Opinion
A128947, A129680
01-12-2012
IVANHOE CAPITAL, LLC, Plaintiff and Appellant, v. JANNA HOSPITALITY HOLDINGS, LLC, et al., Defendants and Respondents.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
(San Francisco County Super. Ct. No. CGC-08-482071)
INTRODUCTION
Plaintiff Ivanhoe Capital, LLC (Ivanhoe) appeals from judgments of the San Francisco Superior Court dismissing its action against defendants and respondents Diane Boss, PKF Consulting (PKF), and Janna Hospitality Holdings, LLC (Janna) (A128947), and from the court's award of attorney fees to defendants (A129680). Dismissal followed the court's sustaining, without leave to amend, of respondents' demurrers to Ivanhoe's third amended complaint. Ivanhoe contends the court erred in sustaining demurrers to its cause of action for breach of written non-circumvention agreements. We shall affirm the judgment.
BACKGROUND
In a nutshell: Ivanhoe had an option to purchase and develop resort property in Idaho. Defendants were investors in the project, who signed non-circumvention agreements, promising they would not circumvent Ivanhoe in the transaction and would not engage in any transaction involving the property, or proprietary information supplied by Ivanhoe, without Ivanhoe's consent. Ivanhoe transferred its option to Helios Development LLC (Helios) for $1 million and additional principal and contingent interest payments in accordance with the terms of an option purchase agreement and accompanying promissory note. Thereafter, respondents became involved with Helios in the development of the property in various ways, without obtaining Ivanhoe's consent. Ivanhoe sued respondents and others for damages and sought an injunction against their participation in the development process. This action triggered a "non-interference" clause in the Helios-Ivanhoe agreement, limiting Ivanhoe to a payment of $2 million dollars from Helios, rather than the $50 million it expected to receive under the promissory note. In its third amended complaint, Ivanhoe sought damages against respondents for loss of its expectation under the Helios promissory note. The trial court sustained demurrers to the third amended complaint on the ground that Ivanhoe's damages were self-inflicted and not proximately caused by respondents.
Third Amended Complaint
We turn to the allegations of the third amended complaint. As alleged therein, Ivanhoe had an economic interest in Warm Springs Ranch and Restaurant Project (Warm Springs Project), a resort property in Ketchum, Idaho. Ivanhoe found the property, "approximately 78 acres, and some of the last developable property near the high-end ski slopes in Ketchum, Idaho." Ivanhoe had entered into an option agreement with the owner of the property, giving Ivanhoe the right to develop and purchase the Warm Springs Project property. Respondents and others were potential investors in the project. Ivanhoe maintained that the respondents would never have learned of each other, the project, the property, or the "unique opportunity they presented without Plaintiff Ivanhoe."
Non-Circumvention Agreements. In order to insure that respondents would not "steal [its] project," Ivanhoe required each of the respondents to enter into a non-circumvention agreement. The non-circumvention agreements were attached to, quoted in, and incorporated into the complaint. Each contained an acknowledgement by the potential investor that Ivanhoe had an option to purchase the project property and that Ivanhoe would make available for review certain information concerning the property that was to remain confidential.
The non-circumvention agreements signed by each respondent provided in relevant part:
"1. Potential Investor will not, in any way whatsoever, circumvent or attempt to circumvent Principal [Ivanhoe] in the Transaction, or regarding the Property, the Proprietary Information, any business opportunity of Principal, or otherwise. Potential Investor will not, in any way whatsoever, engage in any transaction involving the Property, the Proprietary Information, or otherwise without the prior written consent, and in the sole discretion of Principal.
"2. Potential Investor has been advised that Principal has entered into an option agreement dated May 1, 2006 and agrees to its terms and pertinent provisions of which are as follows: 1) Principal and its agents, employees and contractors may not hold themselves out as owners of the Property or as a partner, joint venturer or agent of owner; 2) take any actions which may adversely affect the Property or affect the value thereof; and 3) not enter upon the Property except with the owner or its agent to conduct surveys, soil tests, engineering and environmental studies.
