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Sci California Funeral v. Five Bridges Foundation

February 14, 2012

SCI CALIFORNIA FUNERAL SERVICES, INC., PLAINTIFF, CROSS-DEFENDANT AND APPELLANT,
v.
FIVE BRIDGES FOUNDATION, DEFENDANT, CROSS-COMPLAINANT AND APPELLANT. SCI CALIFORNIA FUNERAL SERVICES, INC., PLAINTIFF, CROSS-DEFENDANT AND RESPONDENT,
v.
FIVE BRIDGES FOUNDATION, DEFENDANT, CROSS-COMPLAINANT AND APPELLANT.



Superior Court of San Mateo County, No. CIV432392, Marie S. Weiner, Judge. (San Mateo County Super. Ct. No. CIV432392)

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

CERTIFIED FOR PARTIAL PUBLICATION*fn1

These cross-appeals arise from a long-running dispute over a business deal gone sour. In 1998, SCI California Funeral Services, Inc. (SCI), contracted with the predecessor of Five Bridges Foundation (Five Bridges) to purchase the assets of a cemetery in Colma, California. The asset purchase agreement provided SCI would acquire certain real estate assets, including an option agreement to purchase additional cemetery acreage and an easement giving it signage rights on nearby property. SCI, however, did not receive the option agreement or easement and sued Five Bridges, alleging breach of the asset purchase agreement and other claims. Five Bridges countersued.

After disposing of a number of the claims prior to trial, the superior court rendered a decision that has satisfied neither party. While the court ruled against SCI on SCI's contractual claim regarding the option agreement, it ultimately found Five Bridges liable for breach of contract because of Five Bridges's failure to deliver the easement. It awarded SCI significant damages, although the sum was substantially less than SCI had sought. SCI claimed it was the party prevailing on the contract and requested an award of attorney fees on that basis. The trial court denied its request.

Both parties have appealed from the resulting judgment. Five Bridges contends it was not liable on the contract for various reasons, and it disputes the validity and sufficiency of SCI's damages evidence. Among other conclusions, we determine that, in the circumstances of this case, the trial court properly relied on the unique value of the easement to the servient estate in determining SCI's damages. SCI seeks reversal of the trial court's denial of its request for attorney fees. We affirm the judgment, but reverse the attorney fee order in part.

FACTUAL AND PROCEDURAL BACKGROUND

The long history of this case has produced a voluminous record.*fn2 We set forth only those facts relevant to resolution of the issues on appeal. We recite the facts in the manner most favorable to the judgment and resolve all conflicts and draw all inferences in favor of the prevailing party. (Nwosu v. Uba (2004) 122 Cal.App.4th 1229, 1233, fn. 2.) Many of the facts were hotly disputed, and we describe those evidentiary conflicts necessary to an understanding of the issues on appeal. (See ibid.)

Olivet Memorial Park

In approximately 1895, Olivet Memorial Park (Olivet) began operating a cemetery in Colma. All of the land on which Olivet's cemetery was located was owned by Cypress Abbey Company (Cypress Abbey), which also owned a cemetery known as Cypress Lawn. Olivet would develop land owned by Cypress Abbey for cemetery purposes; and, as it sold gravesites, Olivet would pay Cypress Abbey a portion of the sales price. Thus, under the terms of the contract between them, Olivet acquired land from Cypress Abbey and sold it as it was needed.

In the late 1970's, Olivet and Cypress Abbey decided to restructure their relationship. In 1982, each conveyed to the other various rights and interests, two of which are central to this litigation. First, Olivet received an easement for signage purposes (the Ornamental Easement) in an area of Cypress Abbey's property on both sides of Olivet Parkway at the intersection with El Camino Real.*fn3 The terms of the Ornamental Easement permitted Olivet to place and maintain at that location "signs, embellishments and other structures as are appropriate and befitting to an entranceway of a cemetery." The Ornamental Easement would endure so long as Olivet or its successors were actively operating the cemetery and selling graves.

In addition to the Ornamental Easement, the parties entered into an agreement giving Olivet the option to purchase adjacent property from Cypress Abbey (the Option Agreement). The option property consisted of two parcels--a 2.11-acre parcel and an 8.71-acre parcel, a combined total of almost 11 acres.*fn4 The additional property was necessary to enable Olivet to expand its cemetery and continue to make profits.*fn5 The Option Agreement contained a provision governing how the parties would calculate the purchase price of property subject to the option. In addition, section 12 of the Option Agreement stated, "should either party breach this Agreement, money damages would not be an adequate remedy for the non-breaching party and for that reason, the parties agree that each shall be entitled to specific performance of any term, covenant or condition of [the Option] Agreement." Both the Ornamental Easement and the Option Agreement were recorded on July 2, 1982.

