Opinion
B289505
06-05-2020
SHELL OIL COMPANY, Plaintiff and Appellant, v. BARCLAY HOLLANDER CORPORATION, Defendant and Respondent.
Grignon Law Firm, Margaret M. Grignon and Anne M. Grignon; Morgan Lewis & Bockius, David L. Schrader, Deanne L. Miller and Thomas M. Peterson for Plaintiff and Appellant. Lewis Brisbois Bisgaard & Smith, R. Gaylord Smith, Jeffry A. Miller, Brittany B. Sutton, Steven E. Meyer, Robert L. Slaughter and Allison A. Arabian for Defendant and Respondent.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Los Angeles County Super. Ct. No. BC544786) APPEAL from a judgment and a postjudgment order of the Superior Court of Los Angeles County, William F. Highberger, Judge. Judgment affirmed in part and reversed in part; order reversed. Grignon Law Firm, Margaret M. Grignon and Anne M. Grignon; Morgan Lewis & Bockius, David L. Schrader, Deanne L. Miller and Thomas M. Peterson for Plaintiff and Appellant. Lewis Brisbois Bisgaard & Smith, R. Gaylord Smith, Jeffry A. Miller, Brittany B. Sutton, Steven E. Meyer, Robert L. Slaughter and Allison A. Arabian for Defendant and Respondent.
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Plaintiff and appellant Shell Oil Company (Shell) appeals a judgment entered in favor of defendant and respondent Barclay Hollander Corporation (BHCorp) following a bench trial on certain issues, followed by a judgment on the pleadings with respect to the remaining causes of action. Shell also appeals a postjudgment order that awarded BHCorp $26.8 million in attorney fees pursuant to Civil Code section 1717.
In this action by Shell seeking indemnification for environmental cleanup costs, we conclude the trial court properly rejected Shell's claims of contractual indemnity. As a matter of contract interpretation, BHCorp was not a party to an indemnity agreement that was entered into between Shell and Barclay-Hollander-Curci Partnership (BHCP). Further, substantial evidence supports the trial court's rejection of Shell's theories that BHCorp is an obligor under that agreement pursuant to theories of alter ego and successor liability.
However, the trial court erred in granting BHCorp's motion for judgment on the pleadings with respect to Shell's equitable claims, and therefore Shell's causes of action for contribution, equitable indemnity and declaratory relief shall be reinstated. We also reverse the postjudgment order because the issue of attorney fees is premature at this juncture.
FACTUAL AND PROCEDURAL BACKGROUND
Shell filed this lawsuit against BHCorp and Lomita Development Company (Lomita) on May 16, 2014. The operative pleading is the amended complaint, filed on August 4, 2014, by which Shell sought indemnification for costs and fees incurred in litigating and settling a prior underlying matter (the Acosta action), and in investigating and conducting remediation activities within the Carousel housing development located in Carson, California.
By way of background, from 1923 to 1966, Shell owned a parcel of land known as the Kast Tank Farm in Carson, on which it stored petroleum in large oil reservoirs. In October 1965, Shell entered into a purchase and sale agreement (PSA) to sell the Kast Tank Farm property (the property) to Richard Barclay (Mr. Barclay). The PSA was between Shell as seller, and Mr. Barclay, as purchaser. On December 1, 1965, Mr. Barclay requested Shell's permission to access the property prior to the close of sale to perform site preparation work. Shell sent BHCP a letter agreement, dated December 15, 1965 (the Indemnity Agreement), drafted by Shell's legal department, that was executed by Shell and by Mr. Barclay on behalf of the general partnership of BHCP. This agreement gave BHCP early access to the property, and it included an indemnification provision to protect Shell from any liability arising out of or resulting from BHCP's entry or work on the site.
We note that although the original offer to purchase the property, dated October 14, 1965, was made by "RICHARD BARCLAY OR NOMINEE hereinafter called Purchaser," the accepted offer that the parties executed on October 20, 1965, giving rise to the PSA, omitted the nominee provision and simply identified the purchaser as Mr. Barclay.
