Muth v. Orco Block
Filed 9/4/12 Muth v. Orco Block CA4/3
California
Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or
relying on opinions not certified for publication or ordered published, except
as specified by rule 8.1115(b). This
opinion has not been certified for publication or ordered published for
purposes of rule 8.1115.
IN THE COURT OF
APPEAL OF THE STATE OF CALIFORNIA
FOURTH
APPELLATE DISTRICT
DIVISION THREE
HEIDI MUTH,
Plaintiff and Respondent,
v.
ORCO BLOCK COMPANY, INC.,
Defendant and Appellant.
G045160
(Super. Ct. No. 30-2009-00125653)
O P I
N I O N
Appeal from a judgment
of the Superior Court
of
County, James J. Di Cesare, Judge. Affirmed.
Law Office of Thomas W.
Sardoni, Thomas W. Sardoni and Daniel L. Schnebly for Defendant and Appellant.
Mollis & Mollis,
Inc., and Charles A. Mollis for Plaintiff and Respondent.
* * *
This
is a breach of contract action
relating to the termination of Lynn G. Muth’s
employment in a business enterprise controlled by his family. Pursuant to one of several relevant
agreements, the action was tried pursuant to the provisions of Code of Civil
Procedure section 638. Muth prevailed
before the reference judge, and judgment for $388,092.78 was entered by the
trial court. Defendant Orco Block
Company, Inc. (Orco) argues a number of grounds for reversal, including
erroneous factual and legal conclusions, excessive damages, and the denial of
two motions in limine. We conclude there
was no reversible error and affirm the judgment.
I
FACTS
Orco,
which was founded by Peter G. Muth,
name="_ftnref2" title="">[2]
is a manufacturer and reseller of concrete blocks, and has been owned and
operated by members of the Muth family for several decades. Peter served as president and chief executive
officer until he was succeeded by his son, and Lynn’s
brother, Richard (Rick). In 1989, Lynn
began working for Orco and served in a number of different capacities.
The
parties signed several agreements relevant to this case. The first is an employment agreement (the EA)
dated August 1, 1996, which
stated Lynn was to be employed for
an initial term of 13 years. The EA’s
recitals stated that Lynn was “an
individual possessing unique skills, knowledge and experience of value to the
Company.”
Under
the EA, early termination of Lynn’s
employment was limited to death, disability, voluntary resignation, and “good
and valid cause.” The EA stated: “For purposes of this Agreement, good and
valid cause shall mean (i) the failure
or inability of Employee to cure, within ten (10) days of receipt of written
notice by the Board, Employee’s refusal or failure to substantially perform the
primary duties of his employment hereunder . . . .” This clause also included provisions for
termination of the agreement based on the abuse of drugs or alcohol, as well as
fraud, criminal acts, and moral turpitude.
In the event Lynn’s employment was terminated without cause, the EA entitled Lynn to receive four years of salary and other
benefits.
The second
relevant agreement is the Muth Family Agreement (the MFA), which was entered
into by Orco, Lynn and Rick, as well as other related parties, in August
2007. Section 6 of the MFA stated: “The parties agree to cause Orco to extend
the term of Lynn’s current Employment Contract through the later to occur of
(a) Lynn’s attaining age sixty (60) and (b) Mary’s death, provided that in no
case shall such contract extend past the date of Lynn’s attaining age
sixty-five (65).” Mary is Lynn and
Rick’s mother, who, as of July 2009, was alive and living in a care
facility. Lynn was 59 in August 2007 and would have turned
65 on April 5, 2013. In April 2009, this provision was reaffirmed
by an amendment to the MFA (the AMFA).
According
to Lynn, in February 2009 Orco
stopped paying his salary, an action Orco characterized as a “suspension.” In July, Lynn
filed the instant action, alleging breach of the MFA. He also requested an accounting and specific
performance. In due course, pursuant to
the MFA, Judge Robert E. Thomas (Ret.) was selected as reference judge.
During
the trial before Judge Thomas, evidence was produced regarding Lynn’s
competence as an employee. A number of
Orco employees testified, in sum, that Lynn
was a good person but unable to perform his job duties or follow
directions. He also lacked
organizational skills and was unable to comply with the normal requirements of
an employer. Lynn
introduced evidence that Rick had systematically eliminated Lynn’s
managerial responsibilities at Orco based on their deteriorating personal
relationship. By the last three or four
years of his employment, Rick had eliminated Lynn’s
job responsibilities except for signing checks one day per week. He was also assigned to assist his mother at
her home.
