Opinion
G057271
08-31-2020
INFINIA ASIA CO., LTD, Plaintiff and Appellant, v. CHICAGO TITLE COMPANY, Defendant and Appellant.
Magarian & DiMercurio, Mark D. Magarian and Krista L. DiMercurio for Plaintiff and Appellant. Fidelity National Law Group, Paul McGeough and David Owen for Defendant and Appellant.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 30-2016-00853127) OPINION Appeal from a judgment of the Superior Court of Orange County, Melissa R. McCormick, Judge. Affirmed. Magarian & DiMercurio, Mark D. Magarian and Krista L. DiMercurio for Plaintiff and Appellant. Fidelity National Law Group, Paul McGeough and David Owen for Defendant and Appellant.
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This is a conversion action involving an escrow related to a commercial property sale. The plaintiff, Infinia Asia Co., Ltd. (Infinia), is an assignee of a third party who deposited money into the escrow in favor of the buyer. When the escrow fell apart, the escrow company, defendant Chicago Title Company (Chicago Title), disbursed the funds to the seller, per the escrow instructions. Plaintiff contends the instructions, properly interpreted, required disbursal back to the third party depositor. After a bench trial, the court found the third party had impliedly consented to the funds being disbursed to the seller. We agree and, accordingly, affirm the judgment.
Briefly, the relevant course of events is this: The initial escrow instructions, agreed to by buyer and seller, required a $1 million deposit from the buyer, to be disbursed to the seller in the event escrow failed to close. The buyer utilized a related company to deposit the $1 million. The related company sent unilateral escrow instructions that conflicted with the existing instructions in that they required the money be disbursed back to the depositor in the event the escrow failed to close. The seller rejected those instructions and required the depositor to agree to the original instructions, which it did in a signed writing. Except there was a small catch, apparently unnoticed by the seller: the conflicting instructions referenced the $1 million and any additional sums, whereas the subsequent instructions referenced only the $ 1 million deposit. The transaction failed to close on time and the $1 million deposit was disbursed to the seller. The parties kept at it, however, and extended the closing date on the condition that the buyer provide a second $1 million deposit, which was provided by the same related company, only this time without any instructions at all. Ultimately, the transaction fell apart and the second deposit was also disbursed to the seller.
Plaintiff now claims that because the conflicting instructions referenced "any additional sums," and the subsequent, superseding instructions only referenced the first deposit, the second deposit is governed by the conflicting instructions.
The court got it right. The totality of the circumstances showed an implied, yet clear, consent to use the second deposit in the manner that all parties had agreed to, and in the only way that made sense: to be disbursed to the seller in the event the transaction failed. Accordingly, we affirm.
In a protective cross-appeal, Chicago Title contends the court erred in ruling the present action timely under the three-year statute of limitations. Because we affirm the judgment in favor of Chicago Title, we dismiss the protective cross-appeal as moot.
FACTS
In October 2011, Envirowater, LLC (Envirowater) and Shanghai Kailu Investments Co., Ltd. (Shanghai Kailu) entered into a joint venture to create a company that would establish an underground water bank and solar electricity project in Kern County, California. The joint venture contemplated purchasing two contiguous pieces of land, one of which (the property at issue here) was owned by American Honda Motor Co. (Honda).
Envirowater entered into a purchase and sale agreement (PSA) with Honda for the land and opened an escrow with Chicago Title. The PSA contained escrow instructions, stating, "This Agreement . . . and the provisions hereof shall constitute joint primary escrow instructions to the Escrow Holder; provided, however, that the parties shall execute such additional instructions as requested by the Escrow Holder not inconsistent with the provisions hereof." The PSA required Envirowater to deposit $1 million into escrow. "Provided the Agreement is not terminated by Purchaser pursuant to Section 5 [which concerns contingencies], the Deposit shall become nonrefundable at 4:00 p.m. (California time) on the Contingency Termination Date . . . , and Escrow Holder is hereby instructed to release the Deposit to Seller immediately at such time."