Olivet's Negotiations With SCI and Cypress Abbey

In the mid-1990's, Olivet began exploring the possibility of selling its cemetery assets. In late 1995, Olivet began to furnish information to SCI so that SCI could evaluate whether to purchase those assets. Kallgren represented Olivet in these discussions; his primary contacts at SCI were Lowell Kirkpatrick, Jr., SCI's director of corporate development, and Kirkpatrick's assistant, Deborah Fisher Young.

SCI was seeking to acquire a cemetery that would have a useful life of 40 to 50 years. Because Olivet's existing inventory was very limited, SCI was only interested in acquiring its assets if the deal included the option to acquire additional land for graves from Cypress Abbey. It was clear that SCI would not have gone forward with the transaction if it had not included the option to acquire the additional acreage. Kallgren was aware of the importance SCI attached to the ability to acquire additional land for graves.

After it had entered into discussions with SCI, on November 26, 1996, Olivet informed Cypress Abbey it intended to exercise its option to buy the 2.11-acre parcel. Olivet proposed a purchase price based upon the formula contained in the Option Agreement. Cypress Abbey did not respond to Olivet's notice for several months. When Cypress Abbey did respond, it disagreed with Olivet's calculation of the purchase price. In addition, Cypress Abbey indicated its desire to discuss other issues. Among them was Olivet's possible release of the Ornamental Easement, in exchange for which Cypress Abbey would provide Olivet with a new water well.

Eventually, at a meeting on January 8, 1998, at which a number of issues were discussed, Olivet and Cypress Abbey reached an agreement on the sale price for the 2.11 acres. After the meeting, Kallgren exchanged correspondence with Cypress Abbey's counsel, Peter Wohlfeiler. On the day following the meeting, Wohlfeiler sent Kallgren a draft letter agreement summarizing what Olivet and Cypress Abbey had agreed upon. The draft letter agreement dealt with both the sale of the 2.11-acre parcel and Olivet's release of the Ornamental Easement to Cypress Abbey. Wohlfeiler's draft called for Olivet to pay $800,000 for the 2.11-acre parcel. Regarding the Ornamental Easement, the draft letter agreement stated that "Olivet and [Cypress Abbey] have agreed as follows: [¶] . . . Olivet will release all of its right, title and interest in the [Ornamental Easement] . . . ." (Italics added.) In return for release of the Ornamental Easement, Olivet and Cypress Abbey would enter into an agreement giving Olivet the right to drill a well within the area burdened by the easement. Wohlfeiler stated he believed his letter "accurately and completely set[] forth the agreement reached on January 8," but he invited Kallgren to identify any inaccuracies.

Kallgren responded to Wohlfeiler's letter on January 12, stating, "[t]he agreement respecting the [Ornamental Easement] was and is separate and independent of our agreements respecting the 2.11 acres," and insisting the proposal be modified to reflect that. On January 19, Wohlfeiler replied with a revised letter agreement incorporating Kallgren's suggestions. While it stated that the agreement regarding the Ornamental Easement was "separate and independent" and "not in any respect contingent upon any term or provision relating to the purchase and sale of" the 2.11 acres, it reiterated that Olivet and Cypress Abbey had agreed Olivet would release the Ornamental Easement. This proposed agreement was not signed by the parties. Instead, Olivet and Cypress Abbey executed an agreement drafted by Kallgren addressing only the sale of the 2.11-acre parcel. In a January 22, 1998 letter to Kallgren returning the signed copy of that agreement, Wohlfeiler wrote that he expected Olivet to continue to discuss the well agreement "so that Olivet's release of the [Ornamental Easement] can be consummated in due course."

Although Olivet and Cypress Abbey had settled upon the purchase price for the 2.11 acres in January 1998, the sale of the parcel did not close until September 29 of that year, because they disputed what they had agreed to regarding the other issues discussed at the meeting. Kallgren testified that at the January 8, 1998 meeting, he had reached only a "gentleman's agreement" with Cypress Abbey regarding Olivet's release of the Ornamental Easement. Kallgren later insisted that the agreement to release the Ornamental Easement had not been finalized and that there was no linkage between that agreement and Cypress Abbey's sale of the 2.11 acres. Cypress Abbey, on the other hand, viewed the matter differently. It contended Olivet had agreed at the meeting to release the Ornamental Easement to Cypress Abbey and Cypress Abbey had only assented to the sale of the 2.11 acres in reliance upon Olivet's agreement to relinquish the Ornamental Easement.

