Opinion
F084479
12-19-2023
MELKONIAN ENTERPRISES, INC., et al., Plaintiffs and Appellants, v. SUN-MAID GROWERS OF CALIFORNIA, Defendant and Respondent.
Paboojian, Inc., Warren R. Paboojian, and Adam B. Stirrup; Whitney, Thompson & Jeffcoach, Marshall C. Whitney, Kristi D. Marshall, and Jacob S. Sarabian for Plaintiffs and Appellants. Baker Manock & Jensen and Joseph M. Marchini; McDermott Will & Emery and Matthew L. Knowles for Defendant and Respondent.
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Fresno County Super. Ct. No. 19CECG03936. Kristi C. Kapetan, Judge.
Paboojian, Inc., Warren R. Paboojian, and Adam B. Stirrup; Whitney, Thompson & Jeffcoach, Marshall C. Whitney, Kristi D. Marshall, and Jacob S. Sarabian for Plaintiffs and Appellants.
Baker Manock & Jensen and Joseph M. Marchini; McDermott Will & Emery and Matthew L. Knowles for Defendant and Respondent.
OPINION
DE SANTOS, J.
Melkonian Brothers LLC (Brothers) grows grapes which it delivers to Melkonian Enterprises, Inc., dba Lone Star Dehydrator (Enterprises) to be bleached and dehydrated to make golden raisins. Historically, Enterprises conveyed golden raisins to Sun-Maid Growers of California, Inc. (Sun-Maid), a nonprofit agricultural cooperative, which Enterprises and Brothers were members of, for pooling, marketing, and distribution. In 2019, Sun-Maid decided to close the golden raisin pools and, instead of accepting golden raisins produced by its members, it would use separate contracts to source grapes from growers and obtain dehydrating services to convert the grapes into golden raisins.
Enterprises and Brothers (collectively, Melkonian) then filed a nine-count complaint against Sun-Maid that included claims for breach of contract, fraud, breach of fiduciary duty, and unfair business practices. After Sun-Maid's demurrers were sustained to the complaint and the first amended complaint with leave to amend, Melkonian filed a second amended complaint that alleged claims for breach of contract, breach of the covenant of good faith and fair dealing, promissory estoppel, intentional and negligent interference with prospective economic advantage, breach of fiduciary duty, and unfair business practices.
Sun-Maid demurred to the second amended complaint on the grounds that Melkonian failed to allege facts sufficient to constitute a cause of action. The trial court sustained the demurrer without leave to amend. Melkonian moved for reconsideration, asking the trial court to grant leave to amend. Melkonian attached a third amended complaint to the motion with the proposed amendments. The trial court denied the motion.
On appeal, Melkonian challenges the demurrer only with respect to the causes of action for breach of contract, breach of the covenant of good faith and fair dealing, breach of fiduciary duty, and unfair business practices, arguing it adequately pled sufficient facts to establish these claims. Melkonian also contends the trial court abused its discretion in denying leave to amend. Finding no merit to Melkonian's contentions, we affirm.
FACTUAL AND PROCEDURAL BACKGROUND
Allegations of the Second Amended Complaint
Sun-Maid is a nonprofit agricultural cooperative association organized for "[t]he primary purpose of ... purchasing], processing] and marketing] the raisins produced or delivered to it by its members." Enterprises is in the business of acquiring grapes from growers such as Brothers and dehydrating them into golden raisins. Enterprises and Brothers, as members of Sun-Maid, then delivered the golden raisins to Sun-Maid, which marketed them.
According to the proposed third amended complaint, approximately 95 percent of the raisins Sun-Maid markets are natural raisins; the remaining five percent are golden raisins. Golden raisins differ from natural raisins in their method of manufacture. While natural raisins are made by allowing grapes to dry in the sun, golden raisins are made by dehydrating harvested green grapes in industrial machinery with the appropriate chemical mixture, which requires a substantial capital investment in the machinery.
Enterprises and Brothers are owned and operated by the Melkonian family. In the 1970's, Suren Melkonian, the patriarch of the Melkonian family, became a member of Sun-Maid. In August 1976, Suren and Sun-Maid executed a "Golden Seedless Raisin Contract," which obligated Suren to provide and Sun-Maid to market between 800 and 1,200 tons of "Golden Seedless raisins in any one crop year" (the 1976 Contract). At the time, Sun-Maid's Chief Executive Officer, Frank Light, was aware the Melkonian family only had 60 planted acres of Thompson grapes, which was insufficient to supply the contracted amounts. The parties agreed the family could produce golden raisins from land owned by others and any additional acreage they acquired would become part of their golden raisin membership.
The 1976 Contract stated Sun-Maid was giving its written consent to Suren "for the purpose of making Golden Seedless raisins in accordance with Section 7.03" of SunMaid's bylaws, which prohibits members from making raisins "in any form other than natural sun-dried raisins, without the prior written consent of [Sun-Maid]." By its terms, the 1976 Contract automatically renewed for successive two-year terms unless either party submitted a written notice of termination or Suren's membership was terminated as provided in section 2.11 of Sun-Maid's bylaws, but neither party terminated the agreement as provided.
Section 2.11 of the bylaws states that a membership shall terminate on the occurrence of any of the following: (1) the member's dissolution; (2) "[u]pon adoption of a resolution by the Board of Directors that the member has ceased to be engaged in the production of agricultural products handled by the Association"; (3) by the Board of Directors adopting a resolution in which the board finds "the membership should be terminated because the member has failed to comply with the terms of these bylaws or any marketing agreement or any rules and regulations of the Association"; or (4) either party submitting a written notice of termination of membership to the other party "during the month of February of any even-numbered year."
After Barry Kriebel replaced Light as Sun-Maid's CEO in 1986, Suren and his son, Mark Melkonian, considered terminating their membership in Sun-Maid. They met with Kriebel to discuss terminating the 1976 Contract and their membership, but Kriebel reaffirmed the 1976 Contract and its application to the family's golden raisins and implored them to remain members because their dehydrator was essential to Sun-Maid's operation of the golden raisin pool. Kriebel promised Suren and Mark that Sun-Maid would always provide Lone Star more dehydrating work than any other dehydrator provided the cost was reasonably competitive. This promise was reflected in a May 3, 1990 handwritten note which the parties signed (the 1990 Agreement).
Mark was added to the membership account in 1989, and he was designated as Suren's agent with the power to act and vote on Suren's behalf in association meetings. In February 1990, Enterprises was added to the membership account at Mark's written request. Eventually, Mark became Enterprises' CEO and president.
After Suren's death in 1996, Enterprises and Sun-Maid executed an "APPLICATION FOR MEMBERSHIP and MEMBERSHIP AGREEMENT" dated February 25, 1997 (the 1997 Membership Agreement). The 1997 Membership Agreement stated that Enterprises was applying for membership in Sun-Maid on the terms and conditions specified in the agreement. Enterprises agreed to deliver to SunMaid for processing and marketing from the property described in the agreement and any other property it may acquire the agricultural products the bylaws required to be delivered. Enterprises certified that it: (1) "owns or controls the following described property: Fresno County 1000 tons purchased from various growers"; (2) is a "Contract Purchaser," rather than a tenant or deed holder; (3) is a "former member"; (4) "desires to commence delivery of raisins with the 1997 crop year"; and (5) "plans to make raisins with the 1997 crop year." The 1997 Membership Agreement provided: "[Enterprises] agrees that the Articles of Incorporation, the By-Laws now or hereafter in effect, this Membership Agreement, and any rules and regulations of SUN-MAID, constitute the entire agreement between SUN-MAID and the undersigned." Brothers became a member of Sun-Maid in 1999 by completing a similar "APPLICATION FOR MEMBERSHIP and MEMBERSHIP AGREEMENT."
The proposed TAC alleges that after Suren's death, Suren's "estate attorney confirmed in writing with Sun-Maid that Enterprises was the successor to Suren's golden raisin account," and "Sun-Maid agreed."
Each year Sun-Maid sent the Melkonians golden raisin contracts, but the Melkonians believed the contracts simply confirmed the tonnage they intended to deliver in any given year to ensure there was not an oversupply of golden raisins. For example, the 2016 "GOLDEN SEEDLESS RAISIN CONTRACT" stated Enterprises agreed to produce and deliver, and Sun-Maid agreed to accept and sell on Enterprises' behalf, 1,100 tons of Golden Seedless raisins for the 2016 crop year on the terms and conditions stated in the contract. Those terms and conditions included the delivery and quality of the golden raisins, payment of an advance after delivery, tonnage and pooling, and excess tonnage. The contract further provided Sun-Maid was giving its "written consent" to Enterprises "for the purpose of making Golden Seedless raisins in accordance with Section 7.03" of Sun-Maid's bylaws, and the "contract shall be for the 2016 crop."
In ruling on Sun-Maid's demurrer to the original complaint, the trial court took judicial notice of annual golden seedless raisin contracts between Enterprises and SunMaid for the years 1997 to 2018. Each contract specified the amount of golden seedless raisins Sun-Maid agreed to accept and sell, which ranged from 800 tons to 1,250 tons depending on the year; the contracts also stated that Sun-Maid gives "written consent to [Enterprises] for the purpose of making Golden Seedless raisins in accordance with Section 7.03" of the bylaws and required Enterprises to waive any right it might have pursuant to Section 7.05 of the bylaws to produce anything other than golden seedless raisins until Enterprises met its obligation to deliver the golden seedless raisins under the contract.
The 2016 Contract originally stated it was for the delivery of between 850 and 950 tons of Golden Seedless raisins, but those amounts were crossed out and 1,100 tons was handwritten in and initialed by the parties.
Sometime between 2006 and 2010, Melkonian informed Kriebel that it intended to replant approximately 120 acres of its vineyards with a higher yielding crop of grapes than the Thompson grapes used for golden raisins. Kriebel told Melkonian that if they planted the vineyards with more Thompson grapes, which is a lower yield and later maturing variety of grape that Sun-Maid specified for its golden raisins, and installed additional drying tunnels to handle the increased volume, Sun-Maid would continue to consent to, accept, pool, and market all of Melkonian's golden raisins for the life of the crop. Relying on Kriebel's assurances, Melkonian did not plant the intended higher yield crops and instead planted 120 acres of Thompson grapes on v-gable trellises and built four additional drying tunnels. In 2019, Melkonian built another four drying tunnels to produce golden and sour raisins at the request of Sun-Maid's then CEO, Harry Overly, who indicated the production of golden and sour raisins would be ramping up.
The proposed TAC alleges it was Brothers which opted not to plant a higher yielding crop and instead planted Thompson grapes on an open v-gable trellis and installed additional drying tunnels based on Kriebel's representation if it did so, SunMaid would continue to receive additional crops of golden raisins for the life of that crop.
The proposed TAC alleges Overly indicated in late 2018 or early 2019 that production of golden and sour raisins would be "ramping up" and installing additional tunnels would help Sun-Maid meet the increased production.
Sun-Maid honored its promise up through and including the 2018 crop year, when the parties agreed Sun-Maid would accept and sell 1,200 tons of the Melkonian's golden seedless raisins. Prior to February 2019, a golden raisin producing member had always been on Sun-Maid's board of directors. In February 2019, board member Jeff Jue, another golden raisin producing member, was convinced to resign. In the following weeks, Mark applied to the board to be appointed in Jue's place, but his application was denied. Thereafter, the board consisted of only natural raisin members who voted to close the golden raisin pool. This meant that instead of accepting its members' golden raisins, as it had contracted to do for many years, Sun-Maid would purchase green grapes and dehydrate them using vendors on its own account. This left Sun-Maid's golden raisin growing members without a place to market and sell their golden raisin products, thereby eliminating any competition from those members for the 2019 crop year.
