Opinion
F072262 C/w Case No. F072523
07-10-2017
DONALD RUMBECK, et al., Plaintiffs and Appellants, v. PREMIER VALLEY, INC., et al., Defendants and Respondents.
Law Offices of Brunn & Flynn, Gerald E. Brunn and Mahanvir S. Sahota for Plaintiffs and Appellants. Triebsch & Frampton and Cory B. Chartrand for Defendants and Respondents.
ORDER MODIFYING OPINION
[NO CHANGE IN JUDGMENT]
THE COURT:
It is ordered that the opinion filed herein on July 10, 2017, be modified as follows:
In the caption on page 1, change "Donald Rumbeck" to "Larry Rumbeck".
The modification does not change the judgment.
/s/_________
Gomes, Acting P.J. WE CONCUR: /s/_________
Peña, J. /s/_________
Smith, J. NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. Nos. 656967, 668536)
OPINION
APPEAL from a judgment and an order of the Superior Court of Stanislaus County. Timothy W. Salter, Judge. Law Offices of Brunn & Flynn, Gerald E. Brunn and Mahanvir S. Sahota for Plaintiffs and Appellants. Triebsch & Frampton and Cory B. Chartrand for Defendants and Respondents.
-ooOoo-
In 2006, at the full expanse of the real estate bubble, Larry Rumbeck (Rumbeck) sold the assets of his solely owned real estate brokerage, BP Realty, Inc. (BP), to Endsley, Inc. (EI), whose sole shareholders were William Endsley (Endsley) and Neil Weese (Weese). Endsley and Weese personally guaranteed the $800,000 note that EI executed in BP's favor. By 2010, the bubble had burst and EI was over $2.4 million in debt, which included the note to BP. EI sold its assets to Premier Valley, Inc., dba Century 21 M&M and Associates (PVI) for an amount significantly less than its debts.
We will refer to Rumbeck and BP collectively as Rumbeck unless the context requires otherwise.
Rumbeck sued EI, Endsley, Weese, and PVI for breach of contract. Before trial, Endsley and Weese filed personal bankruptcy and were dismissed from the action, which proceeded against EI and PVI. At the bench trial, Rumbeck claimed PVI was liable on the contract because it was EI's successor. The trial court rejected Rumbeck's claims of successor liability, found in PVI's favor, and awarded PVI its costs. As to EI, the trial court entered a monetary judgment against it and in Rumbeck's favor. After judgment was entered, the trial court denied Rumbeck's motion to tax PVI's expert witness fees as costs.
On appeal, Rumbeck contends (1) he established successor liability as a matter of law, and (2) the Code of Civil Procedure section 998 (section 998) settlement offer upon which the cost award was based was invalid because it was made to both Rumbeck and BP. We find no merit to these contentions, and affirm both the judgment and the order denying the motion to tax costs.
FACTUAL AND PROCEDURAL BACKGROUND
BP did business in Turlock as Coldwell Banker Action Realtors from the 1990s until 2006. In 2006, at the peak of the real estate market, Rumbeck sold BP's assets to EI, which did business as Coldwell Banker Endsley & Associates, for $800,000. EI also agreed to pay $200,000 to Rumbeck personally for a covenant not to compete. EI executed an $800,000 unsecured promissory note in BP's favor, which Endsley and Weese personally guaranteed. Rumbeck agreed to sell the business without security because Endsley's business had been in existence in various forms for 25 to 30 years, and Rumbeck, who had known Endsley all that time, believed Endsley was "good for his word." Endsley owned 75 percent of EI's stock, while Weese owned the remaining 25 percent.
A portion of the $200,000 was paid at the close of escrow, with the remainder financed through a promissory note. That note ultimately was paid in full.
Even in the early days following the sale, EI was never punctual with its payments. After the real estate market crashed, the corporation began bleeding red ink; it lost approximately $300,000 in 2007, 2008, and 2009. Endsley and Weese loaned the business hundreds of thousands of dollars to keep it going. By 2010, EI owed over $125,000 in back franchise and advertising fees to its franchisor, Coldwell Banker, and was over $2.4 million in debt.
By August 2009 the payments on the note had become more sporadic; EI owed BP approximately $745,000 even though it had paid nearly $564,000 over the life of the loan. At that time, and again in October 2009, Rumbeck proposed a return of the business in return for cancellation of the note. Endsley and Weese rejected the offer and engaged in negotiations with others for sale of the business. One potential buyer, George Murphy, a Coldwell Banker real estate broker, offered $250,000, comprised of $110,000 in cash, $40,000 to be paid over five years, and approximately $100,000 in service fees to be paid to the franchisor, Coldwell Banker. Endsley and Weese rejected Murphy's offer.