During
this period, in 2007, Orco agreed to the MFA, which had the potential effect of
extending Lynn’s term of employment. This was later reaffirmed by the AMFA, despite
the fact that by the time it was signed in April 2009, Orco had already stopped
paying Lynn’s salary.
VerLyn
Jensen, an attorney, testified regarding the circumstances under which the
parties entered into the MFA. He stated
the MFA was the result of negotiations between Lynn and Orco, and specifically,
it was related to an overvaluation of the 25 percent interest Rick had in the
Muth Development Company. This
overvaluation was $1,486,000 in Rick’s favor.
Lynn forgave the overvaluation for the agreement to continue his
employment under the MFA. Andrew M.
Katzenstein, the attorney for Rick who negotiated the MFA, testified that it
was not intended to provide Lynn with lifetime employment.
At
the conclusion of the reference trial, Judge Thomas concluded that Orco had
violated the termination for cause provision of the EA by failing to give Lynn
10 days’ notice and an opportunity to cure.
In addition, Judge Thomas concluded the remaining termination provisions
were not at issue based on the evidence presented, including Rick’s allegations
of drug or alcohol abuse. The only
evidence of fraud or other malfeasance was an allegedly falsified time card,
which could not be produced at the reference trial.
As
a result of the termination without cause, Judge Thomas concluded Lynn was
entitled to the remedies under the termination without cause provision of the
EA, including four years’ salary and a waiting time penalty under the Labor
Code. Including damages, attorney fees
and costs, Judge Thomas awarded Lynn $388,092.78. Before the superior court,
Judge James J. De Cesare ordered that Judge Thomas’s revised final judgment be
entered as the judgment of the court.
Orco now appeals.
II
DISCUSSION
A. Material Breach of Contract
Orco’s
argument, in sum, is that Lynn was terminated (or “suspended”
for cause, andthat any failure to comply with the language of the EA regarding a cure period
and notice by the board was not a material breach of contract. Lynn argues the finding regarding material
breach was consistent with the evidence, and he did not waive any provisions in
the EA regarding notice and cure.
We
begin our analysis with the standard of review.
“‘A judgment or order of the lower court is presumed correct. All
intendments and presumptions are indulged to support it on matters as to which
the record is silent, and error must be affirmatively shown. This is not only a general principle of
appellate practice but an ingredient of the constitutional doctrine of
reversible error.’ [Citations.]” (Denham
v. Superior Court (1970) 2 Cal.3d 557, 564, original italics.) Further, this court is bound by implied
findings made by the trier of fact. (
1174, 1182.)
“When findings of fact are challenged in a
civil appeal, we are bound by the familiar principle that ‘the power of the
appellate court begins and ends with a determination as to whether there is any
substantial evidence, contradicted or uncontradicted,’ to support the findings
below. [Citation.] We view the evidence most favorably to the
prevailing party, giving it the benefit of every reasonable inference and
resolving all
conflicts in its favor. [Citation.] Substantial evidence is evidence of ponderable legal
significance, reasonable, credible and of solid value. [Citation.]”
(Oregel
v. American Isuzu Motors, Inc. (2001) 90
Cal.App.4th 1094, 1100.) The
testimony of a single witness may alone constitute substantial evidence. (In re Marriage of Mix (1975) 14 Cal.3d 604, 614.) We do not reweigh the credibility of
witnesses or resolve conflicts in the evidence.
(Rufo v. Simpson (2001) 86
Cal.App.4th 573, 622.) With that said,
however, any questions regarding the legal interpretation of a contract’s
provisions are reviewed independently by this court. (New Haven Unified School Dist. v. Taco
Bell Corp. (1994) 24 Cal.App.4th 1473, 1483.)
“We
begin our review with some basic principles of contract interpretation. We must interpret a contract so as to give
effect to the mutual intent of the parties at the time the contract was
formed. (Civ. Code, § 1636.) ‘The language of a contract is to govern its
interpretation, if the language is clear and explicit, and does not involve an
absurdity.’ (Civ. Code, § 1638.) Courts must also endeavor to give effect to
every part of a contract, ‘if reasonably practicable, each clause helping to
interpret the other[s].’ (Civ. Code, §
1641.)” (Thrifty Payless, Inc. v.
Mariners Mile Gateway, LLC
(2010) 185 Cal.App.4th 1050, 1060.)
Orco’s
argument on this point is in two parts.
First, Orco argues that it had good cause to terminate (or permanently
“suspend”
Lynn’s employment. We assume,for the sake of argument, this is true.
Had the reference judge decided that Orco had terminated Lynn for cause,
there would certainly be substantial evidence in the record to support it.
