Opinion
NOT TO BE PUBLISHED
Contra Costa County Super. Ct. No. C06-00905
Sepulveda, J.
Owners of a family business sold their company to a financial services corporation. The purchase price, as originally negotiated, was for $6.5 million in cash and $6.5 million in the buyer’s stock. The buyer later proposed an all-cash sale, which was accepted. Soon after the sale, the buyer’s stock increased in value when the buyer’s corporate parent bought all outstanding stock at a premium. Sellers accused the buyer of knowing about the pending stock transaction, and fraudulently concealing its knowledge when it proposed the change from a half-stock to an all-cash deal.
Several months after making that accusation, one of the sellers (who had been retained in management) resigned his employment. The parties executed two settlement agreements upon the termination of employment. Under the settlement agreements, sellers received salary payment and accelerated payment of deferred consideration due from the sale of the company.
Sellers later sued buyer for its alleged fraud in the purchase of the company. Buyer moved for summary judgment and imposition of sanctions for filing a frivolous lawsuit. (Code Civ. Proc., § 128.7, 437c.) Among its arguments, buyer asserted that sellers impliedly waived any fraudulent concealment in the purchase of the company by entering a new agreement with buyer regarding the same subject matter after the fraud was discovered. (Oakland Raiders v. Oakland-Alameda County Coliseum, Inc. (2006) 144 Cal.App.4th 1175, 1185-1194 (Oakland Raiders).) The trial court accepted this argument and granted summary judgment but denied sanctions. We reverse the judgment upon concluding that there are disputed issues of fact as to whether the new agreement waived the allegedly fraudulent procurement of the original purchase agreement, or was a limited settlement agreement addressing the distinct matter of employment termination. Sanctions were properly denied.
I. FACTS
The statement of facts is drawn from the pleadings, the parties’ separate statements of undisputed facts, and supporting evidence submitted on the motion for summary judgment. (Code Civ. Proc., § 437c, subds. (b)(1), (3).) We have disregarded evidence for which evidentiary objections were properly sustained. Evidentiary objections were not properly sustained as to portions of a declaration by one of the parties concerning the negotiation and execution of contracts at issue in the case. The trial court erred in sustaining objections to this evidence based on hearsay, relevancy, improper opinion, and other grounds. This evidence is admissible, and considered here, as evidence of the operative facts of a transaction, party conduct, party admissions, adoptive admissions, and opinions based on personal knowledge. (Evid. Code, §§ 800, 802, 805, 1200, 1220, 1221; Wegner et al., Cal. Practice Guide: Civil Trials and Evidence (The Rutter Group 2009) ¶¶ 8:643, 8:640, 8:1042-8:1044, 8:1047, 8:1049, 8:1136, 8:1161.) We now turn to our summary of the facts.
Ousley, Inc. provided real estate appraisal services to financial institutions. All shares of Ousley Inc. were owned by the Ousley Family Trust. Plaintiffs Michael and Mary Ousley are cotrustees of the Ousley Family Trust, and Michael Ousley was the chief executive officer of Ousley, Inc.
Defendant Fidelity National Information Solutions, Inc. (FNIS) acquired Ousley, Inc. in April 2003. The acquisition took the form of a corporate merger, with FNIS acquiring all of Ousley, Inc. stock and FNIS continuing as the surviving corporation. The acquisition was preceded by months of negotiations.
On March 10, 2003, the parties signed a nonbinding letter of intent. The letter of intent states: “it is presently contemplated” that FNIS will pay $13 million in “aggregate merger consideration” for Ousley, Inc., consisting of $6.5 million in cash and $6.5 million in FNIS common stock. FNIS shares were to be valued at the average market price of the shares over the 20 days previous to the closing date of the merger. FNIS planned to retain Michael Ousley in management after the merger, and the letter of intent provided for compensation terms and deferred consideration for the merger, contingent on business performance.
On March 25, 2003, seven days before the deal was set to close, FNIS proposed an all-cash transaction. FNIS asserts that it proposed an all-cash transaction for tax reasons. Plaintiffs allege that FNIS proposed all cash because FNIS’s parent company was planning to purchase FNIS shares at a premium, and the corporations did not want to pay plaintiffs the increased value. FNIS’s parent company was defendant Fidelity National Financial, Inc. (FNF), and FNF’s officers participated in negotiating the purchase of plaintiffs’ business. Plaintiffs alleged in their complaint that the $6.5 million in FNIS shares they would have received had the sale been consummated as originally negotiated would have equaled 365,879 shares, and would have increased in value to almost $22 million.