"[¶] . . . [¶]
"5. Potential Investor and/or Related Parties shall not contact, do any filings with or inquire, in any way of, governmental authorities or instrumentalities relating to the Property whatsoever, or enter the Property without forty-eight (48) hours prior written notice to Principal and approval by the current owner (Whitetail, A Club for All Seasons, LLC) which shall accompany the Principal and Potential Investor, and affiliates, regarding the Property and access thereon.
"[¶] . . . [¶]
"10. In the event that Potential Investor breaches any provision of this Agreement, Potential Investor shall be liable to Principal for compensatory damages and any other rights available at law or in equity. . . . [¶] Should any attorney fees or costs be incurred by a party to enforce the terms of this Agreement, the prevailing party shall be entitled to reimbursement for such fees and costs from the other party."
Paragraph 10 of the agreement executed by Janna contained slightly different damages language not material to our analysis.
Ivanhoe entered the non-circumvention agreement with respondent Janna on October 17, 2006, with respondent PKF on October 15, 2006, and with respondent Boss on June 10, 2006. Ivanhoe alleged that these non-circumvention agreements were to remain in place and be effective, regardless of whether or not Ivanhoe relinquished ownership rights in the project property.
The Helios Agreement. On January 5, 2007, Ivanhoe and Helios entered into an "Option Rights Purchase and Sale Agreement" (Helios Agreement) and accompanying promissory note and assignment and assumption agreement, under which Helios obtained Ivanhoe's option rights to the property and project. In consideration, Helios agreed to pay Ivanhoe both an initial purchase price of $1 million, an additional principal payment, and contingent interest payments in accordance with the terms of the promissory note. Helios also agreed to assume Ivanhoe's obligation, if any, to Richard Boss to the extent of a $450,000 cash payment. Under the promissory note, an exhibit to the Helios Agreement, the Warm Springs Project would receive an "Initial Capital Contribution" of $52 million through Helios and a "Remaining Capital Contribution" of $20 million. Helios would receive a 15-percent annual "Preferred Return" from the development until the occurrence of a "Capital Event," defined under the promissory note as "(i) the entry by Maker [Helios] into any financing arrangement for the purpose of financing the costs of entitlement or development of, or other costs related to, [the property] to be purchased by Maker concurrently with the making of this Promissory Note . . . , or (ii) the sale by Maker of any material portion of the Property."
The promissory note provided for payment to Ivanhoe from Helios as follows: "3. Payment. . . . Payments shall be made in accordance with the following: "(a) Fixed Payments. [¶] (i) If and to the extent that the Fixed Payments paid under clause (a)(i) are less than One Million Dollars ($1,000,000.00), upon Full Entitlement, Maker [Helios] shall pay to Holder [Ivanhoe] the amount of One Million Dollars ($1,000,000.00); and [¶] (ii) any Fixed Payment not previously paid under clause (a)(i) shall be paid from the proceeds of a Capital Event, provided that no payment shall be made under this clause (a)(ii) prior to Preferred Return Payout.
"(b) Contingent Interest Payments. From and after the date on which Preferred Return Payout has occurred and after payment of any Fixed Payment due hereunder, Maker shall, on February 1, May 1, August 1, and November 1 of each calendar year, pay Contingent Interest Payments to Holder, in accordance with the following: [¶] (i) Until Maker has achieved an Internal Rate of Return of Fifteen Percent on the Remaining Capital Contribution, ten percent (10%) of Net Cash Flow for the previous quarter ending January 1, April 1, July 1 or October 1, as the case may be; and [¶] (ii) Thereafter, twenty-five percent (25%) of Net Cash Flow for the previous quarter ending January 1, April 1, July 1, or October 1, as the case may be."
