Kapilow v. Bernheim
Filed 1/22/13
Kapilow v. Bernheim CA2/7
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 This opinion has not been
certified for publication or ordered published for purposes of rule 8.1115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
SECOND APPELLATE DISTRICT
DIVISION SEVEN
ALAN W.
KAPILOW,
Plaintiff and Respondent,
v.
STEVEN J.
BERNHEIM,
Defendant and Appellant.
B235810
(Los Angeles County
Super. Ct. No.
BC415622)
APPEAL
from a judgment of the Superior Court of
County, Elizabeth Allen White, Judge. Affirmed.
The
Bernheim Law Firm, Steven Jay Bernheim, Nazo S. Semerdjian; Law Offices of
Martina A. Silas and Martina A. Silas for Defendant and Appellant.
Beverly Hills Law
Associates and Stephen M. Losh for Plaintiff and Respondent.
___________________
Steven J. Bernheim appeals from the judgment entered after a one-day
court trial awarding Alan Kapilow $311,000 in damages, plus prejudgment interest,
under a personal guaranty executed by Bernheim and David DeFalco in connection
with Kapilow’s $325,000 investment in Nowhere House, LLC for production of the
film “Chaos.†We affirm.
FACTUAL AND PROCEDURAL BACKGROUND
Kapilow and
Nowhere House entered into a series of investment
agreements for production of the film “Chaos.â€
director of the film and majority owner of Nowhere House, signed the agreement
as Nowhere House’s manager. Each
agreement was substantially the same with the exception of the amount of
Kapilow’s investment. The final
agreement, dated March 22, 2003, provided that Kapilow would invest a
total of $325,000 upon execution of the agreement; in return, Kapilow would receive
100 percent of gross revenue generated by the film and received by Nowhere
House until his investment was fully recouped and thereafter one-third of all
gross revenue generated by the film and received by Nowhere House for a period
of 10 years. Contemporaneously with the
execution of this agreement DeFalco and Bernheim, who was a minority owner of
Nowhere House and the creative producer of “Chaos,â€
in their individual capacities, promising “to pay Alan Kapilow his entire investment
of three hundred twenty five thousand dollars by July 1, 2004 in the event that
Alan does not recoup his investment by that time.â€
Kapilow’s
initial $100,000 investment in Nowhere House was provided by a check drawn on
the bank account of Kapilow & Son, Inc., a subchapter S corporation owned
by Kapilow. At least some of Kapilow’s
subsequent contributions were from his personal checking account, but there may
have also been additional checks from Kapilow & Son. The total amount invested by Kapilow was
disputed at trial.
“Chaos,†which
was marketed as “the most brutal movie ever made,†received a NC-17 rating (“no
one 17 and under admittedâ€) and was not successful. Kapilow ultimately received a payment of
$14,000 from Nowhere House (apparently from DVD sales) but no other return on
his investment.
Bernheim
acknowledged the validity and enforceability of the personal guarantee but
disputed the extent of his obligation to Kapilow under it. Bernheim contended he was only required to
pay half of the sum due to Kapilow; DeFalco was responsible for the other
half. In addition, he insisted Kapilow
was entitled only to reimbursement for funds he personally contributed to
Nowhere House, not sums that came from Kapilow & Son or any other person or
entity. Asserting he had not seen
evidence that Kapilow had personally contributed more than $83,000, Bernheim
offered to pay Kapilow $34,500 (one-half of $83,000 - $14,000). Kapilow rejected the offer.
On June 12, 2009 Kapilow filed a complaint and on June 24, 2009 a first amended complaint against Nowhere House and Bernheim
asserting claims for breach of contract, account stated, money lent and breach
of fiduciary duty. (DeFalco, who was not
named as a defendant, had declared bankruptcy and included his obligation under
the guarantee as one of his debts.)
After Bernheim’s demurrer was sustained in part and overruled in part,
Kapilow filed a second amended complaint, asserting claims for breach of
contract, account stated and breach of fiduciary duty. Bernheim successfully moved for summary
adjudication as to the causes of action for account stated and breach of
fiduciary duty. His motion for summary
adjudication of the breach of contract
cause of action was denied.