Michael Ousley (Ousley) declares that he questioned FNF officers about the change from the proposed half-stock merger offer to an all-cash offer. In a telephone call between Ousley and FNF officers Brent Bickett and Brian Suh, Ousley asked Bickett “What is the reason for the change in merger consideration[?]” Bickett reportedly answered that FNIS’s bankers wanted to reduce the complexity and administrative burden of the transaction. Bickett added that the change in consideration was beneficial to plaintiffs because the stock of FNIS could go down in value. Plaintiffs asserted that they believed Bickett’s representations as to the reason for the change in merger consideration and relied on his statements in agreeing to the change.
On April 15, 2003, FNIS, Ousley, Inc., and the Ousley Family Trust signed the Agreement and Plan of Merger (Merger Agreement). FNIS paid $13 million in cash for Ousley, Inc. Most of the money was paid at closing but $1.95 million of that amount was held in escrow for satisfaction of the Ousley Family Trust’s promise to indemnify FNIS for any breaches of covenants or warranties. A separate escrow agreement was executed that provided for release of the escrow funds on the first anniversary of the closing. The Merger Agreement also provided that, on the first anniversary of the closing, plaintiffs would receive additional, deferred consideration of $750,000, subject to certain business conditions. Ousley executed an employment agreement with FNIS as a condition of the merger and became an employee of FNIS.
About a month after the closing, on May 23, 2003, FNF publicly announced its offer to acquire all outstanding shares of FNIS. The per share price of the announced stock acquisition was 33 percent higher than the price at which plaintiffs would have received FNIS shares in the FNIS-Ousley, Inc. merger under the terms of the nonbinding letter of intent. Plaintiffs had not been told that FNF intended to acquire FNIS.
Ousley contacted Bickett and Suh at FNF and asked if they knew about the planned stock acquisition when they requested the change in merger consideration from half stock to all cash. According to Ousley, the FNF officers admitted knowing about the planned stock acquisition. Bickett and Suh reportedly claimed that they had been prevented from telling Ousley about the planned stock acquisition due to insider trading laws and a nondisclosure agreement. Plaintiffs allege these statements to be false and maintain that Bickett and Suh were free to disclose the planned stock acquisition. When confronted about the nondisclosure, Bickett also reportedly said that any gain in value of FNIS stock held by plaintiffs from the merger would have been an undeserved windfall to plaintiffs.
In August 2003, Ousley sent an electronic mail message to Suh at FNF complaining about the nondisclosure. Ousley stated: “After your admission that the change from a cash/stock deal to a cash deal was promulgated by the merger [of FNF and FNIS], I discussed this with the folks over at Fenwick & West (our attorney). It just didn’t feel like full disclosure of the facts.... [¶] While I don’t think that I would be due any ‘windfall’ based on the run-up of price once the merger was announced (from about $17.00/share to $25.00/share), I do feel treated a little unfairly without the full disclosure. I’m here working hard to transition ALL the FNIS review business and we posted record numbers for July and I feel like I played by the rules to the letter to make the transaction happen to all of our benefit. [¶] I would like to propose that FNIS release the escrow to me immediately and release me from the indemnity requirements, in all fairness. Let me know if you would like to take action or respond, otherwise I will just take it up with Pat [Stone of FNIS].” Ousley provided Suh with a draft electronic mail message to Stone, which reiterated the complaint about nondisclosure of the stock acquisition and made specific demands. The demands included immediate release of the remaining FNIS-Ousley, Inc. merger consideration held in escrow, release of Ousley Family Trust indemnification obligations, and release of the additional merger consideration of $750,000. According to Ousley, Stone of FNIS rejected the proposal and refused a mutual release of liabilities under the Merger Agreement. There is no evidence of further action on any matters concerning the Merger Agreement in the summer of 2003.
In November 2003, FNIS told Ousley that it was relocating operations to Pennsylvania. Ousley declared that he sent notice of resignation under his employment agreement, which allowed him to refuse to relocate more than 50 miles from his home while still receiving compensation for the duration of the three-year contract. Ousley and FNIS disagreed on the amount of compensation due to him under the employment contract. According to Ousley, he and FNIS resolved the employment dispute with settlement agreements executed in January 2004. FNIS argues that these settlement agreements constitute a “renegotiat[ion]” of the Merger Agreement. Plaintiffs maintain that there was no renegotiation of the Merger Agreement itself but only a settlement of an employment dispute that contained, as an ancillary part of its terms, accelerated payment of amounts owed under the Merger Agreement.
