Adam v. Adam
Filed 5/30/13 Adam v. Adam CA2/6
California
Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or
relying on opinions not certified for publication or ordered published, except
as specified by rule 8.1115(b). This
opinion has not been certified for publication or ordered published for
purposes of rule 8.1115.
IN
THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND
APPELLATE DISTRICT
DIVISION
SIX
THOMAS G. ADAM et al.,
Plaintiffs and Appellants,
v.
ANDREW M. ADAM,
Defendant and Respondent.
2d
Civil No. B237557
(Super.
Ct. No. 1272918)
(Santa
Barbara County)
Appellants Thomas G.
Adam and his wife Janice Adam
name="_ftnref1" title="">[1] appeal from a
Andrew M. Adam's (Thomas's brother) sale and leaseback of a 321-acre
ranch. Thomas argues, among other
things, that the trial court erred in finding that Andrew breached no fiduciary
duty and was not required to provide a more detailed accounting. We affirm.
The Family Ranches
In 1990, Thomas's and
Andrew's father, William P. Adam, Jr. (Bill), owned the 321-acre Union
Sugar Ranch (USR) and 134-acre Main Street Ranch in Santa
Maria. Due to
financial problems, Bill had to file a Chapter 11 bankruptcy and wanted to keep
the ranches in the family. With the
bankruptcy court's approval, Andrew purchased USR and Main Street Ranch by
paying $100,000, forgiving a $157,500 debt, paying Bill's vendors, and
executing a $3.462 million all-inclusive note (AIN) naming Bill and Georgiana
Adam (Thomas's and Andrew's mother) as payees.
The AIN provided that Andrew would make payments on three loans
(underlying obligations) encumbering both ranches.
In order to finance the
purchase, Andrew kept Main Street Ranch and sold USR to his brothers, Thomas
and William O. Adam, III (William), pursuant to a sale and leaseback
agreement. Thomas and William executed a
$3.557 million AIN and trust deed to pay principal and interest in the amounts
and times called for in the underlying obligations (i.e., the three ranch loans
and Bill's $3.462 million AIN). The
20-year lease provided that Andrew would rent the farmable portion of USR for
$224,700 a year, that the rent was
insufficient to service the underlying obligations, and that William and Thomas
would have to advance money to avoid a default.
By the end of 1993, the default amount was almost $300,000.
Loan Workout Agreement
The family attorney,
Maurice Twitchell, corresponded with the brothers and drafted a 1994 loan
workout agreement entitled:
"Agreement for Curing of Default and Payment of Note" (ACD)
and "Renegotiated Farm Lease" (RFL).
The ACD stated that Andrew had paid all the rent and advanced $557,977.87
to cure the defaults on the underlying obligations. It further stated that William and Thomas had
not paid property taxes and were in default on Andrew's AIN and trust
deed.
The RFL was for a
26-year lease term (November 1, 1994 to October 31, 2020) and provided that Andrew would sublease USR
and pay rent equal to the subrents received, less any amount paid for
property taxes, repairs, and maintenance of wells/pumps and other
improvements (i.e., the "Basic Rental").
"irrevocably authorizes and directs Tenant [Andrew] to pay such basic rent
directly to the financial institutions described in said all inclusive deed of
trust until such obligations shall be paid in full. Any amounts of basic rent in excess of the
amounts needed to pay said underlying obligations shall be retained by Tenant
as reimbursement for his prior advances in accordance with that certain
'Agreement for Curing of Default and Payment of Note' between the parties
signed concurrently herewith."
The ACD incorporated the
RFL and acknowledged that the rents were not sufficient to pay the underlying
obligations, that advances would have to be made to avoid a loan
default/foreclosure, and that Andrew has "the legal right, but not the
obligation, to advance funds to pay the portions of the underlying obligations
not paid for by the subrents, which advances are added to and become payable to
[Andrew] under the terms of said all inclusive trust deed note."
