Helf Investments v. Pacifica
Companies
Filed 1/22/13
Helf Investments v. Pacifica Companies CA4/1
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 This opinion has not been
certified for publication or ordered published for purposes of rule 8.1115
COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
HELF
INVESTMENTS,
Plaintiff and Appellant,
v.
PACIFICA
COMPANIES, LLC, et al.,
Defendants and Appellants.
D059468
(Super. Ct. No.
37-2008-00097744-CU-BC-CTL)
APPEALS
from a judgment of the Superior Court of
County, David B. Oberholtzer, Judge. Affirmed in part; reversed in part; and
remanded.
I
INTRODUCTION
Plaintiff
Helf Investments (Helf) appeals a judgment in favor of defendants Pacifica
Companies, LLC, and related entities (collectively Pacifica), in a
breach of contract action. After a
Pacifica breached its contract with Helf in which Pacifica had agreed, as
partial consideration for its purchase from Helf of a 200-unit apartment
complex, to pay to Helf as additional deferred consideration 50 percent of any
revenues received by Pacifica from sales of units created on conversion of the apartments
to condominiums, to the extent those sales exceeded a stated threshold amount
and were realized within a specified period of time (the deferred consideration
period). Pacifica
successfully sold 191 of 200 units in the converted condominium complex during
the deferred consideration period, and Helf received more than $1.2 million in
additional payments pursuant to the contract.
After October
1, 2008, however, Pacifica did not
have a sales agent actively marketing the units. Moreover, throughout the deferred
consideration period, it had purposefully withheld one unit from sale so it
could lease that unit and thereby maintain a presence on the homeowner's
association board of directors. The
remaining nine units did not sell until after the deferred consideration period
expired.
The
trial court determined that Pacifica breached its contract with Helf as to eight of the unsold units by
not having a sales agent on site during the last three months of the deferred
consideration period. However, the trial
court did not award damages for that breach, finding Helf did not meet its
burden of proving the eight units would have sold by the end of that period had
Pacifica not breached the contract. As
to the ninth, leased unit, the trial court found Pacifica breached
its contractual obligations by withholding this unit from its sales listings
and never actively marketing it. For
that breach, as well as for Pacifica's not making timely payments of deferred consideration to Helf (not
at issue here), the trial court awarded Helf damages in the total amount of
$130,357.56 plus interest.
Helf
appeals the first of these rulings. It
contends the trial court erroneously held inadmissible evidence that, during
the deferred consideration period, Helf offered to purchase all the remaining
unsold units at a 30 percent discount from their list prices. Helf argues the evidence of its offer not
only demonstrates Pacifica's breach caused Helf's injury, but also provides a measure for its
The trial court excluded this evidence for two principal reasons. First, the court found Helf's offer and the
parties' communications that followed the offer constituted settlement
negotiations, which are inadmissible under Evidence Code section 1152,
subdivision (a).
title="">[1] Second, the trial court held that Helf's
offer was not the type of offer contemplated by the parties' contract, and Pacifica therefore
could not reasonably have foreseen refusing that offer would render it liable
for damages.
Pacifica
cross-appeals from that portion of the judgment awarding damages to Helf as to
the ninth, leased unit. It contends that
because Helf did not prove causation as to eight of the unsold units, there was
also no substantial evidence supporting the trial court's conclusion that
causation was proved as to the ninth unit.
We
conclude the trial court erroneously excluded evidence of Helf's offer to
purchase the remaining units, and we reverse that portion of the judgment
relating to eight of the unsold units, and remand for a new trial limited to
the question of damages as to those units.
We further conclude the trial court's finding that the ninth, leased
unit was differently situated than the others because Pacifica had foreclosed
even the possibility of it being sold is supported by
inferences that reasonably may be drawn from that evidence, and affirm that
portion of the judgment.
II
FACTUAL AND PROCEDURAL BACKGROUND
This
summary of the facts of this case is drawn principally from the trial court's
statement of decision.
name="_ftnref2" title="">[2]
A.
The Parties' Contract
Helf
Investments is a family limited partnership that owned a 200-unit apartment
complex in Milpitas, California, known as Indian Hills Apartments.
In October 2005, Pacifica, an investment company owning multiple
properties, agreed to purchase the complex for $45.2 million, and planned to
convert the rental units to residential condominiums for sale after
renovations. Pacifica determined
after its due diligence, however, that its sales projections and other factors
did not support the purchase price, and elected to terminate the purchase
agreement.
During
subsequent negotiations, Helf proposed to sell the complex to Pacifica for $41.2
million, together with an arrangement pursuant to which Pacifica would
share with Helf a portion of Pacifica's revenues from sales of the condominiums if those revenues
exceeded a certain sum. Pacifica accepted
this proposal, and on December 15, 2005, the parties
entered into the "Reinstatement and Second Amendment to Agreement for
Purchase and Sale and Joint Escrow Instructions" (the Purchase Agreement).