There are two settlement agreements at issue: a “Confidential Separation Agreement, Waiver and Release” (Separation Agreement) and “Settlement Agreement and Release” (Settlement Agreement). The Separation Agreement is between FNIS and Ousley, as an individual. The Settlement Agreement is between FNIS and Ousley and his wife as cotrustees of the Ousley Family Trust (Trust). The Separation Agreement stated that Ousley waived any claims arising out of his employment with FNIS. In exchange, FNIS agreed to pay Ousley accrued salary, a separation payment, and a bonus payment. Under the Settlement Agreement, FNIS agreed to pay the Trust amounts remaining due under the Merger Agreement. It will be recalled that the April 2003 Merger Agreement, in addition to an immediate cash payment, provided for payments on the first anniversary of the closing: $750,000 subject to certain business conditions and $1.95 million held in escrow to secure the sellers’ indemnification obligation. Under the Settlement Agreement, FNIS agreed to make those payments in January 2004, rather than April 2004. In exchange, the parties agreed to release each other from any claims related to the additional merger consideration and escrow funds (while preserving the Trust’s indemnification obligation). The Settlement Agreement does not contain a general release of all claims related to the Merger Agreement, only a limited release concerning discrete items of consideration due under the Merger Agreement.
II. TRIAL COURT PROCEEDINGS
Plaintiffs Michael and Mary Ousley, as cotrustees of the Trust, filed this lawsuit on May 1, 2006. Plaintiffs sued FNF, FNIS, and FNF officers Bickett and Suh upon allegations that defendants induced them to accept substitution of $6.5 million in cash for 365,879 shares of FNIS, with a value of almost $22 million as of April 2006. Plaintiffs stated causes of action for intentional and negligent misrepresentation, rescission, constructive trust, and unjust enrichment.
Defendants’ demurrer to the complaint was overruled in November 2006, and we summarily denied defendants’ petition for a writ of mandate seeking to reverse that ruling. Defendants answered the complaint in January 2007 and stated several affirmative defenses, including waiver.
In May 2007, defendants moved for summary judgment or, in the alternative, summary adjudication. They made several arguments for judgment in their favor: (1) plaintiffs suffered no damages because they received full value for their company and never had any right to FNIS shares, which had been only contemplated consideration in a nonbinding letter of intent; (2) the alleged misrepresentations did not proximately cause any loss because defendants had no contractual obligation to give stock to plaintiffs; (3) the alleged misrepresentations were immaterial because only defendants’ motive for changing the terms of the proposed purchase was concealed, which did not affect the intrinsic merit of the transaction; (4) plaintiffs waived their fraud claims because they renegotiated the Merger Agreement to extract additional concessions for themselves after discovering the fraud; and (5) plaintiffs are not entitled to rescission or equitable relief for unjust enrichment because, among other things, plaintiffs received full value for their company and recovery of the value of the rise in stock value would be an undeserved windfall.
Plaintiffs opposed the summary judgment motion. The parties submitted separate statements of facts they claimed were undisputed, and defendants filed objections to evidence submitted by plaintiffs. Defendants also filed a motion for imposition of sanctions upon plaintiffs and their attorneys. (Code Civ. Proc., § 128.7.) Defendants maintained that the lawsuit was frivolous and founded on the false contention that plaintiffs had a right to FNIS shares. Defendants noted that the complaint alleged that plaintiffs were induced to “abandon their rights to 365,879 shares of FNIS,” and argued that plaintiffs knew they had no “rights” to FNIS shares because they had only a nonbinding letter of intent that contemplated distribution of shares.
In a decision filed in December 2007, the trial court granted defendants’ summary judgment motion, but denied their motion for sanctions. The court also sustained many of defendants’ objections to the evidence submitted by plaintiffs, including objections to a large portion of plaintiff Michael Ousley’s declaration based on hearsay, relevancy, improper opinion, and other grounds. On the merits of the summary judgment motion, the court stated: “Action is barred by affirmative defense of waiver.... [¶] Specifically, settlement and release agreement signed by plaintiffs on or about January 2, 2003 acts as a bar to any future claims.... See Oakland Raiders[, supra, ] 144 Cal.App.4th 1175.” (Capitalization altered.) Judgment for defendants was filed on December 5, 2007.