There were several reasons for rejecting Rumbeck's offer: (1) no cash was offered to pay other creditors; (2) Endsley was concerned that the agents, who were like family, would not want to continue working at the new agency; and (3) Rumbeck and BP were not Coldwell Banker or Realogy franchisees. Realogy is the parent company to Coldwell Banker and Century 21 franchisors. Coldwell Banker must approve any transfer of agency assets and would only approve a transfer to another Coldwell Banker franchisee or, in some circumstances, another Realogy franchisee. If a Coldwell Banker franchisee transferred its assets to a non-Coldwell Banker or Realogy franchisee, Coldwell Banker would enforce stiff penalties.
Endsley and Weese approached John Melo and Larry Matos, the officers and shareholders of PVI, about selling EI. PVI had owned and run real estate offices throughout Northern California since 1994, and had purchased the assets of 18 real estate brokerages over the previous 20 years. In the same timeframe as this transaction, PVI had paid between $100,000 and $200,000 for the assets of brokerages of a size similar to EI's (one office and 45 agents).
The principals of EI and PVI met several times and exchanged a series of emails. After several weeks of discussions, offers, and counteroffers, and despite EI's requests for more money, in July 2010 an agreement was reached for PVI to purchase EI's assets for $200,000, with additional money to be paid pursuant to an "earn-out." The earn-out was to be paid to Endsley and Weese as a percentage of commissions their former real estate agents would earn for PVI over the next three years. The earn-out served as an incentive for Endsley and Weese to assist in retaining and motivating their real estate agents to continue with PVI. The amount of the earn-out to be paid was unknown at the time the transaction closed because it was based on future sales.
EI and PVI executed an Asset Purchase Agreement (APA). The APA provided that PVI desired to buy "substantially all of [EI's] assets," which were listed in an attached exhibit, and PVI "shall not assume or become responsible for any of [EI's] liabilities or obligations," and was not obligated to pay or discharge any of EI's "duties, debts, obligations or other liabilities." The APA stated the $200,000 asset purchase price was comprised of a $30,000 cash payment to "Seller[,]" and the assumption of $170,000 of EI's accounts payable.
According to Weese, during the transaction EI "consulted with" Vincent Jamison, an attorney with Triebsch & Frampton, who was EI's corporate counsel. Jamison represented PVI in the transaction and prepared the APA. Bankruptcy attorney Carl Collins, who Endsley and Weese consulted to see if EI should declare bankruptcy and who represented Endsley in his personal bankruptcy, provided input into how the transaction should be structured.
PVI also entered into individual Independent Contractor Agreements (ICAs) with Endsley and Weese which were effective on the same date as the APA. The ICAs both provide that consideration for the agreements is "based on the sale of a business owned in part" by Endsley and Weese, "which was [EI]," and Endsley and Weese's agreement with PVI as stated in the ICA. PVI agreed to pay Weese $50,000 per year for his services as an independent contractor, plus a three year percentage payment based on the gross commissions earned by the agents or brokers who had worked for him at EI, while PVI agreed to pay Endsley $36,000 per year for his services as an independent contractor, plus a percentage payment that was three times the percentage to be paid to Weese. This resulted in an earn-out that was split 70 percent to Endsley and 30 percent to Weese.
Finally, PVI agreed to pay approximately $100,000 to Realogy, the parent company of Coldwell Banker and Century 21, to cover fees owed by EI.
PVI paid the $30,000 cash payment to Endsley and Weese directly, rather than to EI, with each receiving $15,000. In addition, instead of assuming EI's $170,000 accounts payable, PVI paid that amount directly to EI, which distributed the payment to its various creditors on a pro-rata basis. In addition to Rumbeck, the creditors included Endsley, Endsley's investment entity, and Endsley's ex-wife. Rumbeck received $12,223.71. Endsley and Weese, on the advice of bankruptcy attorney, Carl W. Collins, instructed PVI to pay the $170,000 to EI, and directed how the payments to EI's creditors were divided and to whom they were made. PVI paid Endsley and Weese a total of $111,405.10 in earn-out over the course of three years. With respect to the franchise fees EI owed Realogy, PVI became an obligor on a development advancement note (DAN) for the amount owed, with Realogy as the obligee, which would be forgiven over time if certain production goals were met.
A DAN is an allowance granted to a brokerage company that may be acquiring or merging with a Realogy branded brokerage company in which Realogy grants a forgivable note over a period of time to help complete and pay for the conversion costs associated with a transaction.
The trial court found that PVI did not acquire any EI stock, and neither Endsley nor Weese received any PVI stock. Although Endsley and Weese went to work for PVI after the transaction was completed, they never became officers, directors, or shareholders of PVI. Further, PVI never used the names "Endsley, Inc." or "Coldwell Banker Endsley & Associates" to conduct business.
This Lawsuit
In August 2010, Rumbeck filed suit against EI, Endsley, and Weese for breach of contract and breach of Endsley and Weese's personal guarantees. Endsley and Weese, however, filed personal bankruptcies in March 2011, which wiped out their personal guarantees, and they were dismissed from the case. EI never filed bankruptcy; it simply ceased doing business. Rumbeck never brought an adversary proceeding, or challenged any of the cash or "earn-out" payments to Endsley and Weese, in either bankruptcy proceeding.