On December 28, 1965, Mr. Barclay nominated Lomita as the purchaser of the property. Lomita was a California partnership created by four BHCP-owned corporations: Del Cerro Sales Co., Burwood Land Co., Bygrove Land Co., and Eastwood Land Co. The December 15, 1965 Indemnity Agreement was not amended to add Lomita as an obligor or indemnitor thereunder. Thereafter, BHCP and Lomita developed the property into a residential housing project known as "Carousel." [¶] By letter dated August 17, 1966 to both BHCP and Lomita, Shell agreed to extend the closing date for Lomita's purchase of the property to October 1, 1966. The August 1966 agreement (the Reaffirmation Agreement), also drafted by Shell, specified that it "shall not act to modify, terminate or otherwise affect the terms and conditions of that certain letter agreement dated December 15, 1965 between Seller [defined as Shell] and Purchaser [defined as Mr. Barclay] relative to certain site clearing work to be performed on such property at Purchaser's [Mr. Barclay's] sole cost and risk prior to close of sale."
In 1969, Castle & Cooke, Inc. (Castle & Cooke) entered into an agreement with the general partners of BHCP by which Castle & Cooke acquired 13 corporations from BHCP. Among the 13 corporations acquired by Castle & Cooke were Del Cerro Sales Co., Burwood Land Co., Bygrove Land Co., and Eastwood Land Co., and their partnership subsidiary asset, Lomita. However, BHCP did not sell all of its companies to Castle & Cooke. The partners of BHCP continued to own and operate multiple companies after completion of the acquisition by Castle & Cooke.
On March 11, 1969, Castle & Cooke formed BHCorp to hold the 13 companies that it acquired from BHCP by way of a merger completed in April 1969 (the 1969 merger). Upon the effective date of the merger, the separate corporate existence of the 13 former BHCP corporations ceased, and BHCorp succeeded to all the rights, privileges, powers, franchises and property, and was subject to the debts and liabilities, of the 13 merged former BHCP corporations, including the rights and liabilities of Lomita. However, under the agreement of merger, BHCorp did not make any express agreement to succeed to the liabilities and obligations of BHCP.
In 2008, the Regional Water Quality Control Board (Water Board) ordered Shell to initiate environmental investigation of the former Kast Tank Farm, followed by a 2011 order (the Abatement Order) requiring Shell to access, monitor, cleanup, and abate petroleum contamination on the property. In 2009, multiple Carousel homeowners filed lawsuits against Shell (the Acosta litigation) seeking damages allegedly caused by petroleum contamination at the Carousel project. In November 2009, Shell requested that, pursuant to the terms of the December 1965 Indemnity Agreement, BHCorp defend and indemnify Shell in the Acosta litigation as well as against any costs incurred in connection with orders issued by the Water Board.
Subsequently, Shell filed this action against BHCorp for contractual and equitable indemnity. Shell alleged that BHCorp had a duty under the terms of the December 1965 Indemnity Agreement, as well as in equity, to indemnify it against the homeowners' claims and for the cost of responding to the Water Board's Abatement Order.
Neither BHCP nor any of the BHCP general partners or their estates were made parties to this action.
On March 15, 2017, after a two-day bench trial, the trial court issued a statement of decision. Given the decades that separated the making of the December 1965 Indemnity Agreement and this lawsuit to enforce its alleged terms, there were no witnesses who could offer competent testimony of the parties' course of negotiation, and the trial court did not make any credibility determinations. On the four following issues of contract interpretation, the trial court found as follows:
(1) The contract was ambiguous as to whether the indemnity provision applied only to Phase 1 of the site preparation (removal of liquid waste and petroleum residues from the property), or also to Phase 2 (removal of metal and wood wastes) and Phase 3 (grading and restoring the property to its natural grade). The trial court agreed with Shell that the indemnity provision applied to all three phases.
(2) The contract was unambiguous as to whether the indemnity obligation survived the transfer of title to Lomita. The trial court agreed with Shell that the indemnity obligation survived the transfer of title to the property.
