Opinion
E071940
07-16-2021
IJLSF, LLC et al., Cross-complainants and Appellants, v. IT'S JUST LUNCH INTERNATIONAL, LLC, Cross-defendant and Respondent IJL SF HOLDINGS, LLC., Intervener and Appellant.
Cahill & Campitiello, Lawrence Campitiello; Williams Iagmin and Jon R. Williams for Cross-complainants and Appellants. Fisher Zucker, Jeffrey Zucker, Frank A. Reino; Bartko, Zankel, Bunzel & Miller, and Charles G. Miller for Cross-defendant and Respondent.
NOT TO BE PUBLISHED
APPEAL from the Superior Court of Riverside County. No. PSC1601663 James T. Latting, Judge. Reversed with directions.
Cahill & Campitiello, Lawrence Campitiello; Williams Iagmin and Jon R. Williams for Cross-complainants and Appellants.
Fisher Zucker, Jeffrey Zucker, Frank A. Reino; Bartko, Zankel, Bunzel & Miller, and Charles G. Miller for Cross-defendant and Respondent.
OPINION
SLOUGH J.
Respondents, It's Just Lunch International, LLC (International), own and operate franchises of a dating and matchmaking service. They also enter franchise agreements with third parties to operate franchises in some regions. Appellants IJLSF, LLC (IJLSF) is one such franchisee. They operate the It's Just Lunch franchise in the San Francisco area but sought to sell their business to a third party buyer. Appellants IJL SF Holdings, LLC (Holdings), who owned and operated several franchises of the same business in other locations, offered to purchase the business for $1,460,000, with most of the price-$1,314,000-contingent on their future revenues.
When International received notice of the proposed sale, rather than reject the offer as indefinite on price-as the franchise agreement gave them the right to do-they instead treated the offer as acceptable and asserted their right of first refusal to purchase the franchise on the same terms. When IJLSF objected, International filed a lawsuit, the franchisee and the would-be purchaser countersued, and the parties litigated whether Holdings or International had the right to purchase the franchise. All parties sought summary judgment in their favor.
However, the trial judge ruled Holdings' offer was not a valid, bona fide offer to purchase the franchise-as defined in the franchise agreement-because the offer didn't set a fixed purchase price. By so ruling, the court ignored the possibility that International may have elected not to exercise their right to reject the purchase agreement on that basis because exercising their right of first refusal was more beneficial to them.
On the basis of this ruling, the judge concluded International didn't have the right to purchase the franchise and entered summary judgment against International on its claim. After a second round of summary judgment briefing, the judge used the same premise to grant summary judgment against IJLSF, IJLSF's individual owner, and Holdings on a majority of their counterclaims. This time, the trial judge ruled that IJLSF could not force International to accept the purchase agreement because the offer was not a valid, bona fide offer. In effect, the trial judge held IJLSF's contractual obligation to present only offers with definite price terms barred IJLSF from forcing International to accept an indefinite offer even if International had made a decision to waive its right to reject the offer on that basis and exercise its right of first refusal instead.
International then conceded its position on the claim that remained, allowing entry of final judgment. IJLSF, its individual owner, and Holdings (appellants) argue on appeal that the judge misinterpreted the language of the franchise agreement defining bona fide offers and, in the alternative, that it was an improper basis for the ruling because International had intentionally waived their right to reject the offer as insufficiently definite as to price by choosing to invoke their right of first refusal and step in as the purchaser under the same terms.
Appellants also ask us to address the core issues presented by the parties on summary judgment. They argue they were entitled to summary judgment for several reasons. First, International attempted to change material terms. Second, International's offer was not comparable in value because Holdings had an established track record of success in previous similar transactions, whereas International's performance showed a risk they would make no contingent payments under the purchase terms. Third, the right of first refusal is unenforceable because International committed a material breach by demanding an excessive renewal fee which contravened the terms of the franchise agreement. IJLSF therefore requests we reverse the summary judgment and remand with instructions to enter judgment in their favor.
We conclude the trial judge correctly held Holdings didn't make a valid, bona fide offer under the plain terms of the franchise agreement. However, we conclude the judge erred by implicitly finding no triable facts as to whether International chose to waive the right to reject the purchase agreement on that basis. We therefore reverse summary judgment and remand for further proceedings, including for a factual determination whether International waived its right to reject the purchase offer based on the provision requiring that an offer include a more definite price term to constitute a valid, bona fide offer. We decline to address the other issues appellants raised, leaving them to the trial judge in the first instance.
I
FACTS
A. The Business
International is the owner and franchisor of It's Just Lunch, which offers dating and matchmaking services in locations across the United States and Canada. International owns and operates many It's Just Lunch franchises itself, but in some areas grants franchise rights to third parties under franchise agreements.
On June 16, 2006, International and IJLSF entered a 10-year franchise agreement under which IJLSF acquired the right to operate a franchise in the San Francisco territory. Amy Brinkman owns IJLSF and is the guarantor of their obligations under the franchise agreement. IJLSF later obtained the rights to the Silicon Valley and East Bay territories and consolidated them with the San Francisco territory.
B. The Disputes
Problems between the parties began when the franchise agreement was nearing its expiration date.
First, IJLSF sought to formally transfer the interest of a minority owner, Ally Steyck, to Amy Brinkman. On February 22, 2016, Steyck and Brinkman entered a withdrawal agreement in which Steyck agreed to transfer her ownership interest to IJLSF, leaving Brinkman as the sole owner. According to Brinkman, Steyck hadn't been involved in the operation of IJLSF and sought to exit ownership to avoid potential exposure to liability from a class action lawsuit against the company.
It's undisputed that Brinkman delivered a copy of the withdrawal agreement to International and requested their written approval. The parties agree section 13 governs any transfer of ownership in the franchise, requires that International approve any transfer of ownership-even among current owners-and that failure to obtain prior written approval is a breach of the agreement. Section 13 of the franchise agreement says, “[T]he rights and duties this Agreement creates are personal to [IJLSF] and its Owners.... Accordingly, neither (i) [the franchise agreement] (or any interest in this Agreement), nor (ii) any interest in the ownership of [IJLSF], the Franchise, [or] the BUSINESS... may be transferred without [International's] prior written approval.... Any transfer without [International's] prior written approval is a breach of this Agreement and has no effect. In this Agreement, the term ‘transfer' includes... [¶]... the transfer of shares, partnership or member interests, or other ownership interests of [IJLSF].”