The proposed TAC alleges this was a scheme orchestrated by Overly "known as 'Project Gold,'" by which Overly planned to take the profits of golden raisin members such as Melkonian and redirect them to the natural raisin members, who comprised the majority of Sun-Maid's members. In addition, Overly's compensation increased if natural raisin members received a higher profit total.
Sun-Maid did not notify Melkonian it was closing the golden raisin pool until June 2019, which frustrated Melkonian's ability to find a market for their golden raisins since only a few months was left until the harvest. Melkonian tried to discuss the problem with Overly, but Overly said the decision would not change; instead, he asked Melkonian to submit a bid to dehydrate raisins on Sun-Maid's account. Overly stated Melkonian would be treated as a partner in the transaction and did not need to be the low bidder, and Melkonian should incorporate amounts needed to recoup some of Melkonian's losses into the bid. Melkonian tendered a bid, but Sun-Maid immediately rejected it as too high. Melkonian presented a second bid in an attempt to address SunMaid's objections and mitigate their losses, but Overly eventually told Melkonian they would not have a dehydrating contract for the 2019 crop year.
Melkonian was left with two options: (1) sell their green grapes to Sun-Maid on a cash basis and lose their profits from golden raisins and their voting rights as members; or (2) make natural raisins at a substantial loss for the season. The board's decision effectively stripped the golden raisin members of their profits, capital investments, and potentially their voting rights as a member if they decided to deliver goods on a cash crop basis.
Golden raisins are the most profitable product Sun-Maid markets and its decision to close the golden pool had nothing to do with market acceptance of the golden raisins or their lack of profitability. Rather, Sun-Maid closed the golden pool to strip the profits golden raisin members were regularly receiving so it could reallocate those profits to other natural raisin members who controlled the Sun-Maid board by marketing the golden raisins itself.
The Demurrer to the Original Complaint
Melkonian filed a complaint against Sun-Maid which alleged nine causes of action: (1) breach of contract; (2) breach of the covenant of good faith and fair dealing; (3) promissory estoppel; (4) fraud-intentional misrepresentation; (5) negligent misrepresentation; (6) intentional interference with economic advantage; (7) negligent interference with economic advantage; (8) breach of fiduciary duty; and (9) unfair business practices.
Sun-Maid demurred to the complaint on the ground none of the claims stated a cause of action. The trial court sustained the demurrer with leave to amend. As pertinent here, the trial court found: (1) the breach of contract claim failed because the parties' written agreement expressly provided Melkonian could only grow and convey natural raisins to Sun-Maid unless Sun-Maid first gave written permission to produce golden raisins, and no such permission was given for the 2019 crop year; (2) the breach of the covenant of good faith and fair dealing claim failed because it would require writing a new express provision into the parties' agreement; (3) the breach of fiduciary duty claim failed because it was barred by the business judgment rule and Melkonian had not pled facts showing a breach of fiduciary duty; and (4) the unfair business practices claim failed because Melkonian had not pled the elements of an unlawful, unfair, or fraudulent unfair competition law claim.
The Demurrer to the First Amended Complaint
Melkonian subsequently filed a first amended complaint that contained the same nine causes of action. Sun-Maid demurred to the first amended complaint on the ground it still failed to state any viable cause of action. The trial court sustained the demurrer with leave to amend. As pertinent here, the trial court found: (1) the parol evidence rule barred Melkonian's claim for breach of a written contract because Melkonian's 1997 Membership Agreement was fully integrated; (2) the statute of frauds barred Melkonian's claim for breach of oral contracts; (3) the breach of covenant of good faith and fair dealing claim failed because Melkonian was asking the court to write a new express provision into the parties' agreement; (4) the breach of fiduciary duty claim failed because it is barred by the business judgment rule and facts were not pled to show such a breach; and (5) the unfair business practice claim failed because Melkonian did not plead the elements for an unlawful, unfair, or fraudulent unfair competition law claim.
The Demurrer to the Second Amended Complaint
Melkonian filed a second amended complaint (SAC) in February 2021, which added a new plaintiff, Jue, L.L.C. dba Six Jewels, and new causes of action related to that plaintiff. Sun-Maid filed a motion to strike the new party and new claims, which the trial court granted. Sun-Maid also demurred to all causes of action in the SAC.
Melkonian does not challenge this ruling on appeal.
The trial court sustained the demurrer without leave to amend. As pertinent here, the trial court found: (1) the parol evidence rule barred the claim for breach of a written contract; (2) the claim for breach of oral contracts failed because the claim was reasserted nearly verbatim with new legal arguments without satisfying section 1008 and the parties' integrated contract requires written modifications; (3) the breach of the covenant of good faith and fair dealing claim failed for the reasons specified in the rulings on the prior demurrers and the claim was superfluous; (4) the breach of fiduciary duty claim failed because the allegations are insufficient to overcome the business judgment rule presumption; and (5) Melkonian had not pled the elements of an unlawful or unfair competition law claim.
The Motion for Reconsideration
Melkonian moved for reconsideration of the trial court's ruling denying leave to amend. Melkonian attached a proposed third amended complaint (TAC), which it asserted demonstrated a reasonable possibility they had viable claims for relief so that leave to amend should be granted. Melkonian asserted the proposed TAC represented new and different facts warranting reconsideration.
The trial court denied the motion, finding it did not have jurisdiction to consider the motion as the proposed TAC did not contain any new or different facts, circumstances, or law warranting reconsideration, and even if there were new facts, Melkonian failed to explain why they could not have presented them earlier. Although the trial court stated it intended to deny the motion without ruling on the issue of whether the purportedly new facts stated valid claims, the court stated in a footnote that if it were to rule on that issue, it would still deny leave to amend, as the court previously rejected most of the theories alleged in the proposed TAC in its rulings on prior demurrers. The trial court also denied Melkonian's request for it to reconsider its order on its own motion since none of the new facts appeared to support a valid cause of action. The trial court explained that at most, Melkonian was repackaging the earlier claims in a slightly different form, which did not cure the problems cited in the rulings on the demurrers to the earlier complaints.
DISCUSSION
On appeal, Melkonian limits its defense of the SAC to those claims alleged in the proposed TAC: (1) breach of the parties' written and oral agreements; (2) breach of the covenant of good faith and fair dealing; (3) breach of the fiduciary duty owed to the Melkonians as members; and (4) unfair and unlawful business practices in violation of the Unfair Competition Law (UCL). Melkonian also contends the trial court abused its discretion in denying it leave to amend to file the proposed TAC, as it can state new claims for constructive fraud and unjust enrichment.
I. Standard of Review
"A demurrer tests the legal sufficiency of the factual allegations in a complaint." (Regents of University of California v. Superior Court (2013) 220 Cal.App.4th 549, 558.) "When a demurrer is sustained, appellate courts conduct a de novo review to determine whether the pleading alleges facts sufficient to state a cause of action under any possible legal theory." (Gutierrez v. Carmax Auto Superstores California (2018) 19 Cal.App.5th 1234, 1242.) "When conducting this independent review, appellate courts 'treat the demurrer as admitting all material facts properly pleaded, but do not assume the truth of contentions, deductions or conclusions of law.'" (Esparza v. Kaweah Delta Dist. Hospital (2016) 3 Cal.App.5th 547, 552.) We may also consider matters subject to judicial notice and will affirm the judgment if any ground for the demurrer is well taken. (Ramirez v. Tulare County Dist. Attorney's Office (2017) 9 Cal.App.5th 911, 924.) "' "We are not bound by the trial court's stated reasons, if any, supporting its ruling; we review the ruling, not its rationale." '" (Ibid.)
We review the trial court's denial of leave to amend for abuse of discretion. (Hansen v. Newegg.com Americas, Inc. (2018) 25 Cal.App.5th 714, 722.) To determine whether the plaintiff can cure a defect, "we consider whether there is a 'reasonable possibility' that the defect in the complaint could be cured by amendment." (King v. CompPartners, Inc. (2018) 5 Cal.5th 1039, 1050.) II. Breach of Contract
"[T]he elements of a cause of action for breach of contract are (1) the existence of the contract, (2) plaintiff's performance or excuse for nonperformance, (3) defendant's breach, and (4) the resulting damages to the plaintiff." (Oasis West Realty, LLC v. Goldman (2011) 51 Cal.4th 811, 821.) Melkonian alleges breaches of written and oral contracts.
A. Contract Interpretation and the Parol Evidence Rule
Since resolution of the issues turns on the interpretation of the parties' agreements, we review the principles of contract interpretation. Generally, interpretation of a contract is a judicial function. (Wolf v. Walt Disney Pictures &Television (2008) 162 Cal.App.4th 1107, 1125 (Wolf).) In interpreting a contract, the court "give[s] effect to the mutual intention of the parties as it existed at the time of contracting." (Civ. Code, § 1636.) "Ordinarily, the objective intent of the contracting parties is a legal question determined solely by reference to the contract's terms." (Wolf, at p. 1126; Civ. Code, §§ 1639 ["[w]hen a contract is reduced to writing, the intention of the parties is to be ascertained from the writing alone, if possible"]; 1638 [the "language of a contract is to govern its interpretation, if the language is clear and explicit, and does not involve an absurdity"].)
"The whole of a contract is to be taken together, so as to give effect to every part, if reasonably practicable, each clause helping to interpret the other." (Civ. Code, § 1641.) And, "[s]everal contracts relating to the same matters, between the same parties, and made as parts of substantially one transaction, are to be taken together." (Id., § 1642; Versaci v. Superior Court (2005) 127 Cal.App.4th 805, 814 [§ 1642 also applies" 'to agreements executed by the parties at different times if the later document is in fact a part of the same transaction' "].)
"The court generally may not consider extrinsic evidence of any prior agreement or contemporaneous oral agreement to vary or contradict the clear and unambiguous terms of a written, integrated contract." (Wolf, supra, 162 Cal.App.4th at p. 1126; Code Civ. Proc., § 1856, subd. (a).) The parol evidence rule does not exclude extrinsic evidence introduced to interpret an ambiguous term, to establish illegality or fraud, or where it is relevant to the issue of an agreement's validity. (Code Civ. Proc., § 1856, subds. (f), (g).) Moreover, even if the terms of a contract appear clear and unambiguous, extrinsic evidence is admissible if relevant to prove the language is "reasonably susceptible" to another meaning. (Pacific Gas &Electric Co. v. G. W. Thomas Drayage etc. Co. (1968) 69 Cal.2d 33, 37; Los Angeles City Employees Union v. City of El Monte (1985) 177 Cal.App.3d 615, 622-623 [court may resort to extrinsic evidence to resolve a latent ambiguity].)
B. Breach of Written Contract
1. The Demurrer and Proposed TAC
In the SAC, Melkonian alleged the parties had a series of written agreements, including the 1976 Contract between Suren and Sun-Maid that purportedly was assigned to Melkonian. Melkonian alleged Sun-Maid breached these written agreements by closing the pool of golden raisins in 2019 and refusing to accept golden raisins from Melkonian, and instead purchasing green grapes and processing them into golden raisins itself.
In its demurrer, Sun-Maid argued: (1) the parol evidence rule bars the claim that the 1976 Contract and 1990 Agreement govern the parties' relationship since Melkonian's membership agreements contain an integration clause; (2) Melkonian did not plead a written assignment of the 1976 Contract or facts showing an oral assignment was made; (3) Melkonian's allegation that the annual golden raisin contracts were used to track tonnage fails as a matter of law because earlier oral discussions cannot change the written contracts' plain meaning; and (4) the 1990 Agreement has nothing to do with golden raisins.
In opposing the demurrer, Melkonian asserted it alleged all the required elements for its claim for breach of a written contract: (1) the 1976 Contract was in effect; (2) Melkonian did all that was required of it under the agreement; (3) Sun-Maid breached the agreement and the bylaws by refusing to sell Melkonian's golden raisins; and (4) Melkonian was damaged. Melkonian further asserted it alleged the 1976 Contract, which was assigned to Melkonian, could be terminated only pursuant to the bylaws and the membership agreements were part of the parties' agreements. Melkonian argued the integration issue could not be decided on a demurrer because the parties' intent was in question.