The matter was
tried to the court on June 6, 2011. Kapilow and Bernheim were the only witnesses
at trial; a portion of Kapilow’s deposition transcript was also read. Kapilow testified he initially invested
$100,000 at the request of Bernheim, a friend with whom he had had previous
professional dealings. According to
Kapilow, the initial investment was needed quickly. As a result, “I took a hundred thousand from
my corporation that I am the sole owner of so he would have that money.†Kapilow was subsequently asked for additional
funds, which ultimately totaled $325,000.
A revised investment agreement was prepared and executed with each new
investment and Bernheim and DeFalco signed new personal guarantees.
Bernheim
testified he guaranteed Kapilow’s personal investment because he was his friend
and also because Kapilow had conditioned any additional investment on receiving
the guarantee. However, Bernheim
insisted, “if he had come to me and said I want you to guarantee investments
put in by other entities, by a corporation, I would have said, no, Alan, that’s
separate from you and I’m not guaranteeing some corporation’s investment.â€
Several exhibits
were introduced and admitted into evidence including the final revised
investment agreement between Kapilow and Nowhere House for $325,000 and the
personal guarantee of that investment signed by Bernheim and DeFalco. The court also admitted over Bernheim’s
hearsay objection an April 14, 2008 letter from
DeFalco to Kapilow stating Kapilow had invested $325,000 in Nowhere House
between July 31,
2002 and March 25, 2003 and received a return of $14,000 on May 7, 2007. (The attached schedule
listed payments totaling $323,000 from Kapilow.)
At the
conclusion of the evidence and after listening to argument, the court found in
favor of Kapilow, concluding (1) Kapilow had invested $325,000 in Nowhere
House, as reflected in the personal guarantee itself and DeFalco’s
April 14, 2008 letter; (2) the guarantee covered all funds provided to
Nowhere House by Kapilow regardless of the source (that is, whether the funds
came from Kapilow’s personal accounts or those of Kapilow & Son); and (3)
Bernheim was jointly and severally responsible (with DeFalco) on the personal
guarantee for the full amount of Kapilow’s investment less only the $14,000
previously paid to Kapilow. The court
also ruled Kapilow was entitled to an award of prejudgment interest. Judgment in favor of Kapilow and against
Bernheim was entered in the amount of $311,000 plus prejudgment interest of
$219,718.16 and costs of $2,310.75.
Bernheim moved
for a new trial, arguing, in part, the DeFalco letter had been improperly
admitted into evidence, the damages awarded were excessive and the court should
consider newly discovered evidence—DeFalco was now prepared to testify
concerning the limitations on the personal guarantee and the meaning of his April 14, 2008 letter. The motion was
denied. Bernheim filed a timely notice
of appeal.
CONTENTIONS
Bernheim
contends Kapilow is entitled under the personal guarantee to recover only his
own personal investment losses, not any losses incurred by Kapilow & Son or
any other entity that invested funds pursuant to the investment agreements
between Kapilow and Nowhere House. He
also contends the court erred in admitting under the party admission exception
to the hearsay rule DeFalco’s April 14, 2008 letter as
evidence of Kapilow’s payments and in excluding from evidence copies of the
actual checks delivered to Nowhere House.
DISCUSSION
1. Standard
of Review
a. Interpretation of the guarantee
Absent
conflicting extrinsic
evidence, the interpretation of a written contract is a question of law. (City of Hope Nat. Medical Center v.
Genentech, Inc. (2008) 43 Cal.4th 375, 395; Parsons v. Bristol
Development Co. (1965) 62 Cal.2d 861, 865.)
The fundamental goal of contract
interpretation
is to give effect to the mutual intention of the parties as it existed at the
time they entered into the contract. (Bank of the
West v. Superior Court (1992) 2 Cal.4th 1254, 1264; Parsons, at
p. 865; see also Civ. Code, § 1636.)
That intent is interpreted according to objective, rather than
subjective, criteria. (Wolf v. Walt
Disney Pictures & Television
(2008) 162 Cal.App.4th 1107, 1126.)
When the contract is clear and explicit, the parties’ intent is
determined solely by reference to the language of the agreement. (Civ. Code, §§ 1638 [“language of a
to govern its interpretation,
if the language is clear and explicit, and does not involve an absurdityâ€];
1639 [“[w]hen a contract is reduced to writing, the intention of the parties is to
be ascertained from the writing alone, if possibleâ€].)