(3) The contract was unambiguous as to a mutual intent by the parties to apply the indemnity provision to unforeseen environmental cleanup obligations. The trial court agreed with Shell that the parties had a mutual intent that one side would indemnify the other for such unforeseen risks.
(4) The contract was ambiguous as to whether Lomita was an obligor under the December 1965 Indemnity Agreement. On this question, which is one of the primary issues on appeal, the trial court agreed with BHCorp that Lomita was not an obligor.
Thereafter, the matter proceeded to a four-day bench trial on the issues of alter ego and successor liability. In a second statement of decision, the trial court found that Shell had not "met its burden of proving the essential elements of its alter ego claim," and also had "not met its burden of proving the essential elements of its successor liability claim that [BHCorp] is a mere continuation of [BHCP]."
The second statement of decision addressed Shell's contractual indemnity claims based upon the four-day alter ego and successor liability trial. The court found that BHCP sold some, but not all, of its companies to Castle & Cooke in 1969, and continued to own and operate multiple companies after the completion of the 1969 merger. BHCorp was formed as the entity to receive the companies Castle & Cooke purchased; BHCorp did not agree to succeed to any of the liabilities of the seller, BHCP. The court found "the more persuasive evidence is that Shell was not misled or confused as to the respective roles and participation of [BHCP], Lomita or Mr. Barclay." Noting that Shell was represented by its own legal department in the preparation of the December 1965 Indemnity Agreement, the court found no unfairness or inequity in Shell's selection of BHCP as the sole indemnitor because, "If you have the best 'deep pockets' in the net, one does not need to add a list of less valuable entities owned by those same 'deep pockets' to the list of potential co-obligors." The court noted there "is zero showing to support a conclusion that any of the principals of [BHCP] withheld information from Shell about the structure of their business. . . ." The court also found that Shell did not meet its burden of proving successor liability, Shell failed to establish that BHCorp was a mere continuation of BHCP, and the more persuasive evidence was that BHCP and BHCorp were separate and distinct entities.
Following the bench trial, BHCorp moved for judgment on the pleadings on Shell's remaining causes of action—contribution, equitable indemnity, and declaratory relief, insofar as they were predicated on the cost of complying with any orders issued by the Water Board. The court granted the motion with prejudice as to the equitable indemnity claim (and declaratory relief insofar as it addressed the equitable indemnity claim), on the ground that the Water Board's Abatement Order was not a money judgment. The court granted the motion as to contribution (and declaratory relief insofar as it addressed contribution) without prejudice, because there was not yet a final judgment as to BHCorp's liability as a responsible party, an issue that was on appeal at the time.
Following entry of judgment, BHCorp moved for attorney fees in the amount of $42 million as the prevailing party under the December 1965 Indemnity Agreement. The trial court awarded BHCorp attorney fees in the amount of $26.8 million.
Shell appealed both the judgment and the postjudgment order.
CONTENTIONS
Shell contends: (1) BHCorp is an obligor under the Indemnity Agreement because Lomita was an obligor under that agreement, and BHCorp is concededly Lomita's successor; (2) alternatively, Lomita was BHCP's alter ego under a single-enterprise theory, and thus BHCorp has alter ego liability as Lomita's successor; (3) alternatively, BHCorp is the successor to BHCP's indemnity liability under a mere-continuation theory; (4) the trial court's exclusion of evidence based on attorney-client privilege and attorney work product was prejudicial error; (5) Shell is entitled to equitable indemnity from BHCorp, as well as contribution and declaratory relief; and (6) the trial court erred in awarding BHCorp attorney fees that it incurred in the Acosta litigation, as well as fees incurred by its corporate parents.
DISCUSSION
I.