The trial court sustained the demurrer to this claim on only one of the multiple grounds for the demurrer, namely, the parol evidence rule. The trial court found the integration clause in the 1997 and 1999 membership agreements barred any argument that the earlier 1976 Contract or 1990 Agreement were part of a contract between Melkonian and Sun-Maid. The trial court rejected Melkonian's argument that the 1976 Contract was incorporated into the membership agreements.
The proposed TAC clarifies the breach of written contract claim is being brought only by Enterprises. It alleges Sun-Maid breached the bylaws by refusing to accept and sell Enterprises' golden raisins, despite being obligated to do so under the 1997 Membership Agreement and bylaws. It further alleges Sun-Maid breached the "Agreements" by closing the golden raisin pool for its cooperative members for the 2019 year shortly before the grape harvesting season and refusing to accept Enterprises' golden raisins, and instead buying green grapes and processing them into golden raisins itself. The TAC also alleges "Sun-Maid's actions under 'Project Gold' and its refusal to accept Enterprises' golden raisins further constitute a wrongful, defacto termination of its rights as a Golden Member, without cause, and in breach of Section 2.11 of the Bylaws and a breach of the 1997 Membership Agreement which incorporates the Bylaws."
2. Analysis
Section 7.02 of the bylaws provides that Sun-Maid "agrees to accept and sell on behalf of each member according to the terms of this Agreement all of the raisin grapes to be produced by each member, when dried ... on the real property described in his application for membership . . .." It is clear from Section 7.03 of the bylaws that a member may not make raisins in any form other than natural sun-dried raisins without Sun-Maid's "prior written consent." Sun-Maid contends Enterprises cannot state a cause of action for breach of the parties' written contracts based on Sun-Maid's refusal to accept golden raisins for the 2019 crop year because it did not give Enterprises written consent to produce golden raisins for that crop year as the bylaws require.
Melkonian contends, however, that Enterprises had Sun-Maid's ongoing permission to produce golden raisins because: (1) the 1976 Contract, which it alleges was assigned to Enterprises and incorporated by reference into the agreement between Enterprises and Sun-Maid, grants Enterprises prior written consent until the 1976 Contract is terminated according to its terms, which did not occur; and (2) the 1997 Membership Agreement provided prior written consent. Melkonian also contends the bylaws do not give Sun-Maid unfettered discretion to withdraw permission to produce golden raisins. We discuss each in turn.
a. The 1976 Contract
The 1976 Contract, which was between Suren and Sun-Maid, required Suren to deliver, and Sun-Maid to accept, at least 800 tons but not more than 1,200 tons of golden seedless raisins, which Suren was to produce "on property that is subject to the Raisin Marketing Agreement, Article VII of SUN-MAID's By-Laws, for other varieties of raisins." The contract specifically states that Sun-Maid "gives its written consent to MEMBER for the purpose of making Golden Seedless raisins in accordance with Section 7.03" of the bylaws. The contract provides for automatic renewal for two-year terms unless terminated by (1) either party's submission of written notice of termination, or (2) "[t]ermination of MEMBER'S membership in SUN-MAID as provided in Section 2.11" of the bylaws. Melkonian alleges this contract was never terminated according to it is terms; therefore, Sun-Maid could not refuse to accept Enterprises' golden raisins as the 1976 Contract remained in force.
The 1997 Membership Agreement, which Enterprises signed a year after Suren died, is a fully integrated agreement which supersedes any prior written contracts between the parties regarding the same subject matter, including the 1976 Contract. The parol evidence rule "provides that when parties enter an integrated written agreement, extrinsic evidence may not be relied upon to alter or add to the terms of the writing." (Riverisland Cold Storage, Inc. v. Fresno-Madera Production Credit Assn. (2013) 55 Cal.4th 1169, 1174; Code Civ. Proc., § 1856; Civ. Code, § 1625.)" 'An integrated agreement is a writing or writings constituting a final expression of one or more terms of an agreement.'" (Riverisland, at p. 1174.)
The 1997 Membership Agreement is integrated, as it provides that the "Articles of Incorporation, the By-Laws now or hereafter in effect, this Membership Agreement, and any rules and regulations of SUN-MAID, constitute the entire agreement between SUNMAID and the undersigned." This integration clause bars any argument that the earlier 1976 Contract is part of the agreement between Enterprises and Sun-Maid.
Melkonian argues the 1976 Contract is incorporated into the 1997 Agreement by reference. Section 7.01 of the bylaws does provide that "any supplemental agreement dealing with the marketing of raisins," together with the articles of incorporation, bylaws, each member's application for membership and membership agreement, and the rules and regulations adopted by the board of directors, "constitute an agreement between the Association and each member as to the sale, delivery and marketing of his raisins, to which each member agrees by application for membership and the Association agrees by acceptance of such application." Section 7.01 also provides that Sun-Maid may "enter into marketing agreements with members of the Association relating to other agricultural products ... as separate contracts." Further, Section 2.05 of the bylaws provides that members agree to be bound and abide by "any marketing agreement to which such member and the Association is a party."
Section 7.01 of the bylaws provides, in pertinent part: "This Article together with the relevant Articles of Incorporation, other provisions of these bylaws, each members' Application for Membership and Membership Agreement, rules and regulations adopted by the Board of Directors and any supplemental agreement dealing with the marketing of raisins, all as may be amended from time to time, in lieu of a separate marketing agreement, constitute an agreement between the Association and each member as to the sale, delivery and marketing of his raisins, to which each member agrees by application for membership and the Association agrees by acceptance of such application. The Association may also enter into marketing agreements with members of the Association relating to other agricultural products as part of these bylaws or as separate contracts."
Section 2.05 states: "Every person becoming a member of the Association by such act agrees to be bound and abide by all of the provisions of the Articles of Incorporation, the bylaws, each member's Application for Membership and Membership Agreement and any marketing agreement to which such member and the Association is a party, including the provisions of Article VII of these bylaws, and any rules and regulations of the Association in effect at the time of the application for membership and as thereafter adopted or amended."
"The general rule is that the terms of an extrinsic document may be incorporated by reference in a contract so long as (1) the reference is clear and unequivocal, (2) the reference is called to the attention of the other party and he consents thereto, and (3) the terms of the incorporated document are known or easily available to the contracting parties." (DVD Copy Control Assn., Inc. v. Kaleidescape, Inc. (2009) 176 Cal.App.4th 697, 713.) "The contract need not recite that it 'incorporates' another document, so long as it 'guide[s] the reader to the incorporated document.'" (Shaw v. Regents of University of California (1997) 58 Cal.App.4th 44, 54.) Each case turns on its facts. (Ibid.; Baker v. Osborne Development Corp. (2008) 159 Cal.App.4th 884, 895 ["[w]hether a document purportedly incorporated by reference was 'readily available' is a question of fact"].)
As a matter of law, the 1976 Contract was not incorporated by reference into the 1997 Membership Agreement because it is not clearly and unequivocally referenced in it. While the bylaws, which are part of the parties' agreement, specify that the agreement includes "any supplemental agreement dealing with the marketing of raisins," the supplemental agreement must be between the member and Sun-Maid and concern the marketing of the member's raisins as specified in that member's application for membership and membership agreement, not an agreement between another member and Sun-Maid concerning marketing of the raisins of that other member. Accordingly, the 1976 Contract between Suren and Sun-Maid does not fall within the category of supplemental agreements that are part of the agreement between Enterprises and SunMaid.
In sum, the 1976 Contract is not part of the agreement between Enterprises and Sun-Maid, and therefore it does not require Sun-Maid to accept Enterprises' golden raisins until the 1976 Contract is terminated by its terms.
b. The 1997 Membership Agreement
Melkonian next contends the 1997 Membership Agreement provides the written consent to produce golden raisins, and Sun-Maid's commensurate duty to accept them, until Enterprises' membership in Sun-Maid is terminated. The proposed TAC alleges the 1997 Membership Agreement obligated Sun-Maid to accept and sell" '1,000 tons from various growers,' which was discussed and agreed to reflect an agreement by Sun-Maid and Enterprises that Enterprises was obligated to deliver, and Sun-Maid was obligated to sell, approximately 1,000 tons of golden raisins that Enterprises' sourced from various growers."
Melkonian argues the 1997 Membership Agreement is ambiguous because it states that Enterprises owns or controls "1000 tons purchased from various growers" without specifying what is being purchased. Melkonian asserts that given the parties' history, that growers produce natural raisins, and Melkonian's history of producing processed golden raisins from various growers, the term is "best interpreted to mean '1000 tons of golden raisins produced using grapes purchased from various growers.'" Melkonian reasons that by agreeing that Enterprises could deliver 1,000 tons of golden raisins, SunMaid provided the prior written consent to produce golden raisins as required by Section 7.03. Accordingly, Melkonian argues, Sun-Maid's obligation to market and sell 1,000 tons of golden raisins produced by Enterprises continued despite the fact it did not issue an annual golden raisin contract for the 2019 crop year.
The issue then is the interpretation of the 1997 Membership Agreement and whether it is reasonably susceptible to the meaning Melkonian ascribes to it. "When reviewing whether a plaintiff has properly stated a cause of action for breach of contract, we must determine whether the alleged agreement is 'reasonably susceptible' to the meaning ascribed to it in the complaint. [Citation.]' "So long as the pleading does not place a clearly erroneous construction upon the provisions of the contract, in passing upon the sufficiency of the complaint, we must accept as correct plaintiff's allegations as to the meaning of the agreement." '" (Klein v. Chevron U.S.A., Inc. (2012) 202 Cal.App.4th 1342, 1384-1385, quoting Aragon-Haas v. Family Security Ins. Services, Inc. (1991) 231 Cal.App.3d 232, 239; Connell v. Zaid (1969) 268 Cal.App.2d 788, 794795 [on a general demurrer, if the contract is susceptible of more than one construction, the plaintiff's construction should be accepted if it is reasonable].)
"Whether a contract is ambiguous is a question of law." (Aragon-Haas v. Family Security Ins. Services, Inc., supra, 231 Cal.App.3d at p. 239.) So, too, is the question of whether contract language is reasonably susceptible of the meaning urged by the party:" 'When a dispute arises over the meaning of contract language, the first question to be decided is whether the language is "reasonably susceptible" [of] the interpretation urged by the party. If it is not, the case is over.'" (Dore v. Arnold Worldwide, Inc. (2006) 39 Cal.4th 384, 393.) Extrinsic evidence is relevant to prove a meaning to which the contract's language is reasonably susceptible. (Id. at p. 391.)
To determine whether the 1997 Membership Agreement is reasonably susceptible to Melkonian's construction-that the agreement requires Enterprises to deliver "1000 tons of golden raisins produced using grapes purchased from various growers"-we are guided by the principles of contract interpretation. We must consider the agreement as whole, "so as to give effect to every part, if reasonably practicable, each clause helping to interpret the other." (Civ. Code, § 1641.)
The 1997 Membership Agreement accepts Enterprises into membership in Sun-Maid. Enterprises agreed to deliver to Sun-Maid "for processing and marketing from the property hereinafter described and such other property as he may hereafter acquire or control as lessor, lessee or otherwise, the agricultural products required by said By-Laws to be so delivered, and no products from any other property . . .." As we have already set forth, Section 7.02 of the bylaws requires each member to "sell and deliver" to Sun-Maid "all of the raisin grapes to be produced by each member, when dried ... on the real property described in his application for membership and any other real property which he shall now or hereafter own or control _," and prohibits members from making raisins "in any form other than natural sun-dried raisins, without the prior written consent of [Sun-Maid]."