Section 13 also provides International “will not unreasonably withhold its approval of a transfer” meeting certain requirements that don't appear relevant. However, Brinkman testified at her deposition that the head of International's legal department initially denied the request for approval and, after promising to look into the matter, never returned the approval form Brinkman had submitted. International concede Brinkman made the request and that they didn't provide written approval, but argued in the trial court that they weren't required to provide written approval. They said they agree Steyck no longer owns an interest in IJLSF. In this court, they say they have “not taken the position that the transfer of the minority interest from Steyck was done without approval and the parties have operated at all times as if the transfer occurred.”
A dispute then arose over IJLSF's renewal of the franchise agreement. IJLSF let International know they wanted to renew the franchise agreement, which was set to expire on June 16, 2016. It's undisputed the agreement provides IJLSF could renew the franchise if they paid to International “a renewal fee in an amount equal to one-half of the then-currentinitial franchise fee for a territory of similar size.” It's also undisputed that International instead calculated the $47,500 renewal fee they proposed based on the franchise fees IJLSF had originally paid for its territory.
The agreement places other conditions on renewal, but none of them is a barrier to renewal.
Before the renewal date arrived, IJLSF entered into talks with Holdings for a sale of the assets of the IJLSF business, including their rights under the franchise agreement. Holdings offered to purchase the franchise, and signed a purchase agreement on February 26, 2016. Holdings agreed to pay “the sum of up to, but not to exceed, One million four hundred and sixty thousand ($1,460,000) (‘Purchase Price') payable on the Closing Date as follows: [¶]... the sum of $73,000 in cash (the ‘Cash Payment') consisting of immediately available funds payable to Seller... and $73,000 which shall be paid by Buyer by September 4, 2016; [¶]... [and] the sum of up to $1,314,000 pursuant to an unsecured promissory note delivered at Closing by Buyer to Seller in the form of Exhibit C.”
The promissory note required 12 payments based on the gross revenues realized in operating the It's Just Lunch franchise in San Francisco. The buyer would continue making payments over a period of 60 months or until the entire principal and accrued interest was paid in full, whichever occurred first. “Payments owed under the Note will be determined as follows: based on the cash method of accounting, each calendar quarter the gross revenues... of the Business for the trailing twelve months of the Business will be determined (‘Total TTM Revenue'). The amount of $1,000,000 (‘Baseline') will then be subtracted from the Total TTM Revenue and that amount multiplied by 10% with any quarterly payments made in the prior three calendar quarters subtracted from such amount to determine the amount owed to [IJLSF] for that quarterly period.” In other words, if Holdings produced sufficient revenues by operating the franchise, the payments would reach the total $1,314,000 amount of the promissory note within five years. However, if quarterly revenues were low enough, Holdings would pay less on each installment, and could end up paying nothing.
As we've already noted, the franchise agreement recognizes the rights and duties are personal to the franchisee because the franchisor has a strong interest in who serves in that capacity. As a result, IJLSF was required to obtain International's approval for the purchase to proceed. For its part, International had agreed not to unreasonably withhold its approval of a transfer meeting certain requirements.
The franchise agreement also contains a provision (section 13.G.) giving International the right to substitute itself as the purchaser for the same price and on the same terms and conditions contained in any proposed purchase offer. In the event IJLSF seeks to transfer the franchise, they “agree[d] to obtain from a responsible and fully disclosed buyer, and send to [International], a true and complete copy of a bona fide, executed written offer relating exclusively to an interest in this Agreement, the Operating Assets and the BUSINESS. The offer must include details of the payment terms of the proposed sale and the sources and terms of any financing for the proposed purchase price. To be a valid, bona fide offer, the proposed purchase price must be in a dollar amount, and the proposed buyer must submit with its offer an earnest money deposit equal to five percent (5%) or more of the offering price.” Section 13.G. also gave International the right to “substitute cash for any form of payment proposed in the offer.” Under section 13.G., then, IJSF had an obligation to ensure any offer conformed to these requirements, and International had the right to reject a purchase agreement that didn't do so. IJLSF sent a copy of the agreement to International the same day they signed it.
International responded not by rejecting the proposed purchase agreement but by asserting their right of first refusal and substituting themselves as the purchaser. To exercise the right and elect to purchase the franchise, International was required to deliver written notice to IJLSF “within thirty (30) days after [they] receive[d] both an exact copy of the offer and all other information [they] request[ed].” On March 23, 2016, International sent a letter to IJLSF notifying them they were “exercising [their] right of first refusal for the purchase of the IJLSF office.” International noted they were “reviewing the asset purchase agreement and... reserve[d] the right to make comments.” They asserted their communication did “not constitute a counter proposal and” they were “exercising [their] right of first refusal consistent with [Holdings'] offer.” International asked for a copy of the escrow agreement and the escrow agent's wire transfer information so they could make the required earnest money deposit. They didn't object that the offer wasn't a valid, bona fide offer or assert their right to reject the offer on that basis.
IJLSF and Holdings responded jointly the next day. IJLSF provided the escrow agreement and a copy of payment made to the escrow agent. However, they objected to International's exercise of the right of first refusal on two grounds. First, they objected to International's suggestion that they could make changes to the terms of the agreement and pointed out the requirement that International accept the same terms and conditions set forth in Holdings' offer. “In this respect your attempt to exercise your right of first refusal fails as it is merely a conditional acceptance of the offer rather than a true matching offer which is required under your own Franchise Agreement. In order to be effective, your offer is required to be a mirror image of the Buyer's offer which is not the case based on your letter. In order to properly exercise your right of first refusal you must match the Buyer's offer in all respects.”
