Milano v. Edelson
Filed 4/11/13 Milano v. Edelson CA2/5
California Rules of Court, rule 8.1115(a), prohibits courts
and parties from citing or relying on opinions not certified for publication or
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publication or ordered published for purposes of rule 8.1115
IN
THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND
APPELLATE DISTRICT
DIVISION
FIVE
SCOTT MILANO,
Plaintiff and Respondent,
v.
STEVE EDELSON,
Defendant and Appellant.
B237971
(Los Angeles
County Super.
Ct.
No. BC411392)
APPEAL from
a judgment of the Superior Court
of
County, Michael C. Solner, Judge. Affirmed in part and reversed in part.
Smith Law
Firm and Craig R. Smith for Defendant and Appellant.
Von Behren
& Hunter and Andrew R. Hunter for Plaintiff and Respondent.
______________________________
In this action for specific
performance of a stock purchase agreement,
defendant and appellant Steve Edelson appeals from the judgment and orders
after a court trial awarding specific performance, damages in the amount of
$171,567.10, and attorney fees of $252,926.33 in favor of plaintiff and
respondent Scott Milano. Edelson
contends substantial evidence does not support the order of specific
performance and the damages and attorney fees awards were an abuse of
discretion. We conclude substantial
evidence supports the order of specific performance and the attorney fees award
was not an abuse of discretion. We
further conclude the damages award was an abuse of discretion. Accordingly, we reverse the damages award
and, in all other respects, affirm the judgment and orders.
STATEMENT OF
FACTS
title="">[1]
In a stock purchase agreement, as amended and reinstated January 30, 2009, Edelson, the seller,
and Milano, the buyer, entered into an agreement for Edelson to sell all shares
in El Cid Los Angeles, Inc., which owned and operated El Cid restaurant and
bar, to Milano (“stock purchase agreementâ€).
property in Los Angeles (the “propertyâ€) which was
owned by Edelson. The purchase price was
$865,000, which included an $87,000 deposit.
The stock purchase agreement
provided as follows. “The closing date
shall be March 2, 2009.†Edelson will enter into a separate lease agreement
for the property with Milano in Milano’s capacity as president of El Cid Los
Angeles, Inc. [“leaseâ€], and Milano will guaranty the lease.
other things, the stock certificates and executed lease, and Milano will
deliver the balance of the purchase price, the executed lease, and Milano’s
guaranty. All beverages were excluded
from the transaction.
name="_ftnref5" title="">[5] The parties agreed to make “best efforts†to
consummate the transaction. “If buyer
fails to complete the purchase of the stock as provided in this agreement by
reason of any default of buyer, seller’s sole remedy . . . shall be to
terminate this agreement and retain the deposit as liquidated damages[
released from its obligation to sell the stock to buyer.†The stock purchase agreement expressed the
entire agreement between the parties.
The stock purchase agreement did not
contain a “time is of the essence†clause, and there was no reason the
transaction had to close on March 2. The
date was chosen solely because it was 30 days from the date of the
reinstated agreement, and the parties believed they should have 30 days to
finalize the documents and make the money available. Neither party had a particular need for the
closing to occur on that day. In late February, Edelson’s attorney stated
closing could take place on March 1, 2, or 5, 2009, whichever Milano
chose. Milano chose March 2, and he
stated, “hopefully†escrow would close that day. After listing items that had to be finished or
resolved, Milano concluded, “I’m ready to close and I’m confident we can make
this happen by Monday [March 2].â€
On February 26, 2009, Milano
transferred $900,000 to his checking account to pay the balance of the purchase
price.
On March 1, 2009, Milano proposed
meeting at the restaurant to do a liquor inventory at 12:30 the next day,
stating he was “ready to deposit the balance of the purchase price as soon as
the required documents are signed and the payables and receivables are added up
for the closing statement.†Edelson, who
was “having second thoughts†about the transaction, told Milano he “should have
deposited the money already, you may have messed [up the deal]. I hope you are ready because I have told
[Edelson’s attorney] if you cannot close on time I will keep it. The inventory and all documents are ready so
it’s up to you.†Prior to that e-mail,
Edelson had never notified Milano that, if escrow did not close on March 2, he
would declare a default. On March 1,
Edelson asked his attorney if he could get out of his obligation to sell the
shares if Milano “has not deposited†the purchase money, and the attorney
replied Milano would be in default.