ISSUES RELATING TO CONTRACTUAL INDEMNITY
1. The trial court properly determined that Lomita was not an obligor under the December 1965 Indemnity Agreement.
Shell contends that because Lomita was the official nominee, purchaser, and developer of the Carousel neighborhood, it necessarily was an obligor under the December 1965 Indemnity Agreement; thus, as Lomita's admitted successor, BHCorp is liable to Shell under the Indemnity Agreement. BHCorp, in turn, argues the trial court correctly found that Lomita was not a co-obligor or substitute obligor under the Indemnity Agreement. For the reasons stated below, we conclude the trial court properly determined that Lomita was not an obligor under that agreement.
a. Factual background
The December 1965 Indemnity Agreement, by which Shell granted BHCP access to the property to perform site-clearing work prior to the close of sale, in exchange for indemnification and other protections, stated in relevant part at paragraph 3 that "you shall reimburse us for any and all injury, damage, expense and/or loss suffered by us, and agree to indemnify and hold us and said lands free and harmless of, from and against any and all claims, liens, suits and proceedings (hereinafter collectively referred to as 'actions'), causes of action, and liabilities of whatsoever nature for damage to or loss, or loss of use of, any property and/or injury to or death of any persons (including, but without limitation, our and your employees and those of your contractors), directly or indirectly caused by or arising out of or resulting from or in any way connected with your entry or work on or in the vicinity of said lands or the disposition of wastes and residues removed therefrom, irrespective of any negligence of ours. You shall defend all such actions and pay all costs and expenses incidental thereto; but we shall have the right at our election to participate in the defense of any such action without relieving you of any obligation hereunder."
The Indemnity Agreement was addressed to Mr. Barclay at BHCP and was executed by him on behalf of BHCP.
After the parties executed the Indemnity Agreement, BHCP notified Shell in a letter dated December 28, 1965, that it had nominated Lomita, a California partnership, to take title at the close of sale. The letter, which was signed by Mr. Barclay, attached a portion of Lomita's partnership agreement that disclosed the various partners in the partnership and their respective interests.
Thereafter, as reflected in a notice of nonresponsibility that was recorded, Shell acknowledged that Lomita was the executory purchaser of the property. Further, Shell was aware that Lomita was performing the site-clearing work on the site.
A letter by Shell dated August 15, 1966 stated: "We believe that Lomita Development Company has now reached the point in the demolition of the reservoirs at Kast Property so that we could safely discontinue guard service and turn the property over to them for further site preparation."
Delay in obtaining rezoning of the property to residential use led BHCP to ask Shell for an extension of the closing date to October 1, 1966. On August 17, 1966, BHCP and Shell entered into the Reaffirmation Agreement, prepared by Shell, that reiterated their prior agreement. The Reaffirmation Agreement, which expressly identified Mr. Barclay alone as the purchaser, extended the closing date to October 1, 1966, and stated that "[a]s hereby amended, [the] October 20, 1965 [PSA] and all the terms, conditions and provisions thereof shall remain in full force and effect." The Reaffirmation Agreement also stated that "[t]his extension shall not act to modify, terminate or otherwise affect the terms and conditions of that certain letter agreement dated December 15, 1965 [the Indemnity Agreement] between Seller and Purchaser relative to certain site clearing work to be performed on such property at Purchaser's sole cost and risk prior to close of sale."
On October 1, 1966, the sale closed. Shell executed a grant deed that conveyed title to the property to Lomita.
b. Procedural background.
Shell's position in phase one of the bench trial, relating to whether Lomita was an obligor under the Indemnity Agreement, was that the contract was unambiguous and that it could be "interpreted based on the language itself," without resort to extrinsic evidence. BHCorp, in turn, offered extrinsic evidence, including written correspondence between BHCP and Shell, to show the context of the transaction and the expectations of the parties at the relevant time.
The trial court conditionally admitted extrinsic evidence because neither the December 1965 Indemnity Agreement nor the August 1966 Reaffirmation Agreement contained an integration clause. However, due to the decades that separated the making of the Indemnity Agreement and this lawsuit to enforce its alleged terms, there were no witnesses who could offer competent testimony of the parties' course of negotiation, and thus the trial court did not make any credibility determinations. The trial court ruled the operative contractual writings were Mr. Barclay's request for early access to the property, the December Indemnity Agreement granting access to the property and providing for indemnification, and the August 1966 Reaffirmation Agreement. Based on the language of the above documents, the trial court found there was an ambiguity as to whether Lomita was an obligor under the Indemnity Agreement, and thereafter resolved this ambiguity by concluding that Lomita was not an obligor thereunder.
