Opinion
CV 19-06664 DSF (PLAx)
2020-09-03
PALUMBO DESIGN, LLC, Plaintiff, v. 1169 HILLCREST, LLC, et al., Defendants. And Related Claims
Laurence M. Berman, Berman Litigation Group, Los Angeles, CA, David Richard Baake, Baake Law LLC, Las Cruces, NM, for Plaintiff. Dana Michael Cole, Cole and Loeterman, Los Angeles, CA, Ronald N. Richards, Law Offices of Ronald Richards and Associates APC, Beverly Hills, CA, for Defendant 1169 Hillcrest LLC. Ronald N. Richards, Law Offices of Ronald Richards and Associates APC, Beverly Hills, CA, Geoffrey S. Long, Law Offices of Geoffrey Long APC, Manhattan Beach, CA, for Defendants NEM 2 LLC, Neil Moffitt.
Laurence M. Berman, Berman Litigation Group, Los Angeles, CA, David Richard Baake, Baake Law LLC, Las Cruces, NM, for Plaintiff.
Dana Michael Cole, Cole and Loeterman, Los Angeles, CA, Ronald N. Richards, Law Offices of Ronald Richards and Associates APC, Beverly Hills, CA, for Defendant 1169 Hillcrest LLC.
Ronald N. Richards, Law Offices of Ronald Richards and Associates APC, Beverly Hills, CA, Geoffrey S. Long, Law Offices of Geoffrey Long APC, Manhattan Beach, CA, for Defendants NEM 2 LLC, Neil Moffitt.
Order GRANTING Plaintiff's Motion for Partial Summary Judgment and DENYING Defendants’ Motion for Summary Judgment (Dkts. 75, 76)
Dale S. Fischer, United States District Judge
Plaintiff Palumbo Design, LLC (Palumbo) moves for partial summary judgment on its claims against Defendants 1169 Hillcrest LLC (Hillcrest), NEM 2 LLC, and Neil Moffitt (collectively, Defendants) in its Third Amended Complaint. Dkt. 76-1 (P's Mot.). Defendants oppose. Dkt. 83 (Ds’ Opp'n). Defendants move for summary judgment on Plaintiff's claims. Dkt. 75-1 (Ds’ Mot.) Plaintiff opposes. Dkt. 79 (P's Opp'n). The Court deems this matter appropriate for decision without oral argument. See Fed. R. Civ. P. 78 ; Local Rule 7-15.
I. Factual Background
Michael Palumbo is a home designer and developer who conducts business through Palumbo, a California LLC. PUF ¶¶ 1-2. Since at least 2011, Palumbo has operated without a California state contractor license. DUF ¶ 1. Hillcrest is a Nevada LLC created by Neil Moffitt with NEM 2 as its sole member. Id. ¶ 11; PUF ¶ 19. NEM 2 is wholly owned by Moffitt. PUF ¶ 18.
Citations to PUF refer to Defendants’ Statement of Genuine Disputes of Material Fact in Opposition to Plaintiff's Motion for Summary Judgment, Dkt. 84, which incorporates Plaintiff's proposed uncontroverted facts and Defendants’ responses to those facts. Citations to DUF refer to Plaintiff's Statement of Disputed and Uncontroverted Facts in Opposition to Defendants’ Motion for Summary Judgment, Dkt. 81, which incorporates Defendants’ proposed uncontroverted facts and Plaintiff's responses to those facts. The Court has independently considered the admissibility of the evidence and has not considered facts that are irrelevant or are based on inadmissible evidence.