Edelson changed the March 2 meeting time from 12:30 to 1:30 p.m.
In the morning of March 2, Milano
opened a bank account for the new business and transferred the $900,000 to the
account. The funds were available on
March 2 to wire to escrow. As of March
2, 2009, the assignment of Shea’s shares had not been delivered to escrow. The parties met a little after 1:30 p.m. and
an agreement was reached concerning the inventory value, the business checking
account, and a proration of certain payments under the lease, including
property taxes. At one point during the
meeting, Edelson told Milano he was having “seller’s remorse†and, if Milano
did not deposit the balance of the purchase price that day, Edelson would keep
the shares. Milano replied he would
deposit the money as soon he had a closing statement from the escrow
officer. At the conclusion of the
meeting, Milano stated he had to leave to go to the escrow company and “do what
I have to do to close this.†Expecting
to take over operation of the business, Milano had one of his employees go to
her bank to get money for the cash register.
Inventory agreement in hand, Milano
drove to the escrow office, 45 minutes away.
Milano had the escrow officer prepare a closing statement that reflected
the agreed prorations, adjustments, commission charges, other debits, and
escrow charges in addition to the consideration. Milano signed every document the escrow
officer handed to him, including the lease, but the escrow officer did not hand
him a guaranty to sign. Milano’s failure
to execute a guaranty was an oversight; he had no objection to signing a guaranty. The escrow officer told Milano it was too
late in the day to wire transfer the balance of the purchase price.
Believing seller still had to
deliver documents to escrow and that it was too late to transfer his money,
Milano left the escrow office at 3:45 p.m. stating he would wire the funds
first thing in the morning if it was too late to wire them that day. Edelson, who was sitting in the lobby of the
escrow office, congratulated Milano as Milano was leaving. Edelson handed the escrow officer several
documents. Milano did not go to his
bank, because it was rush hour.
At 5:00 p.m., Edelson declared a
default, because the money had not been deposited. He did not know whether Milano’s personal
guaranty had been delivered to escrow.
The escrow officer notified Milano that Edelson declared a default. At 5:25 p.m., Milano’s attorney advised the
escrow officer that Milano was reviewing the closing statement, was prepared to
wire the balance of the purchase price to escrow the next day, expected to close
the next day, and asked for a copy of all the documents Edelson had delivered
to escrow.
Milano signed and faxed to the
escrow officer the buyer’s estimated closing costs and then wired the balance
due to escrow shortly after 10:00 a.m. on March 3. Edelson was told on March 3 that the balance
had been wired to escrow, but he refused to close. The escrow officer stated to Milano’s
attorney on March 3 that Edelson did not sign the lease and did not provide an
assignment of Shea’s stock certificate.
Milano left his money in escrow and
filed this lawsuit. Based on his many
years as a real estate broker, Milano testified an escrow amendment was not
required to change the closing date.
In a second amended complaint,
Milano alleged causes of action against Edelson for: (1)
specific performance; (2) breach
of contract; and (3) breach of the implied
covenant of good faith and fair dealing.
As to each cause of action, the relief Milano sought included specific
performance of the stock purchase agreement.
For the second and third causes of action, Milano also sought
damages. A court trial was held.
Trial Court’s Ruling
On August 8, 2011, the trial court
granted specific performance. The court
found that Edelson went to the escrow office after the liquor inventory meeting
“so that he could declare a default [at 5:00 p.m.] in the event that [Milano]
didn’t perform and [Edelson] did not receive his proceeds check. The court concludes from the demeanor of [Edelson]
at his videotaped deposition, a portion of which was shown at trial, . . . that
he did not want to go through with the deal.