Second, they objected that International's offer wouldn't be a true matching offer even if they did match the exact terms and conditions Holdings had agreed to. They said they “accepted the terms of the contingent promissory note described in the Purchase Agreement in reliance on [Holdings'] methods and track record in growing additional markets, [Holdings'] history of paying the full amount on similar notes in markets... [they] acquired in the past, and [their] ability to support new markets through [their] existing infrastructure. As such, your attempt to exercise your right of first refusal fails.” IJLSF based this objection on International's lack of “the same track record of growing additional markets as [Holdings] which significantly impairs the prospect that [IJLSF] will receive the full amount of the contingent promissory note.” They said they lacked confidence that International's operating procedures would “facilitate the same level of growth in the individual local markets as [Holdings'] operating procedures [would]” and concluded they “would receive far less under the terms of the contingent note.” IJLSF and Holdings informed International that they intended to proceed to closing the purchase.
Four days later, International rejected these grounds for refusing to allow them to exercise their right of first refusal and threatened to sue to enforce their right to purchase the franchise. They wrote, International “has properly exercised its [right of first refusal] under the Franchise Agreement. As a result, [IJLSF] is obligated to sell its assets to [International] as outlined in the [purchase agreement]. [International] expects [IJLSF] to proceed with the transaction... as required by the Franchise Agreement. [¶] If Seller continues to take the position that [International] has failed to properly exercise its [right of first refusal], [we] will file a lawsuit seeking, among other things, a declaration that [they] properly exercised the [right of first refusal].”
On March 31, 2016, International wrote again, this time asserting IJLSF was in default of the franchise agreement for failing to accept their offer to purchase and again threatened a lawsuit. They also threatened to terminate the franchise agreement if IJLSF failed to agree to sell the franchise to them within 30 days.
The same day, IJLSF and Holdings responded by reiterating their assertion that International had not validly exercised their right of first refusal. They pointed out International was required, under section 13.G., to “elect to purchase the interest for the price and on the terms and conditions contained in the offer.” They asserted International's March 23 offer letter did not make a valid offer because International had “reserved the right to make comments... without indicating which sections... [they were] accepting and which sections... [they] intended to renegotiate.” As a result, they said, “IJLSF has no idea what [International's] proposed terms are.” They also objected that International didn't make any effort to disclose their proposed modifications within the allotted 30 days. They also objected that International hadn't made an earnest money deposit within the required 30-day period and repeated their objection that International had failed to match the value of Holdings' offer because their different operating practices made the same terms materially less valuable to IJLSF.
The next day, April 1, 2016, International sent a letter arguing the 30-day period for exercising their right of first refusal hadn't run because IJLSF didn't respond to International's request for additional information, specifically wiring instructions to allow them to pay the earnest money. They said they interpret section 13.G. as requiring IJLSF to provide that information beforethe allotted 30-day period commenced.
International also set out the changes they would demand. They asked IJLSF to (i) delete the indemnification provision that limited IJLSF's liability after the sales transaction was completed, (ii) take on the responsibility for obtaining consent and paying costs to transfer leases necessary due to the transfer, and (iii) modify the employee-retention provision to broaden International's discretion to discharge or demote existing IJLSF employees.
C. The Lawsuit
International filed a lawsuit on April 11, 2016. They alleged a claim for breach of contract and sought a preliminary injunction enjoining IJLSF from selling the franchise to Holdings and an order specifically enforcing their right of first refusal. International did not claim they had the right to refuse to approve the purchase, only that they had a right to purchase the franchise on the same terms.
IJLSF filed a cross-complaint asserting a claim for breach of contract based on International's failure to (i) approve the transfer of Steyck's minority interest, (ii) set a renewal fee in compliance with the franchise agreement, and (iii) approve IJLSF's sale to Holdings. They also asserted a claim under the California Franchise Relations Act (CFRA) for attempting to terminate IJLSF's franchise without good cause and failing to approve the transfer to Holdings. Finally, they requested declaratory judgment that International must renew IJLSF's franchise, that International must charge a lower renewal fee in doing so, and that International failed to properly exercise their right of first refusal.
Holdings intervened and filed its own cross-complaint. They asserted claims for tortious interference with contract, tortious interference with prospective economic advantage, and declaratory judgment that International failed to properly exercise their right of first refusal.
On May 4, 2016, International agreed they wouldn't terminate the franchise agreement while this lawsuit was pending, and the trial court enjoined them from doing so at the parties' request.
D. Summary Judgment Rulings
The parties filed cross-motions for summary judgment. IJLSF and Brinkman argued International's claims should be dismissed because they improperly exercised their right of first refusal by changing material terms of the purchase agreement and by offering less value. International sought summary judgment on the ground their exercise of the right of first refusal was proper and enforceable. They also argued the breach claims against them for failing to approve the transfer or Steyck's shares and charging an excessive renewal fee were without substance. They did not argue they had the right to reject the proposed purchase.
The trial judge denied all the motions in their entirety. The judge focused on the language in section 13.G. which triggers International's right of first refusal. Under that provision, IJLSF was required, “at any time [they] determine[] to sell or transfer” the business or an interest in the franchise agreement, “to obtain from a responsible and fully disclosed buyer, and to send to [International], a true and complete copy of a bona fide executed written offer.” The judge noted the agreement specifies, “The offer must include details of the payment terms of the proposed sale and the sources and terms of any financing for the proposed purchase price.” The agreement also specifies that in order “[t]o be a valid, bona fide offer, the proposed purchase price must be in a dollar amount, and the proposed buyer must submit with its offer an earnest money deposit equal to five percent (5%) or more of the offering price.”
The judge concluded this language was unambiguous and controlled the dispute, because without a valid, bona fide offer to purchase the franchise, International had no right of first refusal and therefore no right to purchase the franchise. “A review of Holdings' offer reflects that it is not a ‘valid, bona fide offer,' in that it does not include a specific purchase price and is not in a specific dollar amount. Although the offer professes to have a purchase price of $1,460,000, a review of the Note reflects that the offer is merely an agreement to pay a down payment of $146,000, but no obligation to pay the remaining $1,314,000. Rather, the Note provides that after the down payment additional payments, if any, will be due in unknown sums based on future revenue streams. Therefore, the actual ‘price' that would be due to [IJLSF], regardless of whether the offer were accepted by either Holdings or International, is unknown and speculative and not in a specific ‘dollar amount.' As there is no actual purchase price in a set dollar amount as required by the Franchise Agreement there is no valid, bona fide offer. Accordingly, International did not have the right to exercise its [right of first refusal] and [IJLSF] is not obligated to sell its assets to International under the terms and conditions of its agreement with Holdings.”