The
revenue-sharing provisions of the Purchase Agreement provided that "[i]f
and to the extent that Gross Sales Proceeds exceed[] $61,500,000.00, [Pacifica]
shall pay to [Helf], as additional consideration for the sale of the Property,
an amount equal to 50 percent of such excess, up to a total additional payment
to [Helf] of $2,300,000.00 (the 'Deferred Contingent
Consideration')." This deferred
consideration clause had a sunset provision, added at Pacifica's
request. The deferred consideration
period commenced with the first sale of a condominium unit, and ended on the
second anniversary of that sale.
"If all Condo Units have not been sold as of the second anniversary
of the sale of the first Condo Unit, then . . . [Pacifica] shall
have no further obligation to . . . make payments of Deferred
Contingent Consideration for the calendar months following the month in which
the second anniversary of the sale of the first Condo Unit occurs."
The
Purchase Agreement further obligated Pacifica to provide
monthly reports of its aggregate gross sales proceeds and, after the $61.5
million threshold had been reached, to include a payment for the deferred
consideration owed to Helf for sales made during each month. The term "Gross Sales Proceeds" was
defined as the "aggregate gross sales price for the Condo Units,"
less incentives granted to a purchaser, but only if those incentives were
"the equivalent, from [Pacifica's] perspective, of a discount to the
purchase price . . . or a payment to such purchaser's lender on
purchaser's behalf . . . , provided that such amounts are
specifically described as separate line items on the escrow closing statement
for such Condo Unit."
Importantly
for purposes of this appeal, the Purchase Agreement required Pacifica to
"use its good faith best efforts to sell all Condo Units in arm's-length
transactions as promptly as reasonably possible." Herbert J. Solomon, Helf's manager, testified
this provision was added to "raise the standard as high as we could to
impose on Pacifica the obligation to sell all the units in [arm's-length]
transactions," rather than "to their affiliates or . . . to
their employees or their friends at some bargain price." Although Solomon testified this provision
required Pacifica to use not just ordinary best efforts, but good faith best
efforts that went beyond merely the standard language in a contract, he also
acknowledged Pacifica was not required to do everything possible to sell all
the units by the end of the deferred consideration period.
B.
Pacifica's Performance Under the Purchase Agreement
Pacifica
undertook renovations of the project, renamed it "Crossroads," and
hired The Mark Company as the real estate broker charged with marketing the
condominiums. Pacifica sold the first
condominium on December 20, 2006, making December 20, 2008, the expiration date
of the deferred consideration period.
During the 16 months following this first sale (until April 28, 2008),
Pacifica sold 191 of the 200 units.
However, Pacifica did not send reports and payments to Helf in a timely
manner, as required by the Purchase Agreement.
The first condominium sale closed in December 2006, but Pacifica did not
send its first report until June 2007.
Pacifica's sales exceeded the $61.5 million threshold by January 2008,
which triggered the first deferred consideration payment, but no payment was
sent with the report showing that payment was due. Despite Helf's demand for payment, Pacifica
did not send Helf its first payment until June 2008, when it mailed Helf a
$1,065,129.50 check.
The
sale of the 191st condominium unit closed in April 2008, and in August, Helf
received another untimely check for $150,542 in deferred consideration.
condominiums had softened considerably and did not appear to be improving. The remaining unsold nine units were among
the least desirable in the complex, because of their locations facing busy
streets or a freeway. Pacifica sought to
sell the remaining nine units through additional, aggressive incentives. All of these units were placed in escrow at
least once in 2008. However, these sales
did not close, apparently because credit had tightened and purchasers could not
obtain loans, but also because some incentives had not been approved.
Because
there were no sales after April 2008, Helf urged Pacifica to be more proactive
in its marketing efforts. Solomon met
with Deepak Israni, Pacifica's managing partner, in July 2008, to discuss its
marketing plans. In September 2008,
Pacifica reduced its list prices for the remaining two- and three-bedroom
condominiums. Israni testified that he
decided to reduce prices to keep Pacifica's units competitive in the
market. Notwithstanding these efforts,
the remaining nine units did not sell before the end of the deferred
consideration period. Additionally,
Pacifica continually held one unit as a rental to maintain a presence on the
homeowners' association board of directors and, consequently, that unit was
never listed for sale during the deferred consideration period (although
Pacifica had told The Mark Company it would entertain any offers made on the
unit).
On
October 6, 2008, Helf made an unconditional offer to purchase all nine of the
remaining unsold units for 70 percent of their list prices, in cash and with a
closing in two weeks. This amounted to a
purchase price of approximately $2.1 million.
