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Dennis Gallagher and Shelley Gallagher v. Terry J. Holt and Jerri A. Wells

August 2, 2012

DENNIS GALLAGHER AND SHELLEY GALLAGHER, PLAINTIFFS,
v.
TERRY J. HOLT AND JERRI A. WELLS, DEFENDANTS.



ORDER

The parties' cross-motions for summary judgment came on regularly for hearing on May 17, 2012*fn1 . William Parish appeared for plaintiffs. Donald Ullrich, Jr., appeared for defendants. Upon review of the motions and the documents in support and opposition, upon hearing the arguments of counsel and good cause appearing therefor, THE COURT FINDS AS FOLLOWS:

RELEVANT FACTUAL BACKGROUND*fn2 I. Introduction Plaintiff Dennis Gallagher and his family have farmed the 709 acres of rice land at issue in this case ("the 709 Property") for over thirty years. Gallagher Decl. ¶ 2. They have also provided all of the custom farming services for the 709 property. Id. These services include preparation of the land for planting rice, field labor, ground spraying and pre-plant fertilization, deep well pump maintenance and service, harvest, drying and storing rice, marketing the rice, and general management of the farm. Id.

Between 1980 and 1983, the 709 Property was owned by Robert Gallagher, plaintiff Dennis Gallagher's father. Gallagher Decl. ¶ 3. In 1983, Robert Gallagher experienced financial difficulties, causing him to file for bankruptcy. Id. To emerge from these hardships, plaintiff Dennis Gallagher negotiated a plan whereby his father transferred the 709 Property to, among others, Kenneth Majors*fn3 and Allen Johnson*fn4 through a deed in lieu of foreclosure. Id. Even with the transfers, though, plaintiffs continued to provide all farming services for the 709 Property. Id.

Although the 709 Property was initially owned equally by Majors and Johnson, the ownership interests were eventually restructured such that Majors's daughters, defendants Terry Holt*fn5 and Jerri Wells*fn6 , acquired a two-third interest, and Johnson's interest was reduced to one-third. Gallagher Decl. ¶ 5. This restructuring was done to maximize farm program payments for the 709 Property. Id. During the tenure of their ownership of the 709 Property, defendants did not participate in the property's management or operations. Id.

II. The Oral Agreement

From the time Robert Gallagher deeded his interest to Majors and Johnson, it was agreed that Robert Gallagher and plaintiff Dennis Gallagher would ultimately reacquire a one-half ownership in the 709 property. Gallagher Decl. ¶ 4. In furtherance of this goal, Robert Gallagher*fn7 , plaintiff Dennis Gallagher, Majors and Johnson entered into an oral agreement ("the Oral Agreement") whereby Majors and the Gallaghers would ultimately each own a one-half interest in the 709 Property. Id. ¶ 5. Per the Oral Agreement, plaintiffs secured a written option to purchase Johnson's one-third interest in the 709 Property, and Majors agreed that he would transfer from the defendants the remaining one-sixth interest to get plaintiffs to the agreed-upon one-half interest in the property. Id.; Ullrich Decl., Ex. 1 (Doc. No. 99-4 at 1). Plaintiff Dennis Gallagher and his father were reassured that the restructuring that resulted in the defendants' ownership of the 709 Property would not affect the Oral Agreement. Gallagher Decl. ¶ 5. In reliance on the Oral Agreement, plaintiffs continued to provide all custom farming services for the 709 Property at cost and took no management fee for over twenty years. Id. ¶ 6.

Although there was no agreement to pay the defendants any sum of money for the eventual transfer of a one-sixth interest in the 709 Property, Gallagher Dep. at 39, there did exist a written option agreement that Majors prepared concerning that transfer to the plaintiffs. Gallagher Dep. at 77-82; Majors Dep., Ex. B. Over the course of the years, plaintiff Dennis Gallagher asked Majors multiple times when this option agreement would be signed by the defendants and was continually reassured that the defendants' signatures would be obtained. Gallagher Dep. at 78. This option agreement was never signed by the defendants. Id. at 77-82.

After the defendants acquired the two-thirds interest in the 709 property, an entity called "JHW Farms"*fn8 was formed. Gallagher Decl. (Doc. No. 22) ¶ 5. JHW Farms became the entity that operated the 709 property. Id.

III. The Written Contract

In December 2006, plaintiff Dennis Gallagher met with the defendants to give the history of the 709 property, to discuss the farming and management services he provided over the years, and to tell the defendants that, per the Oral Agreement, he was supposed to own a one-half interest in the 709 Property. Gallagher Decl. ¶ 6; Mace Dep. at 39. Plaintiff Dennis Gallagher also discussed the intended transfer of a one-sixth interest in the 709 Property to him. Gallagher Decl. ¶ 6. In exchange for the transfer, he agreed to pay for all closing costs. Gallagher Decl. ¶ 6. Defendants first learned of the Oral Agreement during this meeting. Mace Dep. at 39.

In their dealings with plaintiff Dennis Gallagher, defendants were assisted by their uncle, Jack Majors, who conducted independent research into the Oral Agreement and the history of the 709 Property. Gallagher Decl. ¶ 9; Carsello Dep. at 18.