The judge ruled this conclusion disposed of all arguments on summary judgment but didn't dispose of the entire case. International sought declaratory judgment that they had properly exercised their right of first refusal and IJLSF was obligated to sell to them and that IJLSF was in breach for refusing to sell. Since the judge concluded there was no valid, bona fide offer, he determined International wasn't entitled to step in as the purchaser. He therefore denied International's motion in its entirety. On the same grounds, the judge concluded IJLSF, Brinkman, and Holdings were entitled to summary judgment in their favor on International's claims for breach of contract and declaratory judgment. “As set forth above, International is not entitled to any of the declaratory relief sought. [¶] As to the 2nd cause of action for breach of contract, as set forth above, [IJLSF] has not breached the parties' Franchise Agreement in that [they were] not obligated to sell [their] assets to International and [have] not completed the sale to Holdings in violation of the Franchise Agreement's transfer provisions.”
The judge denied International's request for summary judgment on the counterclaims too. He construed International's motion as addressing only the counterclaim for breach and denied the motion on the ground that International presented evidence and argument concerning only two of four separate bases for the breach cause of action. “International asserts [they are] entitled to summary judgment as 1) [they] did not breach the Franchise Agreement by refusing to approve the transfer of Steyck's interest to Brinkman as International never refused the transfer and the transfer took place, and 2) [they] did not breach the Franchise Agreement with LLC by requiring a renewal fee of $47,500.” However, because their motion didn't address the allegations that International breached the agreement by failing to process the renewal request and failing to approve the transfer to Holdings, the judge concluded the motion for summary judgment was improper because it wouldn't dispose of the entire cause of action for breach.
The parties filed a second round of cross-motions for summary judgment in 2018 seeking resolution of the claims IJLSF, Brinkman, and Holdings asserted against International. International requested summary judgment in their favor on the breach of contract cause of action, arguing all four bases of the breach failed under the law, the terms of the contract, and the undisputed facts. First, International argued there was no breach based on their failure to approve Steyck's transfer of ownership shares because it was undisputed they didn't refuse to approve the transfer. Second, they argued their sending a notice of default and intent to terminate the franchise agreement when IJLSF refused to sell its assets to International failed because serving a notice of default doesn't constitute a breach, the prior court ruling that Holdings didn't make a bona fide offer moots the issue, and International's stipulation that they wouldn't terminate means there was no breach as a matter of law. Third, they argued their refusal to approve the sale to Holdings couldn't be a breach because Holdings didn't make a valid, bona fide offer. And fourth, they argued their demand for a $47,500 franchise renewal fee wasn't a breach because the issue wasn't ripe. International also argued Holdings' interference with business relations claim and all the parties' requests for a declaration that IJLSF can sell its assets to Holdings failed because Holdings' offer to purchase wasn't a valid, bona fide offer.
International argued the same deficiencies undermined IJLSF's cause of action for violating the CFRA.
IJLSF and Brinkman sought summary judgment in their favor on the same claims. They argued International breached the franchise agreement by (i) failing to provide written approval of the transfer of Steyck's shares, (ii) charging an excessive franchise renewal fee, (iii) seeking to terminate the franchise agreement without good cause (which they also argued violates the CFRA), and (iv) failing to approve the sale of the franchise to Holdings. With respect to the failure to approve the sale of the franchise to Holdings, IJLSF and Brinkman argued International had waived their contractual right to reject the purchase on the ground there was no valid, bona fide offer when they sought to enforce their right of first refusal and purchase the franchise.
International responded that they had not waived their right to reject the purchase on the ground that Holdings hadn't made a bona fide offer. According to International, they had consistently objected that the purchase price was a floating, speculative offer designed to escape their right to exercise their right of first refusal. They said they specifically called out the theory that the offer was not bona fide in briefing on an earlier motion to compel.
In ruling on the second round of summary judgment motions, the judge again relied on the conclusion that Holdings didn't submit a valid, bona fide offer. As to Holdings' claims, the judge granted International's motion, concluding International had the right to reject the transfer. This ruling disposed of all of Holdings' claims. Though the parties argued extensively over whether International had waived its right to reject the purchase because the offer wasn't bona fide, the judge did not address waiver in its tentative ruling.
With respect to IJLSF's cross-complaint, the judge granted International's motion in part. First, based upon his holding that there was no bona fide offer, he entered judgment in favor of International on the portions of IJLSF's breach of contract and CFRA claims relying on International's refusal to approve the transfer to Holdings. Second, he held there was no triable issue of fact showing International had opposed the transfer of Steyck's interests in the franchise because the “undisputed facts reflect that the transfer of Steyck's interest pursuant to the Withdraw Agreement occurred... [and] International did not oppose the transfer” and “the fact that International did not put its approval in writing is immaterial and only material breaches are actionable.” Third, he ruled there was no triable issue of fact over whether International attempted to terminate IJLSF's franchise, which defeated the remainder of IJLSF's CFRA claim. For the same reasons, he denied IJLSF's motion in its entirety.
The judge denied International's motion for summary judgment on IJLSF's claim for breach of contract based upon their “failure to process [IJLSF's] renewal and demanding an improper renewal fee.” He found a triable issue of fact regarding “the amount that International has the right to charge for a renewal fee.” However, following the ruling, International agreed to an entry of judgment that IJLSF is entitled to a renewal of five years without having to pay anyrenewal fee. That concession disposed of the last live claims, and the judge entered final judgment on all causes of action.
IJLSF, Brinkman, and Holdings timely filed notices of appeal.
II
ANALYSIS
The issues on appeal are whether the trial judge properly concluded Holdings' offer to purchase the IJLSF franchise was not a valid, bona fide offer as defined in the franchise agreement and whether he properly concluded, albeit implicitly, that International had not intentionally waived its contractual right to reject the offer on that basis.