Had Pacifica accepted that offer, Helf's share of deferred consideration
would have been approximately $1.05 million.
In the written offer, Helf stated its purpose was to "conclude
[Helf's and Pacifica's] relationship on a harmonious note" and avoid
"any future controversy regarding Helf's full entitlement." Pacifica rejected this offer, but made a
counteroffer that Helf purchase the remaining units for 90 percent of the list
prices, which Helf rejected. During the
course of further communications, the parties considered an agreement pursuant
to which Pacifica would either sell the units to Helf at 75 percent of their
list prices, or would make a payment to Helf as though Pacifica had sold the
units to a third party for 65 percent of the list prices. These negotiations included discussions of a
release, but the parties apparently could not reach agreement on its
terms. Pacifica declined Helf's final
offer of 70 percent, and Helf declined Pacifica's offer of 75 percent. A deal was never consummated.
Having
made no sales for many months, The Mark Company lost its enthusiasm for selling
at Crossroads, and on October 1, 2008, its agreement with Pacifica
expired. Although another sales agent,
Rick Finamore of Finamore Realty, had been identified by Pacifica as a possible
successor sales agent, neither Finamore nor any other broker was retained to
market the remaining nine units between October and December 2008. No sales agent was present at Crossroads to
take an offer during that time, even had one been made. Finamore finally became the Crossroads sales
agent on December 9, 2008, shortly after Helf conveyed to Pacifica its final
rejection of Pacifica's counteroffers.
Israni testified he did not retain Finamore earlier because the
negotiations over Helf's offer were then ongoing, and had Helf's offer been
accepted, Finamore would have been entitled to a commission on the transaction.
Even
before he had been formally retained, Finamore recommended to Pacifica that it
lower its asking prices on the remaining units to sell them. After he was retained, Pacifica acted on
Finamore's advice. The asking prices of
the units--except for the leased unit--were lowered as of January 2009. Six of the remaining units were sold in
February 2009, one was sold in March and one was sold in April 2009. Escrow closed on two of those units on March
27, 2009, and on the other six units by early June 2009. The last unit--the two-bedroom unit Pacifica
withheld from sale and leased--was not included in the original listing with
Finamore, and it did not sell until November 2009.
C.
The Trial Court's Exclusion of Evidence Regarding Helf's Purchase
Offer
On
December 10, 2008, Helf filed suit against Pacifica for breach of the Purchase
Agreement, alleging Pacifica had "failed to use its good faith best
efforts to sell the last nine remaining condominium units," as required by
the Purchase Agreement.
Before
trial, Pacifica moved in limine for an order excluding any evidence or argument
regarding the "parties' efforts to settle the legal dispute that
culminated in this litigation."
Pacifica sought to preclude Helf from presenting at trial evidence of
its offer to purchase the remaining nine units, as well as evidence of all
subsequent negotiations, including Pacifica's rejection and counteroffer. Pacifica based its motion on section 1152,
subdivision (a), regarding the nonadmissibility of evidence relating to
settlement discussions. Pacifica
maintained the parties' negotiations regarding how to bring their contractual
relationship to a close were not arm's-length negotiations between a willing
seller and a willing retail buyer, but rather were designed to avoid a
lawsuit. Helf opposed this in limine
motion on the ground that its offer was no different than any other offer, did
not pertain to settlement as there was no dispute between the parties at that
time and, in any event, would not be introduced to prove the liability of the
offeror (Helf), and thus was outside the scope of section 1152, subdivision
(a).
The
court granted Pacifica's motion, stating several reasons for its decision. First, it ruled the offer inadmissible under
section 1152, subdivision (a), because, in the court's view, it clearly
anticipated litigation. The court then
stated that even if section 1152 does not by its terms apply when a
"settlement" offer is introduced to show the offeree's, rather than
the offeror's, liability, "the philosophy and the reason for [section]
1152" compelled exclusion of the evidence.
The court reasoned that if it admitted evidence of Helf's offer, that
would force Pacifica to introduce evidence of its response and counteroffers,
thereby "leverag[ing Pacifica] into presenting evidence that [it] wouldn't
otherwise have to present to the jury."
Additionally, the court noted Helf's discounted bulk offer was "not
something that was contemplated by the parties when they entered into the
contract."
D.
The Trial Court's Decision After Trial
A
bench trial was held in February and March 2010.
Pacifica's failure to use its "good faith best efforts" to sell the
remaining condominiums. First, Helf
maintained that if Pacifica had lowered its prices for the condominiums earlier
in 2008, it would have sold the remaining nine units before the end of the
deferred consideration period. Second,
Helf argued that Pacifica breached the Purchase Agreement by not having a sales
agent on site during the closing months of the deferred consideration period.