Plaintiffs timely appealed the judgment in February 2008. Defendants cross-appealed to challenge the trial court’s order denying sanctions. The parties completed briefing on appeal in May 2009.
III. DISCUSSION
The trial court’s order granting defendants summary judgment is founded on waiver. The trial court found that plaintiffs waived any fraud in connection with the 2003 Merger Agreement when plaintiffs signed the 2004 Settlement Agreement releasing defendants from claims concerning two items of deferred consideration owed under the Merger Agreement. As discussed below, we conclude that there are disputed issues of facts as to whether the Settlement Agreement waived the allegedly fraudulent procurement of the Merger Agreement, or was a limited settlement agreement addressing the distinct matter of employment termination that contains, as an ancillary part of its terms, accelerated payment of amounts owed under the Merger Agreement.
It is well-established that “[t]here can be no waiver unless the relinquishment is intentional or is the result of an act which, according to its natural import, is so inconsistent with an intent to enforce the right as to induce a reasonable belief that such right has been relinquished.” (Rheem Mfg. Co. v. United States (1962) 57 Cal.2d 621, 626; accord Oakland Raiders, supra, 144 Cal.App.4th at p. 1190.) All waivers are intentional. (DRG/Beverly Hills, Ltd. v. Chopstix Dim Sum Café & Takeout III, Ltd. (1994) 30 Cal.App.4th 54, 60 (DRG/Beverly Hills, Ltd.).) A “ ‘waiver is the intentional relinquishment of a known right.’ ” (Wells Fargo Bank v. Superior Court (2000) 22 Cal.4th 201, 211, italics added.)
But the intentional relinquishment may be express or implied. There may be direct evidence showing that a party intentionally waived a right as shown by an express contemporaneous statement of intent. Alternatively, there may be indirect evidence of intent shown by conduct from which waiver is implied. An implied waiver of a right is based on conduct so inconsistent with an intent to enforce the right that the court infers intentional relinquishment of the right—even if the party later protests that no intentional waiver was meant. In effect, evidence of a party’s conduct is received as conclusive proof of his actual intent and his protestations to the contrary are disregarded as not credible. Whether express or implied, waiver depends entirely on the words or conduct of one party, and is different from estoppel. (Bickel v. City of Piedmont (1997) 16 Cal.4th 1040, 1051 [abrogated by statute on another point as stated in DeBerard Properties v. Lim (1999) 20 Cal.4th 659, 668]; Hoopes v. Dolan (2008) 168 Cal.App.4th 146, 162; DRG/Beverly Hills, Ltd., supra, 30 Cal.App.4th at p. 59.) The distinct doctrine of equitable estoppel applies only where others detrimentally rely on a party’s misleading conduct. (Rheem Mfg. Co. v. United States, supra, 57 Cal.2d at p. 626; see City of Goleta v. Superior Court (2006) 40 Cal.4th 270, 279 [estoppel elements].)
While the two doctrines of waiver and estoppel are distinct, both may apply in the same case, and the courts have not always been scrupulous in maintaining the distinction when applying the doctrines. (See DRG/Beverly Hills, Ltd., supra, 30 Cal.App.4th at p. 59 [“[t]he terms ‘waiver’ and ‘estoppel’ are sometimes used indiscriminately]; see also Oakland Raiders, supra, 144 Cal.App.4th at pp. 1189, 1194 [mistakenly conflating waiver and estoppel].) Defendants repeatedly confuse the two doctrines in their arguments on appeal. Our focus here is on waiver and, particularly, implied waiver. As concerns waiver, defendants make no effort to demonstrate that plaintiffs expressly relinquished their fraud claim. Instead, defendants base their waiver argument exclusively upon plaintiffs’ conduct.
A number of cases discuss the circumstances under which a contracting party’s conduct waives his right to sue for fraud. The basic rule is that a party’s continued performance of the contract, even after learning of fraud, is not a waiver. “When a party learns that he has been defrauded, he may, instead of rescinding, elect to stand on the contract and sue for damages, and in such case his continued performance of the agreement does not constitute a waiver of his action for damages.” (Bagdasarian v. Gragnon (1948) 31 Cal.2d 744, 750.) “Even though a party who elects to affirm a contract will not be completing it in ‘reliance’ on the fraud,” his continued performance of the contract is not a waiver. (Storage Services v. Oosterbaan (1989) 214 Cal.App.3d 498, 511.) In other words, the act of affirming the contract is not an act “so inconsistent with an intent to enforce the right [to damages] as to induce a reasonable belief that such right has been relinquished.” (Rheem Mfg. Co. v. United States, supra, 57 Cal.2d at p. 626.)