The total purchase price was $35 million. --------
After the PSA was executed, Chicago Title sent out a standard form to be signed by the parties entitled "Escrow Instructions (Interest Bearing Accounts)." The form contained a section that provided two options for how to handle accrued interest on the account. The first option was, "Any interest earned by such deposit shall be credited to the account of the undersigned depositor at close of escrow. In the event the escrow does not close, all interest earned shall be payable as stated on those instructions that allow the escrow to be cancelled." The second option was, "Any interest earned by such deposit shall be credited to the account of: __________."
Envirowater returned the form with two notable, unilateral changes. First, the deposit was coming from a company called Fantastic Path Ltd. (Fantastic Path). The chairman of Fantastic Path was Kailu Ni. Kailu Ni was also the chairman of the board of Shanghai Kailu, which was the other company involved in the joint venture. Fantastic Path is the company we referred to as the related company in the introduction. The second change was that the language governing accrued interest contained subtle additions. The two options had been combined into one, and it was slightly reworded as follows: "In the event the escrow does not close due to any contingency, all principal and interest earned shall be payable as stated on those instructions that allow the escrow to be cancelled and any principal and interest earned by such deposit shall be credited to the account of: [¶] Fantastic Path Ltd. (a limited liability corporation)." (Italics added to indicated added language.) So instead of a provision that merely governed the disposition of interest, it now purported to govern the disposition of the principal.
Honda, to the credit of its attorneys, spotted the change and immediately raised various concerns, including that Fantastic Path is not a party to the PSA, and that the language added to the form was potentially in conflict with various parts of the PSA, including the disposition of the deposit.
In response, Chicago Title sent Fantastic Path a different form, entitled "Third Party Deposit Escrow Instructions." That form, which Fantastic Path executed, provided, "You [Chicago Title] are instructed to deposit [$1 million] in the above numbered escrow for the benefit of Envirowater, . . . . a party to this escrow. You are authorized to use said funds in completing the escrow under instructions given or to be given to you by said party. I hereby waive any present or future interest in such funds. [¶] I acknowledge and understand that the escrow instructions may call for a release of said funds prior to the close thereof, and may contain provisions regarding disbursement of funds in the event this escrow is terminated. Any such payment of these funds in accordance with the instructions of the parties to this escrow is without liability or recourse upon [Chicago Title] for the return of said money. [¶] In the event this escrow is cancelled or your agency is revoked, any portion of these funds remaining on deposit, NOT subject to disbursement (payment) instructions of the parties, if any, shall be refunded solely in accordance with the instructions of the parties to this escrow."
A little over two months later, in December 2011, the parties executed an amendment to the PSA, which extended the contingency termination date (and thus the disbursement of the deposit) to December 21, 2011, and the closing date to January 11, 2012, but otherwise maintained the terms of the original PSA.
December 21, 2011, came and went without any attempt by Envirowater to terminate the agreement under any of the contingencies. Pursuant to the instructions in the PSA, Chicago Title disbursed the $1 million deposit to Honda the following day.
On January 10, 2012, Envirowater advised the parties that his joint venture partner was unable to secure the necessary government approval to wire the closing funds to Chicago Title. As a result, the transaction did not close on January 11.
On January 13, 2012, the parties executed a second amendment to the PSA. The second amendment acknowledged that the buyer had failed to fulfill its obligations under the PSA and that seller was, therefore, entitled to retain the $1 million deposit. Further, on the condition that the buyer pay an additional $1 million deposit, the closing date was extended to February 15, 2012. The second amendment described the deposit as "non-refundable." "In the event the Close of Escrow does not occur on or before the Closing Date for any reason other than due to Seller default, Escrow Holder is hereby instructed to release the Additional Deposit to Seller immediately at such time."
On January 18, 2012, Fantastic Path paid the additional $1 million into the escrow without any additional instructions.
On February 13, 2012, the parties executed a third amendment to the PSA, which once again extended the closing date, this time on the condition that buyer pay an additional deposit of $500,000. The third amendment, similarly, clarified that Honda was entitled to keep the second $1 million deposit. This time, however, the buyer failed to remit the $500,000 deposit, and thus the closing date was never extended, leading to the failure of the transaction.
Over two years later, in May 2014, Fantastic Path assigned its interest in both the first and second deposits (if any) to Infinia. Over a year later, in August 2015, Infinia demanded that Chicago Title release the first and second deposits to it. However, since Infinia was not a party to the escrow, Chicago Title refused to disclose any information about the transaction in the absence of a subpoena.