After
trial, the court issued an oral ruling from the bench. Pacifica requested a statement of decision,
but did not prepare one as directed by the trial court. Therefore, Helf submitted a proposed
statement of decision that diverged significantly from the trial court's oral
ruling, prompting Pacifica to submit its version for the court's approval. The trial court ultimately prepared its own
statement of decision, but did not issue it until December 13, 2010.
With
respect to the pricing issue, the trial court found that "[i]n retrospect,
[Helf] was right--the prudent course for Pacifica would have been slashing
prices during the summer of 2008 to sell out the project. Given the information available at the time,
however, Pacifica's marketing was adequate and commercially reasonable, if
unimaginative." "[Helf] argued
(correctly) Pacifica should have . . . lowered [its] prices and
increased incentives more and sooner than it did, but Pacifica's steady
reduction in prices was not a failure to use good faith best efforts[;] it was
a mistake." The trial court found
"Pacifica did not breach its contract with [Helf], under the
circumstances, from January 2008 to [October 1], 2008[.]"
The
trial court did find that Pacifica breached the Purchase Agreement "by not
having a sales force in place between October 1 and December 20,
2008." Helf, however, "did not
prove with reasonable certainty the other eight units would have sold and
closed before December 20, 2008, a necessary predicate to recovery. The law permits some uncertainty in proving
the amount of damages, but uncertainty in the fact of damages is
fatal." Therefore, the trial court
did not award any damages for Pacifica's breach of the Purchase Agreement as to
eight of the units not sold before the end of the deferred consideration
period.
The
trial court concluded, however, that the ninth, leased unit presented a
different situation, because "Pacifica deliberately removed [that unit]
from the market." Although Pacifica
argued there was insufficient evidence that the ninth unit would have sold before
December 20, 2008, the trial court stated it "will resolve the uncertainty
against Pacifica." To calculate the
amount of damages, the trial court considered the prices at which several
two-bedroom units sold in February 2009.
After deducting closing costs and incentives, the court calculated
Helf's damages for Pacifica's breach in connection with the ninth unit (i.e.,
lost deferred consideration) to be $105,225.50, plus prejudgment interest. The court also awarded interest on the final
two late deferred consideration payments to Helf. The final judgment awarded damages to Helf in
the amount of $130,357.56, plus interest, costs and attorney's fees.
In
its statement of decision, the trial court also reaffirmed its prior ruling
excluding evidence regarding Helf's October 2008 offer to purchase the
remaining nine units, along with evidence of the parties' subsequent
negotiations. The court found that even
though "everyone would have been better off [had] Pacifica . . .
agreed to the buyout" proposed by Helf, section 1152, subdivision (a),
barred this evidence because the offer "obviously was an attempt to compromise as a way of avoiding this
lawsuit." The court observed that
even if Helf was not trying to prove the liability of the offeror (Helf), but
rather of the offeree (Pacifica), it found the important evidence was not so
much Helf's offer as Pacifica's rejection of that offer, which evidence
"goes directly to Pacifica's liability." Moreover, the court noted that even had it
admitted evidence of Helf's offer, it would have also admitted evidence of
Pacifica's counteroffer, "which was also reasonable." Finally, the trial court concluded Pacifica's
refusal of Helf's offer "was not an injury to [Helf] within the
contemplation of the parties when they signed the contract." "Pacifica would not, in the ordinary
course of things, . . . have expected to pay [Helf] as damages the
amount of the offer it [turned] down."
III
DISCUSSION
A. Evidence Relating to Helf's Offer
Helf
focuses its appeal on its contention that the trial court erred in excluding
evidence of its October 6, 2008, offer to purchase the remaining nine
units. We agree section 1152 is
inapplicable to Helf's offer, because no dispute existed between the parties at
the time that offer was made, and excluding the evidence in this case does not
further the purposes of that statute. We
further conclude this error was prejudicial to Helf, because it provided
evidence of causation the trial court found missing. We will not speculate, however, as to how the
trial court might have ruled on the damages issue had this evidence been
admitted, and so we remand for a new trial on that issue as to eight of the
unsold units.
1.
Standard of Review
"In
determining the admissibility of evidence, the trial court has broad
discretion." (People v. Williams (1997) 16 Cal.4th 153, 196.) "On appeal, a trial court's decision to
admit or not admit evidence, whether made in
limine or following a hearing pursuant to . . . section 402, is
reviewed only for abuse of discretion."
(Id. at p. 197;
Cal.App.4th 1471, 1476 (Zhou); see
also Caira v. Offner (2005) 126
Cal.App.4th 12, 31-32 (Caira).) To the extent the trial court's ruling is
based on statutory interpretation, however, its determination will be reviewed
de novo. (Zhou, at p. 1476.)
name="_ftnref5" title="">[5]
2.