An act that is inconsistent with an intent to enforce the right to damages is the plaintiff’s act of confirming or ratifying the contract. (Schmidt v. Mesmer (1897) 116 Cal. 267, 271-272, disapproved on another point in Bagdasarian v. Gragnon, supra, 31 Cal.2d at p. 751.) Where a contracting party’s conduct goes beyond affirming (or performing) the contract and shows ratification, “ ‘all right of action is gone.’ ” (Schmidt, supra,at p. 271.)
Ratification has been found where a defrauded party accepts the validity of the original contract and enters into a new, superseding agreement with the defrauder in which the defrauded party extracts substantial benefits or concessions not required by the original contract. (Burne v. Lee (1909) 156 Cal. 221, 227; Oakland Raiders, supra, 144 Cal.App.4th at pp. 1192-1193; Storage Services v. Oosterbaan, supra, 214 Cal.App.3d at p. 512.) “The authorities are uniform in holding that a party to an executory contract, who, with full knowledge of the facts constituting the fraud complained of, subsequently, with intention to do so, affirms the contract and recognizes it as valid, either by his written agreement or by acts and conduct, and accepts substantial payments, property or the performance of work or labor not required by the original contract, thereby waives his right to damages on account of the fraud.” (Schied v. Bodinson Mfg. Co. (1947) 79 Cal.App.2d 134, 142.) “A waiver is properly inferred in that situation because such concessions represent compensation for the fraud.” (Storage Services, supra, at p. 512.) The defrauded party has “surrendered his claim [for damages] in return for what is in effect a new agreement, replacing the old one.” (Prosser & Keaton, Torts (5th ed. 1984) § 110, p. 770.)
Several cases illustrate the point. In Schied, a buyer of mining equipment was held to have waived fraud claims after the buyer, knowing the equipment’s flaws, solicited and obtained the seller’s agreement to provide corrective materials and repairs and buyer reciprocated by withdrawing its previous complaints and affirming that it would abide by the original payment schedule. (Schied v. Bodinson Mfg. Co., supra, 79 Cal.App.2d at pp. 139-143.) As the court explained, “[w]ith full knowledge of the fraud complained of, the purchaser of gold mining dredge and its equipment subsequently bargained for, and received from the seller, advice, work, labor, repairs and machinery of substantial value, which the original contract does not provide for, and it deliberately ‘withdrew’ in writing its previous complaint of alleged deficiency of machinery... and specifically acknowledged the validity of the original contract and agreed to abide by its terms and to pay the stipulated installments, without reservations or further conditions. Certainly that conduct clearly indicated an intention to waive the previous alleged fraud and misrepresentations with respect to the efficiency of the machinery.” (Id. at p. 143.)
In Oakland Raiders, the case relied upon by the trial court in granting defendants summary judgment, the Raiders football team sued a sports arena for allegedly inducing the team to leave Los Angeles and to relocate to Oakland by misrepresenting the status of season ticket sales. (Oakland Raiders, supra, 144 Cal.App.4th at pp. 1179-1182.) The team had learned facts concerning the status of ticket sales during the 1995 football season and, thereafter, had negotiated and executed a new, supplemental agreement granting them substantial benefits and reaffirming the validity of the original contract. (Id. at pp. 1181, 1190.) The court held that the team waived its fraud claim on the principle that “one who, after discovery of the alleged fraud, ratifies the original contract by entering into a new agreement granting him substantial benefits with respect to the same subject matter, is deemed to have waived his right to claim damages for fraudulent inducement.” (Id. at pp. 1186, 1190-1194.)