Appellants argue Holdings made a valid, bona fide offer and the trial court erred by concluding otherwise. They also argue International waived the right to reject the purchase on the ground there was not a valid, bona fide offer by asserting and then suing to enforce their right of first refusal. The judge didn't address the waiver argument, though appellants raised it. In the summary judgment context, since waiver of a contractual right is a factual issue, that means the trial judge implicitly held the evidence couldn't support a waiver finding.
A. Bona Fide Offer
We begin with the contract. The franchise agreement places certain obligations on IJLSF when they seek to sell the franchise. They were required “to obtain from a responsible and fully disclosed buyer, and send to [International], a true and complete copy of a bona fide executed written offer, ” which “must include details of the payment terms of the proposed sale and the sources and terms of any financing for the proposed purchase price.” The agreement specifies that to be a “valid, bona fide offer, the proposed purchase price must be in a dollar amount, and the proposed buyer must submit with its offer an earnest money deposit equal to five percent (5%) or more of the offering price.”
Appellants argue the purchase agreement between IJLSF and Holdings identified the purchase price as $1,460,000 and Holdings deposited 5 percent of the purchase price-$73,000-into an escrow account. They say those facts establish Holdings' offer was a valid, bona fide offer. However, this substantially oversimplifies the agreed purchase price. The agreement actually identifies the price as “the sum of up to, but not to exceed, One million four hundred and sixty thousand ($1,460,000) (‘Purchase Price').” (Italics added.) It also sets out, as required, the payment and financing terms, under which Holdings would be required to pay “on the Closing Date as follows: [¶]... the sum of $73,000 in cash (the ‘Cash Payment') consisting of immediately available funds payable to Seller... and $73,000 which shall be paid by Buyer by September 4, 2016; [¶]... [and] the sum of up to $1,314,000 pursuant to an unsecured promissory note delivered at Closing by Buyer to Seller in the form of Exhibit C.” (Italics added.)
The promissory note makes payment of any amount over $146,000 contingent on the performance of the business after the purchase is completed. Holdings would make payments over a period of 60 months, however those payments would be determined by a formula based on the gross revenues realized in operating the It's Just Lunch franchise. If Holdings produced sufficient revenues by operating the franchise, the payments could reach the total $1,314,000 amount of the promissory note within five years. However, if quarterly revenues were low enough, Holdings would pay less on each installment, and could end up paying nothing additional over the full 60 month period. IJLSF acknowledged this feature of the agreement when they objected to International exercising their right to stand in as the purchaser in place of Holdings. According to IJLSF, they expect the same purchase terms would result in their receiving a substantially smaller purchase price if International purchases the business. Thus, even under their own interpretation of the agreement and its application, the purchase price, as defined by the agreement, is an amount no lower than $146,000 and up to, but not to exceed $1,460,000.
The trial judge held this feature of the agreement established Holdings had not made a valid, bona fide offer. As he articulated the issue, the offer didn't identify a purchase price in a “specific” and “set” dollar amount. The judge concluded the contingent nature of the later payments under the promissory note entailed that Holdings had not submitted a “purchase price in a set dollar amount.” The issue we face is whether the judge erred by interpreting the franchise agreement's definition of a valid, bona fide offer as requiring a purchase price that is “specific” and “set.”
This is a matter of contract interpretation and, so long as no facts are in dispute, we review the judge's ruling de novo. (E.M.M.I. Inc. v. Zurich American Ins. Co. (2004) 32 Cal.4th 465, 470 [cleaned up].) “The fundamental rules of contract interpretation are based on the premise that the interpretation of a contract must give effect to the ‘mutual intention' of the parties. Under statutory rules of contract interpretation, the mutual intention of the parties at the time the contract is formed governs interpretation. (Civ.Code, § 1636.) Such intent is to be inferred, if possible, solely from the written provisions of the contract. (Id., § 1639.) The ‘clear and explicit' meaning of these provisions, interpreted in their ‘ordinary and popular sense,' unless ‘used by the parties in a technical sense or a special meaning is given to them by usage' (id., § 1644), controls judicial interpretation. (Id., § 1638.)” (Ibid. [cleaned up].)
The problem the judge identified with Holdings' offer is its indefiniteness, its failure to identify a “purchase price... in a dollar amount.” This is important because the condition appears in a provision designed to allow International to step into the shoes of the would-be purchaser by matching their offer. The structure of the parties' rights with respect to transfers is set out in Section 13 of the franchise agreement. Under subsection 13.B., IJLSF acknowledges the rights granted by the agreement are personal to IJLSF and their owners and International retained the right to approve any transfer. Subsection 13.C. provides International must not unreasonably withhold their approval of a transfer that meets certain requirements, for example that the would-be purchaser have sufficient business experience and not be in direct competition with International.
Finally, as we've seen, subsection 13.G. gives International a right of first refusal. It's at this point that the question of whether an offer is a bona fide offer first appears in the agreement. To enable International to exercise the right, the provision requires IJLSF to provide International with a “a true and complete copy of a bona fide, executed written offer relating exclusively to an interest in this Agreement, the Operating Assets and the BUSINESS. The offer must include details of the payment terms of the proposed sale and the sources and terms of any financing for the proposed purchase price. To be a valid, bona fide offer, the proposed purchase price must be in a dollar amount and the proposed buyer must submit with its offer an earnest money deposit equal to five percent (5%) or more of the offering price.” After receiving such an offer, and “all other information [they] request[], ” International has 30 days to elect to purchase the interest “for the price and on the terms and conditions contained in the offer.” However, International is also permitted to “substitute cash for any form of payment proposed in the offer.” Thus, the requirement that the offer be a valid, bona fide offer-that is “in a dollar amount”-provides International with information they need to evaluate whether to exercise their right of first refusal.
We conclude these plain terms indicate the parties intended any sale to be on more definite terms than those agreed to by IJLSF and Holdings. The agreement requires the franchisee to provide a true and complete copy of an offer to International and specifies such an offer must include a purchase price “in a dollar amount” in the service of enabling the franchisor to decide whether to approve the sale or exercise the right of first refusal and step in as purchaser.