Sections 2.01, 2.02, and 2.04 of the bylaws provide that a "person engaged in the production of agricultural products handled by" Sun-Maid is admitted as a member of Sun-Maid when the board of directors accepts the person's written membership application.
In the 1997 Membership Agreement, Enterprises certified the following facts: (1) it "owns or controls the following described property: Fresno County 1000 tons purchased from various growers"; (2) it was a "former member"; (3) it was a "Contract Purchaser," rather than a tenant or deed holder; (4) the "Property is operated by" a corporation; (5) it "desires to commence delivery of raisins with the 1997 crop year"; and (6) it "plans to make raisins with the 1997 crop year."
It appears the 1997 Membership Agreement was modified later to add specific property that Enterprises owned or controlled, as the following two lines were added after the phrase "1000 tons purchased from various growers": (1) "Add 7/15/08 65 - acres from Melkonian & Sons"; and (2) "Add 7/15/08 - 180 acres from Melkonian Bros." The "180" number is crossed out and above it is handwritten "140," with the following handwritten notation initialed by "MM": "(40 Acres Transferred to Melkonian Bros -3/19/13)."
While the term "1000 tons purchased from various growers" is uncertain, as it does not describe what is being purchased, reading the agreement as a whole, it is not reasonably susceptible to the interpretation that Melkonian advances-that it means 1,000 tons of golden raisins produced from grapes purchased from various growers. Notably, the 1997 Membership Agreement never uses the term "golden raisins." Instead, it refers to property on which "raisin grapes" are grown, and Enterprises certifies that it would "commence delivery of raisins" and "make raisins" beginning with the 1997 crop year. In the section where the term "1000 tons purchased from various growers" appears, Enterprises certified only that it "owns or controls" that property. Enterprises' delivery obligation is stated in another section of the agreement, which refers to its delivery obligations under the bylaws that limits delivery to natural sun-dried raisins unless SunMaid gives its prior written consent to make golden raisins. Taking all of this together, and since Enterprises obviously was not purchasing golden raisins from other growers but rather was purchasing raisin grapes, the property Enterprises certified it owned or controlled could only be 1,000 tons of raisin grapes purchased from various growers.
If the term were read as Melkonian proposes, it would render terms in the annual golden raisin contracts surplusage. (ACL Technologies, Inc. v. Northbrook Property & Casualty Ins. Co. (1993) 17 Cal.App.4th 1773, 1785, 1786 [contracts "are construed to avoid rendering terms surplusage"; defining contractual terms "to render them redundant is contrary to established principles of contract interpretation as laid down by our Supreme Court"].) In each one-year contract Sun-Maid gave the written consent Section 7.03 requires for the member to make golden raisins for that crop year. In addition, Enterprises waived its right under Section 7.05 of the bylaws to market "the whole or any portion of the raisin grapes produced by or on behalf of the member" as fresh grapes until it delivered the golden seedless raisins specified in the contract, and applicable provisions of the bylaws were incorporated into the contract and the word "raisin" or "raisins" in the bylaws were replaced by the term "Golden Seedless raisin[s]." If Sun-Maid had already given Enterprises permission to produce golden raisins, it would not need to do so again in the annual golden raisin contracts.
Section 7.05 of the bylaws provides in its entirety: "Subject to the provisions contained in this Article, the member shall have the privilege of marketing the whole or any portion of the raisin grapes produced by or on behalf of the member in any year as fresh grapes for canning, conversion into wine, grape juice or distilled spirits, or for use in fresh form, but not otherwise."
Melkonian also contends the annual golden raisin contracts supply the "golden raisin" term for the 1997 Membership Agreement. While the annual contracts were certainly part of the agreement between Enterprises and Sun-Maid, the term "golden raisin," as used in those contracts, is inconsistent with the 1997 Membership Agreement, which addresses the production of "raisins." The annual contracts granted Enterprises permission to produce golden raisins in lieu of producing natural sun-dried raisins, set out the terms of their production and delivery, and prohibited Enterprises from producing any other "grape products." Rather than supplement the bylaws, the annual contracts modified them, as the contracts incorporated the applicable provisions of the bylaws and replaced the words "raisin" or "raisins" with the terms "Golden Seedless raisin" or "Golden Seedless raisins." Thus, the annual contracts show the 1997 Membership Agreement was limited to the production of natural sun-dried raisins and through the annual contracts, Sun-Maid gave Enterprises written consent to produce golden raisins and modified the bylaws to reflect that consent.
Melkonian argues the 1976 Contract supplies the missing language, citing the rule that "[s]everal contracts relating to the same matters, between the same parties, and made as parts of substantially one transaction, are to be taken together." (Civ. Code, § 1642.) This rule does not apply, however, because the parties to the 1976 Contract are not the same parties to the 1997 Membership Agreement, and the 1976 Contract and 1997 Membership Agreement were not part of one transaction.
Melkonian alternatively argues the 1976 Contract may be used to explain the term "1000 tons purchased from various growers" to supply the consistent additional term "golden raisins" to the 1997 Membership Agreement. (Code Civ. Proc., § 1856, subd. (b).) When a written contract does not contain all of the parties' terms of agreement, it may be integrated to the extent the terms are in writing: "Obviously where following negotiations the parties execute a written agreement, that agreement is at least 'partially' integrated and parol evidence cannot be admitted to contradict the terms agreed to in the writing." (Esbensen v. Userware Internat., Inc. (1992) 11 Cal.App.4th 631, 637.)
As with the annual contracts, the use of the term "golden raisin" in the 1976 Contract is inconsistent with the 1997 Membership Agreement since the later agreement addresses the production of "raisins." To state that Enterprises really desired to deliver or make "golden raisins" is contrary to an express term of the contract and therefore the 1976 Contract cannot be used to contradict the terms of the later agreement.
In sum, the 1997 Membership Agreement does not provide the written permission required for Enterprises to produce golden raisins in lieu of natural sun-dried raisins, and therefore does not grant Enterprises perpetual permission to produce golden raisins. Rather, that permission is granted in the annual golden raisin contracts. In those contracts, Sun-Maid consented to the production of golden raisins only for one crop year. There is nothing in the 1997 Membership Agreement or annual contracts that required Sun-Maid to consent to the production of golden raisins for the 2019 crop year.
Melkonian nevertheless asserts that Sun-Maid does not have unfettered discretion to withhold consent for production of golden raisins, but rather must follow the bylaws' termination procedures. But that is not what the bylaws state. Section 7.03 simply states that a member cannot produce golden raisins without Sun-Maid's prior written consent. Nothing in the bylaws prohibits Sun-Maid from limiting the period for that consent to one year, as it did in the annual golden raisin contracts, or declining to issue consent for a given crop year.
Melkonian complains this creates a loophole, as Sun-Maid's decision effectively terminated Enterprises' membership in Sun-Maid without complying with the provisions of membership termination in Section 2.11 of the bylaws. While Melkonian asserts it is absurd to interpret the bylaws as allowing Sun-Maid to bypass the bylaws' membership termination provisions, Melkonian's interpretation would require reading terms into the bylaws that are not there. (Edwards v. Arthur Andersen LLP (2008) 44 Cal.4th 937, 954 [consistent with Code Civ. Proc., § 1858, a judge may not insert additional language or terms into a contract].)
In sum, Melkonian has not alleged facts to show Sun-Maid breached the 1997 Membership Agreement, the bylaws, or the annual golden raisin contracts when it decided not to grant Enterprises consent to produce golden raisins for the 2019 crop year and institute a different model for golden raisins. The parties' agreements do not require Sun-Maid to grant consent to produce golden raisins in perpetuity or require it to terminate Enterprises' membership before withholding such consent.
c. Waiver and Estoppel
In its opening brief, Melkonian argues at a minimum there is a jury issue as to whether Sun-Maid waived or is estopped from relying on Section 7.03's requirement of prior written consent based on "its course of conduct over the decades." Although Melkonian cites legal authorities that discuss the concepts of waiver and estoppel, it does not explain in its opening brief what alleged facts give rise to waiver or estoppel, how the SAC alleges such claims, or how it would amend the SAC to make such allegations.
Melkonian alleged a claim for promissory estoppel in the SAC, but it did not include that claim in its proposed TAC. Notably, Melkonian informed this court in its opening brief that it would "limit [its] defense of the Second Amended Complaint to those claims [it] carried forward[] in the Third." Melkonian further stated in its reply brief that the parties agreed we should look to the proposed TAC, which pleaded claims for breach of written contract by Enterprises, breach of oral contract by Brothers, breach of the covenant of good faith and fair dealing, breach of fiduciary duty, unfair business practices, and a new claim for constructive fraud.
When an appellant raises an issue but cites only general legal principles without applying those principles to the circumstances before the court, the issue "may be deemed abandoned and discussion by the reviewing court is unnecessary." (Landry v. Berryessa Union School Dist. (1995) 39 Cal.App.4th 691, 699-700.) Because Melkonian failed to apply the legal principles it cites to this case or provide any legal analysis, we treat these issues as abandoned.
Melkonian tries to supplement its argument in the reply brief, but it cannot do so, as "[f]airness militates against our consideration of any arguments an appellant has chosen not to raise until its reply brief." (Reed v. Mutual Service Corp. (2003) 106 Cal.App.4th 1359, 1372, fn. 11, disapproved on other another point in Haworth v. Superior Court (2010) 50 Cal.4th 372, 382, fn. 6; see Paulus v. Bob Lynch Ford, Inc. (2006) 139 Cal.App.4th 659, 685 [appellant's "belated attempt to address [issues] in his reply brief-after the respondents' brief noted his failure to address the [issues]-did not salvage those abandoned issues"].) Accordingly, we do not address Melkonian's waiver or estoppel claims.
C. Breach of Oral Contract
Melkonian alleged in the SAC that Sun-Maid breached oral agreements made by former Sun-Maid CEO Barry Kriebel and current CEO Harry Overly, which required Sun-Maid to purchase and pool their golden raisins in 2019. In its demurrer to the SAC, Sun-Maid argued: (1) allegations concerning oral contracts that predate the 1997 and 1999 membership applications fail under the parol evidence rule as the membership applications were fully integrated; and (2) allegations concerning oral contracts that postdate the membership applications fail: (a) as the bylaws require modifications to be in writing and Section 7.03 expressly requires written permission to make anything other than natural sun-dried raisins, (b) the statute of frauds bars the oral agreement, and (c) the 15-year limit on agricultural marketing agreements of Food and Agricultural Code section 54261 bars the agreement.
In its opposition, Melkonian argued it alleged breach of an oral contract as follows: (1) it entered into an oral agreement with Sun-Maid whereby it would redevelop 120 acres of land for the planting of Thompson seedless grapes and Sun-Maid would market the crop; and (2) while it redeveloped the land, Sun-Maid breached the agreement by failing to market the golden raisins. Melkonian asserted the oral agreement was not a modification of a written contract, but rather a separate actionable promise. Melkonian argued it had Sun-Maid's written consent to produce golden raisins because the 1976 Agreement was in effect when the oral agreement was made, the 1990 Agreement supplied the necessary permission, and the 1997 Membership Application provided permission. Melkonian further argued the statute of frauds did not apply because the oral agreement had been partially performed, and Sun-Maid had not established that Food and Agricultural Code section 54261 applied.
The trial court found this claim failed because it had previously dismissed the claim and Melkonian reasserted it nearly verbatim with new legal arguments without complying with Code of Civil Procedure section 1008. The trial court further found the claim failed because the parties' integrated contract required written permission for golden raisins and that modifications be in writing. The trial court recognized Melkonian argued the purported oral contract was a new contract, not a modification of the existing written contract, but the court found "[t]his argument too fails," as a later oral agreement cannot modify an integrated written contract that requires written modifications.