Over the next 10 years,
Andrew used all the rents to make payments on the underlying obligations and
advanced more than $1 million to avoid a loan default and foreclosure. On August 11, 2006, Andrew refinanced Main
Street Ranch, paid off the underlying obligations, and kept the USR rents. The RFL stated that, commencing November 1,
2016, Andrew would share the rents with Thomas and William until the RFL
expired on October 31, 2020.
The
Complaint
Thomas demanded an
accounting and filed a complaint on October 24, 2008, for breach of contract,
rescission, breach of fiduciary duty, accounting, and declaratory relief. The complaint prayed that "[Andrew]
Adam's estate in the Union Sugar Ranch be destroyed. . . ." At trial, Thomas claimed that Andrew only
advanced $64,000 to cure the loan default
rather than $557,977.87, and that Andrew breached a fiduciary duty by
not accounting for rents.
The trial court found
that Andrew breached no fiduciary duty and that the rescission cause of action
was time barred. (Code Civ. Proc., §
337, subd. 3.) The court reopened the
trial to receive expert testimony on the August 11, 2006 payoff amount, i.e.,
the amount advanced by Andrew to pay off the underlying obligations. Adopting the calculations of Andrew's
expert, the court found that the payoff amount was $4,498,189.
Judgment was entered
with findings that Andrew did not materially breach the contracts or breach any
fiduciary duty, that Thomas suffered no damages, and that Andrew is entitled to
all the USR rents through October 31, 2016.
Commencing November 1, 2016, Andrew will split the net rental income
with Thomas and William until October 31, 2020, when the RFL expires. The judgment states that Thomas and William
can terminate the RFL at any time by selling the USR and paying Andrew $4,498,189
(the August 11, 2006 payoff amount) plus eight percent simple interest.
Fiduciary Duty
Thomas argues that
Andrew breached a fiduciary duty to make a full disclosure of the subleases and
rents, provide regular accountings, and disclose what advances were made to pay
off the underlying obligations. The
trial court found that insufficient evidence was presented to show damages or
the breach of any fiduciary breach.
Because Thomas had the
burden of proof at trial, the question on appeal is whether the evidence
compels a finding in favor of Thomas as a matter of law. (Roesch v. De Mota (1944) 24 Cal.2d
563, 570-571.) It is a daunting standard
on review. A defense judgment based on
failure of proof will be upheld unless the plaintiff's evidence is "uncontradicted
and unimpeached," and "of such a character and weight as to leave no
room for a judicial determination that it is insufficient to support a finding
. . . ." (Id., at p. 571.) Thomas does not meet that standard.
The RFL states that
"[t]he relationship between the parties is that of landlord and tenant,
and not partners or joint venturers."
A landlord and tenant relationship does not create a fiduciary
duty. (Girard v. Delta Towers Joint
Ventura (1993) 20 Cal.App.4th 1741, 1749.)
Andrew assumed a lender and borrower relationship with Thomas but
"[t]he relation between a mortgagee and mortgagor is not fiduciary. [Citation.]" (Lineker v. McColgan (1921) 54
Cal.App. 771, 774 [mortgagee in possession].)
Where no negligence or improper conduct is alleged, a mortgagee in
possession is only chargeable with what he actually received, and no more. (Murdock v. Clarke (1891) 90 Cal. 427,
438; Miller & Starr, Cal. Real Estate (3d ed 2011) § 10:46, p. 150.) The trial court correctly found no breach of
fiduciary duty and that it was an arm's length transaction. (See, e.g., Oaks Management Corp. v.