In these outlines, the franchise agreement is consistent with the law concerning the rights and obligations conferred by a right of first refusal in the context of sales of real property. In general, the point “is to provide the holder of the right seasonable disclosure of the terms of any bona fide third-party offer. [Citation.] It is the prerogative of the holder then to decide whether to purchase the property at that price.” (Uno Restaurants, Inc. v. Boston Kenmore Reality Corp. (Mass. 2004) 805 N.E.2d 957 (Uno Restaurants), 962, citing 25 S. Williston, Contracts, § 67:85 (4th ed. 2002).) “A right of first refusal is triggered by a bona fide third-party offer to purchase the property burdened by the right. [Citation.] Generally, an offer is a ‘manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it.'” (Uno Restaurants, at pp. 962-963, quoting Restatement (Second) of Contracts § 24 (1981).) “The requirement that triggering offers be bona fide serves to disable property owners from extinguishing a right of first refusal by simply relaying vague offers that may include indefinite terms from unidentified third parties.” (Uno Restaurants, at p. 963.)
Here, both parties agree Holdings' offer is so indefinite it would result in a very different purchase price depending on who acquires the franchise and runs the business. Indeed, IJLSF gives considerable importance to the argument that International did not properly exercise the right of first refusal precisely because their offer to purchase the franchise on the same terms would produce a different purchase price. That's so, they say, because Holdings and International operate their other It's Just Lunch franchises using different models. To match the price Holdings is offering, they say, International would have to agree to pay substantially more under the provision allowing International to substitute cash for the promissory note. International doesn't argue they would pay the same amount as purchasers, only that it's enough for them to accept the same exact terms. What this disagreement establishes is that the proposed purchase price of “up to One million four hundred and sixty thousand ($1,460,000)” doesn't actually set a purchase price in a “dollar amount” as required by the franchise agreement. Under IJLSF's theory of how the right of first refusal operates, International would need to accurately project Holdings' revenues over the life of the promissory note to evaluate whether to exercise their right of first refusal and to make a counteroffer substituting a cash payment of equal value. We conclude the offer is, for that reason, not a valid, bona fide offer as defined in the franchise agreement.
Appellants rely on Town of Franklin v. Wyllie (Mass. 2005) 819 N.E.2d 943 (Wyllie) to argue that a “bona fide” offer is not required to establish a fixed purchase price. On the surface, the cases are similar. A third party offered to purchase a parcel of agricultural land, but the offer was contingent on the purchasers' obtaining approval for a change in use from agricultural to residential and the purchase price fluctuated based on the number of lots approved in the subdivision. (Id. at p. 944.) There was no agreement between the sellers and the town, but the Massachusetts Legislature had passed a statute giving municipalities a statutory right of first refusal on any proposed sale of horticultural or agricultural land which included a bona fide offer. (Id. at p. 948.) The purpose of the statute was to slow development, which is essentially irreversible. The town filed suit seeking declaratory judgment that there was no “bona fide offer” because the agreement “failed to state a fixed purchase price.” (Id. at p. 946.)
As appellants argue, the Supreme Judicial Court of Massachusetts rejected the town's argument based on the meaning of the term “bona fide offer” in the statute. The purchasers argued the existence of contingencies in an offer doesn't establish the offer to purchase is not a “bona fide offer.” Instead, they argued, it's implicit in the concept of a “bona fide offer” that it proposes a fair market price and pointed out that their offer ensures as much because they were contractually obligated to use their best efforts to maximize the number of lots in the subdivision. (Wyllie, supra, 819 N.E.2dat p. 948.) The Supreme Court agreed, holding that to be a bona fide offer, the central inquiry is whether the offer sets forth “valid and enforceable terms” that “constitute a binding agreement.” (Ibid.) The court concluded that, though the Legislature sought to protect agricultural and horticultural land from development, there was “no indication... the Legislature intended that a municipality's ‘first refusal option' to purchase would encompass the right to purchase such land on different terms and conditions than set forth in the ‘bona fide offer.'” (Wyllie, at p. 949.)
Our case differs from Wyllie in several important respects. First, we're interpreting a defined contractual provision, not the undefined language of a statute. We owe fidelity to the terms of the contract and the intentions of the parties. Second, the terms of the contract are different than the provisions of the Massachusetts statute. We start with the contested term itself. International's right of first refusal is triggered by their receiving a valid, bona fide offer, not just a bona fide offer. More, the agreement defines the term “valid, bona fide offer” to mean an offer with a purchase price “in a dollar amount.” As we discussed above, this language appears designed to avoid situations where a proposed purchase price may fluctuate so much that the party holding the right of first refusal can't figure out whether and on what terms to exercise the right. The statute in Wyllie contained no such language. Third, the purchase agreement in Wyllie contained other terms that minimized the indefiniteness of their offer. As the purchasers emphasized, they were bound to seek the highest, best use of the property by attempting to obtain permits for maximal residential development. There are no such constraints in the purchase offer in this case, which is why the parties agree the value of the purchase offer depends so completely on the identity of the purchaser.
The other cases appellants rely on involve real estate transactions where a purchaser offers to buy a large parcel of real estate and includes as part of the offer a high price for a component part of the property which is protected by a right of first refusal. In one case, a commercial lessee had a right of first refusal to purchase the space they leased. (Uno Restaurants, supra, 805 N.E.2d at p. 960.) A third party offered to buy the entire building, and the purchase agreement allocated $2.8 million of the overall price to the leased space. (Id. at p. 961.) The lessee sued to enjoin the transaction and argued the offer on the leased space was not “bona fide” because the purchase price “was higher than the fair market value.” (Id. at pp. 959, 963.) In essence, they claimed the purchaser and seller were trying to evade their right of first refusal by assigning too much value to the affected unit. The court held the lessee couldn't challenge the offer as not bona fide so long as “the offeror genuinely intends to bind itself to pay the offered price.” (Id. at p. 963.)
The court also held it was legitimate for a purchaser to try to avoid having another party buy the unit away from them by paying more than what they thought the third party would pay. “Even if [the third party purchaser] were motivated by a desire to defeat Uno's right of first refusal, the offer may still be bona fide. Inherent in a right of first refusal is the fact that a third party, not the holder of the right, will dictate the price, and the holder therefore runs the risk that the third party will agree to a price that is above market value, or that is above what the holder is willing and able to pay.” (Uno Restaurants, supra, 805 N.E.2d at p. 963.)