In contrast, we found no waiver where contracting parties executed a subsequent agreement that contained concessions but the concessions were not substantial. (Storage Services v. Oosterbaan, supra, 214 Cal.App.3d at pp. 512-513.) In Storage Services, buyers contracted to buy commercial real estate for $850,000. (Id. at p. 504.) The sale was impeded when the government indicated an intention to acquire the property through eminent domain. (Id. at p. 506.) Buyer accused seller of concealing the government’s interest in the property when negotiating the sale. (Id. at pp. 504-506.) Buyer and seller executed a limited settlement agreement in which seller assigned its right to the property, including the right to claim eminent domain compensation for the fair market value of the property in excess of $850,000. (Id. at p. 507.) Buyer later sued seller for fraud to recover lost profits and other damages incurred when the government condemned the property. (Id. at pp. 507-508.) Seller claimed that buyer had waived its claim for fraud damages when it executed the settlement agreement. (Id. at p. 512.) We rejected the claim. (Id. at pp. 512-513.) We noted that “a ‘new arrangement’ effected with knowledge of fraud is not tantamount to waiver of the fraud unless it grants significant concessions to the defrauded party.” (Id. at p. 512.) We found that buyer did not receive substantial concessions under the settlement agreement. (Id. at p. 513.) “The settlement placed the parties in essentially the same positions as the original contract. [Seller] received the bargained-for purchase price, and [buyer] obtained the right to the fair market value of the subject property in excess of $850,000, just as it would have had it acquired the subject property under the contract. [Buyer] in effect received an extension of time to close, but we find that concession, in light of the balance of the settlement agreement, to be insubstantial as a matter of law.” (Ibid.)
It should be emphasized that “the existence of waiver is ordinarily a question of fact.” (Oakland Raiders, supra, 144 Cal.App.4th at p. 1191.) It is a question of law only “where the underlying facts are undisputed [citation], or the evidence is susceptible of only one reasonable conclusion.” (Ibid.)
The case here is not free of disputes, nor is the evidence susceptible of only one reasonable conclusion. The trial court ruled, under the authority of Oakland Raiders, that plaintiffs’ execution of the Settlement Agreement waived their fraud claims relating to the Merger Agreement. (Oakland Raiders, supra, 144 Cal.App.4th at pp. 1190-1194.) But issues of disputed fact exist as to whether the Settlement Agreement constitutes a new, compromise agreement between the parties on the same subject matter as the merger and, even if so construed, whether the Settlement Agreement granted significant concessions to plaintiffs.
There was evidence that plaintiffs attempted to renegotiate the Merger Agreement in August 2003, but the attempt appears to have been unsuccessful. Mere attempts at renegotiation or requests for concessions do not constitute a waiver. (Bagdasarian v. Gragnon, supra, 31 Cal.2d at p. 751.) It is “unjust and unreasonable to hold as a matter of law that the mere asking of a favor should deprive an innocent person of rights arising from an unquestionably fraudulent act.” (Ibid.)
The attempt at renegotiation occurred when plaintiff Michael Ousley sent an electronic mail message to defendant Suh at FNF complaining about nondisclosure. It will be recalled that Ousley stated: “After your admission that the change from a cash/stock deal to a cash deal was promulgated by the merger [of FNF and FNIS], I discussed this with the folks over at Fenwick & West (our attorney). It just didn’t feel like full disclosure of the facts.... [¶] While I don’t think that I would be due any ‘windfall’ based on the run-up of price once the merger was announced (from about $17.00/share to $25.00/share), I do feel treated a little unfairly without the full disclosure.... [¶] I would like to propose that FNIS release the escrow to me immediately and release me from the indemnity requirements, in all fairness.” Ousley also sent a message to Stone at FNIS, which reiterated the complaint about nondisclosure of the stock acquisition and made specific demands. The demands included immediate release of the remaining FNIS-Ousley, Inc. merger consideration held in escrow, release of Trust indemnification obligations, and release of the additional merger consideration of $750,000.
Defendants juxtapose these communications with the later Settlement Agreement in an effort to link them together, as if the Settlement Agreement were in direct response to plaintiffs’ accusation of fraud and demands for compensatory concessions under the Merger Agreement. But almost five months elapsed between the time of Ousley’s August 2003 demand and execution of the January 2004 Settlement Agreement. Plaintiffs presented evidence that the Settlement Agreement was, in fact, not a response to demands for recompense for fraud relating to the Merger Agreement but a response to a separate dispute over employment compensation that arose in the months following Ousley’s electronic mail messages.
Plaintiffs presented evidence that defendants rebuffed their August 2003 efforts to renegotiate the Merger Agreement to obtain more favorable terms in compensation for the fraud. Plaintiff Michael Ousley declared that the chief executive officer of defendant FNIS “rejected that proposal” of August 2003. “[The FNIS officer] said he could not agree to a mutual release. He responded... that there was nothing FNIS could do for us since the non-disclosure agreement did not permit FNIS or its agents to tell us about the planned acquisition” of stock by FNF. There is no evidence that the topic of consideration under the Merger Agreement arose again until the winter of 2003, and then the topic arose in the different context of an employment dispute.