Section 1152 Does Not Apply to
Helf's Offer
Section
1152 provides, in relevant part:
"Evidence that a person has, in compromise or from humanitarian
motives, furnished or offered or promised to furnish money . . . to
another who has sustained or will sustain or claims that he or she has
sustained or will sustain loss or damage, as well as any conduct or statements
made in negotiation thereof, is inadmissible to prove his or her liability for
the loss or damage or any part of it."
(§ 1152, subd. (a).)
According to the Law Revision Commission, "[t]he rule excluding
offers is based upon the public policy in favor of the settlement of disputes
without litigation. The same public
policy requires that admissions made during settlement negotiations also be
excluded." (Cal. Law Revision Com.
com., 29B West's Ann. Evid. Code (2009 ed.) foll. § 1152, p. 456.) " 'The rule prevents parties from
being deterred from making offers of settlement and facilitates the type of
candid discussion that may lead to settlement.' " (Zhou,
supra, 157 Cal.App.4th at p. 1475;
see also Caira, supra, 126 Cal.App.4th at p. 32.)
"Evidence should be excluded under . . . section 1152
where 'The strong public policy favoring settlement negotiations and the
necessity of candor in conducting them combine to require
exclusion . . . .' " Caira,
at p. 33.)
Initially,
we note evidence of Helf's October 6, 2008, offer to Pacifica to purchase the
remaining unsold units was not proffered to prove Helf's liability for any loss
or damage that Pacifica "sustained or will sustain or claims that [it] has
sustained or will sustain."
(§ 1152, subd. (a).)
Further, neither Helf's offer, nor Pacifica's nonacceptance of that
offer and its counteroffer, constituted admissions of liability to the other
party. The literal terms of section
1152, subdivision (a), therefore do not appear to be applicable as a basis of
excluding evidence of Helf's offer. In
any event, we conclude Helf's offer was not inadmissible as a compromise of an
existing dispute.
It
is not necessary, for section 1152 to apply, that the parties already be
involved in litigation at the time of the negotiations in question. (See, e.g., Georgia-Pacific Corp. v. California Coastal Com. (1982) 132
Cal.App.3d 678 at p. 693 [compromise
was offered during administrative proceedings that preceded lawsuit].) In most instances in which section 1152 has
been applied, there is at least an existing dispute between the parties. (See, e.g., Caira, supra, 126
Cal.App.4th at p. 34 [at time e-mail at issue was sent, the parties "were
attempting to resolve several interrelated disputes" regarding company
stock]; see also C & K Engineering
Contractors v. Amber Steel Co. (1978) 23 Cal.3d 1, 13 [settlement
negotiations occurred in connection with dispute over bid for construction
work]; Price v. Wells Fargo Bank
(1989) 213 Cal.App.3d 465, 481, fn. 3 [letters discussing plaintiffs'
obligations under a contract were admissible because nothing suggested there
was any dispute regarding such obligations at the time the letters were
written].) Nevertheless, there is some
authority for the proposition that an actual dispute need not exist between the
parties, so long as the offer was made at a time when the other party's future
loss is a certainty. (See
Cal.App.4th 217, 222 [affirming exclusion of evidence of severance offer made
by employer to terminated employee when the fact of the employee's future loss
of income resulting from termination was certain at time offer was made].)
In
this case, as both Pacifica and the trial court appeared to acknowledge, there
was no existing dispute between the
parties at the time Helf made its unconditional offer to purchase the remaining
units. Helf made the offer because it
knew Pacifica had made no sales in months, and it could see that economic
conditions were worsening. At that time,
more than two months remained before the deferred consideration period
expired. Pacifica had not repudiated the
contract, and Helf had not yet accused Pacifica of any breach. No claim or lawsuit was then pending. Helf presented a proposal to Pacifica to
purchase the remaining units at what it viewed to be a fair price in the
context of existing conditions, simply to help ensure that it would receive the
maximum possible benefit from the deferred consideration provisions of the
Purchase Agreement. As Helf argues, it
made the offer to "facilitate[] full contractual performance," rather
than to compromise the parties'
respective rights and obligations under the Purchase Agreement. In our view, Helf's offer, Pacifica's
counteroffer, and the parties' communications regarding the same are not
materially different in their essential nature from negotiations Pacifica might
have had with other potential buyers and, indeed, Pacifica acknowledged it
already had entertained a bulk offer to purchase multiple units.
