of the doctrine of promissory estoppel. "'Promissory estoppel was developed to do rough justice when a party lacking contractual protection relied on another's promise to its detriment.' [Citation.]" (U.S. Ecology, Inc. v. State of California (2001) 92 Cal.App.4th 113, 130.) "'In California, under the doctrine of promissory estoppel, "A promise which the promisor should reasonably expect to induce action or forbearance on the part of a promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise." [Citations.]' [Citation.]" (Poway Royal Mobilehome Owners Assn. v. City of Poway (2007) 149 Cal.App.4th 1460, 1470-1471.)
Perez and Schreiber promised to equalize the three parties' capital contributions to AIA. As part of that agreement, they agreed to pay Zemer $900,000. In exchange, Zemer agreed to contribute his Surge assets to AIA. In reliance on this agreement, Zemer refrained from staging a proxy fight at the shareholders' meeting to attempt to remove Perez and his management team from Surge, and as a result, Perez and Schreiber retained their positions with Surge.
To allow Perez and Zemer to avoid their obligation under the July 26 agreement ― an agreement that Perez initiated, drafted with the advice of his attorneys, was determined to finalize, "rush[ed] to do... before the annual meeting," and "begged" Schreiber to sign ― after Perez and Schreiber got what they wanted from the agreement, based on their unsupported, post hoc, self-serving testimony that they never intended to be bound by the agreement, would clearly do an injustice.
IV
Conclusion
Because the judgment in favor of Perez and Schreiber is both without legal foundation and inequitable, I would reverse.
Perez misstates the parties' agreement in this e-mail. Perez admitted in his testimony that there was no mention of the shareholders' meeting at all at the July 26 meeting until after the parties had signed the agreement, and specifically, that the parties did not discuss Zemer showing up at the shareholders' meeting and voting his shares in favor of Perez's slate.!(1 RT 97-98; 107)! Schreiber confirmed that there was no discussion concerning the shareholders' meeting at the July 26 meeting.!(RT??)!