The trial court subsequently elaborated on its rationale when it took the matter under submission following the second phase of the bench trial. The trial court explained: "I did find that, whether or not the contracts reached out to Lomita Development Company as a co-obligor, was a matter of ambiguity. And that, frankly, was because in the reaffirmation letter drafted by Mr. Warren for Shell in the summer of 1966, the first paragraph that refers to Mr. Barclay acting on behalf of himself, Lomita, and the partnership, is not entirely symmetrical with the later statement in the last paragraph that the December 1965 agreement is reaffirmed exactly according to its original terms. There is intellectually a dissonance between those two provisions. [¶] And one can also refer to the way in which [Mr.] Barclay signed the signature block where three parties are listed above the signature, he gives a single signature with his name typed under his signature. But in the face of those internal ambiguities, at the end of the day, one has to make a legal interpretation that lands one way or the other. And I favor placing reliance on the last paragraph of full text that said that the terms of the December 1965 agreement were kept exactly as they were, was on balance sufficient to avoid adding Lomita as a co-obligor."
c. Standard of appellate review; de novo review applies as to both the trial court's finding of an ambiguity concerning Lomita's status an obligor under the December 1965 Indemnity Agreement, and the trial court's resolution of that ambiguity.
"When the parties dispute the meaning of a contract term, the trial court's first step is to determine whether the term is ambiguous, i.e., it is 'reasonably susceptible' to either of the meanings urged by the parties. (Winet v. Price (1992) 4 Cal.App.4th 1159, 1165.) In making this determination, the court is not limited to the contract language itself but provisionally receives, without actually admitting, any extrinsic evidence offered by a party which is relevant to show the contract could or could not have a particular meaning. (Pacific Gas & E. Co. v. G.W. Thomas Drayage etc. Co. (1968) 69 Cal.2d 33, 37.) If, in light of the language of the contract and the extrinsic evidence as to its meaning, the trial court determines the language is 'reasonably susceptible' to either of the meanings urged by the parties the court moves on to the second step which is to determine just what the parties intended the contract term to mean. (Winet v. Price, supra, 4 Cal.App.4th at p. 1165.) [¶] The trial court's ruling on the first step, the threshold question of ambiguity, is a question of law subject to our independent review. (4 Cal.App.4th at p. 1165.)" (Curry v. Moody (1995) 40 Cal.App.4th 1547, 1552, italics omitted; accord, Moore v. Wells Fargo Bank, N.A. (2019) 39 Cal.App.5th 280, 287.)
The trial court's ruling "on the second step, the construction to be given to an ambiguous contract term, is a question of law subject to our independent review if no extrinsic evidence was introduced as to the meaning of the contract or, if extrinsic evidence was introduced, this evidence was not in conflict. We apply the substantial evidence test only when conflicting evidence was introduced as to the meaning of the contract term. In that instance, any reasonable construction of the contract will be upheld if it is supported by substantial evidence. (Winet v. Price, supra, 4 Cal.App.4th at pp. 1165-1166.)" (Curry v. Moody, supra, 40 Cal.App.4th at pp. 1552-1553; accord, City of Hope National Medical Center v. Genentech, Inc. (2008) 43 Cal.4th 375, 395 [contract interpretation is solely a judicial function only when it is "based on the words of the instrument alone, when there is no conflict in the extrinsic evidence, or a determination was made based on incompetent evidence"].) Here, we are not bound by the trial court's interpretation of the December 1965 Indemnity Agreement, i.e., that Lomita was not a co-obligor, because its determination was not based on conflicting extrinsic evidence. (Tin Tin Corp. v. Pacific Rim Park, LLC (2009) 170 Cal.App.4th 1220, 1225.)