Several months later, in May 2016, Infinia filed the present lawsuit, asserting causes of action for breach of contract, conversion, constructive trust, accounting, and common counts. By the time the matter reached trial, plaintiff was asserting a single claim of conversion pertaining to the second deposit.
The court found in favor of Chicago Title, issuing a detailed statement of decision. The court first concluded that plaintiff's claim was not barred by the statute of limitations. The court reasoned that Fantastic Path and Chicago Title had a bailor/bailee relationship, and thus the claim did not accrue until Fantastic Path demanded its money back in 2015. Nevertheless, the court found in favor of Chicago Title on the merits. It concluded from the totality of the circumstances that Fantastic Path had impliedly consented to the second deposit being treated the same as the first deposit.
Infinia appealed from the ensuing judgment. Chicago Title filed a protective cross-appeal on the statute of limitations issue.
DISCUSSION
Infinia's Appeal
Infinia contends the evidence compelled a judgment in its favor for conversion on the ground that Fantastic Path's original instructions—requiring that all principal and interest be remitted to it—governed the second deposit. The argument is this: Fantastic Path's second set of instructions (which allowed Honda to retain the first deposit) only mentions the first deposit. Its first instruction, however, applied to the first deposit and also to "any additional sums which I may direct . . . ." Since the second instruction does not mention the deposit of any additional sums after the first deposit, the second deposit, Infinia concludes, was thus governed by the first set of instructions, which does cover additional sums. Chicago Title was thereby required to return the second deposit to Fantastic Path.
Infinia's cause of action was for conversion, not breach of contract, nor breach of an escrow fiduciary duty, and thus, while the written instruments are relevant evidence, the ultimate question here is whether Infinia consented to Chicago Title's disposition of the second deposit. "'Conversion is the wrongful exercise of dominion over the property of another. The elements of a conversion claim are: (1) the plaintiff's ownership or right to possession of the property; (2) the defendant's conversion by a wrongful act or disposition of property rights; and (3) damages.'" (Los Angeles Federal Credit Union v. Madatyan (2012) 209 Cal.App.4th 1383, 1387.) "[T]he law is well settled that there can be no conversion where an owner either expressly or impliedly assents to or ratifies the taking, use or disposition of his property." (Farrington v. A. Teichert & Son (1943) 59 Cal.App.2d 468, 474.) Here, substantial evidence supports the court's conclusion that Fantastic Path impliedly consented to Chicago Title's disposition of the second deposit.
We begin with the big picture. Clearly, the purpose of the deposit was to ensure that Envirowater would complete the deal with Honda. It was skin in the game. That works only if the deposit, at some point, becomes nonrefundable. Indeed, the PSA between Envirowater and Honda—as well as every other document except Fantastic Path's unilateral instructions—made that disposition crystal clear.
Next, we note that Fantastic Path was not a complete stranger to this deal. Fantastic Path's principal was Kailu Ni, who was also the chairman of the board of Shanghai Kailu, one of the two companies engaged in the joint venture to create the water well and solar array. From this fact, the court could infer that Fantastic Path was aware of the terms of the real estate transaction.
Additionally, the overall course of events makes clear that Fantastic Path's unilateral instructions that deviated from the PSA were rejected. When Fantastic Path sent its initial instructions, Honda immediately objected, and Chicago Title then sent replacement instructions that entirely contradicted the initial set of instructions. Afterward, every set of instructions given to Chicago Title were totally at odds with Fantastic Path's initial set of instructions. From this course of events, the court could conclude that Fantastic Path's second set of instructions was not an exception to its first set of instructions, but instead superseded them.
Lastly, from all of these circumstances, the court could infer that when Fantastic Path sent its second deposit without any instructions whatsoever, it was acquiescing in the consistent instruction to Chicago Title that deposits, after a certain point, were nonrefundable. Thus, substantial evidence supports the judgment.