By the time of the conclusion of the inventory on March [2], [Edelson]
knew that it would be virtually impossible for plaintiff to be able to wire the
funds into the escrow account after approximately 2 p.m. When there were no wired funds in escrow by 5
p.m. on March [2], [Edelson] declared a default.†“[T]he evidence adduced at trial established
to the court’s satisfaction that [Edelson] does not like [Milano] and probably
because of the difficulties encountered in the negotiations, has now
experienced seller’s remorse.â€
The trial court found the contract
contained no “time is of the essence†clause and there was evidence Edelson
indicated the closing could be as late as March 5. “[Edelson] is now hard pressed to urge upon
the court that there was some magic to the March [2] date. The fact that the remainder of [Milano’s]
money was wired into the escrow account on the morning of March [3], the very
next day, weighs heavily in [Milano’s] favor.â€
“Here . . . what we have is a technical and unintentional default that
does not defeat the buyer’s right to specific performance. Civil Code section 3392 provides for the
denial of specific performance unless
the defaulting party’s failure to perform is only partial and either
immaterial, or capable of being fully compensated [emphasis added]. That is the situation present here.â€
The trial court awarded interest on
the money deposited into escrow, ruling that if interest were not awarded,
“[Edelson] would have profited by his own wrongdoing to the detriment of
[Milano], which equity abhors.â€
Judgment
Judgment was filed on October 25,
2011, awarding Milano specific performance of the stock purchase
agreement. Escrow was to close and the
lease was to commence on January 2, 2012.
Milano was ordered to deliver a guaranty of lease, and Edelson was
ordered to deliver all the outstanding stock of El Cid Los Angeles, Inc. Milano was awarded $171,567.10 interest on
the $926,335.62 deposited in escrow, based on an annual rate of seven percent
from March 3, 2009.
On November 16, 2011, Milano was
awarded $252,926.33 in reasonable attorney fees and $14,762.03 in costs.
Substantial
Evidence Supports the Judgment
Edelson
contends substantial evidence does not support the order of specific
performance, in that Milano failed to prove he timely performed the conditions
precedent to Edelson’s performance:
Milano failed to timely tender the lease guaranty and the balance of the
purchase price. We disagree with the
contention.
“When considering a claim of
insufficient evidence on appeal, we do not reweigh the evidence, but rather
determine whether, after resolving all conflicts favorably to the prevailing
party, and according the prevailing party the benefit of all reasonable
inferences, there is substantial evidence to support the judgment.†(Scott v. Pacific Gas & Electric Co. (1995) 11 Cal.4th 454, 465.) “It is an elementary, but often overlooked
principle of law, that when a verdict is attacked as being unsupported, the
power of the appellate court begins and ends with a determination as to whether
there is any substantial evidence, contradicted or uncontradicted, which will
support the conclusion reached by the [trier of fact]. When two or more inferences can be reasonably
deduced from the facts, the reviewing court is without power to substitute its
deductions for those of the trial court.â€
(Crawford v. Southern Pacific Co. (1935) 3 Cal.2d 427, 429.)
Civil
Code section 3392 provides, “Specific performance cannot be enforced in favor of a party
who has not fully and fairly performed all the conditions precedent on his part
to the obligation of the other party, except where his failure to perform is
only partial, and either entirely immaterial, or capable of being fully
compensated, in which case specific performance may be compelled, upon full
compensation being made for the default.â€
“In equity the general rule is that
time is not of the essence unless it is made so by express terms or is
necessarily so from the nature of the contract.†(Katemis
v. Westerlind (1956) 142 Cal.App.2d 799, 804.) “We do not think it is necessary, in order to
make time of the essence of the obligation, that it should be declared to be so
in the words of the statute; but the intent to make it of the essence of the
contract must be clearly, unequivocally, and unmistakably shown by an express
declaration. Waterman on Specific
Performance says that ‘the parties themselves may stipulate that time shall be
of the essence of the contract. This has
been done in almost all of the modern cases in which time has been strictly
regarded.’ (Sec. 461.) Mr. Pomeroy, in his work on Specific
Performance, says that ‘the prescribing a day at or before which, or a period
within which, an act must be done, even with a stipulation that it shall be
done at or before the day named, or within the period mentioned, does not
render the time essential with respect to such an act. (Sec. 392.
See also sec. 374.) In order to
render time thus essential, it must be clearly and expressly stipulated that it
shall be so; it is not enough that a time is mentioned during which or before
which something shall be done.’
(Fry on Specific Performance, sec. 712; Jones v. Robbins, 29 Me. 351; 50 Am. Dec. 593; Barnard v. Lee, 97 Mass. 95.)â€
(Miller v. Cox (1892) 96 Cal.