In 2013, Michael Palumbo and a business partner entered into an agreement to purchase an undeveloped property located at 1169 Hillcrest Road, Beverly Hills, California 90210 (the Property). Id. ¶¶ 3-4. Before the close of escrow on the Property, Moffitt approached Michael Palumbo and proposed a "partnership" where Moffitt would purchase the Property and he and Palumbo would develop it into a luxury residence. Id. ¶¶ 5-6. In March 2014, Palumbo signed Amended Escrow Instructions for the sale of the Property, which substituted Hillcrest as the purchaser. Id. ¶ 28. Hillcrest purchased the Property for $15 million. Id. ¶ 7. At the time, the Al Qubaisi Walker Tower Trust (Al Qubaisi) was the sole member of Hillcrest. Dkt. 64 (Countercl.) ¶ 73; Dkt. 52 (TAC) ¶ 2. In March 2014, Palumbo and Hillcrest entered into a Development Services Agreement (DSA) concerning the development of a "high-end luxury residence" on the Property. PUF ¶¶ 8-9; Dkt. 76-2 (Palumbo Decl., Ex. 3) (DSA).
The DSA states that "the Owner will purchase and own and upon purchase will develop certain real estate in Beverly Hills, California for the construction of an elite high-end residence (the "Project"). Id. The parties occasionally use the terms "Property" and "Project" interchangeably. See Dkt. 83-1 (Moffitt Decl.) ¶ 4.
Under the DSA, Palumbo was appointed to "manage and oversee the planning, approvals, programming, permitting, design, construction, and development of the Project" including preparing a budget and development schedule. PUF ¶ 10; DSA §§ 2.1-2.2. The specific "Development Services" that Palumbo agreed to perform are laid out in sections 3.1, 3.3, 4.1, and 4.2 of the DSA. See DUF ¶¶ 12-16. Hillcrest, in turn, agreed to pay Palumbo a "Development Services Fee" consisting of (1) an "Aggregate Development Fee" in the amount of 40% of the "Net Profits" from the eventual sale of the Property and (2) a "monthly draw" of $15,000 during the development of the Property, which is "an advance of the aggregate development fee." DSA §§ 5.1, Schedule 5.1. The Aggregate Development Fee must be paid by Hillcrest to Palumbo "within 60 days after ... termination" of "Palumbo's appointment under [the DSA]." DSA § 8.3. The amount of the Aggregate Development Fee due to Palumbo is "calculated as of the date of termination." Id.
In January 2015, Skyview Capital, LLC offered to purchase the Property for $22 million. PUF ¶ 17. On February 9, 2015, NEM 2 purchased all of Al Qubaisi's interest in Hillcrest for $16.3 million. Id. ¶ 19. The next day, Moffitt informed Palumbo that Al Qubaisi "no longer wanted his company to be involved in this project" and therefore "the Hillcrest Property was sold to an entity I control [NEM 2]." Id. ¶ 20; Dkt. 76-2 (Palumbo Decl., Ex. 4) (Moffitt Email). Moffitt continued: "As you know under the terms of the [DSA], upon the sale of the property or the entity, the [DSA] terminates." Moffitt Email at 2. On February 13, 2015, Skyview Capital claimed to have entered into an agreement with NEM 2 to purchase the Property. PUF ¶ 21.
The proposed undisputed fact states: "On February 9, 2015, Moffitt had NEM 2 purchase all of Khadem Abdulla Al Qubaisi's ("KAQ") in 1169 Hillcrest for $16.3 million." Dkt. 76-4 at ¶ 19. The PUF copies the undisputed fact verbatim. As the sentence makes no sense as written, the Court assumes the parties meant to say "Al Qubaisi's interest in 1169 Hillcrest."
Contrary to Moffitt's statement, NEM 2 purchased only Al Qubaisi's membership interest in Hillcrest, not the Property. PUF ¶ 19.
On March 13, 2015, Palumbo sued Defendants in this Court, asserting claims of fraud in the inducement, breach of contract, breach of implied covenant of good faith, and unfair business practices. See Palumbo Design, LLC v. 1169 Hillcrest, LLC, et al., Case No. 2:15-cv-01899-DSF (VBKx). Several more lawsuits and legal proceedings concerning the DSA and the Property followed; these proceedings are discussed in the Court's prior Orders, see Dkts. 41, 51, 78, and are not relevant for the purposes of this motion.