In ruling on the demurrer to the FAC's breach of oral contract claim, the trial court found the claim was barred under the statute of frauds because the oral contract could not be fully performed within one year.
The proposed TAC clarifies that only Brothers is bringing the breach of oral contract claim against Sun-Maid, which alleges Kriebel told Brothers in 2008 that if it replanted 120 acres of land with Thompson seedless grapes on open v-gable trellises, and installed additional drying tunnels, Sun-Maid would accept and sell the resulting golden raisins for "the duration of the life of the planted Thompson grapes." The proposed TAC further alleged: (1) Brothers accepted this offer by its performance, as between 2009 and 2012, Brothers replanted the grapes and installed the trellises and additional drying tunnels; (2) thereafter, Sun-Maid accepted and marketed the resulting golden raisins; (3) the material terms of the agreement were supplied by Brothers' performance and the parties' nearly 40-year relationship; and (4) since Brothers replanted the acreage and installed the trellises, Sun-Maid was obligated to sell the golden raisins derived from that acreage.
On appeal, Melkonian argues the trial court erred in finding the oral agreement was unenforceable under the statute of frauds. Melkonian asserts the statute of frauds does not apply to the oral agreement because it could be performed within one year according to its terms, as Brothers could plant the grapes and build the drying tunnels within one year, and if the grapes died within that same year, Sun-Maid's obligation to purchase the golden raisins would end. Melkonian alternatively argues that even if the statute of frauds applies, Brothers' full performance of its part of the deal removed the statute's bar.
Melkonian's opening brief, however, does not address the trial court's ruling that the breach of oral contract claim fails because the parties' integrated contract requires written permission to produce golden raisins and that modifications be in writing. An appellant has the burden to demonstrate both that the trial court erred and that the error was prejudicial resulting in a miscarriage of justice. (Cal. Const., art VI, § 13; Code Civ. Proc., § 475; Pool v. City of Oakland (1986) 42 Cal.3d 1051, 1069.) An error is not prejudicial if independent grounds unaffected by the error support the judgment. (D'Amico v. Board of Medical Examiners (1974) 11 Cal.3d 1, 19; Estate of Beard (1999) 71 Cal.App.4th 753, 776-777) To demonstrate prejudicial error, therefore, an appellant must show that none of the grounds on which the judgment is based support the judgment. (Martin v. Bridgeport Community Assn., Inc. (2009) 173 Cal.App.4th 1024, 1031 [when a demurrer is sustained, '[t]he plaintiff has the burden of ... overcoming all of the legal grounds on which the trial court sustained the demurrer, and if the defendant negates any essential element, we will affirm the order sustaining the demurrer as to each cause of action"].) Having failed to address this ground for the trial court's ruling, Melkonian has failed to show prejudicial error with respect to the breach of oral contract claim.
In its reply brief, Melkonian asserts the trial court did not sustain the demurrer to the breach of oral contract claim on this basis. We disagree, as the trial court plainly states the breach of oral contract "claim fails" because "the parties' integrated contract requires written permission for golden raisins" as well as written modifications, and in so finding, rejected Melkonian's argument that the oral contract did not modify an existing written contract but rather was a new contract.
Melkonian also appears to argue in its reply brief that it need not address this ground because it does not claim the oral agreement modified Brothers' written contracts. This misses the point. Sun-Maid demurred to the breach of oral contract cause of action on the ground the oral agreement was an attempt to modify the parties' written contracts which prohibited oral modifications and required written permission to produce golden raisins. Melkonian responded by arguing the oral agreement was a new contract, not a modification of the parties' written agreements. The trial court found written permission and modifications were required and the oral agreement could not modify the written contracts even if Melkonian described it as a new contract. As this was an independent ground for sustaining the demurrer to the breach of oral contract claim, it was incumbent on Melkonian to address the claim to show prejudicial error. Accordingly, we cannot say the trial court erred in sustaining the demurrer to the breach of oral contract claim.
III. Breach of the Covenant of Good Faith and Fair Dealing
In the SAC, Melkonian alleged Sun-Maid breached the implied covenant of good faith and fair dealing based on its wrongful interference with, and elimination of, Melkonian's right to participate in the golden raisin pool, and its effective termination of Melkonian's membership in the cooperative without proper notice. In demurring to this claim, Sun-Maid argued: (1) these allegations amounted to purported breaches of express contractual obligations which could not be written into the parties' written agreements to create uncontemplated contractual obligations, and (2) the claim may be disregarded as superfluous because it relies on the same allegations as the breach of contract claims.
Melkonian argued in opposition that this claim did not seek to impose an additional term to the parties' oral contract or 1976 Agreement, but rather arose from the bylaws and Sun-Maid's wrongful interference with Melkonian's rights as a member of the cooperative, namely, closing the golden pool without prior notice or warning.
The trial court sustained the demurrer for the reasons provided in its prior rulings on the demurrers to the original and first amended complaints, namely, that because the 1976 Agreement is parol evidence and the oral agreements are invalid, the court cannot write a new express provision into the parties' agreement under the implied covenant of good faith and fair dealing. The trial court further found the cause of action was superfluous, as it was coextensive with the breach of contract claims.
The proposed TAC alleges Sun-Maid breached the covenant of good faith and fair dealing contained in Enterprises' written agreements and Brothers' oral arguments by wrongfully interfering with and eliminating Enterprises' right as a golden raisin member of the cooperative and depriving Melkonian of the right to receive benefits under the oral agreement with Brothers and the written agreement with Enterprises.
On appeal, Melkonian does not address the trial court's ruling on this cause of action. Instead, it generally argues that Sun-Maid acted unfairly by deliberately devising and implementing "Project Gold" to appropriate the golden raisin accounts and their higher profits, which caused Melkonian to lose its distribution channel. The covenant of good faith and fair dealing, however, finds its basis in an existing contractual obligation. (Racine &Laramie, Ltd. V. Department of Parks &Recreation (1992) 11 Cal.App.4th 1026, 1031.) It requires that each contracting party do everything the contract presupposes will be done to accomplish its purpose, but the covenant does not create obligations not contemplated by the contract. (Pasadena Live v. City of Pasadena (2004) 114 Cal.App.4th 1089, 1093-1094.)" 'In essence, the covenant is implied as a supplement to the express contractual covenants, to prevent a contracting party from engaging in conduct which (while not technically transgressing the express covenants) frustrates the other party's rights to the benefits of the contract.'" (Racine, at pp. 10311032.)
Melkonian essentially alleged that Sun-Maid breached the implied covenant of good faith and fair dealing in Enterprises' written contract and Brothers' oral agreement when it decided to no longer accept golden raisins from them. Having found Enterprises' 1997 Membership Agreement and the bylaws do not require Sun-Maid to accept golden raisins in perpetuity, a claim for breach of the implied covenant cannot be maintained as it would require us to write a new express provision into the parties' agreement that SunMaid was obligated to accept and pool golden raisins in perpetuity. Moreover, Melkonian cannot maintain a claim for breach of the implied covenant based on Brothers' oral agreement since the oral agreement is invalid.
IV. Breach of Fiduciary Duty
Melkonian contends the trial court erred in sustaining the demurrer to its breach of fiduciary duty claim because it adequately alleged that Sun-Maid owed it duties of loyalty and to refrain from self-dealing, which it violated when it took over production of golden raisins and "squeez[ed] Melkonian out." Melkonian further contends it adequately pled an exception to the business judgment rule, namely, that the board members had a conflict of interest because they stood to benefit from the decision to shut down the golden raisin producers so Sun-Maid could take over their businesses. Comparing Sun-Maid's natural raisin and golden raisin members to majority and minority shareholders, Melkonian also argues the rule against minority shareholder oppression as stated in Jones v. H.F. Ahmanson &Co. (1969) 1 Cal.3d 93 (Jones) prohibits the majority members from eliminating the minority's contribution to the business to benefit themselves.
A. The Demurrer and TAC
In the SAC, Melkonian alleged Sun-Maid, as a nonprofit agricultural marketing association, owed the board's minority members a duty of good faith, fairness, loyalty, and care not to engage in transactions exclusively for the majority's benefit. As applicable here, Melkonian alleged Sun-Maid breached its fiduciary duty by: (1) inducing Melkonian to develop additional Thompson crops on v-gables to produce golden raisins between 2008 and 2012; and (2) voting to close and closing the golden raisin pool without intending to provide Melkonian with a dehydrating contract for the 2019 crop year or to honor its contracts or agreements with Melkonian.
Melkonian further alleged Sun-Maid's board decided to close the golden raisin pool "to strip the traditionally more profitable business of Golden raisin production from the minority Golden raisin members," and allocate that profit to the majority natural raisin growing members. Alternatively, Melkonian alleged "Sun-Maid and its Board failed to undergo a reasonable investigation by reviewing its own records and/or seeking out information known by current and former employees relating to the promises made to" Melkonian and the effect the board's decisions would have on golden raisin members. In sum, Melkonian alleged Sun-Maid acted to favor the "business desires and needs" of Sun-Maid and its natural raisin members over those of the golden raisin members.
In its demurrer, Sun-Maid argued the alleged breach concerning inducing Melkonian to produce additional golden raisins was barred by the applicable four-year statute of limitations, and the remaining alleged breaches were barred by the business judgment rule. Sun-Maid asserted that because Melkonian's breach of fiduciary duty claim was based on Sun-Maid's business decisions, the business judgment rule precluded the claim unless Melkonian pled facts showing an exception to the rule applied. SunMaid argued Melkonian could not allege facts showing the conflict of interest or failure to investigate exceptions applied. Sun-Maid also contended Melkonian had not pled facts showing a breach of fiduciary duty.
Melkonian argued in opposition that there were multiple grounds for a fiduciary relationship: (1) the fiduciary duty a cooperative owes its members; and (2) Melkonian placing trust in Sun-Maid's fidelity. Melkonian asserted whether Sun-Maid's wrongdoings constituted a breach of fiduciary duty was a question of fact and the SAC made clear that the nature of the cooperative relationship and the board's structure when the decision was made precluded Sun-Maid from redirecting Melkonian's profits to natural raisin members. Melkonian asserted the business judgment rule did not apply because it does not protect decisions made in bad faith or when there is a conflict of interest. Melkonian claimed it sufficiently alleged a conflict of interest by stating when Sun-Maid terminated its relationship with Melkonian, the board consisted exclusively of natural raisin growers who voted to take Melkonian's money and redistribute it among themselves.
In sustaining the demurrer to this claim, the trial court found Melkonians' allegations were insufficient to overcome the business judgment rule presumption, as the allegations of a conflict of interest and the failure to undergo a reasonable investigation were conclusory. The trial court rejected Melkonian's argument that whether the business judgment rule applied was an issue of fact that could not be resolved on demurrer.
The proposed TAC alleges claims for breach of fiduciary duty as follows: (1) as an agricultural cooperative, Sun-Maid owes a fiduciary duty to its members and was required to act with the utmost good faith for the benefit of its members; (2) Sun-Maid breached this duty by refusing to accept and sell Melkonians' golden raisins and usurping its profits so they could be distributed to the majority natural raisin members; (3) a conflict of interest was created when the board members voted to enact "Project Gold" since they stood to personally benefit from their decision since the project exclusively benefitted natural raisin members; and (4) Sun-Maid, its board of directors, and Overly owed a duty of good faith, fairness, loyalty, and care not to engage in transactions exclusively for the benefit of majority members and to the sole detriment of minority members.