Superior Court (2006) 145 Cal.App.4th 453, 466; Bastajian v. Brown (1943)
57 Cal.App.2d 910, 915.)
$557,977.87 Default Amount
Thomas claims that the
$557,977.87 default amount was written into the ACD after he signed it in
1994. The trial court credited Andrew's
testimony that the default amount was set forth in the ACD when it was signed. The evidence shows Thomas was aware of the
$557,977.87 default amount and did not object until 2008 when he filed the
complaint, rendering the rescission claim time-barred. (Code Civ. Proc., § 337, subd. 3.) Although Thomas claims that $557,977.87 is
too much, the trial court found that it is the exact number, to the penny
listed in a ledger maintained by Thomas's and Andrew's mother, Georgiana. Andrew made additional advances after the ACD
was signed "by refinancing the debts, paying the obligations that were
secured by Union Sugar [R]anch and placing the liens against his own
property. This was something that no
party anticipated and which the agreement fails to directly address."
The ACD gave Andrew the
legal right but not the obligation to pay the underlying obligations in
advance.
property taxes and paid off the underlying obligations so that he could enjoy
future USR rental income. The trial
court found that it "was an entirely voluntary act . . . to go ahead and
pay off the loans. . . . Is that a bad
thing for Andrew to do? Not
necessarily. It might be a perfectly
sound business decision to make . . . ."
At the hearing on a
motion for new trial, Thomas's counsel conceded that "[w]e were never
seeking damages from the defendant. . . .
[W]e did think there was a breach of contract. We wanted to control it, but [Andrew] would
still get the same money he's going to get now." If no damages were suffered or are being
sought, the action for breach of contract, failure to disclose, and breach of
fiduciary duty fails as a matter of law.
(See Bramalea California, Inc. v. Reliable Interiors, Inc. (2004)
119 Cal.App.4th 468, 473; Stanley v. Richmond (1995) 35 Cal.App.4th
1070, 1086.)
Regular Accountings
Thomas argues that he is
entitled to "regular accountings, and a court order requiring Andrew to do
so." But that is what Thomas
got. Andrew's expert, Thomas Rust,
provided an accounting. Thomas's
accountant, Mike Radakovich, reviewed the loan records, ledgers, lease
agreements, rent records, and accounting prepared by Andrew's and Thomas's
mother, Georgiana Adam, and declared that he had enough information to
calculate the payoff amount.
Thomas is dissatisfied
with the accuracy of the accounting but it was his own doing. (Civ. Code, § 3517 ["No one can take
advantage of his own wrong"].) The
trial court found: "The simple fact
is that the parties entered into a sale and lease agreement which resulted in
claims and counter claims against each other based on failures to make
payments, failures to account for rents, and other assorted claims. Rather than rely on accountants, the parties
kept their own ledgers maintained by their mother, Georgiana. Forensic accountants attempted to reconcile
financial information from the ledger, but were unable to agree."
Thomas claims that the
trial court erred in not ordering future accountings but that was ordered,
too. The judgment states that Andrew is
"to provide yearly accountings along with the leases to plaintiff
regarding monies they are receiving for the rent."
Payoff Amount if Thomas Cancels the RFL
At Thomas's request,
the trial court reopened the trial to determine the August 11, 2006 payoff
amount should Thomas cancel the RFL before it expires on October 31, 2020. The court stated: "The starting point is the original
amount advanced, $577,977.87, plus any additional advances after the date of
the Agreement [for Curing] Default and Renegotiated Farm Lease plus 'simple
interest on such advances at the rate of eight percent per annum' less any
reimbursement received by Andrew from net rental income."
The trial court
determined that the $4,498,189 payoff amount calculated by Andrew's expert
(Thomas Rust) was more accurate than the $4,022.218 calculation by Thomas's
expert (Mike Radakovich). We are
precluded from reweighing the evidence.
(Berniker v. Berniker (1947) 30 Cal.2d 439, 444.) An accounting was ordered. Accounts were rendered. Objections were filed and heard, and the
trial court determined that the payoff amount was $4,498,189. There was no miscarriage of justice nor is
Thomas entitled to a new accounting.
