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Ittella Internat'l, Inc. v. Pacific American Fish

May 20, 2009; as modified June 9, 2009


APPEAL from a judgment of the Superior Court of Los Angeles County. olf M. Treu, Judge. Reversed with directions. (Los Angeles County Super. Ct. No. BC315762).

The opinion of the court was delivered by: Zelon, J.


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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

Pacific American Food Co., Inc. (PafCo) and Peter Huh (Huh) appeal from judgment on Ittella International, Inc.'s (Ittella) cross-complaint for intentional and negligent interference with a lease and punitive damages after a bench trial in which the trial court found for Ittella. Appellants contend that the trial court erred because there is no evidence its conduct caused any harm to Ittella; California law does not recognize the tort of negligent interference with contract; and the punitive damages award was excessive and not supported by any showing of malice. We reverse, and order the trial court to enter judgment in favor of PafCo and Huh.


1. Summary of Proceedings

M&M Foods, Inc. (M&M) leased commercial real property from Ittella for use as a food processing plant. In early 2004, M&M's principal, Michael Silver (Silver) entered into a plea agreement with the United States concerning federal taxes. At about the same time, PafCo offered to buy substantially all of M&M's assets and agreed to sublet the Ittella premises from M&M for a portion of the remaining lease period. Although Ittella refused to consent to the sublease, PafCo moved into M&M's premises and began conducting business. M&M filed suit against Ittella and PafCo (M&M Action). Ittella commenced a separate unlawful detainer action, which the parties settled by agreeing PafCo could remain at the premises until January 1, 2005. In April 2005, PafCo vacated the premises, and in July 2005, M&M filed for chapter 7 bankruptcy. In July 2006, a bench trial commenced on Ittella's third- amended cross-complaint in the M&M Action, in which Ittella asserted claims against PafCo for intentional and negligent interference with contract and sought punitive damages. PafCo defended by asserting that because M&M was financially incapable of completing the lease term in any event, PafCo's occupation of the premises did not cause M&M's breach of the lease. The trial court found for Ittella, awarding it $230,000 in lost lease payments and $1.15 million in punitive damages.

2. PafCo's Purchase of M&M Assets; The Failed Sublease

On October 3, 1994, Abel C. Galletti, a partner with Galletti Brothers Investments (Galletti Brothers), leased commercial real property located on East 21st Street in Los Angeles to M&M Foods. The property was specifically constructed for a food processing business. After a series of extensions, the lease was extended through November 30, 2006 at a rate of $26,000 per month.*fn1

In February 2004, PafCo entered into negotiations with M&M and Silver for the purchase of a substantial portion of M&M's assets. Silver told Huh, the owner of PafCo, that it was critical to sell M&M because he was having financial problems, and that the business owed the IRS $7 million. Once a plea agreement Silver told Huh that he intended to make became public, Silver's suppliers would cut him off. Huh believed that if the parties could not consummate an asset purchase agreement, M&M would go into bankruptcy.

The parties entered into an asset purchase agreement which provided for the sale of M&M's machinery, equipment, and those portions of the inventory that were saleable. The agreement also provided that M&M would obtain Ittella's consent to PafCo's sublease of the Ittella premises from M&M "for a period of time not to exceed December 31, 2004, or such additional time that the Buyer may need until Buyer's new building is ready for occupancy.... Buyer is not assuming, and not relieving Seller of the lease obligations except as contained herein. Buyer shall pay any and all rents directly to the landlord." M&M's accounts receivable were excluded from the agreement. Further, Silver disclosed in the agreement that he had made a plea agreement with the U.S. Attorney relating to $7 million in taxes, and that PafCo was aware that if the plea agreement became public prior to the closing, such public disclosure could adversely affect M&M's business. Closing was set for March 31, 2004.

Salvatore Sam Galletti, the owner of Stonegate, disputed that M&M Foods was having financial problems. Galletti had known Silver over 20 years, and did not know his business was in trouble; he believed that M&M did $80 million a year in business. From Galletti's observations of the premises, Silver's business was doing well; the freezers were full, there was a lot of activity, and Silver did not have trouble paying the rent. Although Galletti had heard rumors about Silver, he had extended him credit.*fn2

In March 2004, Silver's plea agreement became public, and his suppliers began to cut him off. In early April 2004, M&M informed Ittella of the asset purchase and that it wanted to sublease the premises to PafCo through the end of 2004. Ittella refused to consent to the proposed sublease.*fn3 Because the lease was not secured by any personal property or guarantee, Ittella was concerned that "at the termination of the sublease, M&M would not have the capability of continuing its business within the premises, as most of its equipment, inventory and assets would have been transferred to PafCo by then for PafCo's use in its separate business in a different [location]. Consequently, the ability of M&M to perform its obligations under the lease for the duration of the lease would be compromised." For this reason, Ittella requested that as a condition of its consent to the sublease, PafCo either assume M&M's obligations under the lease or provide it with a guarantee of M&M's obligations.

On May 19, 2004, M&M Foods commenced the M&M Action against Ittella for breach of lease. The First Amended Complaint alleged claims for breach of lease, breach of the covenant of good faith and fair dealing, and intentional interference with contractual relations. M&M Foods claimed that Ittella unreasonably withheld consent to sublet the premises to PafCo.

In spite of Ittella's refusal to consent to the sublease and with the knowledge it could face eviction, PafCo took possession of the premises on June 7, 2004. PafCo paid rent for the time it occupied the premises. Although M&M ceased doing business as of that date, PafCo told M&M's employees they could continue working for PafCo. At the time of the closing, PafCo, which had been advancing funds to M&M during the escrow because its suppliers had cut it off when they learned of Silver's plea agreement, was owed $3 million. Huh ...

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