The same dynamic was at work in Rappaport v. Estate of Banfield (Vt. 2007) 924 A.2d 72, where the holder of the right of first refusal challenged the bona fide nature of the third party offer for “attempting to limit his right to only [one lot of the property]” and “artificially inflating the price for [that lot].” (Id. at p. 74.) The Rappaport court reasoned, however, that “[a] prospective buyer may inflate the price for a parcel, or be motivated by a desire to defeat a right of first refusal, and still make a bona fide offer.” (Id. at p. 79.) The court held that, in general, courts will answer whether an offer is bona fide by asking “whether the purchaser honestly intended to be bound by its offer.” (Ibid.)
There are several differences between these cases alleging a purchaser is playing games with the price of one component of a larger property sale. First and most important, the issue in this case is not that the purchaser inflated the price of the asset to ensure International wouldn't exercise its right of first refusal. If that were International's objection to the offer, it wouldn't be well taken, because a would-be purchaser is free to offer more for a property than they believe their competitors will offer. That's how sellers generate bidding wars. The problem with the Holdings' offer wasn't its quantum, but its vagueness.
That raises the other important way this case differs from Uno and Rappaport. In those cases, the courts were asked to interpret whether an offer was bona fide under case law on that issue. The parties had not sought to alter the applicable rules through contract. (See Mucci v. Brockton Bocce Club, Inc. (Mass.Ct.App. 1985) 472 N.E.2d 966, 968 [“The term ‘bona fide' is not defined in the deed. That term has been defined to mean actions done ‘honestly without purpose to defraud'”].) In this case, we're asked to interpret specific contractual language which requires more of an offer than that the offeror honestly intended to be bound by it. If the parties had found that limitation sufficient, they could have invoked the concept of a bona fide offer without qualification or definition. Instead, they agreed that any offer must be a “valid, bona fide offer” and stipulated that such an offer must be in a “dollar amount.” Parties are free to alter the meaning of general terms, and the plain terms of the franchise agreement make clear they did so in this case. (Morrison v. Wilson (1866) 30 Cal. 344, 348 [“If parties should insert a clause in their contract to the effect that the language used by them should be taken in a certain sense... and the definition turned out to be clear and unambiguous, the general meaning would have to give way; and it follows that it must be considered that parties have the power to innovate upon the general meaning of words at large free from all legal restrictions”].)
The bottom line is IJLSF and Holdings negotiated a purchase agreement whose price term was too vague to satisfy the contractual requirement that an offer must be in a dollar amount. Thus, International had the contractual right to refuse to approve the transaction rather than choose between approving the purchase and substituting themselves as the buyers. Our holding does not mean that a similar offer wouldn't be bona fide if it were differently defined or undefined. Nor does it mean the definition of valid, bona fide offer in this franchise agreement bars any contingencies affecting price. We hold only that a right of first refusal demanding an offer be in a dollar amount gives the holder the right to reject an offer that is so indefinite as to price that a purchaser could pay any amount between $146,000 and $1,460,000.
B. Waiver
Our conclusion that Holdings' offer was not a valid, bona fide offer as defined in the franchise agreement doesn't end the matter. Appellants argue the trial judge erred by ruling on that basis because International had waived the contractual right to reject the purchase on this basis when they chose to overlook the deficiency, substitute themselves as the purchaser under the same terms, and then pursue litigation asserting their right of first refusal.
Under both Nevada and California law, “[t]o establish a waiver, the party asserting waiver must prove that there has been an intentional relinquishment of a known right. [Citation.] A waiver may be implied through conduct evidencing an intent to waive a right or conduct that is inconsistent with any other intention than waiver.” (Gramanz v. T-Shirts & Souvenirs, Inc. (Nev. 1995) 894 P.2d 342, 346; see also Old Republic Ins. Co. v. FSR Brokerage, Inc. (2000) 80 Cal.App.4th 666, 679.) “In the case of a true waiver implied in fact from conduct, the intent to waive must be clearly manifested or the conduct must be such that an intent to waive may be reasonably inferred.” (13 Williston on Contracts (4th ed. 2020) § 39:28, fns. omitted.) Even where a contract contains a non-waiver provision, the “waiver clause may be waived by conduct.” (Bettelheim v. Hagstrom Food Stores, Inc. (1952) 113 Cal.App.2d 873, 878; see also Silver Dollar Club v. Cosgriff Neon Co. (Nev. 1964) 389 P.2d 923, 924.)
The franchise agreement specifies that Nevada law applies to disputes arising under the agreement. Appellants argue California law applies for some purposes. We need not resolve those issues, however, because the law concerning the waiver of contractual rights is the same in California and Nevada.
As these rules make clear, waiver is a question of fact to be determined by a jury, or by a judge sitting as a fact finder if there is no jury. (Mahban v. MGM Grand Hotels, Inc. (Nev. 1984) 691 P.2d 421, 424 (Mahban); Old Republic Ins. Co. v. FSR Brokerage, Inc., supra, 80 Cal.App.4th at p. 679.) The exception is where “there are no disputed facts and only one reasonable inference may be drawn.” (DuBeck v. California Physicians' Service (2015) 234 Cal.App.4th 1254, 1265.) As a result, summary judgment on the issue of waiver is improper if there is a genuine issue of material fact as to the party's intent. As appellants point out, Wind Dancer Production Group v. Walt Disney Pictures (2017) 10 Cal.App.5th 56, 78 (Wind Dancer), supports overturning summary judgment on this basis.