We previously granted Rumbeck's unopposed motion for judicial notice of the fact that the Secretary of State suspended EI's corporate status as of October 1, 2013.
In September 2011, Rumbeck filed a separate suit against PVI for breach of contract based on successor liability, which was consolidated with the first suit against EI. In his second amended complaint, Rumbeck claimed PVI was EI's successor under multiple theories: (1) PVI's purchase of EI was a merger of the two corporations; (2) PVI expressly or impliedly assumed EI's liabilities, including the one owed to Rumbeck; (3) inadequate consideration was paid for EI's assets; (4) the two corporations entered into the agreement for the purpose of defrauding creditors; and (5) PVI is a "mere continuation" of EI. Rumbeck specifically alleged he did not wish to bring an action under the former Uniform Fraudulent Transfers Act, Civil Code section 3439 et seq. (UFTA), or to sue under a third party beneficiary theory set forth in Civil Code section 1559.
In 2015, the UFTA was renamed the Uniform Voidable Transactions Act (UVTA). (Civ. Code, § 3439; Stats. 2015, c. 44 (S.B. 161), § 3, eff. Jan. 1, 2016.)
A court trial was held over seven days in January 2015. Testimony was received from the parties, as well as bankruptcy attorney Collins and two experts who testified about EI's value when it was sold to PVI. Rumbeck's expert, Troy Patton, opined the value was between $732,000 and $750,000, while PVI's expert, Stephen H. Murray, opined the fair market value of EI's assets was between $105,000 and $210,000.
After the parties submitted post-trial briefs, the trial court issued a statement of decision. Rumbeck filed objections to the statement of decision. Following a hearing on the objections, the trial court issued an amended statement of decision, in which it made detailed factual and legal findings. The trial court first found that Rumbeck established his breach of contract claim against EI by undisputed evidence, that his damages totaled nearly $899,000, and EI was liable for attorney fees. The trial court ordered that judgment be entered against EI.
The trial court rejected all of Rumbeck's claims against PVI. The trial court found: (1) PVI purchased only EI's assets; (2) PVI paid fair compensation for EI and did not intend to defraud EI's creditors; (3) PVI did not become an EI stockholder; and (4) while EI ceased doing business and most of its agents went to work for PVI, the transaction was not a "mere continuation" of EI. With respect to the adequacy of consideration paid for EI, the trial court found Murray's testimony to be more credible than Patton's and therefore accepted Murray's valuation of EI's assets. The trial court determined that PVI paid substantial consideration for the assets, comprised of $200,000 in cash, the $111,000 paid pursuant to the earn-out, and PVI's obligation on the DAN notes of over $100,000, which would be forgiven over time if sales thresholds were met. Accordingly, the trial court found in PVI's favor and that PVI was entitled to recover its costs.
The trial court subsequently denied Rumbeck's motion for a new trial and entered judgment as follows: (1) a joint judgment for $898,731.30 in favor of Rumbeck and BP and against EI; and (2) judgment in favor of PVI, which "shall recover its costs."
Motion to Tax Costs
In November 2013, fourteen months before trial began, PVI made an offer to Rumbeck and BP, pursuant to section 998, to settle the action. PVI offered to have judgment entered against it, to pay Rumbeck and BP $25,139.43, and to waive its costs and attorney fees. The offer was made jointly to BP and Rumbeck, and stated that because the action was on a single contract and there could be only one recovery, the offer could only be accepted jointly in full settlement of the entire action. Rumbeck and BP did not accept the offer.
After the judgment was entered in PVI's favor following the court trial, PVI sought to recover, inter alia, its expert witness fees based on Rumbeck and BP's rejection of the section 998 offer. Rumbeck and BP filed a motion to tax costs, in which they argued the trial court should deny PVI's request for expert witness fees because the section 998 offer was defective since it was not separately apportioned between BP and Rumbeck, and was conditioned on their joint acceptance.
Following a hearing on the motion, the trial court denied it without explanation. The trial court awarded PVI $20,780.82 as its costs of suit, as well as its attorney fees, against Rumbeck and BP.
DISCUSSION
I. Successor Liability
In his lawsuit against PVI, Rumbeck contended that PVI was liable for the promissory note EI executed in his favor because PVI became EI's successor when it purchased EI's assets.
"Successor liability is almost always couched in terms of liability flowing from one corporation to another corporation. Thus, legal discussion begins with 'the rule ordinarily applied to the determination of whether a corporation purchasing the principal assets of another corporation assumes the other's liabilities.' [Citation.] 'As typically formulated the rule states that the purchaser does not assume the seller's liabilities unless (1) there is an express or implied agreement of assumption, (2) the transaction amounts to a consolidation or merger of the two corporations, (3) the purchasing corporation is a mere continuation of the seller, or (4) the transfer of assets to the purchaser is for the fraudulent purpose of escaping liability for the seller's debts.' " (Cleveland v. Johnson (2012) 209 Cal.App.4th 1315, 1326-1327 (Cleveland).)