B. Analysis
"The elements of a cause of action for breach of fiduciary duty are the existence of a fiduciary relationship, breach of fiduciary duty, and damages." (Oasis West Realty, LLC v. Goldman, supra, 51 Cal.4th at p. 820.) Sun-Maid is a California-incorporated nonprofit agricultural marketing association which is organized not to make profit for itself or its members as such, but only for its members as producers. (Food & Agr. Code, § 54033.) As an agricultural cooperative, Sun-Maid has a fiduciary relationship with its members. (Bogardus v. Santa Ana Walnut Growers Assn. (1940) 41 Cal.App.2d 939, 948 [the relationship between the grower member and the local association, and between the local association and the central association, was that of principal and agent, or beneficiary and trustee; therefore, fiduciary relationship existed that required associations to account for all proceeds received from sale of walnuts]; Andrews Farms v. Calcot, Ltd. (E.D. Cal. 2007) 527 F.Supp.2d 1239, 1253 [cotton farmers adequately alleged there was a fiduciary relationship between themselves and cooperative because the cooperative held money for the benefit of its cotton marketing members]; Land O'Lakes v. Gonsalves (E.D. Cal. 2012) 281 F.R.D. 444, 454 [since "the relationship between a cooperative and its members has a fiduciary character" the counterclaimants' allegation that the cooperative owes them a fiduciary duty based on the relationship between cooperative and member is sufficient to allege a fiduciary relationship].)
Melkonian asserts that as a fiduciary, Sun-Maid is "strictly forbidden from competing with Melkonian in a way that 'cripples or injures [the] business,'" citing Sequoia Vacuum Systems v. Stransky (1964) 229 Cal.App.2d 281, 286. That case instructs that a corporation's directors and officers are not precluded by the fiduciary relationship they bear to the corporation and its stockholders from engaging in an independent business enterprise provided "they act in good faith and do not interfere with the business enjoyed by the corporation." (Ibid.) However, they "may not enter into a competing enterprise which cripples or injures a business or corporation of which [they] remain[] an officer or director." (Ibid.) If the director or officer seizes for himself or herself "business opportunities in the company's line of activities" to the company's detriment, the director or officer violates his or her fiduciary duty, and "the corporation may claim for itself all benefits so obtained." (Ibid.)
Melkonian also asserts Sun-Maid is forbidden from engaging in self-dealing. Melkonian relies on Cagnolatti v. Guinn (1983) 140 Cal.App.3d 42, 49, which cites to a repealed statute, former Civil Code section 2230 as follows: "Neither a trustee nor any of his agents may take part in any transactions concerning the trust except when a fully informed beneficiary who is free from the trustee's influence authorizes the transaction."
Former Civil Code section 2230 has been replaced, in part, by Probate Code section 16004, subdivision (a), which provides that a "trustee has a duty not to use or deal with trust property for the trustee's own profit or for any other purpose unconnected with the trust, nor to take part in any transaction in which the trustee has an interest adverse to the beneficiary." (See Cal. Law Revision Com. com., Background on § 16004 of Repealed Code, 54A, Pt.1 West's Ann. Prob. Code (2011 ed.) foll. § 16004, p. 16.) Probate Code section 16463 superseded provisions of former Civil Code section 2230 relating to beneficiaries' consent to relieve a trustee of liability. (See Cal. Law Revision Com. Com., Background on § 16463 of Repealed Code, 54A, Pt. 1 West's Ann. Prob. Code (2011 ed.), foll. § 16463, p. 287.) Section 16463, subdivision (a) provides: "Except as provided in subdivisions (b) and (c), a beneficiary may not hold the trustee liable for an act or omission of the trustee as a breach of trust if the beneficiary consented to the act or omission before or at the time of the act or omission."
Melkonian, however, does not explain how these principles apply to the circumstances of this case, where a member of the cooperative alleges the cooperative seized the member's business for itself. Melkonian is not alleging the decision to change the golden raisin model injured Sun-Maid or the trust property, but rather that the decision injured Melkonian as a member-producer. Moreover, by analogy to the principle stated in Sequoia Vacuum Systems that directors are fiduciaries who must exercise their powers in good faith and in the corporation's interest, Sun-Maid's directors owe a fiduciary duty to Sun-Maid to act in its interests, which is not necessarily in the interest of a certain class of members.
Melkonian claims an agricultural cooperative has a duty to act "in a manner that does not unfairly privilege one member over another," emphasizing language in Sanchez v. Grain Growers Assn. of California (1981) 126 Cal.App.3d 665, 674, that" 'no member can be advantaged to the detriment of any other member.'" That case held the plaintiffs, who were expelled members of an agricultural cooperative, were contractually bound by the bylaw provisions concerning the procedure for valuing a member's interest on expulsion. (Id. at pp. 668, 673-674.) In so holding, the court cited California Canning Peach Growers v. Downey (1925) 76 Cal.App. 1, 15 as follows: "Cooperative agreements 'are not simply agreements entered into with an agent ... [they] are essentially to and with all the other members of the ... association and the interests of every member rest upon the same foundation, and no member can be advantaged to the detriment of any other member . . ..'" (Sanchez, at p. 674.) Sanchez does not hold that a decision made by the cooperative's directors that is permissible under the bylaws, as we have explained in discussing the claim for breach of the written contract, must result in equal treatment of all members.
Regardless of the duty Sun-Maid owes Melkonian in the context of this case, SunMaid contends the business judgment rule insulates the board's decision to change the golden raisin model from court intervention. "The business judgment rule is a policy of deference to a corporate board's decisionmaking." (Coley v. Eskaton (2020) 51 Cal.App.5th 943, 952.) The rule "is essentially a presumption that corporate directors act in good faith." (Kruss v. Booth (2010) 185 Cal.App.4th 699, 728.) This court has held that the business judgment rule applies to agricultural cooperatives that are organized as a corporation, such as Sun-Maid. (Scheenstra v. California Dairies, Inc. (2013) 213 Cal.App.4th 370, 386)
The business judgment rule has two components. The first immunizes directors from personal liability if they act in accordance with certain conditions (Corp. Code, §§ 309, 7231), while the second shields "from court intervention those management decisions made by directors in good faith in what the directors believe is the organization's best interest." (Scheenstra v. California Dairies, Inc., supra, 213 Cal.App.4th at pp. 386-387.) The business judgment rule's premise" 'is that directors, not the courts, are best able to judge whether a particular act or transaction is helpful to the conduct of the organization's affairs or expedient for the attainment of its purposes.'" (Id. at p. 387.) A court will not substitute its judgment for that of the corporation's board of directors when the rule's requirements are met. (Ibid.) At issue here is the second component since we are only addressing Sun-Maid's liability, not the personal liability of the board of directors.
The breach of fiduciary duty claims alleged in the complaint, FAC, and SAC, were brought only against Sun-Maid. The proposed TAC, however, names Sun-Maid's directors as individual defendants and includes them as defendants in the proposed breach of fiduciary duty claim. As to the board members, that claim alleges they had a conflict of interest when voting to "enact Project Gold" because they stood to personally benefit from their decision, and the board members and Sun-Maid breached the fiduciary duty owed to the minority members not to engage in a transaction that exclusively benefits majority members and is solely detrimental to minority members. Since this appeal involves only Sun-Maid, however, we do not address Melkonian's attempt to include the individual directors as defendants in the proposed TAC.
An exception to the presumption of the business judgment rule "exists in 'circumstances which inherently raise an inference of conflict of interest' and the rule 'does not shield actions taken without reasonable inquiry, with improper motives, or as a result of a conflict of interest.'" (Berg &Berg Enterprises, LLC v. Boyle (2009) 178 Cal.App.4th 1020, 1045.) A plaintiff, however, must allege sufficient facts to establish these exceptions, which requires more than" 'conclusory allegations of improper motives and conflict of interest.'" (Ibid.) "In most cases, 'the presumption created by the business judgment rule can be rebutted only by affirmative allegations of facts which, if proven, would establish fraud, bad faith, overreaching or an unreasonable failure to investigate material facts. [Citation.] Interference with the discretion of directors is not warranted in doubtful cases.'" (Id. at p. 1046, citing Lee v. Interinsurance Exchange (1996) 50 Cal.App.4th 694, 715.) "[T]he failure to sufficiently plead facts to rebut the business judgment rule or establish its exceptions may be raised on demurrer, as whether sufficient facts have been so pleaded is a question of law." (Berg &Berg, at p. 1046.)
On appeal, Melkonian asserts it sufficiently pled facts that inherently raise the inference of a conflict of interest. Melkonian essentially alleges in its SAC and proposed TAC that a conflict of interest existed because the board members, who all were natural raisin members, personally benefitted from the decision to enact the new golden raisin model, as they stripped "the traditionally more profitable business of Golden raisin production from the minority Golden raisin members" and reallocated that profit to the majority natural raisin members. Melkonian argues that because a cooperative is organized to make profit for its members as producers, board decisions that benefit the board members but harm minority members raise an inference of a conflict of interest.
As Sun-Maid points out, in an agricultural cooperative, all members are shareholders and the cooperative's business decisions affect the members as producers in some manner. As the 10th Circuit Court of Appeals has recognized, it is "unlikely that every decision by [a cooperative's] board members will always benefit every individual member." (Bell v. Fur Breeders Agricultural Co-op. (10th Cir. 2003) 348 F.3d 1224, 1235 (Bell).) While board members may benefit from a business decision, "any policy benefitting the cooperative as a whole, as a competing business enterprise, most likely benefits most of its members and board members." (Ibid.) Thus, that the Sun-Maid board of directors was made up only of natural raisin producers who stood to benefit from the golden raisin decision is insufficient to allege a conflict of interest, since any decision they make potentially affects their profits as producers.
That Sun-Maid's board members compete with other members does not change the analysis. As the court explained in Bell, "[u]nlike traditional corporate officers who do not typically complete with each other in the market place, cooperative members are theoretically always in competition with each other because they are in the same trade and sell the same product." (Bell, supra, 348 F.3d at p. 1233.) Thus, board members act within their authority when they make business decisions for the benefit of the cooperative as a whole. (Id. at pp. 1233-1235.)
Melkonian attempts to distinguish Bell on the basis that it does not produce the same product as the natural raisin members. Even so, the natural raisin and golden raisin producers still compete against each other as raisin sellers.
In a cooperative the board members act unilaterally to benefit a single enterprise. The bylaws provide that Sun-Maid's primary purpose is to purchase, process, and market raisins produced or delivered to it by its members. The bylaws further provide that SunMaid has "broad incidental purposes and powers, which enable it to" engage in any activity connected to purchasing, marketing, selling, drying, processing, or manufacturing any products produced or delivered to it by its members. To meet these objectives, SunMaid's default is to accept natural raisins from its members and to grant permission for members to produce other types of raisins.
While Sun-Maid granted permission to certain members, such as Enterprises, to produce and deliver golden raisins, its decision to change the model to one where SunMaid accepts members' grapes and then contracts with third parties to dehydrate them into golden raisins is consistent with Sun-Maid's stated purposes and within its authority. As we have stated, not every board decision necessarily will benefit every individual member. As a Sun-Maid member, Enterprises could deliver natural raisins to Sun-Maid or contract with Sun-Maid to dehydrate grapes. While the individual board members may have benefitted from the changed policy, by acting for the benefit of the membership as a whole the board members complied with their duty toward Sun-Maid and its members.
Apart from the business judgment rule, corporate directors, officers, and controlling shareholders owe fiduciary duties to the corporation and minority shareholders in the exercise of corporate powers. (Jones, supra, 1 Cal.3d at pp. 108, 110; see Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 179 [it is "well established in California law" that directors, officers, and controlling shareholders owe fiduciary duties to shareholders].) These duties are, generally, "to act with honesty, loyalty, and good faith." (Berg &Berg Enterprises, LLC v. Boyle, supra, 178 Cal.App.4th at p. 1037; Remillard Brick Co. v. Remillard-Dandini Co. (1952) 109 Cal.App.2d 405, 419 ["[d]irectors owe a duty of highest good faith to the corporation and its stockholders"].)