Pacifica
contends, however, and the trial court found, Helf made its offer to avoid a
future lawsuit over whether Pacifica had satisfied its "good faith best
efforts" obligation under the Purchase Agreement. Pacifica relies in particular on
"nothing in the language of . . . section 1152 . . .
limits it to offers to compromise preexisting disputes." (
however, is distinguishable. In that
case, the employer's severance offer was made at a time when "it was a
fact that Mangano's termination would cause him to sustain some loss of
income." (Ibid.) In this case, by
contrast, the fact of loss to Helf
was not certain at the time Helf made its offer. If Pacifica refused Helf's offer, which it
did, there was still time for Pacifica to either try to strike a different deal
with Helf or market the units to other buyers, because the deferred
consideration period did not expire until December 20, 2008.
Our
conclusion is not undermined by the evidence indicating that, after the
parties' negotiations over a possible sale broke down, the tone of Helf's
communications became more antagonistic, and by December 8, 2008--when it was
apparent that no new sale likely could be finalized by the close of the
deferred consideration period, and Pacifica had made no other efforts to market
the remaining nine units--Helf was accusing Pacifica outright of breaching its
obligations under the Purchase Agreement.
Contrary to Pacifica's assertions, however, we do not see Helf's
original offer and Pacifica's counteroffers as part of an inseparable group of
settlement communications. Rather, we
would characterize the parties' communications as, initially, a negotiation
over a possible sale, not unlike other negotiations Pacifica may have had with
potential buyers, and later as a demand by Helf for monies it believed it was
entitled to under the parties' agreement‑-none of which are the types of
communications covered by section 1152, subdivision (a). (See, e.g., Zhou, supra, 157
Cal.App.4th at p.1477 ["a letter itemizing what the sender thinks the
recipient owes him or her and demanding payment, even under threat of legal
action, is, in effect, a bill and not an offer in settlement or a document in
settlement negotiations excludable under section 1152"].) Pacifica cites no case in which an appellate
court affirmed the exclusion of evidence under section 1152 of what amounts to
an unsuccessful negotiation of a possible business deal.
We
also do not believe exclusion of the October 6 Helf offer (and the
communications that followed) advances the policy concerns underlying section
1152. As noted, the function of the
statute is to promote candor in settlement negotiations. (Zhou,
supra, 157 Cal.App.4th at p. 1475;
The exclusion not only of the offer itself, but also "any conduct
or statements made in negotiation thereof" (§ 1152, subd. (a)), was
intended to end the prior practice of allowing certain statements made during
negotiations to be used as admissions against a party. (See Caira,
at p. 32.) These laudable goals are not
endangered, however, where the purported "offer of compromise" and
the ensuing discussions constitute, in essence, negotiations of a possible deal
conducted in the ordinary course of business.
The fact these discussions were unsuccessful, and a lawsuit ultimately
was commenced, does not convert those discussions into "settlement
negotiations."
3.
The Trial Court's Error Was
Prejudicial
It
is not sufficient for Helf to demonstrate error on the part of the trial court. To warrant reversal, Helf must also show the
trial court's error was prejudicial.
"[I]njury is not presumed from error but must be affirmatively
shown [citation], which principle is also embodied in the harmless error rule
[citations]." (Continental Dairy Equip. Co. v. Lawrence (1971) 17 Cal.App.3d 378,
384; see also § 354; Code Civ. Proc., § 475.) The California Constitution prescribes:
"No judgment shall be set aside . . . on the ground
. . . of the improper admission or rejection of
evidence, . . . unless, after an examination of the entire
cause, including the evidence, the court shall be of the opinion that the error
complained of has resulted in a miscarriage of justice." (Cal. Const., art. VI, § 13.) "[A] 'miscarriage of justice' should be declared
only when the court . . . is of the 'opinion' that it is reasonably
probable that a result more favorable to the appealing party would have been
reached in the absence of the error."
(People v. Watson (1956) 46
Cal.2d 818, 836.) " 'We have
made clear that a "probability" in this context does not mean more
likely than not, but merely a reasonable
chance, more than an abstract
possibility.' " (
33 Cal.4th 780, 800.)
Helf
contends it was "reasonably probable" that admission of the disputed
evidence would have led to a larger damages award to Helf because it would have
provided the evidence the trial court found missing as to eight of the nine
unsold units--i.e., evidence of causation and damages resulting from Pacifica's
breach. We agree the excluded evidence
is relevant to the causation issue because it tends to show there was a willing
buyer for all nine of the remaining units, and the units would have sold by the
end of the deferred consideration period had Pacifica not breached the
contract. Had Pacifica timely hired
Finamore (who, in early November 2008, recommended Pacifica further lower its
prices), Finamore might well have recommended that Helf's offer be accepted. There is, in our view, at least a reasonable
chance that if the trial court had admitted evidence relating to Helf's offer,
and considered that evidence together with evidence showing eight of the units
eventually were sold at net prices less than what Helf offered, it may have
determined Helf established causation as to eight of those remaining units.