In April 2016, Moffitt, Hillcrest, NEM 2, Skyview Capital, and Palumbo, Michael Palumbo and another party entered into a settlement agreement concerning the sale of the Property; the agreement was amended in September 2016. PUF ¶¶ 33-34; Dkt. 76-2 (Palumbo Decl., Ex. 6) (Skyview Settlement). The Skyview Settlement provides that Skyview Capital will purchase the Property for $22.4 million with a closing date in October 2016. PUF ¶ 34; Skyview Settlement at 1. However, due to intervening litigation – including a forfeiture action by the United States against the Property – the release of the proceeds to Hillcrest from the sale of the Property did not occur until June 2017. PUF ¶ 47; Moffitt Decl. ¶ 9.
On February 22, 2019, Palumbo sent notice to Hillcrest and Moffitt asserting that "[Hillcrest's] sale of the Property ... [and] written termination of Palumbo Design are each a Termination Event under Section 8.1 of the DSA." PUF ¶ 23. Moffitt and Hillcrest did not dispute that termination had occurred. PUF ¶ 25. Palumbo has not received payment equal to 40% of the "Net Profits on sale of the Project and/or Property." Id. ¶ 27.
On May 30, 2019, Palumbo filed this action. Dkt. 1-1. The operative complaint asserts claims for breach of contract, quantum meruit, fraudulent conveyance, conversion, and restitution. See TAC ¶¶ 68-107. On May 5, 2020, Defendants answered the Third Amended Complaint and asserted as an affirmative defense that Palumbo's claims are "barred by California Business & Professions Code, section[ ] 7031." Dkt. 63 (Answer), Affirmative Defenses ¶ 15. On the same day, Hillcrest filed a counterclaim against Palumbo and Michael Palumbo, including a claim for violation of section 7031. Countercl. ¶¶ 34-42. II. Legal Standard
"A party may move for summary judgment, identifying each claim or defense – or the part of each claim or defense – on which summary judgment is sought. The court shall grant summary judgment if the movant shows 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). "This burden is not a light one." In re Oracle Corp. Sec. Litig., 627 F.3d 376, 387 (9th Cir. 2010). But the moving party need not disprove the opposing party's case. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Rather, if the moving party satisfies this burden, the party opposing the motion must set forth specific facts, through affidavits or admissible discovery materials, showing that there exists a genuine issue for trial. Id. at 323-24, 106 S.Ct. 2548 ; Fed. R. Civ. P. 56(c)(1). A non-moving party who bears the burden of proof at trial as to an element essential to its case must make a showing sufficient to establish a genuine dispute of fact with respect to the existence of that element of the case or be subject to summary judgment. See Celotex Corp., 477 U.S. at 322, 106 S.Ct. 2548.
The "mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). An issue of fact is a genuine issue if it reasonably can be resolved in favor of either party. Id. at 250-51, 106 S.Ct. 2505. "The mere existence of a scintilla of evidence in support of the [non-movant's] position will be insufficient; there must be evidence on which the jury ... could find by a preponderance of the evidence that the [non-movant] is entitled to a verdict ...." Id. at 252, 106 S.Ct. 2505. "Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Id. at 248, 106 S.Ct. 2505.
"[A] district court is not entitled to weigh the evidence and resolve disputed underlying factual issues." Chevron Corp. v. Pennzoil Co., 974 F.2d 1156, 1161 (9th Cir. 1992). "Summary judgment is improper ‘where divergent ultimate inferences may reasonably be drawn from the undisputed facts.’ " Fresno Motors v. Mercedes Benz USA, LLC, 771 F.3d 1119, 1125 (9th Cir. 2014) (citations omitted). Instead, "the inferences to be drawn from the underlying facts must be viewed in the light most favorable to the party opposing the motion." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587-88, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) (internal quotation marks and ellipsis omitted).
"[W]hen parties submit cross-motions for summary judgment, each motion must be considered on its own merits." Fair Hous. Council of Riverside County, Inc. v. Riverside Two, 249 F.3d 1132, 1136 (9th Cir. 2001) (internal quotation marks and brackets omitted). In doing so, the Court must consider the evidence submitted in support of both motions before ruling on each of them.