A consolidation or merger "has been invoked where one corporation takes all of another corporation's assets without providing any consideration that could be made available to meet claims of the other's creditors." (Ray v. Alad Corp. (1977) 19 Cal.3d 22, 28 (Ray).) With respect to the "mere continuation" theory of liability, "it has long been held that 'corporations cannot escape liability by a mere change of name or a shift of assets when and where it is shown that the new corporation is, in reality, but a continuation of the old. Especially is this well settled when actual fraud or the rights of creditors are involved, under which circumstances the courts uniformly hold the new corporation liable for the debts of the former corporation.' [Citation.] Further, Ray v. Alad Corp. tells us, ". . . California decisions holding that a corporation acquiring the assets of another corporation is the latter's mere continuation and therefore liable for its debts have imposed such liability only upon a showing of one or both of the following factual elements: (1) no adequate consideration was given for the predecessor corporation's assets and made available for meeting the claims of its unsecured creditors; (2) one or more persons were officers, directors, or stockholders of both corporations.' " (Cleveland, supra, 209 Cal.App.4th at p. 1327.)
"The crucial factor in determining whether a corporate acquisition constitutes either a de facto merger or a mere continuation is the same: whether adequate cash consideration was paid for the predecessor corporation's assets." (Franklin v. USX Corp. (2001) 87 Cal.App.4th 615, 625.) Moreover, the adequacy of consideration is relevant to the fraudulent conveyance theory of liability: (1) if adequate consideration was paid, successor liability can be imposed if the buyer " 'intended or participated in or had knowledge of the fraudulent intent' "; (2) but if adequate consideration was not paid, fraudulent intent may be established as matter of law. (Enos v. Picacho Gold Min. Co. (1943) 56 Cal.App.2d 765, 774, 776-777 (Enos).)
Rumbeck contends the trial court erred by requiring him to establish PVI intended to defraud, or aided in defrauding, creditors. As Enos instructs, since the trial court expressly found PVI paid adequate consideration for EI's assets, PVI's subjective intent was relevant in determining whether to impose successor liability. PVI's subjective intent would be irrelevant, however, if the consideration paid was inadequate.
"The decision whether it is fair to impose successor liability involves . . . broad equitable considerations." (Rosales v. Thermex-Thermatron, Inc. (1998) 67 Cal.App.4th 187, 196 (Rosales), citing Ray, supra, 19 Cal.3d at p. 34.) Each case of successor liability must be assessed on its own unique facts. (CenterPoint Energy, Inc. v. Superior Court (2007) 157 Cal.App.4th 1101, 1122.) "[T]he question whether it is fair to impose successor liability is exclusively for the trial court." (Rosales, supra, 67 Cal.App.4th at p. 196.)
On appeal, Rumbeck argues the trial court erred in finding PVI was not liable for EI's debts under the successor liability doctrine on two grounds (1) the consideration PVI paid for EI's assets was inadequate, and (2) the ICAs expressly establish that the transaction was not merely an asset purchase, but also a purchase of EI. We address each contention in turn.
A. Adequacy of Consideration
Rumbeck contends liability should attach because the consideration PVI paid for EI's assets was inadequate. As PVI points out, since there were factual disputes at trial regarding the consideration paid for its purchase of EI's assets and whether that consideration was adequate, such an assertion normally would invoke the substantial evidence standard of review. (Fiore v. Alvord (1985) 182 Cal.App.3d 561, 565.) But where, as here, the trial court has concluded the party with the burden of proof did not carry that burden, and the appeal by that party turns on the failure of proof at trial, the question for the reviewing court is whether the evidence compels a finding in the appellant's favor as a matter of law. (In re I.W. (2009) 180 Cal.App.4th 1517, 1528 (I.W.); Dreyer's Grand Ice Cream, Inc. v. County of Kern (2013) 218 Cal.App.4th 828, 838.) "Specifically, the question becomes whether the appellant's evidence was (1) 'uncontradicted and unimpeached' and (2) 'of such a character and weight as to leave no room for a judicial determination that it was insufficient to support a finding.' " (I.W., supra, 180 Cal.App.4th at p. 1528.)
Rumbeck appears to recognize the significant burden he carries. Rather than claiming his evidence compels a finding of inadequate consideration, he claims the facts are undisputed and we need only independently determine the application of law to those facts. Rumbeck recognizes that it was the trial court's prerogative to accept Murray's valuation of EI's assets as being worth between $105,000 and $210,000, but argues that because (1) the trial court found PVI "paid $411,000 for the assets of [EI]," (2) Melo testified PVI agreed to pay $400,000 for those assets, and (3) EI received only $170,000 of that amount, "inadequate consideration is conclusively established as a matter of law." Rumbeck asserts the "important question" here is whether "it was acceptable for [PVI] to pay any consideration for [EI's] assets directly to its shareholders pursuant to their employment with [PVI][,]" and claims the answer must be no "because such an act is inherently fraudulent and inequitable to corporate creditors." He urges us to hold that "[i]nadequate consideration is established as a matter of law if any portion of the consideration is paid directly to the corporate shareholders so that the purchasing corporation can retain the selling shareholders as employees."