Pacifica
argues Helf suffered no prejudice, even assuming it was error for the trial
court to exclude evidence of its 70 percent purchase offer, because the trial
court also deemed Pacifica's 75 percent counteroffer to be
"reasonable," thereby refuting Helf's assertion that the outcome
would have been different had evidence of Helf's offer been admitted. This argument, however, is premature. None of this evidence was admitted and,
therefore, the relevant facts and circumstances of the parties' negotiations
were never tested, as Helf puts it, "in the crucible of trial." Pacifica presents no authority for the
proposition that the prejudicial effect of an erroneous evidentiary ruling may
be determined based solely on the court's speculation as to how it might have
viewed or weighed the excluded evidence had it been admitted. Because we do not engage in that speculation
ourselves, we reverse and remand for a new trial on the question of damages as
to eight of the units that remained unsold at the end of the deferred
consideration period.
name="_ftnref8" title="">[8]
We
emphasize the limits of our ruling. We
do not hold that, on remand, the trial court must conclude Helf has proved
evidence of its offer alone. We merely
hold it was error for the trial court not to have admitted and considered
evidence of Helf's offer. We agree with
both Pacifica and the trial court that if Helf's offer is admitted, there is no
reason why Pacifica's response and its counteroffers should not also be
admitted. In determining the amount of
damages resulting from Pacifica's failure to use its "good faith best
efforts" to sell these eight units, evidence of Pacifica's counteroffers
and Helf's responses thereto would be relevant, for example, in determining
whether Helf reasonably acted to mitigate its damages. (See, e.g., 1 Witkin, Summary of Cal. Law:
Contracts (10th ed. 2005) §§ 914-915, pp. 1011-1012.) The trial court, on retrial of the damages
issue as to the eight remaining units, properly may consider all relevant
evidence.
4. Helf's
Offer as a Proper Measure of Damages
The
trial court also determined Helf's offer of $2.1 million (of which Helf would
have been entitled to $1.05 million in deferred consideration) is not a proper
not the types of damages Pacifica reasonably could have foreseen. (Civ. Code, § 3300.) The trial court based its conclusion on its
finding that the contract was addressed only to "retail sales,"
"Pacifica had no obligation to use its good faith best efforts to
negotiate a settlement, . . . and did not breach its agreement with
[Helf] by refusing its bulk sale offer."
It concluded: "Pacifica
would not, in the ordinary course of things, . . . have expected to
pay [Helf] as damages the amount of the offer it [turned] down."
To
the extent the trial court, in so ruling, held bulk sales offers were not
contemplated under the Purchase Agreement, we conclude that finding is not
supported by substantial evidence. (See,
e.g., Eisenberg et al., Cal. Practice Guide: Civil Appeals and Writs (The
Rutter Group 2012) ¶ 8.43, p. 8-22 [trial court's factual findings are reviewed
for substantial evidence].) Pacifica
concedes the contract does not prohibit "bulk" sales of multiple
units. It is undisputed Pacifica
entertained a bulk purchase offer earlier in 2008. To the extent the trial court found Pacifica
could not reasonably foresee that refusing a "settlement offer" from
Helf would expose it to damages, we reject the characterization of Helf's offer
as an offer of compromise, for the reasons stated previously. Moreover, Pacifica reasonably had to foresee
that rejecting a reasonable offer to purchase--whether "bulk" or
otherwise--could well expose it to damages for failing to use its "good
faith best efforts" to sell the units, particularly under the
circumstances that existed in the final months of the deferred consideration
period (i.e., weak market, and little time remaining to close a deal). The fact that the offer came from Helf,
rather than some other potential buyer, is not relevant to this foreseeability
question.
On
retrial of the damages question, the court properly may consider
proper measure of damages, including Helf's offer and Pacifica's
counteroffer. With respect to the ninth,
leased unit, the trial court began its damages calculation by considering the
prices at which other two-bedroom units ultimately sold in first half of
2009. There is no reason why the court
may not also consider that evidence in determining damages as to the other
eight units.
title="">[9]
C. Causation and Damages as to the Ninth,
Leased Unit
In
its cross-appeal, Pacifica contends the trial court erred by concluding Helf
adequately proved causation and damages as to the ninth condominium unit
Pacifica deliberately withheld from the sales market and leased instead. Pacifica does not challenge the trial court's
finding that Pacifica breached the Purchase Agreement by not actively marketing
this unit. Rather, the gist of
Pacifica's argument is that the facts regarding causation are exactly the same
for the ninth unit as for the other eight units and, thus, the court should
have found a failure of proof as to causation regarding the ninth unit as well.