(See, e.g., Sears v. Rule (1945)
27 Cal.2d 131, 149; Douglas v. Westfall (1952) 113 Cal.App.2d 107, 114.)
Eight Percent Interest on Andrew's
Advances
Thomas argues that the
trial court erred in finding that he must pay $4,498,189 plus 8 percent simple
interest if Thomas cancels the RFL by selling the property. Paragraph 23 of the RFL, entitled "Cancellation
Clause," states: "Landlord
[i.e., Thomas] shall have the right, upon written notice to Tenant, to cancel
this [lease] at such time as all of the underlying obligations, as defined
above, have been paid in full and Tenant has been reimbursed in full for all
advances that Tenant has made towards payment of the underlying obligations,
together with simple interest on such advances at the rate of eight percent per
annum." At trial, Thomas admitted
there were discussions about "breaking the lease" and agreed that
Andrew would be "paid back for any advances" and "we also pay
him eight percent on those advances . . . ."
The eight percent
interest charge is consistent with the ACD which acknowledges that advances had
to be made to save the ranches. Thomas's
and William's initial investment was less than $55,000, they paid no property taxes or loan payments
after the ACD was signed, and they own USR which is now worth more than $19
million. Andrew's refinancing and early
payoff of the underlying obligations was unexpected but saved William and
Thomas more than $1 million in loan interest.
In the words of William, co-owner of USR , it was "the best
investment [Thomas] and I ever made in our life." On the first day of trial, Thomas's attorney
agreed that Andrew should be paid for his advances, "[p]lus, if we cancel
this lease, we would even say that he would be entitled to interest on that . .
. I think in fairness we would give [him] that eight percent." There are no grounds in law or equity to
rewrite the sale and leaseback agreement to make it more profitable for Thomas.
Sale of USR
as Condition Precedent to Cancellation of RFL
Thomas argues that the
trial court erred in finding that the sale of USR is a condition precedent to
cancellation of the RFL. The ACD and RFL
incorporate each other and must be read together in determining the parties'
respective rights. (Civ. Code, § 1642; Harm
v. Frasher (1960) 181 Cal.App.2d 405, 412-413.) Paragraph 4 of the ACD states: "Despite any provision in this agreement
to the contrary, it is agreed that [William] and [Thomas] may cancel the
renegotiated farm lease at any time that they wish to sell the property,
in which case the following agreements shall apply: [¶] . . . [¶]
B. All amounts advanced by [Andrew] towards payment of the
underlying obligations or taxes on the Union Sugar [R]anch shall continue to be
due under the terms of the deed of trust and shall be all due and payable
upon the consummation of the sale of the Union Sugar [R]anch." (Emphasis added.) Reading the ACD and RFL together, the trial
court reasonably concluded that the sale of USR is a condition precedent to
cancellation of the RFL. Phrased
differently, the only way Thomas can cancel the RFL is to sell the USR.
Thomas claims that the
ACD and RFL have different cancellation rights that do not depend upon one
another. The argument is based on the
theory that paragraph 23 of the RFL (cancellation of the RFL) gives Thomas the
right to cancel the RFL if he pays the underlying obligations and reimburses
Andrew for the advances. But early cancellation
of the RFL would be contrary to the ACD which provides that the
"renegotiated farm lease shall be fully and completely performed by
[William] and [Thomas] . . . including the extended term thereof
. . . ." The
testimony and Twitchell's letters show that the 26-year lease term was to
ensure that the underlying obligations were paid in full and to ensure that
Andrew would receive half the net rents
from November 1, 2016 to October 31, 2020.
rent share would be $240,000 between 2016 and 2020.
The trial court
reasonably concluded that the RFL cancellation clause may not be used to trump
the ACD and exclude Andrew from receiving his share of the rents after he
refinanced his ranch (Main Street Ranch) and paid off the underlying
obligations. The right to cancel the
RFL, as described in paragraph 23, is further limited by paragraph 13 of the
RFL which provides that Andrew "may farm all or a portion of the leased
premises and continue to farm the same for so long as all of the underlying
obligations are prepaid at least one year in advance." (Emphasis added.)