The words in a
contract are to be understood “in their ordinary and popular sense†(Civ. Code,
§ 1644), and the “whole of [the] contract is to be taken together, so as to
give effect to every part, if reasonably practicable, each clause helping to
interpret the other.†(Civ. Code, §
1641.) An interpretation that renders
part of the instrument surplusage should be avoided.
(City of El Cajon v. El Cajon Police Officers’ Assn. (1996) 49 Cal.App.4th 64,
71.) Finally, “[a] contract must receive
such an interpretation as will make it lawful, operative, definite, reasonable,
and capable of being carried into effect, if it can be done without violating
the intention of the parties.†(Civ.
Code, § 1643; see Bill Signs Trucking, LLC v. Signs Family Limited
Partnership (2007) 157 Cal.App.4th 1515, 1521 [“‘[i]nterpretation of a contract “must be fair and reasonable,
not leading to absurd conclusionsâ€â€™â€].)
b. The trial court’s evidentiary rulings
Trial court
the admissibility of evidence are generally reviewed for abuse of discretion. (People v. Williams (1997) 16 Cal.4th
153, 196-197 [“[o]n appeal, a trial court’s decision to admit or not admit
whether made in limine or following a hearing pursuant to Evidence Code section 402, is reviewed
for abuse of discretionâ€]; accord, People v. Alvarez (1996) 14 Cal.4th
155, 203 [“appellate court reviews any ruling by a trial court as to the admissibility of
abuse of discretionâ€]; Zhou v. Unisource Worldwide, Inc. (2007) 157
Cal.App.4th 1471, 1476.) The trial
court’s error in admitting or excluding evidence is grounds for reversing a
judgment only if the party appealing demonstrates a “miscarriage of
justiceâ€â€”that is, that a different result would have been probable if the error
had not occurred. (Pannu v. Land Rover North America, Inc. (2011) 191 Cal.App.4th
1298, 1317; Zhou, at p. 1480; see Evid. Code, § 354; Code Civ.
Proc., § 475.)
2.
Bernheim’s Guarantee Applies to
Kapilow’s Entire $325,000 Investment
The evidence at trial was undisputed
that Kapilow made a series of investments in Nowhere House and that with each
new contribution Kapilow and Nowhere House executed a revised investment
agreement. The final agreement, dated
March 22, 2003, provided, “Investor [Kapilow] agrees to provide The Company
[Nowhere House] with the sum of $325,000 (the ‘Contribution’), payable to the [
. . . Failure to timely fund this amount
in full shall be deemed a material breach.â€
There was never any contention by Bernheim that Kapilow had failed to
fully fund the $325,000 promised or otherwise breached the March 22, 2003
revised investment agreement.
It was also
undisputed that the source of at least the initial $100,000 invested by Kapilow
was his public insurance adjuster company, Kapilow & Son.
agreement did not require Kapilow to provide funds directly from his personal
accounts, and there can be no doubt the $325,000 investment referred to in the
March 22, 2003 agreement included sums provided by Kapilow from Kapilow
& Son.
Contemporaneously
with the execution of each version of a revised investment agreement and
apparently as a continuation of that document, DeFalco and Bernheim cosigned a
personal guarantee of Kapilow’s entire investment, replacing the previous
amount indicated in the guarantee with the new, increased sum specified by each
revised agreement. The final iteration
of the guarantee, which reflected the same March 22, 2003 date as the
final revised investment agreement, provided, “Steven Jay Bernheim and David
DeFalco hereby promise to pay Alan Kapilow his entire investment of three
hundred twenty five thousand dollars by July 1, 2004 in the event that Alan
does not recoup his investment by that time.â€
The only
reasonable interpretation of the March 22, 2003 guarantee of Kapilow’s “entire
investment†is that it covered the same $325,000 Kapilow had provided Nowhere
House as specified in the March 22, 2003 revised investment agreement itself,
including whatever sums had already been contributed by Kapilow from Kapilow
& Son accounts. (Cf.
120 Cal.App.4th 17, 33 [court must interpret contracts to try to give
effect to every clause and to harmonize the various parts with each
other].) If Bernheim and DeFalco had
intended to exclude from the scope of their guarantee those funds previously
advanced by Kapilow from his subchapter S corporation, the document needed to
say that. It did not.