339, 344-345; see also Conservatorship of
Buchenau (2011) 196 Cal.App.4th 1031, 1039 [“It is well established that
‘if it is not clearly specified that time is of the essence in an escrow
transaction, a “reasonable time†is allowed for performance of the escrow
conditions.’ [Citations.]â€].)
Substantial evidence supports the
finding Milano’s failure to fully perform his obligations was “only partial,
and either entirely immaterial, or capable of being fully compensated[.]†(Civ. Code, § 3392.)
The evidence Milano signed and
delivered the lease and other documents required by escrow, but not the balance
of the purchase price and personal guaranty, is evidence his failure to fully
perform was only partial. The evidence
the parties had no particular reason for setting March 2 as the closing date,
the stock purchase agreement did not state time was of the essence, and Edelson
offered to reschedule the closing to a date three days after March 2 supports a
finding that time was not of the essence.
Because time was not of the evidence and Milano paid the balance of the
purchase price within 24 hours of the contractual closing date, Milano’s
failure to perform his obligation to pay the purchase price on March 2 was
immaterial. There was evidence Milano’s
failure to deliver a signed personal guaranty of the lease was inadvertent and
he would have signed it on March 2 at the escrow office if the escrow officer
had given it to him to sign. The
judgment requiring Milano to deliver a signed guaranty as part of the order of
specific performance demonstrates that this failure of full performance was
capable of being rectified. Accordingly,
the order of specific performance is supported by substantial evidence.
Interest
Edelson
contends the award of interest was an abuse of discretion and not supported by
substantial evidence. We agree with the
contention.
“A ruling that constitutes an abuse of discretion has been described as one that is ‘so
irrational or arbitrary that no reasonable person could agree with it.’ [Citation.]
But the court’s discretion is not unlimited . . . . Rather, it must be exercised within the
confines of the applicable legal principles. [¶]
‘The discretion of a trial judge is not a whimsical, uncontrolled power,
but a legal discretion, which is subject to the limitations of legal principles
governing the subject of its action, and to reversal on appeal where no
reasonable basis for the action is shown.’
[Citations.] ‘The scope of
discretion always resides in the particular law being applied, i.e., in the
“legal principles governing the subject of [the] action . . . .†Action that transgresses the confines of the
applicable principles of law is outside the scope of discretion and we call
such action an “abuse†of discretion.
[Citation.] . . . [¶] The legal principles that govern the subject
of discretionary action vary greatly with context. [Citation.]
They are derived from the common law or statutes under which discretion
is conferred.’ [Citation.] To determine if a court abused its
discretion, we must thus consider ‘the legal principles and policies that should
have guided the court’s actions.’
[Citation.]†(
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California (2012) 55 Cal.4th 747, 773.)
Damages incident to an order for
specific performance are losses that occurred by virtue of the fact that
performance did not take place on the date it was supposed to have taken
place: “‘In California the compensation
which may be awarded incident to a decree of specific performance is not for
breach of contract and is not legal damages.
The complainant affirms the contract and asks that it be performed. Since the time for performance has passed,
the court relates that performance back to that date, by treating the parties
as if the change in ownership had taken place at that time. Thus the buyer is entitled to the rents and
profits from the time the contract should have been performed, and the seller
is entitled to an offset for the interest on the purchase money which he would
have received had the contract been performed.
The process is more like an accounting between the parties than an
assessment of damages. (
206, 219-220 . . . .)’ [Citation.]â€
(
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Milano’s expert testified that,
based on “the rate of return, interest rates, and interest that would be earned
on the amount of money that was put into escrow[,]†the amount in escrow
($926,325.65) would have earned $66,447.47 in interest. He did not know whether El Cid restaurant and
bar made or lost money during the period between March 3, 2009, and the date
trial began.
While the record contains evidence
concerning the interest Edelson would have received on the purchase price had
the contract been performed, it contains no evidence concerning the business’s
profits or losses after the time the contract should have been performed. The award of seven percent interest on the
amount in escrow is not based on the applicable law governing damages incident
to an award of specific performance, because it is not a measure of the
position the parties would have been in had the contract been performed. As the damage award in this case “transgresses the confines of the
applicable principles of law,†it is an abuse of discretion. (See
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California, supra, 55 Cal.4th at p. 773.)