Rumbeck cites to Melo's deposition testimony, in which he testified that "we" said the assets were not worth more than $400,000 to PVI; that $200,000 was going to be accounts payable; and "the balance" would be paid out as a monthly percentage payment over a three-year period, which "[t]hey could make up to that amount." Melo later explained the testimony - that PVI paid a fixed $200,000 for the purchase plus an earn-out, which was not capped and was based on sales, the market, and agent productivity.
Consideration is adequate where a selling corporation received money to pay its debts equal to the fair value of the property conveyed. (Pierce v. Riverside Mortgage Securities Co. (1938) 25 Cal.App.2d 248, 257.) The UVTA, which applies in cases where fraud is alleged in the transfer of corporate assets, provides that a transfer is voidable where, inter alia, the debtor did not receive a "reasonably equivalent value" in exchange for the transfer. (Civ. Code, §§ 3439.04, 3439.05; Stats. 2015, c. 44 (S.B. 161), § 3, eff. Jan. 1, 2016.) " 'Reasonable equivalence' does not require exact equality in value." (In re Carbaat (Bankr. N.D.Cal. 2006) 357 B.R. 553, 560 (Carbaat).) In Carbaat, the bankruptcy court found an interest in property transferred for 70% of its value would still be its reasonable equivalent. (Id. at p. 561.)
Rumbeck contends that inadequate consideration is established whenever the asset acquisition was the cause of the selling corporation's creditors' inability to get paid, citing Katzir's Floor and Home Design, Inc. v. M-MLS.com (9th Cir. 2004) 394 F.3d 1143 (Katzir's). But this is too broad a reading of Katzir's. There, the federal appellate court, citing Monarch Bay II v. Professional Service Industries, Inc. (1999) 75 Cal.App.4th 1213, explained that the requirement of inadequate consideration in a successor liability case is based on the notion that when a successor corporation acquires the predecessor's assets without paying adequate consideration, the successor deprives the predecessor's creditors of their remedy, but where the predecessor's debts are discharged in bankruptcy, it is the discharge and lack of sufficient assets that deprives the creditors of their remedy. (Katzir's, supra, 394 F.3d at p. 1151.) Similarly, if the consideration paid for the predecessor's assets is adequate but less than the predecessor's debt, it is not the successor's acquisition of those assets that deprives the predecessor's creditors of their remedy, but rather the fact that the value of the assets does not equal the debt. That is precisely what happened here.
Rumbeck contends the bankruptcy court in Carbaat established that 70% of market value is the minimum required to constitute adequate consideration. The Carbaat case does not so hold, nor is it binding precedent on us. In another case that cites Carbaat, the bankruptcy court explains that whether a transfer is supported by reasonably equivalent value is a question of fact that depends on the circumstances of each case rather than a mathematical formula. (In re Webb Mtn, LLC (Bankr. E.D. Tenn. 2009) 420 B.R. 418, 433.)
Here, PVI received assets valued between $105,000 and $210,00 in exchange for (1) a $170,000 cash payment to EI, (2) a $30,000 cash payment to Endsley and Weese, (3) the obligation to pay earn-out to Endsley and Weese for three years at a set percentage, which totaled $111,000 at the end of the three-year period, and (4) becoming the obligor on a DAN of over $100,000 for franchisee fees EI owed Realogy, which would be forgiven over time if certain production goals were met.
The $170,000 payment to EI alone was sufficient consideration, as it was well within the valuation range of its assets and therefore was reasonably equivalent to the assets conveyed to PVI. Rumbeck argues the consideration was rendered inadequate because the earn-out was paid directly to Endsley and Weese, rather than to EI, and claims this arrangement was inherently fraudulent. We disagree. Given that EI received a reasonable equivalent for the assets conveyed to PVI, the payments to Endsley and Weese do not make the consideration inadequate in light of the circumstances.
EI purchased BP's assets at the height of the real estate market, which was reflected in the $800,000 purchase price. With the ensuing real estate market crash, EI found itself owing significant amounts to Rumbeck and its other creditors, including Endsley, who had loaned EI large sums of his own money. Endsley and Weese ultimately decided to sell the business assets, not to defraud their creditors, but because they needed to move on, as shown by their later filings for personal bankruptcy. PVI offered more up-front cash to purchase EI's assets than Murphy's offer, which was more than PVI had paid for other similarly sized brokerages -$200,000, plus earn-out and assumption of past franchise and advertising fees via the DAN.
As the trial court noted, there was no evidence that PVI's principals, Melo and Matos, participated in a conspiracy to defraud creditors, since it was Endsley and Weese who decided how to disburse the $170,000 among EI's creditors, and that the $30,000 cash payment and earn-out should be paid directly to Endsley and Weese. Moreover, there was no evidence that payment of the earn-out was made to defraud creditors, as (1) at the time of the asset purchase the earn-out was completely contingent, had not yet been earned, and its amount was unknown, and (2) it was not a business asset that was kept from EI's creditors. While the trial court found the earn-out was part of the consideration paid for EI's assets, it also found it was paid for Endsley and Weese's services, post-transfer, to keep their agents working for PVI.