Bernheim’s
related argument that Kapilow lacks standing to recover for investment losses
suffered by Kapilow & Son also misses the mark. While it may be true, as Bernheim contends,
that Kapilow is not the alter ego of his company and that he is not entitled to
assert in his individual capacity legal claims that properly belong to it,
Kapilow’s action was for breach of the agreement to repay him the entire $325,000 invested in Nowhere House, less the $14,000
previously recouped. Kapilow was a party
to that agreement with the legal capacity to enforce it whatever his measure of
damages might be under some other legal theory.
Similarly, the financial arrangements between Kapilow and Kapilow &
Son, if any, regarding funds advanced by the company are simply irrelevant to
Kapilow’s right to sue Bernheim for breach of the personal guarantee
contract.
3. Any
Evidentiary Errors Were Harmless
a. Exclusion of checks from Kapilow and Kapilow & Son
After Kapilow
testified briefly as a witness in the defense case pursuant to Evidence Code
section 776 (examination of adverse party) and portions of his deposition
testimony were read into the record, Bernheim’s counsel asked to recall Kapilow
“for the limited purpose of marking the personal checks as exhibits that were
referenced by Mr. Bernheim and he was asked aboutâ€â€”that is, three checks
from Kapilow’s personal account (totaling $83,000) and three checks drawn from
Kapilow & Son accounts (totaling $155,000).
Kapilow’s counsel objected because the checks had not been included on
the parties’ joint list of trial exhibits.
After confirming that the documents were not on the exhibit list and had
not been made available prior to the final status conference as required by Los
Angeles Superior Court Local Rule 3.52, the trial court denied the
request.
Bernheim argues
on appeal the checks should have been admitted under Local Rule 3.52 because
they were “anticipated in good faith to be used for impeachment,†an express
exception to the rule’s requirement that exhibits must be exchanged before
trial. Specifically, Bernheim contends
the checks impeached Kapilow’s testimony that Kapilow & Son had advanced only
$100,000 of the total $325,000 provided to Nowhere House and that he had
written personal checks for the remaining $225,000.
Bernheim’s trial
counsel did not attempt to justify her omission of the checks from the joint
list of trial exhibits on the ground they were to be used as impeachment
evidence.
title="">[4] Even if that failure does
not forfeit the point on appeal, we have significant doubt whether the checks
constitute impeachment evidence within the meaning of the superior court’s
rules. Never contesting the
enforceability of the personal guarantee itself, the principal thrust of
Bernheim’s defense was that he had to repay only those sums invested by Kapilow
from his personal accounts, not funds advanced by Kapilow & Son.
had an incidental tendency to disprove the truthfulness of portions of
Kapilow’s testimony, their primary relevance was to establish under Bernheim’s
interpretation of the guarantee that Kapilow was entitled to no more than
$156,000 in damages (that is, $325,000 reduced by $155,000 paid by checks drawn
on Kapilow & Son accounts and the $14,000 repaid to Kapilow from DVD sales)
and perhaps as little as $69,000 (the $83,000 total of three checks from
Kapilow’s personal account less $14,000).
They were properly introduced as part of Bernheim’s defense
case-in-chief, not impeachment evidence.
In any event,
any error in excluding the checks was harmless.
As discussed above, Bernheim was obligated under the guarantee to repay
to Kapilow the full amount of the unreimbursed funds he had provided to Nowhere
House whether the original source of the investment was Kapilow’s personal
account or an account from Kapilow & Son.
Thus, whether $100,000 or $155,000 or even more initially came from a
Kapilow & Son account was irrelevant.
Moreover, the court heard testimony that Kapilow had been unable to
produce copies of checks totaling more than $238,000; the checks themselves
were plainly cumulative on this point.
The court looked to other evidence (discussed in the following section)
to conclude the full $325,000 had been invested. It is not reasonably probable admission of
the checks themselves would have led to a result more favorable to Bernheim. (See Evid. Code, § 354; Code Civ. Proc.,
§ 475; see generally Cassim v.
Allstate Ins. Co. (2004) 33 Cal.4th 780, 801 [so-called
trial errors occurring under California law, precluding reversal unless the
error resulted in a miscarriage of justice]; Pool v. City of Oakland
(1986) 42 Cal.3d 1051, 1069.)
b. Admission of the April 14, 2008 DeFalco letter and schedules
DeFalco’s April
14, 2008 letter stating Kapilow had invested “a grand total amount†of $325,000
with Nowhere House for the motion picture “Chaos†and the attached schedule headed
“Nowhere House Deposits†are unquestionably hearsay evidence—“evidence of a
statement that was made other than by a witness while testifying at the hearing
and that is offered to prove the truth of the matter asserted.†(Evid. Code, § 1200, subd. (a).) Although the trial court had ruled the letter
and schedule inadmissible during earlier summary judgment proceedings, it
admitted the letter at trial under the party admission exception to the hearsay
rule. (Evid. Code, § 1220.)