Thus, our review as to both these issues is de novo.
d. No merit to Shell's argument that the written documents' unambiguous language establishes that Lomita was an obligor under the December 1965 Indemnity Agreement; the trial court properly found an ambiguity in that regard.
Shell contends the unambiguous language of the operative documents, read together and taking into account the circumstances under which they were made and the matter to which they related, establish that Lomita was an obligor under the December 1965 Indemnity Agreement. Shell asserts that conclusion is dictated by the following written instruments, which were part of the same transaction and must be read together: (1) the PSA; (2) Mr. Barclay's pre-closing request for access to the property for site-clearing work, dated December 1, 1965; (3) the December 15, 1965 Indemnity Agreement that allowed early access to the property; (4) Lomita's nomination as the purchaser of the property, dated December 28, 1965; and (5) the August 1966 Reaffirmation Agreement that extended the closing date to October 1, 1966. Shell further argues that because the parties' written agreements unequivocally establish that Lomita was a co-obligor under the Indemnity Agreement, the trial court erred in considering extrinsic evidence on the issue. As explained below, Shell's contention that the cited documents unambiguously establish that Lomita was an obligor under the Indemnity Agreement is meritless.
Shell begins by asserting that Mr. Barclay "agreed to purchase the Property for himself or his nominee." (First italics added.) This argument is at odds with the record. As noted, although the original offer to purchase the property, dated October 14, 1965, was made by "RICHARD BARCLAY OR NOMINEE hereinafter called Purchaser," the accepted offer that the parties executed on October 20, 1965, giving rise to the PSA, omitted the nominee provision and simply identified the purchaser as Mr. Barclay. Thus, the actual agreement of the parties did not provide for Mr. Barclay to nominate another purchaser.
Thereafter, on December 1, 1965, Mr. Barclay, on behalf of BHCP, requested access to the property, prior to the close of sale, for site-clearing work. The access request by Mr. Barclay made no mention of Lomita.
Likewise, the Indemnity Agreement, dated December 15, 1965, authored by Shell and directed to Mr. Barclay at BHCP, contained no mention of Lomita as a party to the transaction or as an obligor.
It was only later that month, two weeks after Shell and BHCP entered into the Indemnity Agreement, that Mr. Barclay sent Shell a letter nominating Lomita as the purchaser of the property. Eight months later, in August 1966, the parties entered into the Reaffirmation Agreement, wherein Shell agreed to extend the closing date to October 1, 1966, without otherwise modifying the terms of their existing Indemnity Agreement.
Like the trial court, we are unpersuaded by Shell's argument that these writings unambiguously establish, as a matter of law, that Lomita was an obligor under the December 1965 Indemnity Agreement. It is undisputed that Lomita was not a signatory to the Indemnity Agreement, and the Indemnity Agreement did not even mention Lomita as a party to the transaction—nor could it have—as Mr. Barclay did not nominate Lomita as the purchaser until two weeks after the parties entered into the Indemnity Agreement.
Thus, on our de novo review, we reject Shell's contention that the writings unambiguously established that Lomita was a co-obligor under the Indemnity Agreement, and instead, we agree with the trial court that the Indemnity Agreement is ambiguous and requires interpretation to resolve this ambiguity.
e. Trial court properly rejected Shell's interpretation that Lomita was a co-obligor under the Indemnity Agreement.
(1) The Reaffirmation Agreement established that there was no modification to the December 1965 Indemnity Agreement, which was executed before Lomita was nominated as the purchaser.
As noted, under the plain language of the December 1965 Indemnity Agreement, Lomita was not a co-obligor. Further, the Indemnity Agreement was not expressly amended to add Lomita after it was nominated as the purchaser. Thus, the issue presented is whether the December 28, 1965 letter nominating Lomita as the purchaser, followed by the Reaffirmation Agreement in August 1966, impliedly modified the Indemnity Agreement so as to include Lomita as a co-obligor. Shell argues these documents "reveal the parties' intent that the later nominated purchaser would be responsible under the Indemnity Agreement."