Section 8 of the promissory note from Helios to Ivanhoe provided:
"8. Relationship: Holder Interference. The execution of this Promissory Note and any related documents, and the transactions contemplated hereby and thereby, are not intended to and shall not be deemed in any way to create a partnership, joint venture, joint tenancy or tenancy-in-common by and between Maker and Holder. Neither Maker nor Holder nor any representative of either Maker or Holder shall represent to any third party that any partnership or similar relationship exists between maker and Holder or any Affiliates thereof. Holder shall not in any way participate in the management or control of Maker's business, nor shall Holder transact any business for Maker, nor shall Holder have any power to act for or bind Maker. Neither Holder nor George Tischer or Adam Tischer, or any Person controlled by any of them, is permitted to take any action (or through inaction) that, in the reasonable discretion of Maker, would or could cause any adverse impact on the development of the Property or cause any party to reasonably conclude that Holder is involved in the development of the Property (except as a holder of an economic interest therein) or that a partnership, joint venture or similar joint undertaking between Maker and Holder exists (an "Interference Event"), and Holder hereby covenants not to engage in any Interference Event. Notwithstanding any other provision of this Agreement, if Maker reasonably determines that an Interference Event has occurred, Maker shall have the immediate, unfettered option to repay this Promissory Note for the unpaid balance of the Fixed Payments hereunder plus One Dollar ($1.00) within 60 days after the occurrence of such Interference Event, and upon such payment this Promissory Note shall be considered redeemed, released, and null and void and any outstanding payment obligations hereunder on the part of Maker, whether currently due or not, shall be extinguished. Any determination by Maker that an Interference Event has occurred shall be subject to binding arbitration . . . ."
Initiation of the Lawsuit
Ivanhoe and its managing member, George Tischer, filed a complaint against DDRM Great Place, LLC (DDRM), and its agents Brent Hall and Stanley Castleton, and Doe defendants on November 19, 2008, seeking damages and temporary and permanent injunctive relief. In its original complaint, Ivanhoe explained that it had brought in Anton Vonk with Helios to develop the property and that upon completion of the development, Helios was to give Ivanhoe access to great profit potential in the completed project. However, DDRM and Hall (who had also signed non-circumvention agreements), Castleton and others, excluded Ivanhoe from personal involvement in developing the property and proposed a plan that would take at least 11 years to develop the property, eliminating Ivanhoe's profit potential for that entire time frame. DDRM, Hall and Castleton demurred to the complaint. The court denied plaintiffs' request for a preliminary injunction on December 10, 2008.
On December 26, 2008, Ivanhoe filed a verified first amended complaint for damages and injunctive relief against respondents Janna, PKF, Boss, and others, including Vonk. DDRM, Hall and Castleton again demurred to the first amended complaint on January 30, 2009. Vonk and respondent Boss (Vonk's spouse) moved to compel arbitration and to stay the action pending arbitration. Janna demurred to the first amended complaint on February 11, 2009, and PKF filed a verified answer to the first amended complaint on February 27, 2009. The court order sustaining the demurrer of defendants DDRM, Hall and Castleton to the first amended complaint was entered on March 17, 2009.
Ivanhoe filed a second amended complaint against the same defendants named in its first amended complaint. Ivanhoe did not seek injunctive relief, but again accused respondents and other defendants of violating the non-circumvention agreements and of proposing and/or backing the 11-year build-out plan. Defendants DDRM, Hall and Castleton answered the second amended complaint on April 20, 2009. Respondents Janna and PKF demurred and moved to strike certain causes of action of the second amended complaint. The court sustained the demurrers of Janna and PKF to the second amended complaint with leave to amend. The court also granted defendant Vonk's application to compel arbitration and stay proceedings pending arbitration, but denied Boss's application to compel arbitration. On January 28, 2010, with Ivanhoe's agreement, Vonk was dismissed from the action with prejudice and the stay pending arbitration was lifted.
Ivanhoe filed its third amended complaint against respondents and other defendants on February 4, 2010.
Alleged Breach of the Non-Circumvention Agreements
The third amended complaint alleged that after the Helios Agreement was entered, respondents and others breached their respective non-circumvention agreements "by entering into transactions and working on the Warm Springs project including the sharing of proprietary information of Ivanhoe, without Ivanhoe's prior written consent. In essence, Defendants proceeded to work on the project, ignoring Ivanhoe as if it did not exist. These breaches included the following acts committed without Ivanhoe's written consent: . . . . Within six (6) months of executing its Non-Circumvention Agreement, Defendant Janna, a private equity firm, began negotiations with DDRM and Helios to become an equity partner in the 5-star hotel being planned for the project. On or before August 2007, Defendant Diane Boss was engaged with DDRM and Helios in the design and planning of the project. By May 2008, Defendant PKF was preparing and presenting data used to support formal applications of the Ketchum City Council and the local Planning Commission. On October 21, 2008, PKF did a presentation at the Ketchum City Council, providing data that explained how the resort's size and amenities were to be determined by the financial requirements of the project, which included the specifics regarding the 5-star hotel, spa, events house, nine hold golf course, town homes, and two estate lots. . . . These activities were a breach of the Non-Circumvention Agreements in that Ivanhoe was never given any prior notice of what was being done by Defendants. Ivanhoe was kept out of the loop, ignored and not given an opportunity by Defendants to give any written consent to the activities."