In November 2003, FNIS told Ousley that it was relocating operations to Pennsylvania, and Ousley exercised his right to resign rather than relocate. Ousley and FNIS disagreed on the amount of compensation due to him under the employment contract. According to Ousley, he and FNIS resolved the employment dispute with settlement agreements executed in January 2004. One of the agreements, a Separation Agreement, is between FNIS and Ousley, as an individual. A separate but contemporaneous agreement, the disputed Settlement Agreement, is between FNIS and Ousley and his wife as cotrustees of the Trust. The Separation Agreement stated that Ousley waived any claims arising out of his employment with FNIS. In exchange, FNIS agreed to pay Ousley accrued salary, a separation payment, and a bonus payment. Under the Settlement Agreement, FNIS agreed to pay the Trust amounts remaining due under the Merger Agreement but not payable until April 2004. In exchange, the parties agreed to release each other from any claims related to the additional merger consideration and escrow funds. The Settlement Agreement does not contain a general release of all claims related to the Merger Agreement, only a limited release concerning discrete items of consideration due under the Merger Agreement.
This record does not provide undisputed proof that the Settlement Agreement waived fraud under the Merger Agreement. The Settlement Agreement could reasonably be interpreted as plaintiffs contend, not as a renegotiation or ratification of the Merger Agreement, but as settlement on the distinct subject matter of an employment dispute that contains, as an ancillary part of its terms, accelerated payment of amounts owed under the Merger Agreement. Moreover, even if the Settlement Agreement is construed as a new, compromise agreement on the merger, it did not grant significant concessions to plaintiffs sufficient to support a finding of waiver. It appears on this record that the Settlement Agreement only accelerated deferred consideration due under the Merger Agreement, making it payable in January 2004 instead of April 2004. As this court has noted previously, “a ‘new arrangement’ effected with knowledge of fraud is not tantamount to waiver of the fraud unless it grants significant concessions to the defrauded party.” (Storage Services v. Oosterbaan, supra, 214 Cal.App.3d at p. 512.) In Storage Services, we held that an extension of time to close a real property transaction was not a significant concession. (Id., at p. 513.) Similarly, the acceleration of payments here was not a significant concession.
It must be emphasized that “[t]here can be no waiver unless the relinquishment is intentional or is the result of an act which, according to its natural import, is so inconsistent with an intent to enforce the right as to induce a reasonable belief that such right has been relinquished.” (Rheem Mfg. Co. v. United States, supra, 57 Cal.2d at p. 626.) The question here is whether plaintiffs’ execution of the Settlement Agreement upon employment termination is conduct so inconsistent with an intent to enforce their right to sue for fraud under the previous Merger Agreement that we may infer relinquishment of the right. The answer is no.
Defendants, who confuse the doctrines of implied waiver and equitable estoppel, argue that the elements of equitable estoppel were met here and confirm their entitlement to summary judgment. There are several obstacles to this argument.
First, as we discussed earlier, the two doctrines are distinct. (Hoopes v. Dolan, supra, 168 Cal.App.4th at p. 162.) Defendants rely upon Oakland Raiders, which states that implied waiver “is better understood as an application of the doctrine of equitable estoppel.” (Oakland Raiders, supra, 144 Cal.App.4th at p. 1189.) We disagree with that statement. Waiver is best understood as the intentional relinquishment of a known right. (Wells Fargo Bank v. Superior Court, supra, 22 Cal.4th at p. 211.) Waiver may be implied by conduct that unequivocally reveals the party’s intent of relinquishment, but intent is the root of waiver. (Rheem Mfg. Co. v. United States, supra, 57 Cal.2d at p. 626.)
Second, defendants may not assert equitable estoppel in support of summary judgment because they neither pleaded that affirmative defense in their answer, nor raised it directly in their summary judgment motion. (California Teachers’ Assn. v. Governing Board (1983) 145 Cal.App.3d 735, 746.) Defendants mentioned equitable estoppel in their memorandum in support of summary judgment only in passing, as the asserted basis for implied waiver, which it is not.