III. Discussion
A. Defendants’ Motion for Summary Judgment
Defendants move for summary judgment on the grounds that Palumbo's claims are barred by Cal. Bus. & Prof. Code § 7031, which prohibits an unlicensed "contractor" from "bring[ing] or maintain[ing] any action ... for the collection of compensation for the performance of any act or contract where a license is required." Ds’ Mot. at 2-5. Palumbo does not contend it was a licensed contractor during the performance of the DSA, DUF ¶ 4, but argues that it can maintain this action and recover the Aggregate Development Fee on two grounds: (1) it does not seek compensation for the performance of work requiring a contractor's license; it seeks "compensation for the assignment [of the Property] and for design services"; and (2) "an issue of fact exists as to whether Palumbo was ‘engaged in the business or acting in the capacity of a contractor’ at the time the DSA was executed." P's Opp'n at 3-4 (quoting Cal. Bus. & Prof. Code § 7031 ).
1. California Business and Professions Code Section 7031
Section 7031 "prohibits a contractor from suing ‘for the collection of compensation for the performance of any act or contract where a license is required ... without alleging that he or she was a duly licensed contractor at all times during the performance of that act or contract.’ " MW Erectors, Inc. v. Niederhauser Ornamental & Metal Works Co., 36 Cal. 4th 412, 435, 30 Cal.Rptr.3d 755, 115 P.3d 41 (2005) (quoting Cal. Bus. & Prof. Code § 7031(a) ). The purpose of this section is to "protect the public from incompetence and dishonesty in those who provide building and construction services." Hydrotech Systems, Ltd. v. Oasis Waterpark, 52 Cal. 3d 988, 995, 277 Cal.Rptr. 517, 803 P.2d 370 (1991). California courts have "express[ed] a consistent understanding" that a party is "ineligible to recover any compensation under the terms of [ section 7031 ] if, at any time during performance of an agreement for contractor services, he or she was not duly licensed." MW Erectors, 36 Cal. 4th at 425, 30 Cal.Rptr.3d 755, 115 P.3d 41.
"Contractor" is "synonymous with ‘builder," and "is any person, who undertakes to or offers to undertake to, or purports to have the capacity to undertake to, or submits a bid to, or does himself or herself or by or through others, construct any building ... or other structure, project, development or improvement, or to do any part thereof." Cal. Bus. & Prof. Code § 7026.
2. Whether Palumbo was acting as an unlicensed contractor under the DSA
Whether an entity performed or undertook to perform the work of a contractor depends in part on the nature and scope of contractual obligations the entity assumed in connection with a project. See The Fifth Day, LLC v. Bolotin, 172 Cal. App. 4th 939, 948 (2009) (reviewing contract's terms to determine whether entity was a contractor for purposes of the contract).
Defendants contend that Palumbo held himself out to the public as a contractor and "agreed in the DSA to undertake such work and to act in the capacity of a ‘contractor’ " despite being unlicensed. Ds’ Mot. at 17. Defendants are correct that some of Palumbo's duties under the DSA involve contractor services, such as construction. For instance, under section 2.1, Palumbo was appointed "to manage and oversee the planning, approvals, programming, permitting, design, construction , and development of the Project (the ‘Project Services’)." DSA § 2.1 (emphasis added); see also id. §§ 3.1(f), (i) (Project Services include "preparing a proposed master schedule of the sequence and timing of basic decisions, design time, documentation, contract awards and construction activities required to develop and construct the Project" and "monitoring the progress of the construction of the Project, and ensuring that the construction of the Project is being carried out in accordance with the Development Approvals, the Development Schedule, the Approved Plans and the Budget"). Even if Plaintiff "performed only administrative and oversight functions with respect to" these construction tasks, it would still qualify as "act[ing] ‘in the capacity of’ a ... contractor by performing those functions in fulfillment of contractual obligations owed to the owners of the property." Vallejo Dev. Co. v. Beck Dev. Co., 24 Cal. App. 4th 929, 940, 29 Cal.Rptr.2d 669 (1994).