"On November 19, 2008, Plaintiff Ivanhoe filed the instant action against Defendants, seeking injunctive relief to stop the Defendants from circumventing Ivanhoe with regard to the project. This, in turn, prompted Helios in January 2009 to invoke the Holder Interference provision in the Helios/Ivanhoe Promissory Note and tender $2,000,001.00, the Fixed Payment amount for which Helios was obligated to pay Ivanhoe under the Note upon the happening of an interference, wiping out all Contingent Interest Payments under the Note." (Italics added.)
The Third Amended Complaint asserts that Ivanhoe suffered damages in excess of $50 million "[a]s a proximate result of Defendants' breaches of the Non-Circumvention Agreements and consequential triggering of the Holder Interference provision of the Promissory Note and loss of Contingent Interest obligation owed by Helios under the Note . . . ." (Italics added.)
Defendants DDRM, Hall, and Castleton answered Ivanhoe's complaint on February 19, 2010. Respondents Boss, Janna, and PKF all demurred separately to the third amended complaint, as did defendant Starwood Hotels & Resorts Worldwide, Inc. Following a hearing held March 18, 2010, the court sustained respondents' demurrers to the third amended complaint without leave to amend, on the ground that "plaintiff has been unable to plead damages proximately resulting from any alleged breach from these defendants or to plead that they intentionally interfered with a contract."
Orders sustaining respondents' demurrers were entered on March 18 and April 15, 2010. Judgments dismissing Ivanhoe's action against respondents were entered thereafter. This timely appeal of the judgments dismissing the action against respondents followed (A128947).
Respondents and other defendants moved for attorney fees and costs after the entry of judgment. The court awarded respondent Boss attorney fees of $78,735 and costs of $1,947.79; respondent PKF attorney fees of $44,190 and costs of $2,064.86; and respondent Janna attorney fees of $ 136,069.50 and costs of $5,579.46. A second timely appeal of the amended judgments incorporating the attorney fee and cost awards followed (A129680). We consolidated these cases at Ivanhoe's request on October 19, 2010.
DISCUSSION
Ivanhoe challenges the court's sustaining of respondents' demurrers. It does not challenge the amounts of attorney fees or costs awarded respondents. Rather, its challenge to the fee and cost awards stands or falls with its challenge to the underlying dismissals. A. Standards of Review
Our review is guided by well-established standards:
" 'Because a demurrer both tests the legal sufficiency of the complaint and involves the trial court's discretion, an appellate court employs two separate standards of review on appeal. [Citation.] . . . Appellate courts first review the complaint de novo to determine whether or not [it] alleges facts sufficient to state a cause of action under any legal theory, [citation], or in other words, to determine whether or not the trial court erroneously sustained the demurrer as a matter of law. [Citation.]' (Cantu v. Resolution Trust Corp. (1992) 4 Cal.App.4th 857, 879, fn. omitted.) 'Second, if a trial court sustains a demurrer without leave to amend, appellate courts determine whether or not the plaintiff could amend the complaint to state a cause of action. [Citation.]' (Id. at p. 879, fn. 9.)" (Das v. Bank of America, N.A. (2010) 186 Cal.App.4th 727, 734.) We review the validity of the court's action sustaining the demurrer, not its reasons. (Eisenberg et al., Civil Appeals and Writs (The Rutter Group 2010) ¶¶ 8:215-8:215.3, pp. 8-148 to 8-149.)
