Partridge v.
Campbell
Filed 4/18/13
Partridge v. Campbell CA2/6
NOT
TO BE PUBLISHED IN THE OFFICIAL REPORTS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opinion has not been certified for publication or ordered published for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
SIX
MARIANNE PARTRIDGE, et al.,
Plaintiffs and Respondents,
v.
RANDY CAMPBELL,
Defendant and Appellant.
2d
Civil No. B237772
(Super.
Ct. No. 1341942)
(Santa
Barbara County)
Randy Campbell appeals from the
judgment entered in favor of Marianne Partridge, respondent, after a court
trial. The judgment requires appellant
to sell to respondent all of his shares in the Santa Barbara Independent, Inc.
(the Independent). The judgment was
based on the trial court's finding that respondent accepted appellant's offer
to sell his shares before he withdrew it.
Appellant contends that, as a matter of law, respondent did not validly
accept his offer. Appellant further
contends that, if a valid acceptance occurred, respondent was not entitled to
specific performance of the contract because she failed to prove the amount of
a "true-up" adjustment to the purchase price. We remand the matter to the trial court with
directions to determine the true-up adjustment and to recalculate the purchase
price in light of this adjustment. In
all other respects, we affirm.
The Independent publishes a
newspaper, the Santa Barbara Independent.
Appellant owned 1,530 shares, 51 percent of the total outstanding
shares. The remaining 49 percent (1,470
shares) was divided equally among three shareholders: respondent, Richard
Parker, and Richard Grand-Jean (the minority shareholders). Appellant was the publisher of the newspaper. Respondent was the editor-in-chief of the
newspaper and secretary of the corporation.
On November 10, 2009,
appellant gave notice to the Independent and the minority shareholders of his
shares to Southland Publishing (Southland) pursuant to an offer dated November 4, 2009. The offer was attached to appellant's
notice. The offer stated that Southland
would purchase the Independent for $2.7 million, "plus or minus a true-up
of 'Net Cash, Receivables and Payables.' "
The "true-up" was explained as follows: "To the extent
that [the Independent's] 'Net Cash, Receivables and Payables' at Closing is [
difference will be added or subtracted to the final payment due 1 year
following the Closing. . . . [F]or example,
if the true-up reveals 'Net Cash, Receivables and Payables of $750,000, then
$50,000 in total will be added to Southland's final payment to the
shareholders."
Pursuant
to the offer, appellant would receive $1.377 million and each of the minority
shareholders would receive $441,000, plus or minus the true-up adjustment. At the time of the closing, 50 percent of the
purchase price would be paid. Another 25
percent would be paid within six months of the closing, and the final 25
percent would be paid within one year of the closing. The offer said that it was not binding
"as Southland Publishing shall be entitled to conduct due diligence, and
material terms are not herein included."
Appellant's
notice stated that the "procedures to accomplish this sale" must
conform to the right of first refusal procedures set forth in a document
entitled "Stock Purchase and Buy-Sell Agreement" (Agreement). Appellant enclosed a copy of the Agreement,
which was signed in 1986 by the Independent and its shareholders. The Agreement provides that no shareholder
may sell his shares without first giving the Independent the option to purchase
them "at the price and on the terms" offered to the shareholder. If the Independent does not exercise its
option within 45 days, the Independent must notify the non-selling
shareholders. They will have an option
to purchase the shares that must be exercised within 20 days after receiving
notice from the Independent. Each of the
non-selling shareholders may purchase "such proportion of the Noticed
shares . . . as the number of Shares held by him, her or it bears to the number
of Shares held by all of such other Shareholders." If a shareholder decides not to purchase his
or her proportion of the noticed shares, the remaining shareholders may elect
to purchase it, provided that they give notice of their election within the
same 20-day period. If the non-selling
shareholders elect to purchase fewer shares than the selling shareholder has
offered to sell or do not exercise their options within the 20-day period, the
options will expire. At any time before
the options are exercised, the selling shareholder may withdraw his notice of
intention to sell his shares.
On
November
23, 2009, the Independent's Board of
Directors (Board) met to consider the corporation's option to purchase
appellant's shares. Appellant and
respondent were the only Board members personally present. The other Board members - Parker and Grand-Jean
- participated by telephone.
Before
the meeting began, respondent handed a document to appellant and stated, "
'This is my exercise of the Buy-Sell Agreement.' " Appellant asked, " 'Is it for all or
some?' " Respondent replied, "
'All or some.' " Appellant said,
" 'Good.
Good.'
" In the document respondent stated
that she was exercising her option to purchase all of appellant's shares that
were not purchased by the Independent and other shareholders.
