Gleason v. Bedwan

Filed 2/3/10 Gleason v. Bedwan CA4/3

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION THREE

Appeal from a judgment of the Superior Court of Orange County, Charles Margines, Judge. Affirmed.

Sheasby, Cho & Middleton and M. Stephen Cho for Defendants and Appellants.

Ray & Gourde and Thomas L. Gourde for Plaintiffs and Respondents.

* * *

Introduction

John A. Gleason and Chris A. McDonald entered into a contract with Hassen Bedwan to purchase his cigar shop. The contract went up in smoke when Bedwan called off the deal. The jury found Bedwan liable for breach of contract and fraud and awarded Gleason and McDonald $84,200 in breach of contract damages, $20,000 in fraud damages, and $30,000 in punitive damages.

Bedwan challenges the judgment on four grounds. First, he argues he lacked capacity to enter into a contract to sell the cigar shop because it was owned by his corporation. Second, he argues the evidence was insufficient to support liability for fraudulent misrepresentation. Third, he argues that, as a matter of law, the jury could not award both breach of contract damages and fraud damages. Finally, he argues lost profit damages were not proven with reasonable certainty.

We affirm. Sufficient evidence, including Bedwans own testimony, supported the jurys implied finding that Bedwan owned the cigar shop. Gleason and McDonald sought damages for false promise fraud, in addition to fraudulent misrepresentations, and substantial evidence supported a finding that Bedwan entered into the contract to sell his cigar shop with no intent to perform. A jury may award damages for both breach of contract and fraud arising out of the same facts when separate items of compensable damage are shown by distinct and independent evidence, which is the case here. Lost profit damages were sound because they were based on evidence of the profits of Bedwans cigar shop, which Bedwan testified were $6,000 to $8,000 a month.

Facts

Cigar aficionados Gleason and McDonald were regular patrons of South Coast Cigars, owned by Bedwan. In November 2006, Gleason and McDonald decided to open their own cigar shop. They asked Bart Gabriel, a mutual friend and an employee of South Coast Cigars, to be their partner.

Gleason and McDonald researched local demographics to determine the best location for their shop and looked throughout Orange County for available retail space that could support a cigar shop. They intentionally decided to stay away from the area of South Coast Cigars so as not to compete with Bedwan.

In November 2006, Gleason and McDonald opened negotiations with The Irvine Company to lease retail space at a shopping center in Newport Coast. In January 2007, Gleason prepared a concept sheet and forwarded it to a representative of The Irvine Company, which gave preliminary approval. Later that month, The Irvine Company proposed that Gleason and McDonald lease space at a location in Irvine.

In February or March 2007, Gabriel mentioned to Bedwan that Gleason and McDonald were planning to open their own cigar shop. Bedwan told Gabriel he was planning to sell South Coast Cigars. Bedwan had never before expressed such a desire to Gabriel. Recently, in response to an offer to buy the shop, Bedwan had asked for $120,000, a price the prospective buyer could not afford.

On March 9, 2007, Gleason and McDonald received a lease proposal from The Irvine Company. On the same date, Gabriel told Gleason and McDonald that Bedwan wanted to sell his cigar shop.

As an existing business, with no nearby competition, South Coast Cigars would be more valuable to Gleason and McDonald than starting a new business. On March 10, 2007, Gleason went to South Coast Cigars to talk with Bedwan about selling his shop. Bedwan said he was absolutely interested in selling his cigar shop to them.

After discussing purchase price and other terms with Bedwan, Gleason and McDonald prepared a contract reflecting the discussion and presented it to him. On March 20, 2007, Gleason, McDonald, and Bedwan met to discuss the contract and agreed to some changes to it. After making the changes, Gleason, McDonald, and Bedwan signed the contract.

Under the contract terms, Gleason and McDonald agreed to pay $95,000 for Bedwans cigar shop. The price consisted of $30,000 for inventory and $65,000 for furniture, accessories, and fixtures. The contract required Gleason and McDonald to take possession of the cigar shop within 50 days, by May 9.