The
rub, however, lies in the second part of Orco’s argument, which is that Orco
was a “small, informally-run corporation with a deadlocked board” when Lynn was
“suspended.” Thus, Orco argues, it
should not be held to the requirement in the termination for cause provision of
the EA requiring the board to give Lynn 10 days’ notice, during which time Lynn
would have had the opportunity to cure his failure to “perform the primary
duties of his employment.” Orco argues there was substantial evidence at
trial that Orco was a “small family board,” and at the time of Lynn’s
“suspension,” the board was deadlocked between Lynn and Rick, the only two
members with voting privileges.
Orco argues, a board vote on the subject of Lynn’s employment would have been
futile.
In support
of its argument, Orco cites two cases stating that closely held corporations
may act on certain occasions without formal board or shareholder action. It begins with Nelson v. Anderson (1999) 72 Cal.App.4th 111 (
between the only two shareholders of a corporation. The plaintiff, the minority shareholder,
alleged the defendant and majority shareholder had breached her fiduciary
duties to the corporation. (
jury verdict in favor of the plaintiff, agreeing with the defendant that the
action should have been brought as a derivative action on behalf of the
corporation. (Id. at p. 117.) Orco
relies on a footnote, which states: “We
observe, however, that [the plaintiff’s] major complaint was that [the
defendant] made decisions with which she disagreed, and did so without formal
board or shareholder meetings. Lack of formality in a closely held corporation
and dissension among shareholders are not unusual or necessarily evil
occurrences . . . .” (
Obviously,
the facts of Nelson are entirely
different from the relevant facts here.
The dispute in Nelson involved
two board members acting as such, while here, Lynn’s role as an employee placed
him outside the context of any role as a board member. Further, Nelson
did not involve contractual language which obligated the board to act in a
certain fashion, and that obligation was present regardless of Lynn’s dual
status as both employee and board member.
In addition to the fact that the language in Nelson is dictum, its facts are so different that it is of no use
to Orco here.
The only
other case Orco cites on this point is Biren
v. Equality Emergency Medical Group, Inc. (2002) 102 Cal.App.4th 125 (
That case involved the invocation of the business judgment rule in a
case involving an alleged breach of fiduciary duty. The court compared how large and small
corporations conduct business: “Larger
corporations often have formal board committees to recommend the approval of a
variety of contracts. But small
corporations like Equality conduct much of their official business
informally. [Citations.] ‘[I]t is well known that corporations which
include only a few shareholders do not often act with as much formality as
larger companies. This is especially so
where the members of the board personally conduct the business of the
corporation.’ [Citation.] The practice of allowing officers to approve
contracts is so prevalent in some close corporations, for example, that they
bind the entity even though the officer should have obtained board
approval. [Citation.]” (Id.
at p. 137.)
Once
again, this case has no relevance here.
In Biren, the question was
whether an action that could reasonably be seen as the exercise of business judgment
constituted a breach of fiduciary duty. (Biren,
136-138.) In the instant case, the issue
is whether a board can ignore mandatory language in a freely negotiated
contract on the grounds that it is small and at times acts informally.
In
addition to the fact that the cases Orco cites do not support its argument,
neither does logic or common sense. It
is one thing for a corporation to act informally with regard to how it chooses
to, for example, make everyday decisions regarding the conduct of its
business. It is another matter entirely
for a corporation of any size to claim that it can ignore contractual language
with a third party (and for purposes of the EA, Lynn is a third party), based
on its size or usual manner of doing business.
Indeed, the more it is examined, the more specious Orco’s argument
reveals itself to be. If this contract
involved a party who had no personal relationship with any member of Orco’s
management, it would be absurd. It is no
less so because of the familial relationships present here.
Orco’s
only other argument is that because the board was “deadlocked” between Rick and
Lynn, a board vote would have been futile.
Orco then goes on to explain exactly how that deadlock could have been
broken, including “petitioning for
court appointment of a provisional director under Corporations Code §
308; filing a derivative action to appoint a receiver; or even filing an action
to dissolve the corporation under Corporations Code § 1800(b)(2).” Regardless of whether such steps would have
been unreasonably burdensome, as Orco claims, they were certainly not
performance of a contractual term, as codified in Civil Code section 1441, is
limited and rare, which is probably why Orco cites no cases on this point. Orco fails to provide any authority
supporting its contention that complying literally with the terms of the EA was
impossible.
Further,
Orco ignores that a vote of the board
was not a requirement. The language of
the termination for cause provision stated:
“For purposes of this Agreement, good and valid cause shall mean
(i) the failure or inability to cure,
within ten (10) days of receipt of written notice by the Board, Employee’s
refusal or failure to substantially perform the primary duties of his
employment hereunder . . . .”