Although
we reverse the trial court's failure-of-proof ruling as to the other eight
units, we reject Pacifica's argument for another reason. We agree with the trial court that the
evidence as to the ninth unit warrants a different causation analysis, and on
this basis we affirm that portion of the judgment pertaining to the ninth
unit. Because Pacifica's cross-appeal is
based on the absence of sufficient evidence supporting the court's factual
determination of causation as to the ninth unit, we review that determination
for substantial evidence. (
96 Cal.App.4th 904, 912; see also Bowers
v. Bernards (1984) 150 Cal.App.3d 870, 873-874.)
Pacifica
correctly points out the unit withheld from the Crossroads sales listings was
one of six 2-bedroom units that remained unsold at the end of the deferred
consideration period, and, like the other eight units, it had gone into escrow
in the second half of 2008, but the sale never closed. The evidence also showed that although this
unit was not actively marketed, it was nevertheless available for sale if
someone "came by" and expressed an interest in purchasing it. It is also reasonable to conclude this unit,
had it actively been marketed and not sold by the first half of 2008, likely
would have been subject to the same adverse economic conditions that impacted
Pacifica's ability to close sales of the other eight units in the second half
of 2008.
However,
the ninth unit in one key respect was not
similarly situated with the other eight units.
As the trial court explained, "the removal of the [ninth unit] from
the market foreclosed even the possibility that it would have been marketed and
sold. [¶] . . . [¶]
. . . [T]he breach by Pacifica created the problem." The trial court acknowledged Pacifica's
objection that there was insufficient evidence showing the unit would have sold
before the end of the deferred consideration period, but reiterated in its
statement of decision, "Pacifica deliberately removed [the ninth unit]
from the market, and the court will resolve the uncertainty against
Pacifica."
Pacifica's
insistence that the same causation evidence (or lack of evidence) applicable to
the other eight units applies equally to the ninth overlooks a key fact. The breach with respect to the ninth unit is
not the same as the breach impacting the other eight. Pacifica's breach as to eight of the unsold
units was that it had no sales agent actively marketing those units during the
closing months of the deferred consideration period. But Pacifica's breach with respect to the
leased unit is that it deliberately withheld that unit from its sales listings
and never actively marketed it. The record, viewed as a whole, justifies the
trial court's determination that this one key fact put the ninth unit in a
different category from the other unsold units.
Thus, what Helf had to prove regarding causation as to the ninth unit is
not that it likely would have been
sold between October 1 and December 20, 2008, but rather that the ninth unit
likely would have been sold at some point
had Pacifica actively marketed it during the deferred consideration period.
In
this regard, it bears noting that Pacifica sold 191 of the 200 units in
Crossroads during the first 16 months of that period, before the economic
downturn took hold. Given this initial
sales success, the trial court reasonably could infer that had Pacifica
actively marketed the leased unit, instead of holding onto it to retain a seat
on the homeowners' association board, it likely would have sold that ninth unit
too, before conditions became unfavorable.
There was evidence in the record that, as Pacifica argues, might have
supported a different outcome. However,
in determining whether substantial evidence supports a trial court's factual
finding, we consider not the quantity of the evidence but its
(Eisenberg et al., Cal. Practice Guide: Civil Appeals and Writs,
must be of " 'ponderable legal
significance. . . . It
must be reasonable . . . , credible, and of solid
value' . . . ."
(Kuhn v. Department of General
Services (1994) 22 Cal.App.4th 1627, 1633; Howard v. Owens Corning (1999) 72 Cal.App.4th 621, 631.) "If
. . . 'substantial' evidence is present, no matter how slight it may appear in comparison with the contradictory
evidence, the judgment must be upheld." (Howard,
at p. 631; italics added.) The evidence supporting the trial court's finding as
to the ninth unit satisfies this standard, and we affirm that ruling.
IV
DISPOSITION
That
portion of the trial court's judgment awarding damages to Helf based on
Pacifica's breach as to the ninth unit is affirmed. That portion of the judgment denying damages
as to the other eight units for failure of proof is reversed. The case is remanded for retrial on the issue
of damages as to those eight units. Helf
is entitled to recover its costs of appeal.
McDONALD, J.
WE CONCUR:
McCONNELL, P. J.
HALLER, J.
name="_ftn1" title="">[1] All further statutory
references are to the Evidence Code unless otherwise specified.
name="_ftn2" title="">[2] After the trial court
issued its statement of decision, it wrote to counsel advising them it
discovered a number of minor errors.
Although the court denied Helf's motion to correct those errors
apparently because the notice of appeal had been filed in the interim, these
errors are inconsequential and typographical in nature, and there is no dispute
as to what the trial court actually intended.
We therefore view the statement of decision as though these errors had
been corrected by the trial court.