PVI did not assume liability on or guarantee the note from EI to Rumbeck, and did not purchase any shares of EI's stock. PVI, which had existed for about 19 years before this transaction and had many more agents and offices than EI, did not have the same officers, directors or stockholders as EI.
As discussed in the following section, Rumbeck contends the trial court erred in finding that PVI did not purchase EI's stock, but as we explain, there is no merit to his contention.
Based on these circumstances, the trial court concluded the evidence did not support a finding of successor liability. Rumbeck contends that creditor rights are the most important concern when considering successor liability, and successor liability should be imposed whenever those rights are violated. The cases he cites, Cleveland, supra, 209 Cal.App.4th 1315 and In re Intelligent Direct Marketing (Bankr. E.D.Cal. 2014) 518 B.R. 579 (Intelligent Direct), do not support this assertion, as both emphasize that successor liability issues are equitable ones that are examined " 'on their own unique facts[,]' " and involve considerations of fairness and equity. (Cleveland, supra, 209 Cal.App.4th at p. 1330; Intelligent Direct, supra, 518 B.R. at p. 593.) Moreover, as the Cleveland court recognized, "no single, factual element, standing alone, would establish or negate successor liability," and whether successor liability should be imposed depends on all the facts and circumstances. (Cleveland, supra, 209 Cal.App.4th at p. 1334.)
Simply stated, the trial court was not required to find in Rumbeck's favor merely because the earn-out was paid to Endsley and Weese. Instead, the trial court was free to examine the totality of the circumstances and determine whether to impose successor liability. The trial court declined to do so, finding that Rumbeck failed to prove by a preponderance of the evidence that PVI was a successor corporation of EI. As the evidence was conflicting, Rumbeck cannot show he was entitled to a contrary finding as a matter of law.
B. The Sale Agreements
At trial, Rumbeck argued the APA and ICAs show a merger occurred because the agreements establish the transaction was an asset purchase with an agreement to buy stock. The trial court rejected Rumbeck's claim, as it found the APA made clear PVI was buying only EI's assets and did not acquire any of EI's stock. Based in part on this finding, the trial court rejected Rumbeck's merger claim. Rumbeck also raised this claim in his motion for a new trial, which the trial court rejected.
Rumbeck renews his argument on appeal. He contends the express language of the ICAs establishes "the July 2010 transaction was not merely the purchase of assets." He asserts that since the ICAs refer to EI's sale and pay consideration directly to its shareholders for the corporation's assets, the earn-out paid to Endsley and Weese was part of the purchase price. He further asserts the ICAs establish that Endsley and Weese were selling their ownership interest in EI, since the ICAs do not refer to an asset sale and the earn-out was paid to Endsley and Weese at the same ratio as their EI ownership interest.
In support of his argument, Rumbeck relies on the following language in the ICAs: (1) Recital B, which states "This Agreement is entered into concurrently and in consideration of Contractor's sale of the business, which was [EI], a California corporation dba Coldwell Banker Endsley & Associates . . . and this agreement for independent contractor services"; and (2) paragraph 3, which states: "Consideration. Consideration for this Agreement is based on the sale of a business owned in part by Contractor, which was [EI], a California corporation dba Coldwell Banker Endsley & Associates, and Contractor's agreement herein with Broker."
Rumbeck asserts the trial court erred in (1) finding that Recital B and paragraph 3 of the ICAs were merely prefatory and surplus, (2) treating the APA as "the only binding and valid document[,]" and (3) finding "the ICAs and APA were inconsistent because the APA referenced an asset sale whereas the ICAs referenced an asset sale plus sale of [EI]." Rumbeck argues that because the APA and ICAs were executed at the same time as part of the same transaction, they must be read together, citing Civil Code section 1642. He claims that when that is done it is apparent the $200,000 referenced in the APA accounts for the down payment PVI agreed to, while the earn-out provisions in the ICAs account for the remainder of the purchase price, thereby establishing the transaction was more than an asset purchase.
"The precise meaning of any contract, . . . depends upon the parties' expressed intent, using an objective standard. [Citations.] When there is ambiguity in the contract language, extrinsic evidence may be considered to ascertain a meaning to which the instrument's language is reasonably susceptible." (Golden West Baseball Co. v. City of Anaheim (1994) 25 Cal.App.4th 11, 21.) We review written agreements and extrinsic evidence de novo, even if the evidence is susceptible to multiple interpretations, unless the interpretation depends upon credibility; "[i]f it does, we must accept any reasonable interpretation adopted by the trial court." (Id. at p. 22.) Here, Rumbeck asserts we should independently review the agreements, while PVI asserts the substantial evidence standard of review applies because the trial court heard extrinsic evidence concerning their interpretation. We agree with Rumbeck that independent review is required because, as shown below, the ICAs are ambiguous and the extrinsic evidence offered to interpret the agreements is not conflicting.