In Wind Dancer, the producers of a popular television show had agreed to transfer the rights to the series to Disney in return for Disney agreeing to pay the producers 75 percent of all net profits earned from it. The agreement allowed the producers to audit Disney's financial statements and challenge the payments made under the agreement. However, the contract had an incontestability clause under which Disney's statements would be deemed conclusively correct if not challenged within a 24-month period. A dispute arose concerning the payments made during one period, but the producers challenged the payments after the relevant 24-month period. When the producers sued, Disney tried to enforce the contractual deadlines and obtained summary judgment based on the fact that the audits were untimely. The Court of Appeal reversed because there was a triable issue of fact as to whether Disney had waived the deadlines. The court concluded evidence Disney had allowed the untimely audits to proceed in prior disputes under the same agreement, had entered oral agreements tolling the incontestability period, and had executed a confidentiality agreement for the audits all constituted affirmative conduct from which a trier of fact could infer Disney had intentionally waived enforcement of the timeliness provision as well as the agreement's no-waiver and no oral modification provisions. Accordingly, the court reversed the order granting summary judgment. (Wind Dancer, supra, 10 Cal.App.5th at pp. 61-62, 80-83.)
Similarly, in Mahban, the Nevada Supreme Court reversed an order granting summary judgment for waiver of contractual rights where the trial judge resolved material questions of fact as to the waiving party's intent. (Mahban, supra, 691 P.2d at p. 424.) In that case, the MGM Grand Hotel leased floor space within its hotel arcade to Mahban, who operated two shops there. The leases permitted either party to terminate if ‘“the Leased Premises are damaged or destroyed... [and] cannot be put into tenantable condition by Lessor within one hundred eighty (180) days.'” (Id. at pp. 422-423.) During the term of the leases, the hotel was damaged by fire to an extent sufficient to invoke the right to terminate. (Id.at p. 423.) A couple months after the fire, Mahban received a letter from MGM Grand informing him “that sometime late in February, our target date to re-open should be finalized. I hope to be able to notify you at that time when you will be able to begin remodeling within the arcade area.” (Ibid.) The letter also requested plans for reconstruction of the shops. (Ibid.) However, weeks later, MGM Grand sent a second letter which sought to terminate the leases for both shops based on the destruction-of-premises provision. (Ibid.) Mahban sued for breach alleging he had reasonably relied on the first letter as an indication that MGM Grand wouldn't terminate. (Ibid.)The trial judge concluded Mahban “could not have reasonably relied on the letter... because the letter contained no representation as to whether defendant MGM intended to waive its contractual rights” under the destruction-of-premises clause and granted summary judgment in MGM Grand's favor. (Ibid.)
The Nevada Supreme Court concluded the language in the first letter which indicated MGM Grand would “notify you at that time [sometime late in February] when you will be able to begin remodeling within the arcade area [¶]... [¶] allows an inference of an intent on the part of [MGM Grand], as of the time of the letter, not to exercise its termination right.” Similarly, because the first letter asked Mahban to submit plans for reconstruction, which can be expensive to obtain, the court concluded a fact finder could understand it “evidenced intent inconsistent with termination of the lease.” (Mahban, supra, 691 P.2d at pp. 423-424 .) The court therefore concluded material questions of fact existed as to MGM Grand's intent to waive its right to terminate, reversed summary judgment against Mahban, and remanded for further proceedings. (Id. at p. 424.)
Applying this precedent here, we note the trial judge did not address the question of waiver in his ruling, though the parties raised it. We conclude the judge held implicitly that there was no triable issue of fact and concluded International had not waived enforcement of the right to reject the purchase agreement as a matter of law. We review that ruling de novo, deciding independently whether the undisputed facts warrant judgment as a matter of law. (Alki Partners, LP v. DB Fund Services, LLC (2016) 4 Cal.App.5th 574, 589; see also Code Civ. Proc., § 904.1, subd. (a).)
Here, International's conduct provides significant evidence to support an inference that they intentionally waived their right to reject the purchase on the basis that Holdings' offer was not a valid, bona fide offer. International was familiar with franchise purchase agreements that included promissory notes for contingent earn-out payments. They had previously reviewed and approved several purchase agreements of that kind. When they asserted their right of first refusal, they knew the purchase agreement contained contingent payment provisions. They didn't object to that provision at the time or suggest they could refuse to approve the sale on that basis. Instead, they sought to exercise their right of first refusal and sought other changes to the purchase terms which had nothing to do with the provisions concerning price. All of this conduct could convince a fact finder that International made a decision to accept Holdings' offer as a valid, bona fide offer and on that basis step in as the purchaser on the same terms. If so, the consequence of that choice would be International cannot challenge Holdings' offer for indefiniteness. Summary judgment was therefore inappropriate, and we must remand the case for further proceedings. (Mahban, supra, 691 P.2d at p. 424; Wind Dancer, supra, 10 Cal.App.5th at pp. 80-83.)
Appellants argue we can go further and conclude International's pleadings foreclose any finding that Holdings' offer was not bona fide because they embody a “judicial admission” that the offer was in fact a valid, bona fide offer. (Valerio v. Andrew Youngquist Construction (2002) 103 Cal.App.4th 1264, 1271.) A judicial admission “is fundamentally different from evidence: It is a waiver of proof of a fact by conceding its truth, and it has the effect of removing the matter from the issues.” (Ibid. [cleaned up].)
Appellants rely on Vita Planning & Landscape Architecture, Inc. v. HKS Architects, Inc. (2015) 240 Cal.App.4th 763, 772-773 for support, but that case is substantially different. At issue in Vita Planning was the trial judge's factual finding that the parties had entered a binding contract with a forum selection clause choosing Texas courts to resolve contractual disputes. (Id. at p. 772.) Vita challenged the order dismissing the case so it could be refiled in Texas on the ground that there was no contract. (Ibid.)The Court of Appeal rejected this contention because, among other things, their complaint alleged the parties “entered into [a] contractual agreement, evidenced by a writing, ” and attached a “true and correct copy” of the agreement which incorporated the forum selection clause. (Ibid.) The court held the allegations in the complaint constituted a judicial admission, establishing the existence of the contract. (Ibid.) Here, the question is not a foundational factual issue, but rather an issue of contract interpretation the trial judge resolved as a matter of law. Though International may have intentionally waived their right to reject the purchase offer on the ground that Holdings' offer was not a valid, bona fide offer, we can't conclude they admitted it was a valid, bona fide offer as a matter of fact.
III
DISPOSITION
We reverse the judgment and remand for further proceedings. Respondents shall bear costs on appeal.
We concur: RAMIREZ P. J. MENETREZ J.