The problem for Shell is that its interpretation is at odds with the express language of the Reaffirmation Agreement, which expressly identified Mr. Barclay as the sole purchaser. The Reaffirmation Agreement, which was drafted by Shell and signed by Mr. Barclay on behalf of both BHCP and Lomita, extended the closing date to October 1, 1966 and then concluded: "As hereby amended, such October 20, 1965 agreement [the PSA] and all the terms, conditions and provisions thereof shall remain in full force and effect. [¶] This extension shall not act to modify, terminate or otherwise affect the terms and conditions of that certain letter agreement dated December 15, 1965 between Seller and Purchaser relative to certain site clearing work to be performed on such property at Purchaser's sole cost and risk prior to close of sale." (Italics added.)
Thus, despite Lomita's nomination as the purchaser, the Reaffirmation Agreement expressly provided that there was no change to the terms and conditions of the December 1965 Indemnity Agreement, other than to extend the closing date. Therefore, Shell's argument that the Indemnity Agreement must be construed to include Lomita as a co-obligor is defeated by the express language of the Reaffirmation Agreement.
(2) Shell did not previously assert, when it had the opportunity to do so, that Lomita was an obligor under the Indemnity Agreement.
"The rule is well settled that in construing the terms of a contract the construction given it by the acts and conduct of the parties with knowledge of its terms, and before any controversy has arisen as to its meaning, is admissible on the issue of the parties' intent. (Universal Sales Corp. v. Cal. etc. Mfg. Co. (1942) 20 Cal.2d 751, 761.)" (Southern Cal. Edison Co. v. Superior Court (1995) 37 Cal.App.4th 839, 851.)
In 1968, when a third-party claim arose against Shell related to an accident on the premises, Shell did not assert there were any obligors under the Indemnity Agreement other than BHCP. In a letter sent by Shell's counsel to Travelers Insurance Company, with a copy to BHCP, Shell identified Mr. Barclay as the purchaser, Lomita as the nominee, and BHCP as the indemnitor. The letter stated: "The accident in question apparently occurred on premises . . . then owned by Shell but which Shell had agreed to sell to Mr. Richard Barclay (a partner of [BHCP]), who subsequently nominated Lomita Development Co., a California partnership, to receive title thereto. By paragraph numbered 3 of letter agreement dated December 15, 1965 (a copy of which is attached), [BHCP], in consideration of Shell's permitting their entry and work on those premises prior to transfer of title, agreed to indemnify Shell against any claims, actions or liabilities for property damage in any way resulting from such entry and work[.]" (Italics added.)
Additionally, in 2009, Shell's counsel sent a letter to Dole Food Company, Inc. (Dole) (BHCorp's corporate parent) tendering for its handling the Acosta action and a related lawsuit. The letter stated that pursuant to the December 1965 Indemnity Agreement between BHCP and Shell, BHCP was required to "indemnify and 'defend all such actions and pay all costs and expenses' of the Shell entities pertaining to these lawsuits," and that one or more of the Dole entities named in the complaint was the successor in interest to BHCP. Shell's letter to Dole did not identify Lomita as BHCP's co-obligor under the Indemnity Agreement.
Thus, the previous absence of an assertion by Shell that Lomita was an obligor under the Indemnity Agreement, even when Shell had the opportunity to take that position, is consistent with the language of the operative written agreements, which did not add Lomita as a co-obligor following its nomination as purchaser of the property.
(3) Any remaining ambiguity is to be construed against Shell.
The trial court found that Shell drafted both the December 1965 Indemnity Agreement and the August 1966 Reaffirmation Agreement, and Shell does not dispute that finding on appeal. "[W]here the terms of an agreement are ambiguous, they 'should be interpreted most strongly against the party who caused the uncertainty to exist.' [Citation.]" (Sutherland v. Barclays American/Mortgage Corp. (1997) 53 Cal.App.4th 299, 310.) Thus, insofar as there remained any ambiguity as to whether Lomita was a co-obligor under the Indemnity Agreement, the ambiguity is to be resolved against Shell, which caused the uncertainty to exist.
