Premier Patio Heating Specialists v.
WestAir Gases & Equipment
Filed 7/23/13 Premier Patio Heating Specialists v. WestAir
Gases & Equipment CA4/1
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
COURT
OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION
ONE
STATE
OF CALIFORNIA
PREMIER PATIO HEATING
SPECIALISTS, LLC,
Plaintiff, Cross-defendant and Appellant,
v.
WESTAIR GASES & EQUIPMENT,
INC.,
Defendant, Cross-complainant and Respondent.
D058776
(Super. Ct. No. 37-2008-00093766-
CU-BC-CTL)
APPEAL from
a judgment of the Superior Court
of
County, Steven R. Denton, Judge. Affirmed.
Sulzner
& Associates and Bruce E. Sulzner for Plaintiff, Cross-defendant and
Appellant.
Higgs Fletcher & Mack, John Morris and James M.
Peterson for Defendant, Cross-complainant and Respondent.
This case involves a dispute over WestAir Gases &
Equipment, Inc.'s (WestAir) agreement to purchase Premier Patio Heating
Specialists, LLC's (Premier) assets.
Premier contends the judgment in favor of WestAir must be reversed
because (1) the trial court improperly instructed the jury that it could
consider whether WestAir was "honestly and genuinely" dissatisfied
(i.e., a subjective test) with the condition of certain assets and instead
should have instructed the jury to consider WestAir's purported dissatisfaction
based on a "reasonable person" standard (i.e., an objective test),
(2) the jury's finding that WestAir performed all of its obligations under the
contract is not supported by substantial evidence, and (3) the jury's finding
that WestAir acted in good faith is not supported by substantial evidence.
We disagree with Premier's
contentions and affirm the judgment in favor of WestAir.
FACTUAL
AND PROCEDURAL BACKGROUND
Premier, a business owned by Ed
Essey and his wife, leased industrial-grade patio heaters and other items to
restaurants and commercial businesses.
WestAir, an industrial gas and welding supply company, distributed
gases, such as propane and carbon dioxide, gas equipment and welding supplies
to various businesses including restaurants.
Steve Castiglione was the president of WestAir.
In 2007, Essey called Castiglione
to determine whether Castiglione was interested in buying Premier. Castiglione believed the purchase of Premier
would allow WestAir to expand its business into the propane patio heater
business with its own customer base.
Thus, the parties engaged in negotiations regarding the purchase.
In November 2007, Essey prepared a
summary of Premier's assets and valued them at approximately $1.2 million. The assets included patio heaters, which
Essey assigned a replacement value of $550 each, several trucks and various
equipment. After further discussions
with Castiglione, Essey agreed to decrease the purchase price to approximately
$1.1 million by applying an 8.5% discount to his prior valuation.
In February 2008, Castiglione
turned over primary responsibility for the potential acquisition of Premier to
WestAir's industrial sales manager, Chris Owen.
Owen and other WestAir employees researched Premier's business, took a
tour of its facility, reviewed Premier's books, financial records, contracts,
human resource documents, and did an audit of Premier's business operations.
In June 2008, the parties signed a
letter of intent (LOI). The LOI provided
basic terms for the proposed transaction between Premier and WestAir, including
that WestAir would purchase Premier's assets for $1,096,772. The LOI also allowed for adjustments to the
purchase price, stating, "The Purchase Price shall be decreased $500 for
each patio heater that is not in good working order or rent-ready
condition. If WestAir determines in its
sole discretion that the value of any other assets is less than set forth on
the [asset list prepared by Essey], it shall adjust the Purchase Price to its
best estimate of fair market value for such assets. [Premier] shall have the option to accept or
reject the adjusted price for any asset, and if [Premier] reject[s] the
adjusted price [it] may retain or otherwise dispose of such assets." The LOI further provided that its principal
terms would be incorporated into an asset purchase agreement (APA) and that
both parties would agree to "negotiate in good faith and use [their] best
efforts to enter into the APA on or before June 30, 2008." Lastly, the parties included conditions to
closing, including "[v]erification, to the satisfaction of WestAir regarding
. . . [t]he condition of all [a]ssets."
WestAir expected the parties to
carry on negotiations after executing the LOI and it continued to investigate
Premier's assets. In July 2008,
Castiglione visited Universal Propane to inquire about purchasing replacement
Type 2 quick disconnect valves, which were the type of valves used on Premier's
heaters. Castiglione learned the Type 2
quick disconnect valves were outdated and had safety issues, including that
they potentially caused fires.