The
Board voted to not exercise its option to purchase appellant's shares. Grand-Jean said, " '[W]e want to find
out who wants to buy [appellant's] shares now.' " Respondent said that she would buy all of his
shares, and she read aloud the document that she had delivered to appellant
before the meeting began. Appellant
asked who wanted to sell his shares to Southland. Grand-Jean "said that he didn't want to
sell, and Parker said for the purposes of this meeting he didn't want to
sell."
Immediately
after the Board meeting, the Independent sent a letter to the minority
shareholders informing them that the Board had voted to not exercise the
corporation's option to purchase appellant's shares. The letter stated that the minority
shareholders could elect to personally purchase his shares pursuant to the
Agreement.
The next day, November 24, 2009, respondent redelivered to
appellant the written notice of acceptance that she had given him the previous
day before the Board meeting. Appellant told her that he was considering
another offer from Southland. Respondent
replied that she had already
accepted his offer of November 10, 2009, so he could not withdraw it. Appellant said: " 'No. That's not
true. I can withdraw it at any
time. And I'm weighing both
offers." Respondent testified:
"I kept saying, 'You can't weigh both offers. There's only one offer now.' He kept saying, 'Yes, I can. I can withdraw it any time.' "
On
November
30, 2009, Southland submitted a revised
offer to purchase the Independent. The
purchase price was the same, but Southland agreed to pay it in full within 15
days of the closing. The true-up
provision was modified, and Southland offered to employ appellant as publisher
for three years at a base annual salary of $110,000. Appellant could not be terminated except for
was receiving an annual base salary of $55,000.
Like the original offer, the revised offer stated that it was not
binding.
On
December 2,
2009, appellant emailed the revised
offer to the minority shareholders.
Appellant said that the revised offer could be treated as "a brand
new proposal" that "will restart the timing and noticing as outlined
in the Buy-Sell" agreement or "as simply an updated offer, still
conforming to the procedures we have already started."
Respondent's
counsel wrote the following reply to the email: "The November 30 revised
proposal is irrelevant to your existing contractual obligations. On November 10 you offered to sell your
shares, and your offer has been unconditionally accepted in writing; you are a
party to an enforceable contract for the sale of your shares in the Santa
Barbara Independent Inc." Counsel
noted that Southland's "new proposal contains different payment terms and
a new provision regarding your employment."
On
December 11, 2009, shareholder Richard Parker gave notice that he was
exercising his option to purchase up to 270 of appellant's 1530 shares "at
the price and on the terms stated in the November 10, 2009 Offering
Notice." On December 18 shareholder
Richard Grand-Jean gave notice he would not purchase any shares.
On
December
29, 2009, respondent wrote a letter to
all shareholders stating that, pursuant to appellant's offering notice of November 10, 2009,
she would purchase 1,260 shares for $1.134 million and Parker would purchase
270 shares for $243,000. The purchase
price would later be adjusted pursuant to the true-up provision in the offering
notice. Respondent said that the transaction
would close on January 12, 2010.
The same day it was written, respondent's
letter was hand-delivered to appellant.
Appellant immediately sent an email to the minority shareholders
complaining that they had ignored Southland's revised offer. Appellant said: "In case it's not clear,
I rejected Southland's original offer November 23." Appellant contended that respondent's
purported acceptance of his offer of November 10, 2009, "before
the Board had voted to not exercise their rights under the Buy-sell agreement .
. . does not follow the procedures as outlined [in the Agreement]." Appellant continued: "At this point we
have an offer that has been rejected, and a new offer from Southland pending
Board and Shareholder review.
[¶] Ignoring the new offer appears to be a coordinated effort
to deny the best possible deal for the sale of Independent shares . . .
." Appellant requested that the
Board set a date for a meeting to discuss Southland's new offer.
After
appellant refused to sell his shares to respondent and Parker, respondent filed against him
a complaint consisting of three causes of action:
good faith and fair dealing, and breach of fiduciary duty. In addition to the recovery of damages,
respondent sought "a decree of specific performance ordering that
[appellant]" deliver his 1,530 shares to her "in exchange for the
payment of $1,377,000." Appellant
filed a cross-complaint against respondent.
Parker is not a party to the
lawsuit. He assigned to respondent his
claim to the 270 shares that he had elected to purchase.
The matter was tried by the
court without a jury. In its statement
of decision, the trial court concluded that respondent had accepted appellant's
"offer in writing on November 23, 2009 before [he] withdrew
it." Her acceptance created
"an enforceable contract, and [she] is entitled to specific
performance."