Rumbeck's claim depends on the meaning of the terms "sale of the business" and "sale of a business" in the ICAs. We look first to the language of the ICAs. Recital B provides the ICAs were "entered into concurrently and in consideration of" Endsley and Weese's "sale of the business," namely EI, "and this agreement for independent contractor services[,]" while paragraph 3 provides that "[c]onsideration for this Agreement is based on the sale of a business[,]" namely EI, and Endsley and Weese's "agreement herein with [PVI]." (Emphasis added.)
The statements in the ICAs that they were entered into "concurrently" with the "sale of the business" and that consideration was based on both the "sale of the business" and Endsley and Weese's agreement in the ICAs, along with the absence of any terms of a sale in the ICAs, implies there is another document that evidences that sale. Reading the ICAs and APA together, as Rumbeck asserts we must, it is apparent the document that evidences the "sale of the business" is the APA, which sets forth the terms for the sale of EI's assets to PVI for $200,000, and specifically states that PVI is not assuming EI's liabilities. The ICAs do not govern the sale because they do not cover any of the terms or details of a sale and do not say anything about the transfer of stock or assets. Moreover, neither the APA nor the ICAs state that Endsley and Weese are selling their shares in EI. Absent any specification in the ICAs that a stock sale was intended, the fact the ICAs pay the earn-out in the same percentages as Endsley and Weese's ownership interest in EI does not establish a stock sale. (Civ. Code, § 1648 ["However broad may be the terms of a contract, it extends only to those things concerning which it appears that the parties intended to contract"]; see Victoria v. Superior Court (1985) 40 Cal.3d 734, 739.)
This reading is consistent with extrinsic evidence admitted at trial concerning the parties' intent. All of the parties to the contracts or their principals, Melo, Matos, Endsley, and Weese, testified it was their intent that PVI would purchase only EI's assets and there was no intent for PVI to buy the corporation, EI, or its names. Moreover, there is no evidence that EI's stock was actually transferred to PVI, or that PVI used the names associated with EI.
Rumbeck contends the extrinsic evidence concerning the parties' intent is irrelevant because their intent is manifest in the executed documents, citing Civil Code section 1638, which provides that the contract's language governs its interpretation "if the language is clear and explicit, and does not involve an absurdity." The contract language, however, is not clear, as the ICAs do not explain what is meant by the "sale of the business," and do not include any terms of a sale. The sale of the business could mean a sale of assets or a sale of stock. For that reason, the term is ambiguous and extrinsic evidence was admissible to aid in interpreting the language, provided the contract's language was fairly susceptible of the meaning that the evidence was offered to prove. (Denver D. Darling, Inc. v. Controlled Environments Construction, Inc. (2001) 89 Cal.App.4th 1221, 1234-1236; John B. Kilroy Co. v. Douglas Furniture of Cal., Inc. (1993) 21 Cal.App.4th 26, 32-34.) Here, as we have explained, the APA and ICAs are susceptible to the interpretation offered by PVI, namely that the sale encompassed only EI's assets and did not include a sale of its stock.
In sum, the trial court did not err in finding that PVI purchased EI's assets, but not its stock. As the trial court found, the parties agreed to purchase the assets for $200,000, with additional money pursuant to an earn-out, as reflected in the APA, which sets forth the terms for the asset sale, and the ICAs, which provide additional consideration for the sale of the assets in the form of earn-out.
II. Motion to Tax Costs
Rumbeck contends the trial court erred in denying his motion to tax costs because PVI's section 998 offer was invalid as a matter of law since it failed to allocate the offered sum between Rumbeck and BP. He contends the offer was invalid because the lawsuit was brought by two separate plaintiffs - Rumbeck in his individual capacity, and BP - to whom EI owed two separate obligations—an $800,0000 obligation to BP for the sale of its assets and a $200,000 obligation to Rumbeck in his individual capacity for a non-competition agreement. Given the particular facts of this case, we disagree.
Section 998, subdivision (c)(1) provides: "If an offer made by a defendant is not accepted and the plaintiff fails to obtain a more favorable judgment or award, the plaintiff shall not recover his or her postoffer costs and shall pay the defendant's costs from the time of the offer. In addition, . . . the court or arbitrator, in its discretion, may require the plaintiff to pay a reasonable sum to cover postoffer costs of the services of expert witnesses . . . actually incurred and reasonably necessary in . . . preparation for trial . . . or during trial . . . of the case by the defendant."
Here, PVI's settlement offer was rejected. Since the trial court found in PVI's favor on Rumbeck's complaint, with Rumbeck and BP recovering nothing from PVI, Rumbeck failed to obtain a more favorable judgment. The court, in its discretion, required Rumbeck to pay PVI's expert witness fees.
In support of his argument, Rumbeck cites the general rule that a single, indivisible offer made to more than one plaintiff is not considered valid under section 998 because it would require the plaintiff offerees to agree to a division of the settlement proceeds or to an allocation of those proceeds to the various causes of action in issue. (Meissner v. Paulson (1989) 212 Cal.App.3d 785, 791 (Meissner) ["only an offer made to a single plaintiff, without need for allocation or acceptance by other plaintiffs, qualifies as a valid offer under section 998"].)