At the hearing on the
motion for new trial, the trial court explained that Thomas could pay off the
AIN and deed of trust without selling the property. Thomas's attorney argued that the judgment
could be read to mean that the sale of the property was a condition precedent
to paying off the AIN and deed of trust.
The trial court responded:
"No, that's not my intent.
It's not a condition precedent . . . .
It's just if the property is sold by . . . plaintiff and his brother,
then Andrew must be paid off."
Thomas's attorney asked
the trial court to "clear that up a little bit, just to make sure somebody
else who reads that in the future doesn't have a misunderstanding." Thomas submitted a proposed order containing
the language he seeks on appeal (i.e., that Thomas cannot pay off the AIN
unless the USR is sold). Andrew objected
and the trial court issued its own order omitting the language proposed by
Thomas. There is no merit to the
argument that the judgment misstates the trial court's findings or should be
modified.
1985 Judgment lien
Thomas also
requested that the trial court order Andrew to "pay" a 1985 judgment
lien that was recorded before Andrew bought and resold USR. Andrew testified that he would relieve Thomas
of responsibility for the $500,000 lien if the RFL "is left
intact."
Thomas argues that
Andrew should be ordered to pay the judgment lien because it his contractual
responsibility. But that misstates the
RFL which provides that "Tenant agrees to keep the leased premises free
and clear of all liens . . . arising out of Tenant's operation of the
premises . . . ." Andrew has no
contractual obligation to pay a judgment lien recorded before the RFL was
executed.
At the hearing on a
motion for new trial, the trial court stated that it would not order Andrew to
pay the judgment lien because the lien could be removed by other means. Andrew could void the lien in
to agree to transfer the lien to other property. If Andrew was ordered to pay the judgment
lien, it would have the unintended consequence of making the judgment creditor
a third party beneficiary and giving the judgment creditor the right to sue
Andrew.
The judgment provides
that removal of the 1985 judgment lien "shall be the sole responsibility
of Andrew Adam" and that Andrew "shall indemnify, defend and hold
plaintiffs harmless from said judgment . . . ." As worded, the judgment is like a title
insurance policy and adequately protects Thomas's ownership rights. (See, e.g., Rosen v. Nations Title Ins.
Co. (1997) 56 Cal.App.4th 1489, 1499.)
We reject the argument that the judgment should be corrected to say that
Andrew must pay the judgment lien.
name="_ftnref5" title="">[5]
Additional
Declaratory Relief
Thomas requests that we
grant additional relief and render our "own judgment in order to avoid
future delay or expense to the parties."
opinions based on a hypothetical state of facts. (Hunt v. Superior Court (1999) 21
Cal.4th 984, 998; Selby Realty Co. v. City of San Buenaventura (1973)
10 Cal.3d 110, 117.) The trial court was
concerned that "William is not a party to this action and therefore the
Court believes that it cannot order the Renegotiated Farm Lease
terminated." We, too, are precluded
from considering hypothetical future actions the brothers may take in what the
trial court characterized as "a family broken apart by financial
dealings." Wise adjudication has
its own time for ripening. (Sierra
Club v. California Dept. of Parks & Recreation (2012) 202 Cal.App.4th
735, 738.)
Thomas's remaining
arguments have been considered but merit no further discussion.
The
judgment is affirmed. Andrew is awarded costs
on appeal.
NOT
TO BE PUBLISHED.
YEGAN,
J.
We
concur:
GILBERT, P. J.
PERREN, J.
Arthur A. Garcia, Judge
Superior Court County of Santa Barbara
______________________________
Brenneman Juarez &
Adam, LLP, Richard C. Brenneman for Plaintiffs and Appellants.
The Law Offices of
Robert D. Reed, Robert D. Reed for Defendant and Respondent.
name="_ftn1" title=""> [1] We refer to appellants as Thomas and refer to
other family members by their first names for the convenience of the reader.
name="_ftn2" title=""> [2] The RFL states that Andrew is leasing 310
acres. The remaining 11 acres is
either nonfarmable or used by William and Thomas to store equipment and
materials for their construction business.