On respondent's complaint,
judgment was entered in appellant's favor on the cause of action for breach of
fiduciary duty. Judgment was entered in
respondent's favor on the causes of action for breach of contract and for
breach of covenant of good faith and fair dealing. The judgment decreed: "[Respondent] is
entitled to purchase all of [appellant's] 1530 shares of the Santa Barbara
Independent, Inc." Appellant was
ordered to transfer his shares to respondent upon the deposit of the purchase
price. The court determined the purchase
price to "be $1,241,742.00 as of July 21, 2011, based upon $1,377,000.00
as the sale price . . . less $229,793.00 distributions of profits made to
[appellant] after January 12, 2010, plus 5% interest on the outstanding balance
through July 21, 2011." The
judgment does not mention the true-up adjustment. In its statement of decision, the trial court
concluded that the true-up was "not applicable to the purchase
price."
On appellant's
cross-complaint, judgment was entered in favor of respondent. As to the entire action, the court declared
respondent to be the prevailing party and awarded her reasonable attorney fees
of $358,742.
The Agreement gave the
Independent and the minority shareholders a right of first refusal, also known
as a preemptive right, to purchase appellant's shares if he decided to sell
them to a third party. "[A] preemptive
right gives the holder the first right to buy when and if the owner later wants
to sell. If the holder does not buy, the
owner of the property may sell to anyone.
Conversely, an option gives the holder a power to compel a sale
regardless of whether the owner then wants to sell. [Citations.]" (Rollins
v. Stokes (1981) 123 Cal.App.3d 701, 710.)
"[W]hen [appellant] manifested [his] intent to sell . . . and
subsequently notified [the Independent], the preemptive right was
activated." (Id., at
p. 710.) At that time the
preemptive right ripened into an "option to purchase, that is an option,
within a stated time, to purchase on the same terms and conditions as the
prospective purchaser's offer." (
(1987) 194 Cal.App.3d 1338, 1345.)
" 'An option is transformed into a contract of purchase and sale
when there is an unconditional, unqualified acceptance by the optionee of the
offer in harmony with the terms of the option and within the time span of the
option contract. [Citations.]' [Citation.]" (Steiner v. Thexton (2010) 48 Cal.4th
411, 420.) "[W]hen the provisions
of an option contract prescribe the particular manner in which the option is to
be exercised, they must be strictly followed.
[Citations.]" (
v. Bbtc Company (1974) 11 Cal.3d 494, 498.)
Was Transformed into an
Contract of Purchase and Sale
>
"[W]hen
the decisive facts are undisputed, the reviewing court is confronted with a
question of law and is not bound by the findings of the trial court. [Citation.]
In other words, the appellate court is not bound by a trial court's
interpretation of the law based on undisputed facts, but rather is free to draw
its own conclusion of law.
[Citation]." (
Bd. v. Handlery Hotel, Inc. (1999) 73 Cal.App.4th 517, 528; accord,
791, 799 ["When the decisive facts are undisputed, we are confronted with
a question of law and are not bound by the findings of the trial court"].)
The
decisive facts are undisputed as to whether respondent's purported acceptance
of appellant's offer transformed her option into an enforceable contract of
purchase and sale. "In the absence
of any controverted factual evidence . . . , we are presented with a pure
question of law for which the appropriate review is de novo. [Citation.]" (Miller
v. Ellis (2002) 103 Cal.App.4th 373, 378.)
The de novo standard of review is especially appropriate because the
resolution of this issue depends in large part upon our interpretation of the
Agreement. (See Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 865
[" 'An appellate court is not bound by [the trial court's] construction of
the contract based solely upon the terms of the written instrument without the
aid of evidence [citations], [or] where there is no conflict in the evidence
[citations]' "]; Rooz v. Kimmel
(1997) 55 Cal.App.4th 573, 585
["Because the trial court construed the indemnity and hold harmless
provision without the aid of conflicting extrinsic evidence, the interpretation
of that agreement is a question of law for this court"]).
Appellant
contends that respondent's acceptance of his offer to sell all of his shares
was invalid and did not create an enforceable contract of purchase and
sale. Appellant's reasoning is as
follows: Because respondent owned
one-third of the minority shareholder's shares, she had an option to purchase
no more than one-third of appellant's shares.
Pursuant to the Agreement, each minority shareholder was entitled to
purchase "such proportion of the Noticed shares . . . as the number of
Shares held by him, her or it bears to the number of Shares held by all of such
other Shareholders." Respondent
would be entitled to purchase the remaining two-thirds of appellant's shares
only if Parker and Grand-Jean declined to exercise their options. On December 2, 2009, before Parker and
Grand-Jean decided whether to exercise their options, appellant withdrew his
previous offer to sell by informing the minority shareholders of Southland's
revised offer. (See Distefano v. Hall (1968) 263 Cal.App.2d 380, 385 ["any new
offer communicated prior to a valid acceptance of a previous offer,
extinguishes and replaces the prior one"].) Thus, after receiving notice of Southland's
revised offer, the minority shareholders could not have accepted appellant's
previous offer to sell his shares on the same terms as Southland's original
offer. Appellant's previous offer had
been revoked.