But Hillcrest has not conclusively established that Palumbo actually performed these "contractor" services – or any services – under the DSA. "[S]ection 7031 precludes court recovery for any work performed under an agreement for construction services unless the contractor was duly licensed (or met the applicable standards for substantial compliance with licensure requirements) with respect to all the work performed thereunder." MW Erectors, 36 Cal. 4th at 430, 30 Cal.Rptr.3d 755, 115 P.3d 41 (emphasis added); see also id. at 419, 30 Cal.Rptr.3d 755, 115 P.3d 41 ( Section 7031(a) bars an action for "any work [the plaintiff] did under an agreement ... unless proper licensure was in place at all times during such contractual performance"). The statute "does not prevent a plaintiff from seeking compensation for acts for which no contractor's license was required." MKB Mgmt., Inc. v. Melikian, 184 Cal. App. 4th 796, 806, 108 Cal.Rptr.3d 899 (2010). Therefore, when "[s]ome of the services provided under the ... agreement might have required a contractor's license, but others did not[,] [t]he absence of a contractor's license may preclude the recovery of compensation for particular acts, but does not necessarily preclude the recovery of compensation for acts for which no contractor's license was required." Id.; see also Nash v. Taylor, 327 F. App'x 718, 720 (9th Cir. 2009) (noting that § 7031 "does not automatically void all contracts entered by unlicensed contractors" and therefore "any portion of the purchase price [for the house at issue in the case] intended as compensation for performance of unlicensed contractor work can be severed from the contract" and § 7031 would only "bar Plaintiffs’ suit to the extent of the [unlicensed] repairs’ value" (first quoting MW Erectors, 36 Cal. 4th at 440, 30 Cal.Rptr.3d 755, 115 P.3d 41 ; then citing Armendariz v. Found. Health Psychcare Servs., Inc., 24 Cal. 4th 83, 99 Cal.Rptr.2d 745, 6 P.3d 669 (2000) )).
Here, Palumbo undertook a wide range of responsibilities under the DSA, not all of which qualify as "contractor" duties as defined in Cal. Bus. & Prof. Code § 7026. California courts have recognized that a "construction manager" that "assist[s] ... in coordinating the activities of the various workers to enable them to complete their assigned tasks in an organized and efficient manner, ... maintain[s] records such as insurance certificates, as well as the financial books and records for the project[,] ... keep[s] the Owner apprised of the status of the project[,] ... [and acts as] the on-site ‘point person’ to respond to issues as they ar[i]se" is not required to obtain a contractor's license. The Fifth Day, 172 Cal. App. 4th at 948, 91 Cal.Rptr.3d 633 (holding that a plaintiff who "had no responsibility or authority to perform any construction work on the project, or to enter into any contract or subcontract for the performance of such work" did not require a license under section 7031 ). Palumbo's tasks similarly included "managing and directing the performance of ...," "procuring and maintaining insurance coverage," and "implementing ... any decisions of [Hillcrest] made in connection with the development and construction of the Project." DSA §§ 3.1(a), (h), (i)(3).
In addition, Defendants focus entirely on Palumbo's duties under the DSA; they say nothing at all about the work – if any – that Palumbo actually performed on the Property. See Ds’ Mot. at 17-19 ("In the DSA, [Palumbo] agreed to undertake and purported to have the capacity to undertake work and services for which a contractor license is required by Section 7026."). The only evidence on this point comes from Michael Palumbo, who states that the Property was sold by Hillcrest "in an undeveloped state," that "no construction was ever performed by anyone on the Property," and that Palumbo "did not provide any construction services." Dkt. 79-1 (Palumbo Opp'n Decl.) ¶ 30. Based on this record, the Court cannot conclude, as a matter of law, that Palumbo improperly seeks " ‘compensation’ for illegal unlicensed contract work" such that its claims are entirely barred by section 7031. Hydrotech Sys., 52 Cal. 3d at 997, 277 Cal.Rptr. 517, 803 P.2d 370.