There is an exception to this general rule: "Where there is more than one plaintiff, a defendant may still extend a single joint offer if the separate plaintiffs have a ' "unity of interest such that there is a single, indivisible injury." ' (Peterson v. John Crane, Inc. (2007) 154 Cal.App.4th 498, 505 [(Peterson)].) . . . [¶] Generally, where courts have required apportionment of a section 998 offer made to multiple plaintiffs, the offerees have either had different causes of action against the offeror or the potential for separate verdicts and varying recoveries on a single cause of action. (Cf. Menees v. Andrews (2004) 122 Cal.App.4th 1540; Meissner[, supra,] 212 Cal.App.3d 785. . . ; Randles v. Lowry (1970) 4 Cal.App.3d 68 [(Randles)].) As noted by the court in Meissner, such an offer inherently necessitates agreement between the plaintiffs as to apportionment between them. (Meissner, supra, 212 Cal.App.3d at p. 791.)" (McDaniel v. Asuncion (2013) 214 Cal.App.4th 1201, 1206 (McDaniel).)
We conclude that the general rule is inapplicable to this case because of the unity of interest that existed between Rumbeck and BP. The operative second amended complaint, filed in March 2012, alleged only one cause of action for breach of contract by which Rumbeck and BP sought to recover jointly on a written agreement that "plaintiffs" entered into with Weese, Endsley, and EI for the sale of business assets and property owned by BP in consideration for EI's $800,000 payment. Both Rumbeck and BP sought to recover this amount against PVI based on successor liability. The claim was asserted by both Rumbeck and BP, the complaint refers to both as plaintiffs, and both sought the same damages. Moreover, Rumbeck is BP's sole shareholder.
We review this issue de novo; the burden is on PVI to demonstrate the offer is valid under section 998. (McDaniel, supra, 214 Cal.App.4th at p. 1205.)
Given these facts, the policy concerns precluding one unapportioned offer to two plaintiffs are not implicated. The concern that it would be "impossible to say that any one plaintiff received a less favorable result than he would have under the offer of compromise" (Randles, supra, 4 Cal.App.3d at p. 74) is not present because either both plaintiffs would prevail or neither would prevail. There was no conceivable way one plaintiff but not the other would receive a judgment against PVI on the breach of contract claim since each relied on the same facts. And that is what happened: the trial court found in PVI's favor as to both Rumbeck and BP. At no point during the litigation did any party make any distinction between the two plaintiffs. In fact, the trial court issued judgment in favor of Rumbeck and BP jointly against EI in a single amount.
Contrary to what Rumbeck argues, the fact that EI had incurred a separate $200,000 obligation to Rumbeck for the non-competition agreement does not compel a contrary conclusion. The second amended complaint does not explicitly refer to this obligation; instead, it refers only to EI's agreement to purchase BP's assets for $800,000. Moreover, the $200,000 note payable to Rumbeck was paid off in 2008, well before this lawsuit was filed. Finally, even if the obligation existed, it was at best an amount the trial court could have awarded Rumbeck if it had first found that PVI was the successor to EI and therefore liable on any obligations EI owed Rumbeck. In other words, any recovery depended on both Rumbeck and BP establishing that PVI was liable for EI's obligations to them as EI's successor.
Finally, the concerns that an unapportioned offer to multiple plaintiffs would cause internal dissension among them (Meissner, supra, 212 Cal.App.3d at p. 791) and place one plaintiff who wishes to accept at the mercy of another plaintiff who does not want to accept (Hutchins v. Waters (1975) 51 Cal.App.3d 69, 73) are not raised here because Rumbeck controlled BP. It is hard to see how PVI could have made anything other than a joint offer to both plaintiffs. (Cf. Vick v. DaCorsi (2003) 110 Cal.App.4th 206, 208, 212-213 [settlement offer to husband and wife jointly on their claims of fraud and breach of contract in purchase of their home was valid; defendants could not allocate the offer between plaintiffs because they asserted damage "to a singular interest in community property"; the complaint "did not allege any transaction or occurrence involving one of the Vicks but not the other, nor did it seek damages on behalf of Mr. and Ms. Vick peculiar to him or her"]; see also Peterson, supra, 154 Cal.App.4th at pp. 505, 507, 510 [where wife sued in her capacity as an individual, a successor-in-interest to her husband's claims, and as her husband's legal heir, there was only one offeree plaintiff for purposes of section 998 since one person was asserting different legal theories].)
In sum, PVI's joint offer to Rumbeck and BP was legally sufficient to support an award of expert witness fees.
DISPOSITION
The judgment and the order denying Rumbeck's motion to tax costs are affirmed. PVI is awarded its costs on appeal.
/s/_________
GOMES, Acting P.J. WE CONCUR: /s/_________
PEÑA, J. /s/_________
SMITH, J.