"Under the first standard of review, 'we examine the complaint's factual allegations to determine whether they state a cause of action on any available legal theory. [Citation.] We treat the demurrer as admitting all material facts which were properly pleaded. [Citation.] However, we will not assume the truth of contentions, deductions, or conclusions of fact or law [citation], and we may disregard any allegations that are contrary to the law or to a fact of which judicial notice may be taken. [Citation.]' (Ellenberger v. Espinosa (1994) 30 Cal.App.4th 943, 947.)" (Das v. Bank of America, N.A., supra, 186 Cal.App.4th at p. 734.) "Whether the plaintiff will be able to prove these allegations is not relevant. (Alcorn v. Anbro Engineering, Inc. (1970) 2 Cal.3d 493, 496.)" (Linear Technology Corp. v. Applied Materials, Inc. (2007) 152 Cal.App.4th 115, 122.)
"Under the second standard of review, the burden falls upon the plaintiff to show what facts he or she could plead to cure the existing defects in the complaint. (Cantu v. Resolution Trust Corp., supra, 4 Cal.App.4th at p. 890.) 'To meet this burden, a plaintiff must submit a proposed amended complaint or, on appeal, enumerate the facts and demonstrate how those facts establish a cause of action.' (Ibid.)" (Das v. Bank of America, N.A., supra, 186 Cal.App.4th at p. 734.) B. Breach of Contract
" 'A cause of action for damages for breach of contract is comprised of the following elements: (1) the contract, (2) plaintiff's performance or excuse for nonperformance, (3) defendant's breach, and (4) the resulting damages to plaintiff.' [Citation.]" (Durell v. Sharp Healthcare (2010) 183 Cal.App.4th 1350, 1367, italics omitted; 4 Witkin, Cal. Procedure (5th ed. 2008) Pleading, § 515, p. 648.) If the allegations in the complaint conflict with exhibits referenced therein, we rely on and accept as true the contents of the exhibits. However, if the exhibits are ambiguous and can be construed in the manner suggested by the plaintiff, then we must accept the construction offered by plaintiff. (SC Manufactured Homes, Inc. v. Liebert (2008) 162 Cal.App.4th 68, 83; 4 Witkin, Cal. Procedure, supra, § 431, pp. 564-565.)
"Facts alleging a breach, like all essential elements of a breach of contract cause of action, must be pleaded with specificity. [Citations.]" (Levy v. State Farm Mutual Automobile Auto. Ins. Co. (2007) 150 Cal.App.4th 1, 5-6, italics added; see also 4 Witkin, Cal. Procedure, supra, § 534, p. 663, and cases there cited.) "A fundamental rule of law is that 'whether the action be in tort or contract compensatory damages cannot be recovered unless there is a causal connection between the act or omission complained of and the injury sustained.' [Citation.]" (McDonald v. John P. Scripps Newspaper (1989) 210 Cal.App.3d 100, 104 [The court properly sustained a demurrer in an action by the loser of a spelling bee against the sponsor. Even if the sponsor breached a contract with the loser by allowing the winner to compete in violation of contest rules, the loser could not show that he was injured by the breach. He lost the contest because he misspelled a word, and it was irrelevant that he was defeated by a contestant who had no right to advance in the contest].) Although causation is more obvious in breach of contract than it is in negligence, a complaint may be found defective in failing to allege facts showing that the damages recited were a result of the defendant's breach. (4 Witkin, Cal. Procedure, supra, § 540, pp. 667-668; see Senter v. Monroe (1888) 77 Cal. 347, 351; McDonald v. John P. Scripps Newspaper at p. 104; Southall v. Security Title Ins. & Guarantee Co. (1952) 112 Cal.App.2d 321, 323; Westwater v. Rector, Wardens & Vestry of Grace Church (1903) 140 Cal. 339, 342.)