After their December 2006 meeting with the defendants, plaintiffs prepared a contract entitled the "Real Property Transfer Agreement with Escrow Instructions" ("the Contract"). Gallagher Decl. ¶ 7; see Compl., Ex. A. The Contract provided for the transfer of an undivided one-twelfth interest of the 709 property from each defendant to the plaintiffs, for a total transfer of a one-sixth interest. Id. The stated purpose of the transfer was "to complete the agreement among the parties as to how title shall be held after payment of all third party debts on the Property that existing in 1980, which debts have been paid." Compl., Ex. A. In Section 4.4.4 of the Contract, plaintiffs agreed to pay "all closing costs, including transfer taxes, recording fees, escrow fees and related charges." Id. Had the transaction closed, these costs would have totaled $3,960.70. Gallagher Decl. ¶ 7; Sanguinetti Decl. ¶ 5.

On January 5, 2007, plaintiffs signed the Contract. Gallagher Decl. ¶ 7. On February 28, 2007, defendant Terry Mace signed the Contract. Compl., Ex. A. When she signed it, she understood that she was agreeing to transfer the land described in the Contract to the plaintiffs. Mace Dep. at 9:24--10:5. She testified that although she did not read the Contract before signing it, no one prevented her from reading it. Id. at 8:25--9:8. She also testified that she signed the Contract because "it was the right thing to do" in light of the information she had received from Jack Majors and the plaintiffs regarding the Oral Agreement. Id. at 20:7-9.

On March 3, 2007, defendant Jerri Carsello signed the Contract. Compl., Ex. A. She, too, signed it with the understanding that it was an agreement to transfer the 709 property to plaintiffs. Carsello Dep. at 11:5-9. Carsello testified that she did not read every word of the Contract before signing it, though she could have had she chosen to do so. Id. at 9:8-15. She also testified that although she did not have an attorney representing her when she signed the Contract, she could have had she chosen to do so. Id. at 9:16-21. She stated that there was no one present forcing her to sign the documents. Id. at 9:13-15.

In anticipation of the transfer, plaintiffs opened an escrow account with Placer Title Company. Gallagher Decl. ¶ 11.

IV. The Breach of the Contract

Following the execution of the Contract, a separate agreement ("the Borel

Agreement") was drafted and intended to be signed by defendants and by Johnson, who was represented through a power of attorney by his daughter, Sherri Johnson. Carsello Dep. at 10:5-10; Ullrich Decl., Ex. 1. Per the Borel Agreement, plaintiff Dennis Gallagher was scheduled to receive a $200,000.00 wire transfer from JHW Farms "for [ ] management and consulting services" that he had provided for the 709 property. See Gallagher Dep., Ex. 5 ¶ 3.

On March 7, 2007, a wire transfer to plaintiff Dennis Gallagher was attempted in the amount of $200,000.00. Mace Dep. at 10. Defendant Terry Mace received a call from the bank regarding the transfer whereupon she first became aware of the Borel Agreement. Id. at 15-16. Defendants stopped the wire transfer and then cancelled the Contract for the transfer of the 709 Property. Id. at 10, 15. Both defendants testified that they did so because they felt the parties to the Contract and the Borel Agreement -- the plaintiffs, Jack Majors, and Sherri Johnson -- were not forthright with them. Mace Dep. at 43-44; Carsello Dep. at 13-14. Carsello testified that she canceled the Contract because she "just thought it would be a right of mine to cancel an agreement or a contract. I -- I just felt like if you changed your mind, you could do that."

Carsello Dep. at 14:9-17, 34:22-25. Holt stated in her deposition that she "did not want this transaction to go through." Holt Dep. at 10:6-8, 27:17-19.

On May 8, 2007, following the defendants' cancellation of the contract, plaintiff Dennis Gallagher exercised his written option and purchased Johnson's one-third interest in the 709 property for $600,000.00, the amount he owed under the Oral Agreement. Gallagher Decl. (Doc. No. 22) ¶ 6; Ullrich Decl., Ex. A. Plaintiffs calculate this date as the actual date of the breach of the Contract because they expected the escrow to close on this day. See Gallagher Decl. ¶ 13.

RELEVANT PROCEDURAL BACKGROUND

On December 17, 2008, plaintiffs filed the operative complaint with jurisdiction based on diversity. Plaintiffs brought claims for specific performance and for damages for breach of contract. On May 19, 2009, defendants answered. On December 30, 2009, the parties filed cross motions for summary judgment. On May 28, 2009, a scheduling order issued and a jury trial was scheduled for April 19, 2010. Doc. No. 14. While their motions for summary judgment were pending and in preparation for a February 25, 2010 pretrial conference, the parties submitted a joint pretrial conference statement dated February 18, 2010. Doc. No. 49.

On February 24, 2010, plaintiffs' motion for summary judgment was granted and defendants' motion for summary judgment was denied after the undersigned found that the Contract did not recite adequate consideration. Judgment was entered and this case was closed.