Plaintiff's argument that it was entitled to judgment as a matter of law relies heavily on Tribeca Companies, LLC v. First American Title Ins. Co. (2015) 239 Cal.App.4th 1088 (Tribeca), a case that has some superficial similarity to this case, but which differs in critical respects. There, the plaintiff formed a joint venture with another company, whom we refer to as the partner, to engage in real estate transactions. (Id. at p. 1092.) The partner was to provide the funding, and the joint venture agreement provided that where the members of the joint venture had agreed in writing to pursue a particular investment, the partner would deposit $1 million, which would become nonrefundable liquidated damages in favor of the plaintiff if the investment failed. (Id. at pp. 1092-1093.) The joint venture agreement included escrow instructions to that effect, to be used for each transaction. (Id. at p. 1093.)
The parties identified a potential transaction and the plaintiff opened an escrow, though in an unusual form: a single-party escrow. (Tribeca, supra, 239 Cal.App.4th at pp. 1093-1094.) The partner's principal gave his approval to proceed with the transaction, though not in writing as the joint venture agreement required. (Id. at p. 1096.) Ultimately, the partner was never able to come up with the full funding for the deal, which fell apart. (Id. at p. 1097.) At that point, both the plaintiff and the partner's principal sought the money in escrow. (Id. at p. 1097-1098.) The defendant escrow company disbursed it to the partner's principal, prompting plaintiff to sue the escrow company on various causes of action, including breach of contract and breach of fiduciary duty (but not including conversion). (Id. at p. 1099.) The trial court found in favor of the escrow company, and the plaintiff appealed. (Id. at p. 1102.)
The Court of Appeal affirmed, finding numerous holes in the plaintiff's claims. They included: The partner's principal (the source of the funds) was not a party to the joint venture agreement, and thus not bound by its terms to deposit the money. The escrow was opened by plaintiff, not the joint venture itself. (Tribeca, supra, 239 Cal.App.4th at p. 1104.) The transaction was never approved in writing, as the joint venture agreement required, and thus the liquidated damages provision was never triggered. (Id. at p. 1105.) The joint venture never entered into a binding agreement with the real-estate seller, which was another prerequisite to liquidated damages. (Id. at p. 1106.) And the escrow agent was never given the mandatory escrow instructions attached to the joint venture agreement. (Id. at pp. 1106-1107.)
Plaintiff seizes on the following two lines from Tribeca: "[Plaintiff] could not assert entitlement to the funds in escrow except upon the terms stipulated in the depositing party's instructions. [Citation.] [The partner's principal] never provided any instruction to [the escrow holder], other than the one requesting it to return his funds 'immediately.'" (Tribeca, supra, 239 Cal.App.4th at p. 1108.) Plaintiff claims the same applies to Fantastic Path's second deposit: it never provided any instructions, except its eventual request to return the money.
But there are crucial differences between this case and Tribeca. For starters, Fantastic Path did provide instructions to the escrow company. After initially providing instructions that conflicted with the PSA, which were rejected, Fantastic Path provided instructions that specifically adopted the instructions in the PSA. Second, unlike Tribeca, where the escrow company was never given any instructions involving liquidated damages, here the escrow company was given the proper instructions by the parties to the escrow at every step, and it followed those instructions. Third, whereas Tribeca involved breach of contract and breach of fiduciary duty, both of which are defined by the written instructions to the escrow company, our case is one for conversion, where the issue is simply whether Fantastic Path consented to Chicago Title's disposition. And in a conversion action, consent can be express or implied. (Farrington v. A. Teichert & Son, supra, 59 Cal.App.2d at p. 474 ["[T]here can be no conversion where an owner either expressly or impliedly assents to or ratifies the taking, use or disposition of his property"].)
Ultimately, this case turns on the totality of the circumstances. While there are some similarities between this case and Tribeca—mostly that both involve a claim on escrow funds originating with third parties—the overall set of circumstances are not anywhere near the same. Nor did Tribeca involve the same issue we face here, consent. As a result, Tribeca did not compel a finding in favor of plaintiff. Accordingly, we affirm the judgment.
Chicago Title's Cross-appeal
Because we affirm the judgment in favor of Chicago Title on the merits. it is unnecessary to address Chicago Title's protective cross-appeal, which argues only that Infinia's complaint was barred by the statute of limitations. We thus dismiss the cross-appeal as moot.
DISPOSITION
The judgment is affirmed. Chicago Title shall recover its costs incurred on appeal.
IKOLA, J. WE CONCUR: BEDSWORTH, ACTING P. J. FYBEL, J.