Appellant's
argument has some appeal. The Agreement
provides: "The Offering Shareholder may withdraw the Notice and the offer
to sell the Noticed Shares at any time prior to the exercise of the
. . . ." (Italics added.) The term "options" is in the plural
instead of the singular form. The use of
the plural makes clear that the offer to sell does not become irrevocable
merely because a single shareholder has exercised her option to purchase her pro rata share.
Respondent,
however, did not just exercise her option to purchase her pro rata share. She legally bound herself to purchase all of
appellant's shares that were not purchased by Parker and Grand-Jean. Thus, on November 23, 2009, appellant knew
that he had a commitment from the minority shareholders to purchase all of his
shares pursuant to the terms of Southland's original offer. Since Parker and Grand-Jean had not yet
exercised their options, appellant did not know how many shares, if any, they
would purchase. But it was of no concern
to appellant how many shares each minority shareholder would purchase so long
as he had assurances that all of his shares would be purchased.
Like
other contracts, an option contract must " ' "be fairly construed
with a view to effect the object for which it was given and to accomplish the
purpose for which it was designed."
' [Citations.]" (Cates
Construction, Inc. v. Talbot Partners (1999) 21 Cal.4th 28, 39; see also
Inc. (1980) 112 Cal.App.3d 622, 626 [" 'a contract entered into for
the mutual benefit of the parties is to be interpreted so as to give effect to
the main purpose of the contract and not to defeat the mutual objectives of the
parties' "].) Here, the option
contract had a dual purpose. One purpose
was to afford the non-selling shareholders a 20-day period to determine whether
to purchase the selling shareholder's shares.
The other purpose was to enable the selling shareholder to go forward
with the proposed sale to a third party if the non-selling shareholders did not
commit themselves to the purchase of all of his shares within the 20-day
period.
Respondent's
acceptance of November 23, 2009, fulfilled this dual purpose. At the beginning of the 20-day period, she
irrevocably committed herself to the purchase of all of appellant's shares that
Parker and Grand-Jean did not elect to purchase. We would be exalting form over substance were
we to hold that respondent's acceptance did not create an enforceable contract
merely because Parker and Grand-Jean had not yet exercised their options to
purchase their pro rata share. "In
determining rights and obligations, substance prevails over form [citation]." (Elser
v. Gill Net No. One (1966) 246 Cal.App.2d 30, 31, fn. 2.)
Furthermore,
appellant's interpretation of the option contract would lead to unintended,
absurd results. (See
(2012) 208 Cal.App.4th 1001, 1009 [" ' "The basic goal of
effect to the parties' mutual intent
at the time of contracting" ' "]; Roden
v. AmerisourceBergen Corp. (2010) 186 Cal.App.4th 620, 651 ["we must
a contract in a manner that is reasonable and does not
lead to an absurd result"].) According to appellant's interpretation,
respondent could not have accepted as to Grand-Jean's one-third pro rata share
until after Grand-Jean had elected whether to purchase his share. Appellant asserts: "[N]o enforceable
contract obligation could possibly exist until all the players designated by
the Buy-Sell Agreement's first-refusal process - The Independent, Parker and Grandjean [sic], not just [respondent] - decided whether to exercise their
separate and independent first-refusal rights." Grand-Jean did not elect
whether to purchase his pro rata share within the 20-day option period. On December 18, 2009, 25 days after the
Independent had notified the minority shareholders of appellant's offer to sell,
Grand-Jean gave notice that he would not purchase any of appellant's
shares. Thus, even if appellant had kept
his original offer open throughout the 20-day period, respondent could not have
accepted as to Grand-Jean's one-third pro rata share within that period. The options would have expired and appellant
would have been free to sell his shares to Southland.