On March 19, 1998, Olivet and SCI executed a letter of intent regarding SCI's purchase of Olivet's assets. During the negotiations between the two entities, Kallgren did not tell SCI that he had reached an agreement to relinquish the Ornamental Easement to Cypress Abbey. Instead, he told SCI's Kirkpatrick there was no legally binding agreement, but rather only an agreement to negotiate further with Cypress Abbey on the issue. He also did not tell SCI that there were questions about the enforceability of the Option Agreement.

The Asset Purchase Agreement and Closing of the Sale

On July 16, 1998, Olivet and SCI executed an asset purchase agreement (APA) for the sale of Olivet's cemetery business to SCI. SCI paid a lump sum of $11 million for the assets provided for in the APA. In return for the purchase price, in addition to other assets, SCI acquired from Olivet "all right, title and interest" in the "real property located at 1601 Hillside Boulevard, Colma, California." The Ornamental Easement was included among the real property interests transferred to SCI pursuant to the APA. Also among the assets was "the real property Option Agreement."

Article VI of the APA contained a number of postclosing covenants. Section 6.4 of the APA confirmed that the Option Agreement was among the assets SCI was acquiring. That section also stated: "[Olivet] has exercised the option pursuant to the Option Agreement to purchase approximately 2.11 acres. . . . Immediately following the Closing, [SCI] shall exercise the Option Agreement with respect to the remaining acreage thereunder by executing and delivering to Cypress Abbey . . . a notice of exercise in the form of the exercise letter attached hereto as Exhibit E . . . . [SCI] and [Olivet] shall use their reasonable efforts to negotiate the lowest purchase price possible in connection with such transaction, which negotiation shall be conducted on an arm's length basis independent of any other factors or transactions."

The sale of Olivet's assets was scheduled to close in late September 1998. But because of its disagreement with Olivet concerning the negotiations over the Ornamental Easement, Cypress Abbey refused to complete the agreed-upon sale of the 2.11 acres, and SCI was unwilling to go forward with the purchase of Olivet's assets unless the additional acreage was included. At Olivet's request, SCI's Kirkpatrick confirmed to Cypress Abbey's counsel that, within 20 days of closing of SCI's purchase of Olivet's assets, SCI would be "willing to negotiate in good faith" with Cypress Abbey regarding the release of the Ornamental Easement. After Olivet threatened to seek damages from Cypress Abbey if it failed to complete the sale, Cypress Abbey relented and executed the necessary sale documents. The sale of Olivet's assets closed on September 30, 1998.*fn6

Immediately prior to closing, Olivet had provided SCI with an updated schedule of all contracts to which Olivet was a party. One of the schedules included some correspondence from counsel for Cypress Abbey in which Cypress Abbey asserted its position that Olivet had already agreed to release the Ornamental Easement. While the schedules did include Olivet's agreement with Cypress Abbey for the purchase of the 2.11 acres, they did not include Wohlfeiler's letters of January 19 and 22, 1998, in which Cypress Abbey clearly took the position that Olivet had agreed to release the Ornamental Easement.

SCI's Negotiations With Cypress Abbey

On October 1, 1998, SCI informed Cypress Abbey of its exercise of the option to buy the additional 8.71 acres. In December 1998, SCI vice-president Dann Narveson met with Cypress Abbey representatives to discuss the purchase. Narveson testified that the meeting "self-destructed" when Cypress Abbey made clear it was unwilling to discuss anything until SCI agreed to release the Ornamental Easement. Cypress Abbey's representatives told Narveson Olivet had already agreed to reconvey the Ornamental Easement prior to SCI's acquisition of Olivet's assets. The meeting ended abruptly after this announcement without any agreement on the option acreage.

Narveson then discussed the matter by phone with Kallgren, who told him there was no such agreement between Olivet and Cypress Abbey. On May 4, 1999, Narveson wrote to Kallgren requesting copies of earlier correspondence between Olivet and Cypress Abbey that had not previously been given to SCI. Kallgren responded the following day and provided Narveson with several documents, many of which had not been included in the schedules Olivet furnished to SCI as of the closing date. Among these documents were letters between Olivet and Cypress Abbey relating to the discussions surrounding the agreement they had reached on January 8, 1998, regarding the transfer of the 2.11-acre parcel and Cypress Abbey's understanding of the agreement with respect to the Ornamental Easement. Not included were Wohlfeiler's letters of January 9 and 19, 1998, in which Cypress Abbey asserted its position that Olivet had definitively agreed to release the Ornamental Easement.