Defendants note that in Vallejo Dev. Corp., a California Court of Appeal stated that "[t]he mere execution of such a contract [for unlicensed contractor services] is an act ‘in the capacity of a contractor,’ and an unlicensed person is barred by section 7031 [(a)] from bringing claims based on the contract." 24 Cal. App. 4th at 940, 29 Cal.Rptr.2d 669 ; Ds’ Mot. at 15. However, unlike the DSA, the contract in Vallejo Dev. Corp. held the plaintiff "solely responsible for completion of" the construction services. 24 Cal. App. 4th at 940, 29 Cal.Rptr.2d 669. Therefore, there could be no doubt that the plaintiff's performance under that agreement would constitute a violation of section 7031. Id. Where, as here, the contract encompasses services that do not require a contractor's license, and the plaintiff's duties are limited to construction "oversight," execution of the contract by itself is not enough to trigger section 7031. MKB Mgmt., 184 Cal. App. 4th at 806, 108 Cal.Rptr.3d 899.
As in the other cases cited by Hillcrest, the plaintiff in Vallejo Dev. Corp. also "perform[ed] as required under the terms of the agreements." 24 Cal. App. 4th at 940, 29 Cal.Rptr.2d 669. Therefore, the court's statement in Vallejo Dev. Corp. about the "mere execution" of a contract constituting a violation of section 7031 may be considered dicta. In any event, to the extent Vallejo Dev. Corp. and MKB Mgmt. are inconsistent, the Court finds the latter more persuasive.
Defendants’ motion for summary judgment is DENIED.
Because the Court concludes that disputes of material fact exist as to whether Palumbo was acting as an unlicensed contractor under § 7031, the Court need not address Palumbo's argument that the Aggregate Development Fee is compensation for Palumbo's assignment of the Property, rather than its design services.
B. Palumbo's Motion for Partial Summary Judgment
Palumbo moves for summary judgment on three issues: (1) that the DSA requires Hillcrest to pay Palumbo the Development Services Fee on sale of the Property; (2) that Palumbo's appointment under the DSA "terminated" on February 10, 2015 and the Aggregate Development Fee (including Hillcrest's "preferential return") should be calculated as of that date; and (3) "the Court should [ ] summarily adjudicate that the Property has been sold, Defendants received the sales proceeds, and [ ] Palumbo has not been paid any Net Profits ... from the sale of the Property." See P's Mot. at 13-14.
Defendants do not dispute that the DSA requires Hillcrest to pay Palumbo the Development Services Fee on sale of the Property or that Palumbo has not been paid. PUF ¶ 27. Defendants also agree that Hillcrest's right to a preferential return ended as of the date of Palumbo's termination. Defendants oppose Palumbo's motion on the basis of the § 7031 issue addressed above and by asserting that a disputed question of material fact exists as to the date Palumbo was terminated.
1. Calculation of the Aggregate Development Fee under the DSA
Section 5.1 of the DSA provides that Hillcrest "shall pay to Palumbo a fee, not to exceed the amounts provided in Schedule 5.1." Schedule 5.1, in turn, describes the "Development Services Fee," which consists of two components:
(1) The Aggregate Development Fee, which is 40% of the "Net Profits on Sale of the Project and/or Property"; and
(2) A "monthly draw in the amount of $15,000.00 per month [paid] to Palumbo" during the development of the Property which serves as "an advance of the aggregate development fee."
DSA, Schedule 5.1(1)-(2). Hillcrest is required to pay Palumbo the Aggregate Development Fee "within 60 days after [ ] termination" of "Palumbo's appointment under [the DSA]." Id. § 8.3. The amount of the Aggregate Development Fee is "calculated as of the date of termination." Id. Section 8.1 of the DSA defines what constitutes a terminating event.
2. Termination of Palumbo's appointment under the DSA
Palumbo maintains that its appointment under the DSA terminated on February 10, 2015 and the Aggregate Development Fee should be calculated as of that date. P's Mot. at 12-13. On February 10, 2015, Neil Moffitt informed Palumbo that NEM 2 had purchased Al Qubaisi's interest in Hillcrest and stated: "As you know[,] under the terms of the [DSA], upon the sale of the property or the entity, the [DSA] terminates." Moffitt Email at 2.