April 14, 2008 letter was written in his representative capacity as manager of
Nowhere House. Kapilow also presented at
trial a letter, not previously seen by the court, extending the statute of
limitations on his claims regarding the investment in “Chaos,†signed by both
DeFalco and Bernheim in their individual capacities and on behalf of Nowhere
House. The court reasoned, “So it
appears that, in fact, Mr. Bernheim and Mr. DeFalco were both members of Nowhere
House, LLC, and that Mr. DeFalco on behalf of Nowhere House, LLC, is making a
representation as to the amount of the investment [made by Kapilow]. And it appears that for purposes of the
hearsay rule there has been adequate foundation laid to accept this document as
binding.†The court overruled Bernheim’s
hearsay objection.
This ruling was
error. If DeFalco’s letter was written
in his capacity as a manager of Nowhere House, as the trial court found, it was
admissible under Evidence Code section 1220 against Nowhere House, a defendant
in the case at bar, and also would have been admissible against DeFalco
individually if he had been a party to the lawsuit. (See Greenspan
v. LADT LLC (2010) 191 Cal.App.4th 486, 524.) However, Bernheim was not the declarant; and,
although both Bernheim and DeFalco were apparently managers or agents of
Nowhere House, DeFalco was not authorized to speak on behalf of Bernheim in his
individual capacity. Phrased somewhat
differently, that statements by both Bernheim and DeFalco were binding on
Nowhere House simply does not mean their statements were binding on each other
individually.
Kapilow’s
alternate argument on appeal that the DeFalco letter could be admitted as an
adoptive admission under Evidence Code section 1221
that DeFalco had written Kapilow confirming his $325,000 investment in Nowhere
House, “manifested his adoption or his belief in [that statement’s] truth†by
signing the letter extending for one year the limitations period for Kapilow to
file any claims he may have against Bernheim himself, DeFalco or Nowhere
House. Although the “re line†in the
limitations letter recites “Kapilow $325,000 investment (Chaos Investment
Agreement),†the body of the letter identifies the existence of “legal disputes
and/or claims that have arisen between the parties hereto in relation to the
above-referenced matter.†It does not,
as Kapilow contends, state that Kapilow in fact made a $325,000 investment or
otherwise indicate Bernheim agreed with the information provided by DeFalco in
the April 14, 2008 letter. (Cf.
498-499 [even if defendant had knowledge of content of drawing, proponent must
present evidence defendant agreed with the message it purportedly conveyed].)
Nonetheless, the
trial court’s error in admitting the DeFalco letter and attached schedule was
harmless. (See Evid. Code, § 354;
Code Civ. Proc., § 475.) To the
extent the exhibit supported a finding Kapilow had invested $325,000 from his
personal funds rather than from accounts maintained by his subchapter S
corporation, Kapilow & Son, that distinction as to the source of the funds
was immaterial for the reasons discussed above.
To the extent the trial court relied on the exhibit to find Kapilow had
invested $325,000, it was cumulative.
Kapilow himself testified without reference to the DeFalco letter that
he had invested a total of $325,000 in Nowhere House. Bernheim denied Kapilow had personally
invested the full $325,000 but disputed the $325,000 figure itself only by
explaining he had not seen copies of checks or backup records from Kapilow that
totaled more than approximately $180,000.
However, the personal guarantee itself, signed by Bernheim, stated
Kapilow had invested $325,000, not, as Bernheim would now have it, that he was
going to invest up to $325,000. Nothing
more was needed to establish this element of Kapilow’s case.
DISPOSITION
The judgment is affirmed. Kapilow is to recover his costs on appeal.
PERLUSS,
P. J.
We
concur:
ZELON,
J.
SEGAL, J.
original investment agreement, was “The House in the Middle of Nowhere.â€
identified in advertising materials as a “Steven Jay Bernheim production of a
David DeFalco film,†“based on an original idea by Steven Jay Bernheim and
David DeFalco.†Kapilow was listed as
“executive producerâ€; Bernheim as “producer.â€