(1957) 49 Cal.2d 255, 271-272 cited by Milano, for the proposition that the
trial court had discretion to award interest, is inapposite. The discussion there concerning interest on the
damages award was not based on a remedy of specific performance, although the
action was equitable. Our discussion
here is not that damages could not be awarded, but rather that the court’s
method of calculating damages does not comport with the applicable law.
25 Cal.App.4th 641, 648 (“Al-Husryâ€),
cited in Milano’s brief, held that when a seller “fails or refuses to convey, a
buyer who has made advance payments toward the purchase price may recover interest
on those payments as damages for breach of contract.†The case is inapposite. Contract damages were awarded in
was an abuse of discretion.
Attorney Fees
Edelson contends it was an abuse of discretion to
award attorney fees for work on the contract causes of action or contract
damages, because Milano dismissed the contract claims before trial and sought
only specific performance at trial.
Edelson contends fees should have been awarded only for work on the
claim for specific performance. We
disagree with the premise of the contentions.
Prior to
trial, without dismissing the contract causes of action, Milano elected to
pursue the specific performance remedy only after the trial court advised the
parties at the final status conference that it would be difficult to schedule a
jury trial in the matter because of the court’s congested calendar. Faced with the prospect of a long delay in
obtaining a jury trial on his complaint, Milano elected to pursue only the
equitable remedy of specific performance sought in each cause of action, which
the court stated would allow it to proceed as a court trial.
Milano’s
attorney was clear, however, that he was electing the remedy of specific
performance and waiving damages for breach of contract, rather than dismissing
the contract causes of action.
“[Milano’s attorney]: . . . I
don’t want to have a dismissal of [the contract] claims and then entangle
myself later on [in a dispute concerning whether a cause of action for specific
performance is actually a cause of action].
I want to make clear that we’re electing to proceed solely on the
specific performance remedy or remedies and on the complaint. [¶]
[Edelson’s attorney]: And I’m not
trying to put the plaintiff or [his attorney] in the position where they’re not
alleging a cause of action. I know what
they’re doing. I just want to have a
certain framework within the complaint to work with. And so we’re going forward on the equitable
remedy of specific performance as its alleged in the first cause of action and
the other two causes of action are not going forward. [¶]
[Milano’s attorney]: The claims
for damages are not going forward.
[¶] [The Court]: Right.
So I think everybody is clear on it.
I hope everybody is clear. I’m
clear. We’re going to deal with it as a
court trial on - - seeking the equitable relief of specific
performance[.]†As Milano did not
dismiss the contract causes of action, we reject Edelson’s contention that
Milano cannot be the prevailing party on the dismissed contract causes of
action.
It was not
necessary for the contract claims to be dismissed for the equitable claim to be
tried by the court. (
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established that, in a case involving both legal and equitable issues, the
trial court may proceed to try the equitable issues first, without a jury . . .
, and that if the court’s determination of those issues is also dispositive of
the legal issues, nothing further remains to be tried by a juryâ€].) We therefore turn to the propriety of the
award of attorney fees in this action.
The amount of attorney fees awarded
is a matter within the sound discretion of the trial court. (
assess the value of professional services rendered in its court, and while its
judgment is subject to our review, we will not disturb that determination
unless we are convinced that it is clearly wrong. (
(1977) 20 Cal.3d 25, 49.) The only proper
basis of reversal of the amount of an attorney fees award is if the amount
awarded is so large or small that it shocks the conscience and suggests that
passion and prejudice influenced the determination. (
by the Bay (1997) 57 Cal.App.4th 1139, 1153.)
“[Code of Civil Procedure s]ection 1032 is the
fundamental authority for awarding costs in civil actions. It establishes the general rule that ‘except
as otherwise expressly provided by statute, a prevailing party
is entitled as a matter of right to recover costs in any action or
proceeding.’ [Citation.] . . . [¶]
Section 1033.5 of the Code of Civil Procedure . . . specifies the ‘items
. . . allowable as costs under Section 1032.’
It lists as one category of costs ‘[a]ttorney fees, when authorized by .
. . [¶] (A) Contract.’ [Citation.]â€
(Scott Co. v. Blount, Inc. (1999) 20 Cal.4th 1103, 1108.) “When any party recovers other than monetary
relief[,] the ‘prevailing party’ shall be as determined
by the court, and under those circumstances, the court, in its discretion, may
allow costs or not . . . .†(Code
Civ. Proc., § 1032, subd. (a)(4).)