Respondents here maintain that Ivanhoe cannot plead damages proximately caused by their alleged breaches of the non-circumvention agreements. They further contend Ivanhoe admitted that damages were contingent and necessarily speculative, and that Ivanhoe cannot successfully plead that respondents breached the non-circumvention agreements, because the obligations of those agreements were frustrated and excused by Ivanhoe's execution of the Helios agreement. Finally, they maintain that, despite four chances to plead a cause of action, the third amended complaint failed to identify any acts performed (or omitted) by respondents in breach of the non-circumvention agreements. Although we review the court's action sustaining the demurrers without leave to amend, rather than the court's rationale for doing so, we shall conclude the trial court properly sustained the demurrers on the ground that Ivanhoe has failed to show it can plead damages proximately caused by respondents' alleged breaches of the non-circumvention agreements. Consequently, we need not address respondents' alternative bases for affirming the judgment.
At the hearing on the demurrers, the court explained: "[W]e're not talking about an issue of uncertainty in the amount; we're talking about a fundamental problem with the theory. [¶] The only damages alleged in the complaint are damages resulting from Helios buying out the note, which Helios only was able to do by virtue of your client's decision to seek an injunction. The alleged breaches, even assuming they were breaches, did not give Helios the right to do that, and therefore did not create the damage that your client alleges. [¶] It was your client's choice to risk and then suffer those damages."
We agree with the trial court that it was not respondents' alleged breaches of the non-circumvention agreements that proximately caused Ivanhoe's damages. Respondents' alleged breaches of the non-circumvention agreements did not and could not have triggered application of the non-interference clause by Helios and the resulting loss of Ivanhoe's expectation under the Helios promissory note, as Helios would have had no basis for invoking the clause based on respondents' actions. Rather, the allegations of the third amended complaint make clear that it was Ivanhoe's seeking of injunctive relief against respondents' and others for their alleged breaches of the non-circumvention agreements that triggered the non-interference clause of its agreement with Helios, resulting in the loss of contingent interest payments to which Ivanhoe would have been entitled upon development of the property. Ivanhoe specifically alleged that its lawsuit seeking to enjoin respondents and others from assisting Helios in developing the property triggered the non-interference clause. Consequently, it was not respondents' actions, but Ivanhoe's intentional acts, that caused the alleged damages.
Ivanhoe argues that it was caught in a "Catch-22" upon respondents' breach of the non-circumvention agreements. It maintains that there was no real way for it to compel respondents and other defendant signers of the non-circumvention agreements to provide written notice of their activities with regard to the project without its filing the action for injunctive relief that allowed Helios to invoke the interference provision of the promissory note. Although it may have been faced with difficult choices, nothing in the factual allegations of the third amended complaint suggests a causal connection between respondents' actions in breach of the non-circumvention agreements and any of the damages Ivanhoe claims. Under the allegations of the third amended complaint, Ivanhoe was not injured by respondents' alleged breaches, but by its own intentional actions that interfered with the project and caused Helios to invoke the non-interference provision of the promissory note and tender a fixed amount of $2,000,001 in satisfaction of any obligation owed by it to Ivanhoe.
Ivanhoe also argues that damages for loss of profits on account of a breach of contract is generally the subject of evidence rather than pleading, and that it could establish its lost profits by comparing profits generated by other, similarly situated, established ski resorts in the area. (Hacker etc. Co. v. Chapman V. Mfg. Co. (1936) 17 Cal.App.2d 265, 267.) This argument is misdirected, as it focuses on the question of the amount and certainty of the damages, not upon the question of causation, that we have concluded was the fatal defect in the third amended complaint.
We note the Supreme Court's recognition in Lewis Jorge Construction Management, Inc. v. Pomona (2004) 34 Cal.4th 960, 975, that: "Lost profits, if recoverable, are more commonly special rather than general damages [citation], and subject to various limitations. Not only must such damages be pled with particularity [citation], but they must also be proven to be certain both as to their occurrence and their extent, albeit not with 'mathematical precision.' "
Ivanhoe has not argued on appeal that it would be able to amend its complaint a fifth time so as to establish a cause of action. (See Das v. Bank of America, N.A., supra, 186 Cal.App.4th at p. 734.)
The trial court did not err in sustaining respondents' demurrers without leave to amend. Consequently, the award of attorney fees also stands.
DISPOSITION
The judgments are affirmed. Respondents are to recover their costs on this appeal.
________________________
Kline, P.J.
We concur:
________________________
Haerle, J.
________________________
Richman, J.