The
parties to the Agreement did not intend that, by failing to act within the
20-day period, a single shareholder would have the power to block a sale to
other shareholders who were willing and able to make the purchase and had
timely exercised their options.
name="_ftnref2" title="">[2] The parties intended to facilitate the other
shareholders' purchase so that they would not have to deal with a third-party
interloper. If a shareholder did not
elect to buy his pro rata share, the other shareholders could elect to do so
provided that they gave notice of their election within the 20-day period. Respondent's acceptance of November 23, 2009,
provided the requisite notice. Her acceptance
assured that all of appellant's shares would be sold to the minority
shareholders irrespective of what Parker and Grand-Jean did or did not do. Since her acceptance was irrevocable and
occurred within the 20-day option period before appellant gave notice of
Southland's revised offer, appellant has no cause for complaint. Respondent made " 'an unconditional,
unqualified acceptance . . . of [appellant's] offer in harmony with the terms
of the option and within the time span of the option contract. ' " (Steiner v. Thexton,
'transformed into a contract of purchase and sale.' " (
True-Up
Appellant
contends that respondent was not entitled to specific performance of the
contract of purchase and sale because she failed to prove the amount of the
true-up. Appellant argues, "[T]here
could be no determinative purchase price without inclusion of the True-Up
adjustment."
Respondent
was not at fault for the absence of proof of the true-up. The trial court denied respondent's request
for an opportunity to prove the true-up.
During closing argument, respondent's counsel said that, if the court
decided that his client was entitled to specific performance, "we have to
deal with the calculation of the true-up."
Counsel continued: "As part of your Honor's order, what we would
ask is that [respondent] be given an opportunity to have the business records
of the Independent, to carry out that true-up, present it to the other
side. If they disagree, you could have a
hearing on it. It would easily be
decided within the next 15 to 30 days.
So that true-up would be a cash addition or deduction from the purchase
price that [appellant] is to be paid."
Appellant did not object to
this proposed procedure for calculating the true-up. By failing to object, he acquiesced in the
procedure. (See People v. McKinnon (2011) 52 Cal.4th 610, 644;
(1979) 99 Cal.App.3d 59, 64, fn. 2.) But in its statement of
decision, the trial court concluded that the true-up was "not applicable
to the purchase price."
name="_ftnref3" title="">[3]
Appellant
in effect is claiming that the trial court erroneously refused to allow proof
of the true-up because it erroneously determined that the true-up was not
applicable to the purchase price. We
agree. The true-up was an integral part
of the purchase price. In his notice of
intent to sell his shares to Southland, appellant stated: "I own 1,530
shares and will accept $1,377,000 as outlined in the Southland Offer Sheet . .
. . [¶]
Payment terms and the mechanics of the 'True-Up' of cash receivables,
and payables are . . . detailed in the Southland offer." The matter, therefore, must be remanded to
the trial court for calculation of the true-up adjustment to the purchase
price.
The
judgment is reversed only as to the purchase price for appellant's shares. The matter is remanded to the trial court
with directions to determine the true-up adjustment and to recalculate the
purchase price in light of this adjustment.
In all other respects, the judgment is affirmed. Respondent shall recover her
NOT TO BE PUBLISHED.
YEGAN,
J.
We concur:
GILBERT,
P.J.
PERREN,
J.
Denise de Bellefeuille, Judge
Superior Court County of Santa Barbara
______________________________
Griffith & Thornburgh, John R. Rydell and
John C. Eck. Greines, Martin, Stein
& Richland; Irving H. Greines and Edward L. Xanders, for Appellant.
Gary J. Hill and Timothy J. Trager; Reicker,
Pfau, Pyle & McRoy, for Respondents.
name="_ftn1" title="">[1] Respondent wrote: "As a shareholder
of the Company, I hereby exercise my option under the Buy-Sell Agreement to
purchase all of the Shares of the Company now owned by [appellant] (up to 1,530
shares) at the price and on the terms stated in his November 10, 2009 Offering
Notice or as otherwise determined in accordance with the Buy-Sell Agreement to
the extent that such Noticed Shares are not purchased by the Company at the
Board of Directors meeting.
[¶] I understand that under the Buy-Sell Agreement, the other
Shareholders (other than [appellant] as the Offering Shareholder) may exercise their
options to purchase a portion of the Noticed Shares by notifying me as
Secretary within the period specified in the Buy-Sell Agreement of any such
intention. In such case, all of the
Noticed Shares shall be apportioned for purchase among the shareholders (other
than [appellant] as the offering shareholder) in accordance with the Buy-Sell
Agreement." (Bold omitted.)
name="_ftn2" title="">[2] Grand-Jean did not intend to block respondent's
purchase of appellant's shares. In his
deposition, Grand-Jean testified that he wanted respondent to purchase
appellant's shares: "[O]nce we received this communication from
[appellant] that he had had meetings with Southland and had agreed to sell his
shares to them, I was very much opposed to that. . . . And I welcomed
wholeheartedly [respondent's] willingness and ability to match that offer and
buy the shares. . . . [¶] So if you want to look at this just in
terms of a deal context, I was on [respondent's] side and against
[appellant]."