After signing the contract with Bedwan, Gleason and McDonald did not further pursue a lease with The Irvine Company.

Gleason and McDonald immediately started working toward meeting the contract terms and taking possession of the shop within 50 days, as the contract required. They prepared a new floor plan for the shop, developed a marketing plan, created a name and logo, purchased and published a fictitious business name statement, and filed an application with the California Secretary of State to reserve a new name, Orange County Cigars, LLC.

On April 18, 2007, Gleason, McDonald, and Gabriel met with Bedwan to discuss bringing contractors into the shop to make repair estimates. During this meeting, Gleason and McDonald asked to speak with Bedwans landlord about a new lease. Bedwan adamantly told them not to talk to the landlord and assured them he would do so.

About a week later, Gleason and McDonald met with Bedwan to discuss the cigar shops inventory. Bedwan claimed the stores accessories, except for the humidor, were not included in the contract price. When Gleason explained the purchase price included all accessories, Bedwan replied, Im sorry, but I cant do that. The deal is off.

Two days later, Gleason approached Bedwan about adhering to the contract. Bedwan said he would be willing to go forward on the contract for an additional $10,000. Bedwan testified he never thought they were going to take the deal.

On May 2, 2007, Gleason and McDonald met with Bedwan and agreed to pay an additional $3,000 for accessories. Gleason and McDonald insisted on speaking with Bedwans landlord because the close of the 50-day period for meeting the contract terms was approaching. Bedwan telephoned the landlord and placed the landlords representative, Lawna Munholland, on the line with McDonald. Munholland told McDonald she was in the middle of an audit and could not schedule a meeting. Concerned about securing a lease before May 9, the last day to meet the terms of the contract, Gleason drove directly to Munhollands office to see her. Gleason was not permitted in, but Munholland offered to meet in a week or so.

To allow time to meet with Munholland, Gleason and McDonald asked Bedwan for a short extension of time to fulfill the contract terms. On May 3, 2007, McDonald presented Bedwan with an agreement to extend time, but he was reluctant to sign it. Later that day, Gleason met with Bedwan and discussed the agreement to extend time for about 45 minutes. Bedwan promised to review the agreement and sign it the next day.

On May 4, 2007, Gleason asked Bedwan if he had signed the agreement to extend time. Bedwan had not signed it and told Gleason, Im not going to do it. The next day, Gleason again asked Bedwan to sign the agreement to extend time. He replied the [d]eal is off.

Gleason and McDonald looked at numerous other locations for their cigar shop, but none compared to Bedwans shop, and they eventually leased a freestanding building in Costa Mesa that formerly was a car stereo store. They opened their cigar shop, Orange County Cigars, in May 2008. By then, Gleason and McDonald had spent over $53,000 to renovate the building and were bleeding red. As of September 2008, Gleason and McDonalds cigar shop had not turned a profit. Bedwan earlier had told Gleason and McDonald his cigar shop had a monthly net profit of $8,000.

Gleason and McDonald sued Bedwan for breach of contract and fraud.[1] Bedwans corporation, Tabaria West (Tabaria) filed a cross‑complaint against Gleason and McDonald for breach of contract. The jury found Bedwan liable for breach of contract and fraud, denied recovery on the cross‑complaint, and awarded Gleason and McDonald $84,200 in breach of contract damages and $20,000 in fraud damages. After the second phase of trial, the jury awarded Gleason and McDonald $30,000 in punitive damages. Bedwan timely appealed from the judgment.

Discussion

I. Bedwan Had Capacity to Sell the Cigar Shop
Because He Owned It.

Bedwan signed the purchase contract individually. He argues, however, he could not be liable for breach of contract because his corporation, Tabaria, owned the cigar shop, and, therefore, he lacked the capacity to sell it.