"[M]ajority shareholders, either singly or acting in concert to accomplish a joint purpose, have a fiduciary responsibility to the minority and to the corporation to use their ability to control the corporation in a fair, just, and equitable manner. Majority shareholders may not use their power to control corporate activities to benefit themselves alone or in a manner detrimental to the minority. Any use to which they put the corporation or their power to control the corporation must benefit all shareholders proportionately and must not conflict with the proper conduct of the corporation's business." (Jones, supra, 1 Cal.3d at p. 108 .)
Melkonian argues the rule our Supreme Court adopted in Jones applies equally to members of agricultural cooperatives since members of agricultural associations such as Sun-Maid that are organized without shares of stock are "deemed to be 'shareholders' as the term is used in the General Corporation Law." (Food &Agr. Code, § 54040.) Melkonian asserts Sun-Maid violated the Jones rule when the numerically superior natural raisin producers, who Melkonian likens to majority shareholders, acted in concert to push the numerically inferior golden raisin producers, who Melkonian asserts are akin to minority shareholders, off the board to expropriate the golden raisin business for themselves.
We decline Melkonian's invitation to extend the Jones rule to agricultural associations. If Sun-Maid's members are like shareholders, there is only one class, as the bylaws do not create different classes of membership. (Miles, Inc. v. Scripps Clinic &Research Foundation (S.D. Cal. 1993) 810 F.Supp. 1091, 1099 [the Jones exception does not apply where there is no majority shareholder].) It is true, as Melkonian points out, that the bylaws provide that "[t]he voting power of each member" is "unequal" and each member has one vote and is entitled to notice of meetings only if the member has delivered agricultural products to Sun-Maid within 12 months of the "record date," which is the day preceding the day of mailing notice or ballot to the membership, or "during the last crop year immediately preceding the vote in which all deliveries have been completed." At best, however, that creates a majority/minority distinction based on voting ability, not based on whether the member is a natural or golden raisin producer. Melkonian complains that it has been deprived of its voting power since it no longer delivers golden raisins to Sun-Maid, but that was not true when the board made the decision to change the golden raisin model.
In sum, we agree with the trial court that Melkonian cannot state a claim for breach of fiduciary duty.
V. Unfair Business Practices
The UCL defines unfair competition to "mean and include any unlawful, unfair or fraudulent business act or practice." (Bus. &Prof. Code, § 17200.) Because the statute "is written in the disjunctive, it establishes three varieties of unfair competition-acts or practices which are unlawful, or unfair, or fraudulent." (Podolsky v. First Healthcare Corp. (1996) 50 Cal.App.4th 632, 647.)
"The purpose of the UCL 'is to protect both consumers and competitors by promoting fair competition in commercial markets for goods and services.'" (Solus Industrial Innovations, LLC v. Superior Court (2018) 4 Cal.5th 316, 340.) It also" 'provides an equitable means through which ... private individuals can bring suit to prevent unfair business practices and restore money or property to victims of these practices.'" (Ibid., italics omitted.) "While the scope of conduct covered by the UCL is broad, its remedies are limited. [Citation.] A UCL action is equitable in nature; damages cannot be recovered." (Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1144.) "[U]nder the UCL, '[p]revailing plaintiffs are generally limited to injunctive relief and restitution.'" (Ibid., first bracketed insertion added.) A restitution order compels" 'a UCL defendant to return money obtained through an unfair business practice to those persons in interest from whom the property was taken.'" (Ibid.)
In the SAC, Melkonian alleged Sun-Maid's decision to close the golden raisin pool and stop accepting golden raisins in 2019 violated the UCL. Specifically, Melkonian alleged Sun-Maid's board violated the UCL by conspiring to put the golden raisin producers out of business so the golden raisin market could be cornered by SunMaid itself. In demurring to this claim, Sun-Maid argued Melkonian had not pled facts showing the required elements of an unlawful, unfair, or fraudulent UCL practice.
In its opposition, Melkonian asserted it contended it adequately pled Sun-Maid's acts were unlawful and unfair. Melkonian contended it was sufficient for the SAC to allege Sun-Maid committed unlawful acts of breaching the 1976 Agreement and its fiduciary duty which cut Melkonian out of the golden raisin market entirely and prevented it from delivering golden raisins to Sun-Maid and placing golden raisins into the commerce stream.
The trial court sustained the demurrer to this claim. The trial court found Melkonian had not pled the elements of an unlawful UCL claim as a breach of contract or breach of fiduciary duty is not an unlawful act for purposes of the UCL. While Melkonian recited numerous statutes it claimed Sun-Maid violated, Melkonian did not plead facts or explain how Sun-Maid violated these laws and none of the statutes were applicable on their face as the trial court ruled on a prior demurrer. The trial court also found Melkonian's allegations of unfairness were insufficient, as no facts were alleged showing any harm to consumers or that the alleged conduct impaired competition.
In ruling on the demurrer to the original complaint, the trial court explained why none of the cited statutes were applicable on their face: "[Food and Agricultural Code] [s]ection 54031 merely describes the legislative purpose behind a statute, and even if it were possible for a private entity to somehow 'violate' this provision, none of the allegations suggest that Sun-Maid has interfered with 'intelligent and orderly marketing of agricultural products,' caused 'speculation and waste,' interfered with 'the distribution of agricultural products between producer and consumer,' or destabilized 'the marketing of agricultural products.' The same is true of [Food and Agricultural Code] section 54038, an antitrust statute. None of plaintiffs' allegations come close to establishing '[a] conspiracy, a combination in restraint of trade, or an illegal monopoly.' [Food and Agricultural Code] [s]ection 54040 is merely an organizational provision that states that California's general corporation laws apply to co-ops. Plaintiffs offer no explanation as to how Sun-Maid purportedly acted 'unlawfully as a cooperative...." Likewise, plaintiffs do not plead facts to show that Sun-Maid violated [Food and Agricultural Code] section 54033, and no California cases are cited to suggest that it is even possible to 'violate' this statute, or that doing so would support a UCL claim. Nor, have plaintiffs alleged facts sufficient to show a violation of California Corporations Code section 309, which sets out the standard of care owed by directors to shareholders. Plaintiffs do not identify any of Sun-Maid's directors, or allege that any of them acted inconsistently with this standard."
The proposed TAC alleged Sun-Maid's actions constituted unlawful and unfair business practices under the UCL. The TAC alleged Sun-Maid's decision to implement project gold was unlawful because it was: (1) a breach of fiduciary duty owed to Melkonian; (2) constructive fraud as to Brothers; and (3) in derogation of the antitrust protections for cooperatives, as Sun-Maid is now a participant in the golden raisin market and a competitor of Enterprises, by which it sets the market price of golden raisins and leverages its market dominance to block Enterprises and other golden raisin members out of the golden raisin marketplace.
The TAC alleged Sun-Maid engaged in unfair business practices by deciding to implement and implementing project gold, breaching its agreements with Melkonian, and directly competing in the golden raisin market. Sun-Maid's unilateral and sudden repudiation of the parties' nearly 50-year business relationship without notice or warning to Melkonians was also alleged to be unfair because it was provided right before the harvest season and calculated to frustrate Melkonians' ability to find a suitable market for its golden raisins.
On appeal, Melkonian asserts it has or can adequately allege that Sun-Maid engaged in unlawful, unfair, and fraudulent business practices. We discuss each in turn.
A. Unlawful Business Practices
"An unlawful business practice under [Business and Professions Code] section 17200 is' "an act or practice, committed pursuant to business activity, that is at the same time forbidden by law." '" (Progressive West Ins. Co. v. Superior Court (2005) 135 Cal.App.4th 263, 287, italics omitted.) "By prohibiting unlawful business practices,' "[Business and Professions Code] section 17200 'borrows' violations of other laws and treats them as unlawful practices" that the unfair competition law makes independently actionable.'" (De La Torre v. CashCall, Inc. (2018) 5 Cal.5th 966, 980.) "Virtually any state, federal or local law can serve as the predicate for an action under Business and Professions Code section 17200." (Podolsky v. First Healthcare Corp., supra, 50 Cal.App.4th at p. 647.)
On appeal, Melkonian asserts Sun-Maid has violated its own charter and Food and Agricultural Code section 54033 by "vacuuming up a co-op member's entire business just to siphon away that member's higher profits," as the profits do not benefit the members as producers. Melkonian also seems to assert that by contracting with third parties to dehydrate raisins into golden raisins Sun-Maid now consists of both producers and nonproducers and therefore is not entitled to antitrust protections.
Food and Agricultural Code section 54033, however, is merely an organizational provision that declares: "Associations which are organized pursuant to this chapter are 'nonprofit,' since they are not organized to make profit for themselves, as such, or for their members, as such, but only for their members as producers." While associations such as Sun-Maid are organized to make profit for their members as producers, Melkonian does not explain how using separate contracts for grapes and dehydrating means that Sun-Maid is not making profit for their members as producers or how such an arrangement violates its charter. Notably, the bylaws empower Sun-Maid to engage in activities in connection with processing products delivered to it by its members. Moreover, to the extent Melkonian's UCL claim is based on Sun-Maid's alleged breach of its contractual charter or bylaws, a breach of contract is not itself an unlawful act for purposes of the UCL. (Boland, Inc. v. Rolf C. Hagen (USA) Corp. (E.D. Cal. 2010) 685 F.Supp.2d 1094, 1110, citing Puentes v. Wells Fargo Home Mortgage, Inc. (2008) 160 Cal.App.4th 638, 645.) Melkonian does not cite any authority suggesting a private plaintiff may assert a violation of Food and Agricultural Code section 54033.
Melkonian also asserts it can allege Sun-Maid violated state and federal antitrust laws but does not provide any analysis to support its assertion. Agricultural cooperatives that consist of producers of agricultural products are exempt from antitrust laws. (Case-Swayne Co. v. Sunkist Growers, Inc. (1967) 389 U.S. 384, 391-392, 393 [Capper-Volstead Act (7 U.S.C. § 291) authorizes persons engaged in the production of agricultural products, such as farmers and fruit growers, to act collectively in the processing and marketing of those products]; National Broiler Marketing Assn. v. United States (1978) 436 U.S. 816, 824-825.) However, an agricultural cooperative that includes for-profit business entities as members, such as packinghouses that do not grow fruit, is prevented from qualifying for the antitrust exemption as those entities are not engaged in the production of agricultural products. (Case-Swayne Co., at pp. 395-396; National Broiler, at pp. 822-823 [to qualify for limited exemption of Capper-Volstead Act, all members of the agricultural cooperative must be qualified to act collectively].)
Although Melkonian complains that Sun-Maid receives income from nonproducer activity, such as a dehydrator that does not grow grapes, it does not state facts that show the nonproducers were members of Sun-Maid or that Sun-Maid combined or attempted to combine with those nonproducers to unreasonably restrain trade. (G.H.I.I. v. MTS, Inc. (1983) 147 Cal.App.3d 256, 267 [a conspiracy is the gravamen of an antitrust complaint and "it must be stated in more than conclusionary terms"].) Instead, Melkonian's allegations have centered on Sun-Maid conspiring with itself to institute the project gold program and displace Melkonian as a producer of golden raisins. A corporation, however, "cannot conspire with its own employees or agents." (Hoefer v. Fluor Daniel, Inc. (C.D. Cal. 2000) 92 F.Supp.2d 1055, 1057; Kolling v. Dow Jones &Co. (1982) 137 Cal.App.3d 709, 720 ["a corporation cannot conspire with itself or its agents for purposes of the antitrust laws"].)