Castiglione relayed this information to Owen and stated he wanted to
adjust the purchase price for Premier's assets to approximately $500,000, which
Castiglione thought was the fair market value.
Working from Essey's asset summary,
Owen created a spreadsheet and adjusted the price of the assets to
approximately $530,000. As part of that
adjustment, Owen reduced the price of the heaters to $250 each. Owen believed $250 was the fair market value
of the heaters based upon his observations and information from WestAir's beverage
division manager that some of Premier's heaters were "beat up." Castiglione also observed some of Premier's
heaters at various businesses and noticed they were "pretty beat up,"
"dented," and "rusty."
Further, Owen stated that Premier's business operations did not meet his
safety standards and was informed by another WestAir employee that some of
Premier's assets "looked tired."
Owen called Essey to inquire about
the fire hazard associated with the heaters and to explain that WestAir wanted
to adjust the purchase price. Essey
responded by stating that he was aware of the potential fire risk and a related
lawsuit, but was not concerned about the valves. Owen confirmed that WestAir was concerned
about the safety risks and informed Essey that he was going to reduce the
purchase price to around $500,000.
Thereafter, Owen sent Essey a letter stating WestAir was adjusting the
purchase price to $530,460 "to reflect [its] best estimate [of] the fair
market value of the assets." The
letter further explained the price was adjusted because WestAir could purchase
new heaters for $368 instead of paying $500 for Premier's used heaters and
WestAir was "concerned about the risk of the quick disconnect valves
[Premier was] using." Lastly, Owen
reminded Essey that under the terms of the LOI, Premier could accept or reject
the adjusted price.
Essey did not respond to Owen's
letter or subsequent phone calls.
Instead, Essey asked his attorney to handle the matter. Premier's counsel then informed WestAir that
the purchase price reduction was not permitted by the LOI and WestAir's
reasoning for the reduction lacked merit.
Accordingly, Premier rejected the price reduction and insisted that
WestAir complete the transaction according to the terms of the LOI. WestAir responded by clarifying how they
calculated the reduced purchase price and informing Premier that it had
prepared an APA. Essey believed the LOI
was a binding contract requiring WestAir to pay approximately $1.1 million for
Premier's assets and thus, refused to negotiate further regarding the purchase
price.
In October 2008, Premier filed an
action against WestAir for breach of contract and breach of the implied
2010. The jury returned a verdict in
favor of WestAir, finding, among other things, that there was a contract
between the parties, WestAir did all or substantially all of the things the contract
required it to do, all conditions had occurred that required WestAir's
performance, and WestAir did not fail to do something required by the contract.
DISCUSSION
I. Alleged
Instructional Error
A. Additional Background
During the
jury instruction conference, the parties disagreed about a special instruction
relating to the satisfaction clause in the contract. WestAir requested the jury be instructed to
decide whether it was "honestly and genuinely dissatisfied with the
condition of the assets and whether it honestly and genuinely adjusted the
purchase price to its belief of the fair market value for those
assets." Premier argued for a
"reasonableness standard" instead of a "good faith
standard" because this was a commercial transaction rather than one
involving personal taste or fancy. The
trial court agreed with WestAir, reasoning that the good faith standard was
appropriate because the language in the contract at issue "reserved to the
defendant in this case sole discretion as to the value of the assets and
conditions related to the condition of the assets as inspected."
B. Analysis
Premier
argues the trial court improperly instructed the jury that it could consider
whether WestAir was "honestly and genuinely" dissatisfied (i.e., a
subjective test) with the condition of certain assets and instead should have
instructed the jury to consider WestAir's purported dissatisfaction based on a
"reasonable person" standard (i.e., an objective test).
"A
party is entitled upon request to correct, nonargumentative instructions on
every theory of the case advanced by him which is supported by substantial
evidence." (Soule v. General Motors
Corp. (1994) 8 Cal.4th 548, 572.)
However, it is the duty of counsel for the respective parties to propose
complete and correct instructions on all legal theories advanced in the
case. (See Willden v. Washington Nat. Ins. Co. (1976) 18 Cal.3d 631,
636.) "Instructions should state
rules of law in general terms and should not be calculated to amount to an
argument to the jury in the guise of a statement of law." (Fibreboard
Paper Products Corp. v. East Bay Union of Machinists (1964) 227 Cal.App.2d
675, 718.) Therefore, our inquiry is
whether the special instruction correctly and completely stated the law
applicable to the satisfaction clause at issue in this case.