The issue whether Bedwan or Tabaria owned the cigar shop was raised in the trial court when Gleason and McDonald moved for nonsuit on the cross‑complaint. Gleason and McDonalds counsel argued Tabaria could not recover for breach of contract because the corporation was not part of the deal as Bedwan entered into the contract as an individual. In response, Bedwans counsel stated: Mr. Bedwan, as individual or as a corporate entity himself, only as shareholder and officer, had the ability to sell the contract [sic]. I believe that the contract in and of itself is sufficient to justify the sale of the cigar shop. Bedwans counsel stated his position was the corporation has standing to sue for breach of contract because Bedwan himself as an individual, he was the corporation.

To understand whether Bedwan could sell the cigar shop, the trial court posed a hypothetical question to Gleason and McDonalds counsel asking whether the court could sell an expensive automobile it did not own. Counsel responded by stating, in effect, the hypothetical question did not reflect the facts of this case. Although the cross‑complaint alleged Tabaria owned the cigar shop, Bedwan had said, he wasnt even sure or kn[e]w about the corporation, that it might be a potential owner, until after the lawsuit is filed. Counsel conceded he was not a hundred percent sure who was the owner because Bedwan represented the corporation but by and large he acted in a way that suggested the corporation was not the owner. Counsel explained, Bedwan has never made it clear who exactly is the owner, if its the corporation, if its not the corporation.

The trial court resolved the issue by deciding to let the jury sort it all out. The jury did just that. By assessing Bedwan damages for breach of contract, the jury necessarily found Bedwan owned the cigar shop.

Substantial evidence supported that finding. In applying the substantial evidence rule, we accept as true the evidence supporting the verdict, disregard conflicting evidence, and draw all reasonable inferences in favor of the verdict. (Murrays Iron Works, Inc. v. Boyce (2008) 158 Cal.App.4th 1279, 1285.) We do not weigh the evidence or judge the credibility of witnesses. (Ibid.) Our review is limited to determining whether the record contains substantial evidence, contradicted or uncontradicted, which supports the verdict. (Jameson v. Five Feet Restaurant, Inc. (2003) 107 Cal.App.4th 138, 143.)

Bedwan testified he believed he had sold his cigar shop as an individual to Gleason and McDonald, acknowledged signing the contract, and understood it was binding on him.[2] As an individual, Bedwan signed the lease for the space occupied by the cigar shop and never used the name Tabaria West on the lease or in dealing with the landlord. Also, as an individual, Bedwan later sold the cigar shop inventory, accessories, furniture, and fixtures to Rhibi Saoud.

II. The Evidence Supported Liability
for False Promise Fraud.

Bedwan argues the evidence was insufficient to support liability for fraud. He identifies the five asserted misrepresentations of fact and argues Gleason and McDonald failed to prove any one of them was material.

However, Gleason and McDonald sued for both false representation and false promise fraud. The jury answered [y]es to the question [d]id Defendant Hassan Bedwan make a false representation of an important fact, conceal an important fact and/or make a false promise to Plaintiffs . . . . (Italics added.)

False promise or promissory fraud is a promise without any intention of performing. An action for promissory fraud may lie where a defendant fraudulently induces the plaintiff to enter into a contract. (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638.) The action is one of deceit, which requires proof that the defendant made a misrepresentation of fact or a promise without any intention of performing it. (Service Medallion, Inc. v. Clorox Co. (1996) 44 Cal.App.4th 1807, 1816.)

Substantial evidence supported liability against Bedwan for false promise fraud. Bedwan did not show interest in selling his cigar shop until he learned Gleason and McDonald were planning to open their own. After entering into the purchase contract, he refused to let Gleason and McDonald contact the landlord. Bedwan did not tell Gleason and McDonald that he owed the landlord over $8,200 and that his five-year lease had converted to a month-to-month tenancy. Claiming he was unaware the contract purchase price included the shops accessories, Bedwan demanded $10,000 more, thinking Gleason and McDonald would not agree. Bedwan procrastinated signing the agreement to extend time to meet the contract terms and take possession, and ultimately told Gleason and McDonald the deal was off. In the meantime, Gleason and McDonald lost the opportunity to open a cigar shop in Irvine.