After Narveson consulted with Kallgren regarding the calculation of a price for the 8.71-acre parcel, on July 20, 1999, SCI offered Cypress Abbey $3.21 million for the land. Cypress Abbey did not respond to the offer. Counsel for SCI then wrote to Cypress Abbey demanding that it comply with the terms of the Option Agreement. Counsel for Cypress Abbey responded, disputing SCI's interpretation of the Option Agreement and asking SCI to confirm "whether it intend[ed] to promptly and unconditionally release the [Ornamental Easement]."

The Cypress Abbey Litigation

On October 7, 1999, SCI sued Cypress Abbey in San Mateo Superior Court seeking declaratory relief and specific performance of the Option Agreement (the Cypress Abbey litigation). SCI asked the court to declare the purchase price for the remaining 8.71 acres under the terms of the Option Agreement, and it requested that the court order Cypress Abbey to transfer that acreage to SCI in return for the purchase price SCI had calculated. Cypress Abbey responded by filing a cross-complaint against SCI and Five Bridges. In its cross-complaint, Cypress Abbey asked the court to cancel the Option Agreement, quiet title to the 8.71 acres, and enforce specifically its earlier agreement with Olivet to reconvey the Ornamental Easement. It claimed that at the January 8, 1998 meeting, Olivet had entered into an enforceable oral contract to release the Ornamental Easement. Cypress Abbey asserted it had agreed to sell the 2.11-acre parcel at a reduced price in reliance on this oral agreement.

After faxing Cypress Abbey's cross-complaint to Kallgren, on January 28, 2000, SCI's counsel called Five Bridges's counsel to tender to Five Bridges the defense of Cypress Abbey's cross-complaint. Having received no response to the oral tender, counsel tendered the defense in writing. Five Bridges did not accept SCI's tender of defense and instead tendered its own defense of the Cypress Abbey litigation to SCI.

In May 2002, the court entered judgment in the Cypress Abbey litigation. The court found the Option Agreement provided no viable mechanism for determining a purchase price for the additional acreage and further ruled the Option Agreement was not specifically enforceable. It therefore entered judgment in favor of Cypress Abbey on SCI's claims. The court also found there was an enforceable oral agreement for reconveyance of the Ornamental Easement, and it ordered specific enforcement of that agreement. It also quieted title to the "Frontage Area" in Cypress Abbey's favor, extinguished the Ornamental Easement, and ordered Cypress Abbey to grant SCI a well easement.

The Action Below

SCI filed this action on July 1, 2003. It later filed a first amended complaint (FAC) alleging 13 causes of action. A demurrer, various motions for summary adjudication, and a stipulation eliminated all but three of SCI's causes of action, leaving for trial its claims for breach of contract, unjust enrichment, and express contractual indemnity.

Five Bridges filed a cross-complaint asserting five causes of action, including declaratory relief, breach of contract, and unjust enrichment. In addition, it sought indemnification from SCI for the attorney fees and costs Five Bridges had incurred as a result of its involvement in the Cypress Abbey litigation. Prior to trial, the court below ruled that Five Bridges's claim for unjust enrichment was moot.

The action was tried to the court in March and April 2007. On October 16, 2007, the trial court announced its tentative decision in which it informed the parties that it would issue an amended tentative decision within 30 days. The amended tentative decision was not issued until almost a year later, on October 8, 2008. Both parties filed objections to the amended tentative decision and offered proposed findings to the court.

The Final Statement of Decision

The trial court filed its final statement of decision on February 10, 2009. Regarding the Option Agreement, the court found SCI had assumed all risks as to its ability to negotiate with Cypress Abbey for additional land under that agreement. It therefore determined Five Bridges had not breached the APA with respect to the Option Agreement.

In contrast, the court found Five Bridges had breached the APA by failing to convey the Ornamental Easement to SCI. It made the following findings on this issue: Regardless of the terms of the Option Agreement, Cypress Abbey had only been willing to sell the 2.11-acre parcel to Olivet if Olivet would agree to reconvey the Ornamental Easement. Kallgren negotiated a swap of the Ornamental Easement in exchange for water rights but did not adequately disclose this agreement with Cypress Abbey in the APA. Specifically, although SCI knew Olivet was in negotiations with Cypress Abbey over the exchange of the Ornamental Easement for a well, SCI was affirmatively told there was no final agreement with Cypress Abbey at the time the APA was consummated. In addition, SCI was told Olivet was selling the Ornamental Easement to SCI as part of the APA. It was not fully disclosed to SCI that Olivet had had to promise release of the Ornamental Easement to get the 2.11 acres for the agreed price of $800,000. Finally, Olivet told Cypress Abbey and SCI that it was up to them to finalize the negotiations for any swap of the Ornamental Easement after the close of the sale of Olivet's assets. The trial court criticized Kallgren's "lack of candor" in this regard.