Whether or not the Court would find this to be a terminating event under Section 8.1 of the DSA as an original matter, Defendants’ failure to contest Palumbo's notice of termination under Section 8.4 constitutes "an irrevocable, binding admission" that a terminating event had occurred.
Section 8.4 of the DSA provides:
If either party to this Agreement shall make a claim that a Termination Event has occurred, such party shall provide written notice of such claim to the other party, and, if applicable, the Lender. Such notice shall identify the Termination Event and shall include the following statement set forth in capital letters: "THIS NOTICE SHALL CONSTITUTE WRITTEN NOTICE OF OUR DETERMINATION THAT A "TERMINATION EVENT" HAS OCCURRED UNDER THE DEVELOPMENT SERVICES AGREEMENT DATED AS OF MARCH___, 2014 AMONG THE OWNER AND PALUMBO. IF YOU DISPUTE WHETHER A TERMINATION EVENT HAS OCCURRED, YOU MUST SUBMIT SUCH DISPUTE TO "ARBITRATION" IN ACCORDANCE WITH THE TERMS OF SAID DEVELOPMENT SERVICES AGREEMENT WITHIN SEVEN DAYS OF RECEIPT OF THIS WRITTEN NOTICE. YOUR FAIL URE TO SUBMIT SUCH DISPUTE TO ARBITRATION WITHIN SUCH SEVEN-DAY PERIOD SHALL CONSTITUTE AN IRREVOCABLE, BINDING ADMISSION BY YOU THAT A TERMINATION EVENT HAS OCCURRED." Any party to this Agreement receiving a notice of the occurrence of a Termination Event in accordance with the terms of this Section 8.4 shall have the right to dispute whether a Termination
Event has occurred only by submitting such dispute to arbitration within seven days of receipt of such notice. Failure to submit such dispute to arbitration within such seven-day period shall be deemed to constitute an irrevocable, binding admission that a Termination Event has occurred.
DSA § 8.4.
On February 22, 2019, Palumbo sent a letter that stated:
This notice by Palumbo Design, LLC ... shall constitute written notice as provided for by Sections 8 and 10.7 of the Design Services Agreement ("DSA") that Palumbo Design claims that 1169 Hillcrest, LLC's ("Owner") sale of the Property located at 1169 Hillcrest Road, and Owner's written termination of Palumbo Design are each a Termination Event under Section 8.1 of the DSA.
PUF ¶ 23. Palumbo then inserted the required all-caps language from the DSA quoted above. Id. Moffitt and Hillcrest did not dispute that termination had occurred. PUF ¶ 25.
Palumbo contends, therefore, that "Hillcrest is deemed to have made ‘an irrevocable, binding admission that’ termination occurred on February 10, 2015." Mot. at 13. Defendants do not respond to Palumbo's Section 8.4 argument at all and instead focus on whether the sale was actually a terminating event as defined by Section 8.1. But there is no reason to go into that underlying question. The parties included in the DSA an explicit mechanism for providing notice of a purported termination event and for the party receiving notice to contest it. Defendants admittedly failed to contest Palumbo's notice and did not arbitrate the issue as required by the DSA. This means that they made "an irrevocable, binding admission" that the termination occurred as asserted by Palumbo in the notice letter.
IV. Conclusion
Palumbo's motion for partial summary judgment is GRANTED. Aside from the possibility of Palumbo being barred from recovery by California Business & Professions Code § 7031, the Court grants summary adjudication that the DSA requires Hillcrest to pay Palumbo the Development Services Fee on sale of the Property. The Court also grants summary adjudication that Palumbo's appointment under the DSA "terminated" on February 10, 2015 and the Aggregate Development Fee (including Hillcrest's "preferential return") should be calculated as of that date. Finally, the Court grants summary adjudication that Palumbo has not been paid any money from the sale of the Property.
Defendants’ motion for summary judgment is DENIED.
IT IS SO ORDERED.