"When,
as here, a contract provides that the satisfaction of one of the parties is a
condition precedent to that party's performance, two different tests are
recognized: (1) the party may make a purely subjective decision but it must be
made in good faith; or (2) the party must make the decision in accordance with
an objective standard of reasonableness."
(Storek & Storek, Inc. v.
Citicorp Real Estate, Inc. (2002) 100 Cal.App.4th 44, 58–59 (
test to evaluate a promisor's satisfaction depends upon the intent of the
parties, as expressed in the language of the contract. In the absence of a specific expression in
the contract or one implied from the subject matter, the preference of the law
is for the less arbitrary reasonable person standard. [Citations.]
The reasonableness test is especially preferable when factors of
commercial value or financial concern are involved, as distinct from matters of
personal taste." (
contract to make a purely subjective decision, that decision must be made in
'good faith,' but the courts will not examine its 'reasonableness.' " (FEI
Enterprises, Inc. v. Yoon (2011) 194 Cal.App.4th 790, 800.) "While contracts making the duty of
performance of one of the parties conditional upon his satisfaction would seem
to give him wide latitude in avoiding any obligation . . . , such
'satisfaction' clauses have been given effect." (Mattei
v. Hopper (1958) 51 Cal.2d 119, 122–123.)
Premier
contends the objective standard was applicable in this case because
"Westair's satisfaction was tied to its evaluation of the operative
fitness and/or mechanical utility of the assets" rather than its fancy,
taste or judgment. (Boldface omitted.) In making this argument, Premier gives little
weight to the language of the LOI.
Although the preference in the law is generally the objective or
"reasonable person standard," we must look to the intent of the
parties as expressed in their contract.
(Storek, supra, 100 Cal.App.4th at p. 60.)
The LOI gave WestAir wide latitude
in adjusting the purchase price.
Specifically, it stated, "The Purchase Price shall be decreased
$500 for each patio heater that is not in good working order or rent-ready condition. If WestAir determines in its sole discretion that the value of any other assets is less
than set forth on the [asset list prepared by Essey], it shall adjust the
Purchase Price to its best estimate of
fair market value for such assets."
(Italics added.) Further, the
parties included conditions to closing, including "[v]erification,
. . . [t]he condition of all [
intended to give WestAir broad authority to
adjust the purchase price for Premier's assets based on its best estimate of their fair market value and to be satisfied with
the condition of all assets.
Accordingly, the parties expressly gave WestAir subjective discretion in
this case.
We are also not convinced by
Premier's argument that WestAir's exercise of its "sole discretion"
to adjust the purchase price was limited to assets other than the patio
heaters. "[L]anguage in a contract
must be construed in the context of that instrument as a whole, and in the
circumstances of that case." (
Co. (1986) 41 Cal.3d 903, 916, fn. 7.)
"The whole of a 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.) Here, although the provision
giving WestAir sole discretion to adjust the purchase price referenced
"any other assets," it also referred to the asset list prepared by
Essey, which included the patio heaters.
Given this language and the parties allowing WestAir to verify the
condition of all assets to its
satisfaction before closing, it is clear that the parties intended to give
WestAir broad discretion including as to the patio heaters. Thus, we reject Premier's argument.
Based on the foregoing, the trial
court did not err in instructing the jury on the subjective standard as applied
to the LOI's satisfaction clause.
II. Substantial
Evidence Supported the Jury's Findings
A. Standard of Review
Premier's challenges to the jury's
factual findings and conclusions, express or implied, are reviewed under the
substantial evidence standard of review. (SFPP
v. Burlington Northern & Santa Fe Ry. Co. (2004) 121 Cal.App.4th 452,
462.) Under this standard, we review the
entire record to determine whether there is substantial evidence supporting the
jury's factual determinations (Bowers v.