Because Melkonian has not alleged the nonproducers were members of Sun-Maid, its reliance on Food and Agricultural Code sections 54061 and 54231 to show SunMaid's acts were unlawful is misplaced. Section 54061 provides that an association may be formed by three or more natural persons "who are engaged in the production of any product," while section 54231 provides that an association may admit as members "only such persons as are engaged in the production of any product which is to be handled by or through the association ...." Melkonian has not stated it can allege facts that show any of the persons who formed Sun-Maid were not engaged in the production of any product or that the nonproducers were admitted as members of Sun-Maid. Melkonian also cites to Food and Agricultural Code sections 54031, subdivision (d), which provides the purpose of the chapter is to "[s]tablize the marketing of agricultural products," and 54032, subdivision (c), in which the Legislature recognizes "[t]he public interest urgently needs to prevent the migration from the farm to the city in order to keep up farm production and to preserve the agricultural supply of the nation," in its reply brief. Melkonian argues that even if these statutes do not create an independent cause of action to support an unlawful UCL claim, they set forth policies concerning entities exempted from competition law. Even if Sun-Maid violated these provisions, Melkonian fails to explain why that would defeat the antitrust exemption.
In sum, Melkonian has not shown that it can allege Sun-Maid engaged in an unlawful business practice within the meaning of the UCL.
B. Unfair Business Practices
Our Supreme Court has developed a precise test for determining when a competitor's business practice is alleged to be unfair: "[T]o guide courts and the business community adequately and to promote consumer protection, we must require that any finding of unfairness to competitors under [Business and Professions Code] section 17200 be tethered to some legislatively declared policy or proof of some actual or threatened impact on competition. We thus adopt the following test: When a plaintiff who claims to have suffered injury from a direct competitor's 'unfair' act or practice invokes [Business and Professions Code] section 17200, the word 'unfair' in that section means conduct that threatens an incipient violation of an antitrust law, or violates the policy or spirit of one of those laws because its effects are comparable to or the same as a violation of the law, or otherwise significantly threatens or harms competition." (Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 186-187 (Cel-Tech).)
Cel-Tech "defined 'unfair' in the context of a UCL action by one competitor against a direct competitor" and "made clear that its discussion about 'unfair' practices was limited to actions by competitors alleging anticompetitive practices, and did not relate to actions by consumers." (Morgan v. AT&T Wireless Services, Inc. (2009) 177 Cal.App.4th 1235, 1254.) Melkonian asserts it is alleging a competitor claim because Sun-Maid's conduct violated the policy and spirit of competition law, as SunMaid used its "market dominance and control over the channels of distribution to annihilate a member's business."
Melkonian, however, must plead facts showing a harm or threat of harm to competition due to Sun-Maid's use of two contracts for golden raisins or its rejection of Melkonian's dehydrating bid. (Cel-Tech, supra, 20 Cal.4th at p. 187; Chavez v. Whirlpool Corp. (2001) 93 Cal.App.4th 363, 375.) Yet Melkonian alleges the opposite- Sun-Maid's actions were unfair because Sun-Maid forced Melkonian to become its competitor. And while Melkonian alleges it was unfair for Sun-Maid to wait to provide notice of the changed program until right before the harvest season, which allowed SunMaid to continue to enjoy its market dominance and stymied potential competition, Melkonian does not explain how that is akin to an antitrust violation where Sun-Maid is exempt from antitrust law, as explained above. Accordingly, Melkonian has failed to state a claim for unfair business practices under the UCL.
C. Fraudulent Business Practice
Melkonian also contends Sun-Maid engaged in a fraudulent business practice by inducing it to invest in expensive upgrades for the sole purpose of producing golden raisins to deliver to Sun-Maid and then abruptly terminating their relationship before the end of the upgrades' useful life. In ruling on the demurrer to the SAC, the trial court did not address the claim in the SAC that Sun-Maid engaged in fraudulent business practices because Melkonian stated in its opposition to the demurrer that it was not contending Sun-Maid's acts were fraudulent within the meaning of the UCL. Moreover, Melkonian represented in its opening brief on appeal that its defense of the SAC was limited to those claims asserted in the proposed TAC, which does not allege a UCL claim based on fraudulent business practices.
" 'The rule is well settled that the theory upon which a case is tried must be adhered to on appeal. A party is not permitted to change his position and adopt a new and different theory on appeal. To permit him [or her] to do so would not only be unfair to the trial court, but manifestly unjust to the opposing litigant.'" (Cable Connection, Inc. v. DIRECTV, Inc. (2008) 44 Cal.4th 1334, 1350-1351, fn. 12.) Since Melkonian conceded during the trial court proceedings that it was not asserting a fraudulent UCL claim, Melkonian has forfeited that issue on appeal.
To the extent Melkonian is contending it may amend the SAC to assert a UCL claim based upon fraudulent business practices, the claim fails. "The term 'fraud' is not predicated on proof of the common law tort of deceit or deception but simply means whether the public is likely to be deceived." (Countrywide Financial Corp. v. Bundy (2010) 187 Cal.App.4th 234, 257; Daugherty v. American Honda Motor Co., Inc. (2006) 144 Cal.App.4th 824, 838.) This requires Melkonian to show" 'reasonable members of the public are likely to be deceived' by the alleged unfair business practice." (Yi v. Circle K Stores, Inc. (C.D. Cal. 2017) 258 F.Supp.3d 1075, 1088.) Melkonian, however, contends it was the only one deceived and does not claim that the public has been deceived. (Watson Laboratories, Inc. v. Rhone-Poulenc Rorer, Inc. (C.D. Cal. 2001) 178 F.Supp.2d 1099, 1121 [noting there is "no case authority that 'fraudulent' business acts are separately actionable by business competitors absent a showing that the public, rather than merely the plaintiff, it likely to be deceived"].) Melkonian cannot state a claim for fraudulent business practices under the UCL where it does not allege deception to some members of the public or harm to the public interest. (Ibid.)
VI. Leave to Amend
Melkonian asserts the trial court erred in sustaining the demurrer to the SAC without leave to amend because the proposed TAC alleges six valid causes of action. We have already discussed Melkonian's inability to amend the claims for breach of oral and written contract, breach of the implied covenant of good faith and fair dealing, breach of fiduciary duty, and unfair business practices under the UCL. Melkonian contends it can also allege causes of action for constructive fraud, which is alleged in the proposed TAC, and unjust enrichment, which Melkonian has not asserted before. We address each in turn.
A. Constructive Fraud
As a new claim, the proposed TAC alleges a constructive fraud cause of action. This claim alleges that when Sun-Maid convinced Brothers to replant the 120 acres with Thompson grapes and install v-gable trellises and Enterprises to expand its golden raisin production facilities, Sun-Maid occupied a fiduciary relationship with its members, including Melkonian, which both entities relied on. It further alleges that in 2019, after years of accepting Melkonian's golden raisins from the 120 acres Brothers planted, SunMaid breached its agreements with Brothers and Enterprises and refused to accept or sell their golden raisins. Finally, the claim alleges Sun-Maid's promise to Melkonian, which turned out to be false, was a direct and proximate cause of harm to Melkonian, as the grapes planted, the v-gable trellises Brothers installed, and Enterprises' expanded facilities cost millions of dollars and although the vines' lifespan is about 40 years, SunMaid disregarded its representations less than 10 years into the peak production period.
To prove constructive fraud, Melkonian "must show (1) a fiduciary relationship, (2) nondisclosure, (3) intent to deceive, and (4) reliance and resulting injury. Constructive fraud is any breach of duty that, without fraudulent intent, gains an advantage to the person at fault by misleading another to his prejudice." (Tindell v. Murphy (2018) 22 Cal.App.5th 1239, 1249-1250; Civ. Code, § 1573; Sacramento E.D.M., Inc. v. Hynes Aviation Industries, Inc. (E.D. Cal. 2013) 965 F.Supp.2d 1141, 1152 [constructive fraud claim requires allegations of "(1) a fiduciary or confidential relationship; (2) an act, omission or concealment involving a breach of that duty; (3) reliance; and (4) resulting damage"].) Constructive fraud must be pled with specificity. (Tindell, at p. 1250.)
On appeal, Melkonian limits this claim to Overly's alleged representation to Melkonian in late 2018 or early 2019 "that production of golden raisins would be ramping up," which led Melkonian to construct more drying tunnels. Melkonian asserts the parties had a trusting and confidential relationship and a breach of trust occurred when Overly told Melkonian "mere months later" that Sun-Maid was changing the business model for golden raisins.
As Sun-Maid points out, this claim fails for the same reasons the breach of fiduciary duty claim does. (In re Zoran Corp. Derivative Litigation (N.D. Cal. 2007) 511 F.Supp.2d 986, 1019 [dismissing constructive fraud claim in part because "these claims are often considered a repackaging of claims for breach of fiduciary duties instead of being a separate tort"].) Melkonian does not explain why Sun-Maid had a fiduciary duty to continue to purchase golden raisins under the golden raisin model or pay Melkonian above-market price for dehydrating. Moreover, the business judgment rule bars the claim.
In addition, Melkonian fails to explain how the statement that golden raisin production would be "ramping up" is an affirmative representation that Sun-Maid would continue to accept Melkonian's golden raisins under the model then in existence. The statement is too vague to be actionable, as it is a generalized assertion that makes no promise as to specific actions. (See, e.g., Wilson v. Houston Funeral Home (1996) 42 Cal.App.4th 1124, 1139 [representation that funeral home" 'would provide for a dignified and respectful funeral and burial service'" is too general to support fraud claim].)
Accordingly, Melkonian's proposed constructive fraud claim is not a viable claim.
B. Unjust Enrichment
Melkonian also contends it can state a claim based on unjust enrichment. It asserts that by changing the golden raisin model, Sun-Maid reaped the rewards of the Melkonian family's 50 years of labor in building up the market for golden raisins. Melkonian asserts "it is entitled to recognition of what its hard work through the decades has achieved" and it is unjust for Sun-Maid to exploit a customer base that is "crazy for high quality golden raisins" without compensation.
There is some debate about whether unjust enrichment is a cause of action in California. (Levine v. Blue Shield of California (2010) 189 Cal.App.4th 1117, 1138 [finding no cause of action for unjust enrichment]; Prakashpalan v. Engstrom, Lipscomb &Lack (2014) 223 Cal.App.4th 1105, 1132 [stating elements of an unjust enrichment claim].) Courts generally agree, however, that" 'unjust enrichment'" is synonymous with restitution and often treat it as a "quasi-contract claim seeking restitution." (Rutherford Holdings, LLC v. Plaza Del Rey (2014) 223 Cal.App.4th 221, 231; McKell v. Washington Mutual, Inc. (2006) 142 Cal.App.4th 1457, 1490.)
Even so, an unjust enrichment claim does not lie "where ... express binding agreements exist and define the parties' rights." (California Medical Assn., Inc. v. Aetna U.S. Healthcare of California, Inc. (2001) 94 Cal.App.4th 151, 172; Hedging Concepts, Inc. v. First Alliance Mortgage Co. (1996) 41 Cal.App.4th 1410, 1420 ["When parties have an actual contract covering a subject, a court cannot-not even under the guise of equity jurisprudence-substitute the court's own concepts of fairness regarding that subject in place of the parties' own contract"].)
Recovery for unjust enrichment is barred here because the parties have an express contract governing Sun-Maid's ability to change the golden raisin model. Moreover, Melkonian does not explain what benefit Sun-Maid received at Melkonian's expense that Sun-Maid unjustly retained. Because Sun-Maid changed the golden raisin model in compliance with the parties' contract, Sun-Maid did not unjustly retain a benefit it received at Melkonian's expense. (Lyles v. Sangadeo-Patel (2014) 225 Cal.App.4th 759, 769 [no unjust retention where defendants were entitled to the rent they collected from plaintiff].)
For these reasons, Melkonian has not shown that it can state an unjust enrichment claim.
DISPOSITION
The judgment is affirmed. Costs on appeal are awarded to Sun-Maid.
WE CONCUR: LEVY, Acting P. J. SMITH, J.