Plaintiffs thereafter appealed, and in June 2011, the Ninth Circuit reversed this court's judgment as to plaintiffs' action for damages for breach of contract after holding that an action at law need not involve a determination of the adequacy of consideration. This case was thereafter reopened and the matter set for trial for August 27, 2012. Pending before the court are the parties' cross motions for summary judgment.

Also pending is defendants' April 18, 2012 motion for relief from stipulation.

Plaintiffs partially oppose this motion.

STANDARDS

Federal Rule of Civil Procedure 56(a) provides that "[t]he court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a).*fn9 A shifting burden of proof governs motions for summary judgment under Rule 56. Nursing Home Pension Fund, Local 144 v. Oracle Corp. (In re Oracle Corp. Sec. Litig.), 627 F.3d 376, 387 (9th Cir. 2010). Under summary judgment practice, the moving party always bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any," which it believes demonstrate the absence of a genuine issue of material fact.

Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986) (quoting then-numbered Fed. R. Civ. P. 56©). "Where the non-moving party bears the burden of proof at trial, the moving party need only prove that there is an absence of evidence to support the non-moving party's case." In re Oracle Corp. Sec. Litig., 627 F.3d at 387 (citing Celotex Corp., 477 U.S. at 325); see also Fed. R. Civ. P. 56 advisory committee's notes to 2010 amendments (recognizing that "a party who does not have the trial burden of production may rely on a showing that a party who does have the trial burden cannot produce admissible evidence to carry its burden as to the fact").

If the moving party meets its initial responsibility, the opposing party must establish that a genuine dispute as to any material fact actually does exist. SeeMatsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 585-86 (1986). To overcome summary judgment, the opposing party must demonstrate the existence of a factual dispute that is both material, i.e., it affects the outcome of the claim under the governing law, see Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Fortune Dynamic, Inc. v. Victoria's Secret Stores Brand Mgmt., Inc., 618 F.3d 1025, 1031 (9th Cir. 2010), and genuine, i.e., "'the evidence is such that a reasonable jury could return a verdict for the nonmoving party,'" FreecycleSunnyvale v. Freecycle Network, 626 F.3d 509, 514 (9th Cir. 2010) (quoting Anderson, 477 U.S. at 248). A party opposing summary judgment must support the assertion that a genuine dispute of material fact exists by: "(A) citing to particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations . . . , admissions, interrogatory answers, or other materials; or (B) showing that the materials cited do not establish the absence or presence of a genuine dispute, or that an adverse party cannot produce admissible evidence to support the fact."*fn10 Fed. R. Civ. P. 56(c)(1)(A)-(B). However, the opposing party "must show more than the mere existence of a scintilla of evidence." In re Oracle Corp. Sec. Litig., 627 F.3d at 387 (citing Anderson, 477 U.S. at 252).

In resolving a summary judgment motion, the evidence of the opposing party is to be believed. SeeAnderson, 477 U.S. at 255. Moreover, all reasonable inferences that may be drawn from the facts placed before the court must be viewed in a light most favorable to the opposing party. SeeMatsushita, 475 U.S. at 587; In re Oracle Corp. Sec. Litig., 627 F.3d at 387. However, to demonstrate a genuine factual dispute, the opposing party "must do more than simply show that there is some metaphysical doubt as to the material facts. . . . Where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no 'genuine issue for trial.'" Matsushita, 475 U.S. at 587 (citation omitted).

ANALYSIS I. Plaintiffs' Motion for Summary Judgment

Plaintiffs seek summary adjudication on the following: (1) the parties entered into a valid and enforceable contract, (2) defendants breached the contract without justification; (3) defendants' breach is the legal cause of damages to the plaintiffs; (4) as a result of the defendants' breach, the plaintiffs lost the fair market value of an undivided one-sixth interest in the property as of May 8, 2007, and one-sixth of the net annual income for the 2007, 2008, 2009, 2010 and 2011 rice crop seasons; and (5) the plaintiffs lost one-sixth of the net annual income for the 2007-2010 rice crops seasons in the sum of $174,746.27. Plaintiffs aver that the only remaining issues to be tried are (1) the fair market value of an undivided one-sixth interest in the property as of May 8, 2007 and (2) the amount lost in net rice crop income for the 2011 season.

A. Breach of Contract

In order to succeed on their breach of contract claim, plaintiffs must prove the following: (1) the existence of a contract, (2) plaintiffs' performance or excuse for nonperformance, (3) defendants' breach of the contract, and (4) the resulting damages to plaintiffs. Reichert v. General Ins. Co. of America, 68 Cal. 2d 822, 830 (Cal. 1968).

1. Contract

Pursuant to California Civil Code § 1550, the following essential elements must be present for a finding of the existence of a contract: (1) parties capable of contracting; (2) their consent; (3) a lawful object; and, (4) a sufficient cause or consideration.

a. Parties Capable of Contracting "All persons are capable of contracting, except minors, persons of unsound mind, and persons deprived of civil rights." Cal. Civ. Code ยง 1556. There is no genuine dispute of material fact as to ...


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