This led to the breakdown of negotiations between SCI and Cypress Abbey over SCI's exercise of the option for the 8.71-acre parcel, because SCI assumed it was under no obligation to give up the Ornamental Easement and could use it as a bargaining chip in those negotiations. SCI did not know Olivet had already cashed in that bargaining chip to induce Cypress Abbey to sell the 2.11-acre parcel. Cypress Abbey, on the other hand, assumed it already had a deal to swap the Ornamental Easement for a water well, with only the details of the well rights left to be negotiated. As a result, SCI and Cypress Abbey were unable to reach agreement on a price for the 8.71 acres, and SCI sued to enforce the Option Agreement. The result of that action was a judgment ordering that the Ornamental Easement be deeded to Cypress Abbey. Thus, although the APA was clear that SCI was purchasing the Ornamental Easement, Olivet did not own the easement as it had already made an enforceable promise to convey it to Cypress Abbey.

The trial court also found Five Bridges had breached the express indemnity provisions of the APA by failing to assume defense of the cross-complaint in the Cypress Abbey litigation and by refusing to pay the amount of the resulting postjudgment settlement. The court awarded SCI no damages on this claim, however, because SCI had failed to segregate the fees expended in defense of Cypress Abbey's cross-complaint, which were subject to indemnity, from those expended in prosecuting its complaint against Cypress Abbey, which were not. The court rejected Five Bridges's claim that it was entitled to indemnity from SCI.

The court found SCI's claim for unjust enrichment either redundant or mooted by SCI's election to seek a remedy for breach of contract. Even if the claim had not been mooted, the trial court found that, to the extent Five Bridges was enriched, such enrichment was not unjust. Since it was awarding SCI damages for loss of the Ornamental Easement, it determined any damage award for unjust enrichment would be redundant.

After it rejected Five Bridges's affirmative defenses based on the statute of limitations and the limitations provisions of the APA, the trial court turned to the issue of damages. It noted SCI had presented expert evidence on the damages resulting from the failure to convey the Ornamental Easement, but Five Bridges had not. It applied the measure of damages prescribed by Civil Code section 3300,*fn7 and relying upon the testimony of SCI's expert real estate appraiser, David Snively, concluded SCI suffered approximately $1.7 million in damages from loss of the Ornamental Easement. The court specifically considered the Ornamental Easement's potential value to SCI as a bargaining chip in its negotiations with Cypress Abbey. It noted the Ornamental Easement effectively precluded Cypress Abbey from making any use of its servient estate,*fn8 which meant that while the Ornamental Easement might have little value to others, its extinguishment was of great value to Cypress Abbey.

The trial court awarded SCI $1.7 million for breach of contract. It found there was no "non-prevailing party" within the meaning of the APA's attorney fee clause. It deemed SCI the prevailing party for purposes of statutory costs.

Further Proceedings

Five Bridges filed further objections to the final statement of decision and asked the trial court to deem its final statement of decision a proposed statement of decision. The trial court denied the request and let stand its final statement of decision. The court entered judgment on July 6, 2009, awarding SCI damages of $1.7 million plus $290,417 in prejudgment interest, for a total of $1,990,417. The trial court denied Five Bridges's motion for new trial.

SCI moved for an award of attorney fees. After a hearing, the trial court denied SCI's motion.

Both parties filed appeals from the judgment. Five Bridges also appealed the denial of its motion for new trial.

DISCUSSION

The parties challenge different aspects of the judgment. In its appeal, Five Bridges raises a host of issues. First, its principal argument is that SCI failed to introduce legally sufficient and substantial evidence of its damages. Second, Five Bridges claims it did not breach the APA by failing to transfer the Ornamental Easement. Third, it asserts SCI's breach of contract claims were not timely filed. Fourth, Five Bridges challenges the trial court's finding in SCI's favor on the claim for express indemnity. Fifth, it asks us to modify the judgment to correct what it claims is a computational error. Sixth, it contends it was entitled to recover from SCI the expenses it incurred in the Cypress Abbey litigation.

For its part, SCI appeals from the trial court's denial of its request for attorney fees. It has also filed a conditional appeal of the trial court's summary adjudication of its claim for breach of express warranties.*fn9

We first address the issues presented in Five Bridges's appeal. We then turn to SCI's appeal of ...


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