Third, the defense has no application on the record here. “ ‘The doctrine of equitable estoppel is founded on concepts of equity and fair dealing. It provides that a person may not deny the existence of a state of facts if he intentionally led another to believe a particular circumstance to be true and to rely upon such belief to his detriment. The elements of the doctrine are that (1) the party to be estopped must be apprised of the facts; (2) he must intend that his conduct shall be acted upon, or must so act that the party asserting the estoppel has a right to believe it was so intended; (3) the other party must be ignorant of the true state of facts; and (4) he must rely upon the conduct to his injury.’ ” (City of Goleta v. Superior Court, supra, 40 Cal.4th at p. 279.)
Defendants assert that plaintiffs’ execution of the Settlement Agreement should estop plaintiffs from asserting fraudulent procurement of the Merger Agreement. But there are disputed issues of fact as to whether plaintiffs’ conduct in signing the Settlement Agreement after termination of employment in 2004 reasonably, and detrimentally, led defendants to believe that plaintiffs would not sue them over the earlier dispute for nondisclosure during merger negotiations in 2003. As we noted previously, the Settlement Agreement does not contain a general release of all claims related to the Merger Agreement, only a limited release concerning discrete items of consideration due under the Merger Agreement. Moreover, plaintiffs presented evidence that the parties fully understood that the Settlement Agreement resolved a dispute over employment compensation, not a dispute over the Merger Agreement. Equitable estoppel, even if it had been properly pleaded and argued in the trial court, does not support summary judgment for defendants.
As an alternative argument to their waiver and estoppel claims, defendants maintain that we should affirm summary judgment because plaintiffs cannot prove damages, proximate cause, or a material misrepresentation. These matters were raised in defendants’ motion for summary judgment but never reached by the trial court, which based its ruling exclusively on waiver. An appellate court may affirm an order granting summary judgment on a ground not relied upon by the trial court, provided that the parties are first afforded an opportunity to submit supplemental briefing. (Code Civ. Proc., § 437c, subd. (m)(2).) We did not request supplemental briefing here because the record plainly establishes that there are triable issues of material fact as to damages, proximate cause, and material misrepresentation.
Defendants do not deny that factual disputes exist but seem to argue, as a matter of law, that plaintiffs cannot prove the essential elements of fraud because the parties had no more than a nonbinding letter of intent when the alleged misrepresentations were made. Defendants assert that “FNIS had no contractual obligation to buy Ousley, Inc. before the Merger Agreement was signed, with stock or otherwise[,]” and thus FNIS and the other defendants were free to conceal the anticipated rise in stock value when they changed the proposed purchase price from half stock to all cash.
We do not see the logic of this argument. Breach of contract and fraud are distinct causes of action. A binding contract is not a prerequisite to an action in fraud. Plaintiffs’ claim here is that defendants concealed material facts when negotiating the merger—facts that impacted their willingness to accept the proffered cash deal and consummate the sale. It is true that plaintiffs had no vested legal right to FNIS shares but this does not mean that defendants were free to understate the value of those shares when withdrawing them from the negotiating table and falsely assuring plaintiffs that the substituted consideration was of equivalent value. At this early stage in the case, when little discovery has been conducted, we cannot say that plaintiffs’ fraud claim has no merit.
This brings us to defendants’ appeal of the trial court’s denial of their motion for sanctions. (Code Civ. Proc., § 128.7.) Defendants maintain that the lawsuit was frivolous and founded on the false contention that plaintiffs had a right to FNIS shares. Defendants note that the complaint alleged that plaintiffs were induced to “abandon their rights” to FNIS shares, and defendants argue that plaintiffs knew they had no “rights” to FNIS shares because they had only a nonbinding letter of intent that contemplated distribution of shares. Defendants make too much of plaintiffs’ use of the term “rights.” The narrow signification of a “right” is an “interest, claim, or ownership that one has in tangible or intangible property,” but the word is often used in a far broader sense. (Black’s Law Dict. (8th ed. 2004) p. 1347, col. 2.) “Right,” taken in an abstract sense, means “[t]hat which is proper under law, morality or ethics” or “[s]omething that is due to a person by... moral principle.” (Ibid.) When read in context, plaintiffs’ assertion of a right to FNIS shares may be understood as an assertion that they were wrongly deprived of an opportunity to acquire shares. Plaintiffs’ allegation of a “right” to FNIS shares may be imprecise, but it is not a false assertion or frivolous claim warranting imposition of sanctions.
IV. DISPOSITION
The judgment is reversed. The order denying sanctions is affirmed. Plaintiffs shall recover their costs incurred on the appeal and cross-appeal upon timely application in the trial court. (Cal. Rules of Court, rule 8.278.)
We concur: Ruvolo, P. J., Rivera, J.