A reasonable jury could conclude from the evidence that Bedwan entered into the purchase contract only to prevent Gleason and McDonald from opening their own cigar shop, and had never had any intention of performing it.

III. Recovery for Both Breach of Contract and Fraud
Was Proper in This Case.

Bedwan argues, as a matter of law, [n]o duplicate recovery can be awarded for both contract and tort damages. For that reason, he contends, the jury granted Gleason and McDonald a prohibited duplicate recovery by awarding them damages for both breach of contract and fraud.

The trial court instructed the jury with CACI No. 361, which correctly states the rule that, ordinarily, a plaintiff asserting both breach of contract and fraud arising from the same facts can only recover once. (E.g., Pugh v. Sees Candies, Inc. (1988) 203 Cal.App.3d 743, 760, fn. 13.) The California Supreme Court has concluded that rule does not apply when the plaintiff seeks separate items of damage for breach of contract and fraud: In contrast, where separate items of compensable damage are shown by distinct and independent evidence, the plaintiff is entitled to recover the entire amount of his damages, whether that amount is expressed by the jury in a single verdict or multiple verdicts referring to different claims or legal theories. (Tavaglione v. Billings (1993) 4 Cal.4th 1150, 1159.)

Thus, it is legally possible for a jury to award damages for both breach of contract and fraud under the appropriate circumstances. Here, as Gleason and McDonald explain, the breach of contract damages and fraud damages are for separate items: The breach of contract damages represent lost profits, and the fraud damages represent out‑of‑pocket expenses. Bedwan does not argue to the contrary.

IV. Lost Profit Damages Were Proven
with Reasonable Certainty.

Bedwan argues Gleason and McDonald failed to prove with reasonable certainty their lost profits they would have earned from Bedwans cigar shop. [I]f the business is a new one or if it is a speculative one . . . , damages may be established with reasonable certainty with the aid of expert testimony, economic and financial data, market surveys and analyses, business records of similar enterprises, and the like. [Citation.] (Parlour Enterprises, Inc. v. Kirin Group, Inc. (2007) 152 Cal.App.4th 281, 288.) Prospective profits may be proven by the experience of similar businesses, the plaintiffs or a third partys prior experience in the same or similar business, or the defendants prelitigation profit projections. (Ibid.)

In reviewing a damage award of lost business profits, the appellate court must couple the substantial evidence concept with recognition that evidentiary imponderables are unavoidable. (Guntert v. City of Stockton (1976) 55 Cal.App.3d 131, 143.) The law will allow reasonably calculated damages even if the result is only an approximation. (Ibid.)

In this case, lost profits were proven by evidence of Bedwans experience operating a similar business at the same location. Bedwan testified he made $6,000 to $8,000 net per month from the cigar shop, and before signing the contract, told Gleason and McDonald his monthly net profits from the shop were $8,000. Other evidence at trial showed the cigar shops gross revenues were more than $20,000 a month. This financial information supplied a basis for calculating lost profits with reasonable certainty.

Gleason and McDonald were supposed to take possession of Bedwans cigar shop by May 9, 2007. When Bedwan backed out of the contract, they searched for other space and opened their cigar shop 12 months and six days later. Had Gleason and McDonald owned Bedwans cigar shop between May 2007 and May 2008, they would have made $6,000 to $8,000 per month in net profit according to Bedwans testimony. An average of $7,000 net profit per month times 12 months equals $84,000. The jury awarded breach of contract damages of $84,200. There was no error.

Because proof of lost profits that would have been earned from Bedwans cigar shop is neither speculative nor uncertain, we do not address Bedwans argument the lost profits from Gleason and McDonalds never‑established cigar shop in Irvine were speculative.

Disposition

The judgment is affirmed. Respondents shall recover costs incurred on appeal.

FYBEL, J.

WE CONCUR:

SILLS, P. J.

MOORE, J.

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[1] The appellate record does not include copies of the complaint or the cross‑complaint.

[2] We do not have a copy of the contract because no party requested transmission of the exhibits under California Rules of Court, rule 8.224.