Bernards (1984) 150 Cal.App.3d 870, 873–874), viewing the evidence and resolving
all evidentiary conflicts in favor of the prevailing party and indulging all
reasonable inferences to uphold the judgment (Jordan v. City of Santa Barbara (1996) 46 Cal.App.4th 1245,
1254–1255 (Jordan)). The issue is not whether there is evidence in
the record to support a different finding, but whether there is some evidence
that, if believed, would support the findings of the trier of fact. (Rupf
v. Yan (2000) 85 Cal.App.4th 411, 429–430, fn. 5.) Credibility is an issue of fact for the trier
of fact to resolve (Johnson v. Pratt
& Whitney Canada, Inc. (1994) 28 Cal.App.4th 613, 622) and the
testimony of a single witness, even a party, is sufficient to provide
substantial evidence to support a factual finding (In re Marriage of Mix (1975) 14 Cal.3d 604, 614).
B. WestAir's Performance
Premier
argues the jury's finding that WestAir performed all or substantially all of
its obligations under the LOI is not supported by substantial evidence. Specifically, Premier contends WestAir failed
to meet its obligations under the LOI because WestAir did not provide Premier
with "information about the adjusted fair market value of any specific
assets." Premier's argument is
unavailing.
In making
its argument, Premier focuses on Owen's testimony that he prepared a
spreadsheet with adjusted asset values to determine the new purchase price for
Premier's assets. Premier describes the
spreadsheet as " 'phantom'
documentation" and contends Owens testimony about the creation of the
spreadsheet was contrary to his deposition testimony in which he stated he did
not have any documentation on how he arrived at the adjusted price of
$530,460. Owen's deposition testimony
was presented to the jury and we presume the jury considered it. Weaknesses, conflicts, and inconsistencies in
the evidence were for the jury to evaluate and our task on appeal is to
determine whether any reasonable trier of fact could have reached the same
conclusion as the jury did. Premier's
citation to evidence from which a jury could have drawn a different conclusion
is nothing more than an invitation to reweigh the credibility of the witnesses,
something we cannot do in assessing the sufficiency of evidence.
Further,
Premier ignores other evidence in the record from which the jury could
reasonably conclude WestAir complied with its obligation to provide its best
estimate of the fair market value of the assets to Premier. Notably, Owen sent Essey a letter stating
WestAir was adjusting the purchase price to $530,460 "to reflect [its]
best estimate [of] the fair market value of the assets." Thereafter, WestAir's counsel clarified how
WestAir calculated the reduced purchase price.
Further, when presented with his deposition testimony, Owen stated he
worked with Premier on everything during the negotiations and "it was
pretty much open." Based on this
evidence, the jury could have reasonably concluded WestAir did all or
substantially all of the things it was required to do under the LOI. Accordingly, we decline to reweigh the
evidence and credibility of the witnesses
and overturn the jury's verdict.
C. Good Faith
Premier
argues the jury's finding that WestAir acted in good faith is not supported by
substantial evidence. We disagree.
In making
its argument, Premier focuses on the absence of evidence showing WestAir
consulted with outside sources to determine the fair market value of Premier's
assets. However, the LOI did not require
WestAir to consult with outside sources for its asset valuation. Rather, the LOI allowed WestAir to adjust the
price based on "its best estimate
of fair market value" and verify the condition of the assets to "[
satisfaction." (Italics
added.) Regardless, WestAir did consult
with Universal Propane about the quick disconnect valves and learned they were
outdated and had safety issues. WestAir
also compared the price of Premier's heaters to new Teeco heaters, which they
could purchase for $368.
Further, Premier ignores other
evidence demonstrating WestAir acted in good faith. Notably, Owen testified he attempted to
negotiate and act in good faith at all times with Essey. After Owen sent Essey a letter indicating the
reduced purchase price, he called Essey numerous times and did not get a
response. Castiglione also testified he
believed the LOI permitted WestAir to "do its due diligence and
investigate all of the parts of [Premier's] business." Castiglione went on to state he believed
"in good faith" that the value of Premier's assets was only
approximately $500,000 and he would have continued discussions if Essey would
have returned WestAir's calls. Arguably,
Premier thwarted WestAir's ability to continue negotiations and provide further
explanation regarding the adjusted purchase price.
Premier is again asking us to reweigh
the evidence in its favor. However, we
must review the entire record, viewing the evidence and resolving all
evidentiary conflicts in favor of WestAir and indulging all reasonable
inferences to uphold the judgment. (
reasonable jury could conclude WestAir acted in good faith and we will not
disturb that finding on appeal.
DISPOSITION
The judgment is affirmed.
WestAir is entitled to its costs on appeal.
McINTYRE, Acting P. J.
WE CONCUR:
O'ROURKE, J.
IRION, J.