Nowhere
does it say that a vote of the board is required — merely notice by the board. As
dictated by logic and the general purpose of a cure clause, the key words here
are not “Board” but “written notice,” the point of which was to give Lynn the
opportunity to address any issues Orco had with his performance. If Orco had given notice under the signature
of its CEO, rather than its board, it would have been in a position to argue
substantial compliance, and we may well have agreed with such an argument. It did not do so, instead ignoring the
provision completely. Whether giving
Lynn notice would have been a wasted exercise is not the point — the point is
that he was entitled to it under the EA, which was a freely negotiated contract
between represented parties. The failure
to provide notice was therefore a breach.
(See Rest.2d, Contracts, § 235 subd. (2): “When performance of a duty under a contract
is due, any non-performance is a breach.”
In sum, we find no error of law, and conclude that substantial evidence
supports the reference judge’s conclusions with regard to Orco’s breach of
contract.
B. Damages
In
a one-page argument devoid of legal
authority, Orco asserts that the reference judge’s award of damages was not
reduced to take into account Lynn’s failings as an employee. Instead, upon the conclusion that Orco breached
the contract, he was awarded the full amount due “under the most expansive
interpretation” of the EA, plus attorney fees.
Orco argues the damages awarded were “inequitable.”
We
need not belabor this issue. The measure
of damages in a breach of contract claim is the amount that will compensate for
all damages proximately caused. (Civ.
Code, § 3333.) The parties freely
negotiated the proper measure of damages for dismissal without cause, which, as
we have already noted, is what happened here due to Orco’s failure to follow
the EA’s provisions to terminate for cause.
We see no legal reason to second-guess the measure of damages the
parties decided was appropriate. Orco does not argue the amounts awarded were
improperly calculated based on the EA’s damages provisions, and therefore, we
find no error.
C Motions in Limine
Finally,
Orco argues the reference judge wrongly denied two motions in limine. Orco’s “burden is to demonstrate the court’s
‘discretion was so abused that it resulted in a manifest miscarriage of
justice. [Citations.]’ [Citation.]”
(Hernandez v. Paicius
(2003) 109 Cal.App.4th 452, 456, disapproved on another ground in
1006-1007, fn. 4.) Thus, even where
evidence has been erroneously admitted, the judgment shall not be reversed
unless the reviewing court believes the error resulted in a miscarriage of
justice. (Cal. Const., art. VI, § 13;
Evid. Code, § 353.)
Orco
has failed to carry this burden with respect to two motions in limine it claims
the reference judge erroneously denied.
The first motion asked the reference judge to exclude all extrinsic
evidence relating to the terms of the EA or the MFA based on the parol evidence
rule. The second asked the judge,
without legal argument, to limit the testimony of VerLyn Jensen to Section 6 of
the MFA, which addressed the extension of Lynn’s contract. Orco argued it would be prejudicial for him
to testify to other matters, because he stated at his deposition his testimony
would be limited to that clause. After
the motions were denied, Jensen testified regarding the consideration for the
MFA, specifically the overvaluation on other property.
Even
if Orco could persuade us that denying these motions constituted an abuse of
discretion, it offers nothing more than a conclusory sentence asserting
prejudice. Given that we can find no
argument anywhere in Orco’s briefs or in the record below asserting the MFA was
supported by insufficient consideration, the trial court’s decision to hear this
evidence was not even mildly prejudicial to Orco, much less a
With
respect to the argument that Jensen stated at his deposition that he only
intended to testify as to the clause in the MFA relating to Lynn’s
employment. The consideration provided
in exchange for this clause was a logically related subject. Further, there is nothing in the record
suggesting that Orco found this testimony so shocking or damaging that it
requested, for example, additional time to research the matter. Again, given that consideration for the MFA
was never an issue in this case, there is no rational argument to be made that
any error in hearing this evidence rose to the level of a miscarriage of
justice. In sum, Orco has failed to
establish reversible error.
III
DISPOSITION
The judgment is affirmed. Heidi is entitled to her costs on appeal.
MOORE,
ACTING P. J.
WE
CONCUR:
IKOLA,
J.
THOMPSON,
J.
name="_ftn1" title="">[1]
Lynn Muth died before proceedings were concluded in the trial court, and he is
now represented by his wife, Heidi Muth, as successor in interest.
name="_ftn2" title="">[2]
Because a number of members of the Muth family are involved in this case, we
refer to them by their first names for the ease of the reader. No disrespect is intended.