Civil Code section 1717 provides, in
pertinent part: “(a) In any action on a contract,
where the contract specifically provides that
attorney’s fees and costs, which are incurred to enforce that contract,
shall be awarded . . . to the prevailing party, then
the party who is determined to be the party prevailing on the contract
. . . shall be entitled to reasonable attorney’s fees in addition to other
costs. [¶] . . . [¶] Reasonable attorney’s fees shall be fixed by
the court, and shall be an element of the costs of suit. [¶] . . . [¶]
(b)(1) The court . . . shall
determine who is the party prevailing on the contract
for purposes of this section, whether or not the suit proceeds to final
judgment. Except as provided in
paragraph (2), the party prevailing on the contract
shall be the party who recovered a greater relief in the action on the contract. The court
may also determine that there is no party prevailing on the contract
for purposes of this section. [¶] (2) Where
an action has been voluntarily dismissed or dismissed pursuant to a settlement
of the case, there shall be no prevailing party for purposes of this section.â€
The stock purchase agreement
provided: “In any action or proceeding
arising out of this Agreement, the prevailing party shall be entitled to
reasonable attorneys’ fees and costs . . . .â€
This language is broad enough to support an award of fees incurred in
pursuing all causes of action in the complaint, because it provides for
recovery of reasonable attorney fees in any action arising out of the stock
purchase agreement. (See
599, 608 [a broadly worded contractual attorney fee provision permits
prevailing party to recover attorney fees incurred in connection with both
contract and tort claims].)
At the conclusion of the
hearing on attorney fees, the trial court stated: “[T]he plaintiff, really, was seeking
specific performance but it was all based on the contract. And you can have specific performance and
damages as separate remedies for breach of contract. So I think that [plaintiff’s attorney] is
entitled to most of the fees. I took a
look at it. I think they need to be
adjusted downward by about ten percent.
Other than that, I think they are totally appropriate.†[¶] . . . [¶]
. . . [L]ooking at what actually this case ended up being all about, I
think he’s entitled . . . to reasonable attorney’s fees. And I think that what he’s asking for is a
little much, but I think that looking at the case and what went on in the case
but not only in trial. But from what I
know about what happened before, I think that the plaintiff here is entitled to
$252,926.33 in fees . . . .â€
To the extent Edelson contends that
fees incurred to prove contract damages should have been excluded from the
award because the issue of contract damages was unrelated to any specific
performance issue, we disagree with the contention. Contract damages and damages incident to an
award of specific performance are not unrelated, because the lost profits that
can be recovered as damages for breach of contract can include elements of the
profits that the breaching seller must account for to the buyer incident to an
order for specific performance. (See
Pomona Unified School Dist. (2004) 34 Cal.4th 960, 971;
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168 Cal.App.3d at p. 213.)
In his reply brief, Edelson argues
for the first time on appeal that the trial court erred in awarding attorney
fees to Milano out of the funds in escrow, citing Behniwal v. Mix (2007) 147 Cal.App.4th 621. Reversal is not required on this issue,
because the argument based on Behniwal
was made for the first time in the reply brief and is therefore forfeited. (Garcia
v. McCutchen (1997) 16 Cal.4th 469, 482, fn. 10; People v. JTH Tax, Inc. (2013) 212 Cal.App.4th 1219, 1232;
(2011) 191 Cal.App.4th 1047, 1064, fn. 2; Keyes
v. Bowen (2010) 189 Cal.App.4th 647, 660.)
We conclude the award of attorney
fees was not an abuse of discretion.
DISPOSITION
The damages award is reversed. In all other respects, the judgment and
orders are affirmed. No costs on appeal
are awarded.
KRIEGLER,
J.
We concur: MOSK,
Acting, P. J.
O’NEILL,
J.
appellate procedure, we state the facts in the light most favorable to the
judgment. (Orthopedic Systems, Inc. v. Schlein (2011) 202 Cal.App.4th 529,
532, fn. 1.)
and Tobin Shea owned 10 percent. Shea
and Edelson were both sellers. As Shea’s
shares were transferred to Edelson on March 18, 2009, we will describe the
transaction as though Shea’s shares were owned by Edelson, except where
indicated. Shea was named as a defendant
in this lawsuit, but he was dismissed on August 31, 2009.