(4) No merit to Shell's reliance on maxims of jurisprudence to rewrite the Indemnity Agreement that it drafted.
Shell's final argument in this regard is that Lomita was an obligor because it knowingly accepted the Indemnity Agreement's benefits by utilizing the agreement's pre-closing access provisions for site cleanup, enabling Lomita to begin developing the property without waiting for the rezoning process to be completed. Shell's argument is predicated on Civil Code section 1589, which provides that "[a] voluntary acceptance of the benefit of a transaction is equivalent to a consent to all the obligations arising from it, so far as the facts are known, or ought to be known, to the person accepting," and Civil Code section 3521, which states that "[h]e who takes the benefit must bear the burden."
As BHCorp argues, maxims of jurisprudence cannot alter a contract the party's own attorney drafted. "The maxims of jurisprudence . . . are intended not to qualify any of the foregoing provisions of this code, but to aid in their just application." (Civ. Code, § 3509.)
Moreover, Citizens Suburban Co. v. Rosemont Development, Co. (1966) 244 Cal.App.2d 666, the case authority on which Shell relies, is entirely inapposite. That decision states: "When a corporation knowingly accepts the benefits of a contract entered into by its promoters before it comes into existence, it is liable as a party to the contract." (Id. at p. 677.) In that case, however, the contract contained a "clause binding the original parties' 'successors and assigns' " (id. at p. 675), language which is notably absent from the December 1965 Indemnity Agreement.
For all these reasons, on our de novo review we uphold the trial court's determination that Lomita was not a co-obligor under the Indemnity Agreement.
Because we uphold the trial court's determination that Lomita was not an obligor under the December 1965 Indemnity Agreement, it is unnecessary to address the argument in the respondent's brief that other grounds exist to uphold the trial court's decision that BHCorp is not liable under the Indemnity Agreement.
2. No merit to Shell's alternative argument that Lomita was the alter ego of BHCP, the named obligor under the Indemnity Agreement.
After the trial court concluded in the first phase of the bench trial that Lomita was not an obligor under the Indemnity Agreement, Shell argued alternatively in the second phase of the bench trial that Lomita was the alter ego of BHCP, the named obligor in the Indemnity Agreement, and that BHCorp is liable as Lomita's successor.
On appeal, Shell contends the trial court erred in finding that Lomita was not BHCP's alter ego because the undisputed evidence establishes, as a matter of law, that Lomita and BHCP acted as a single enterprise to develop the property under the BHCP business-enterprise umbrella with common ownership, control and management. We disagree with Shell's framing of the issue and conclude that substantial evidence supports the trial court's determination that Lomita was not BHCP's alter ego.
a. Governing law and standard of appellate review.
The alter ego doctrine prevents individuals or other corporations from misusing the corporate laws by the device of a sham corporate entity formed for the purpose of committing fraud or other misdeeds. (Sonora Diamond Corp. v. Superior Court (2000) 83 Cal.App.4th 523, 538 (Sonora). "Alter ego is an extreme remedy, sparingly used. [Citation.]" (Id. at p. 539.)
In California, "two conditions must be met before the alter ego doctrine will be invoked. First, there must be such a unity of interest and ownership between the corporation and its equitable owner that the separate personalities of the corporation and the shareholder do not in reality exist. Second, there must be an inequitable result if the acts in question are treated as those of the corporation alone. [Citations.] 'Among the factors to be considered in applying the doctrine are commingling of funds and other assets of the two entities, the holding out by one entity that it is liable for the debts of the other, identical equitable ownership in the two entities, use of the same offices and employees, and use of one as a mere shell or conduit for the affairs of the other.' [Citations.] Other factors which have been described in the case law include inadequate capitalization, disregard of corporate formalities, lack of segregation of corporate records, and identical directors and officers. [Citations.] No one characteristic governs, but the courts must look at all the circumstances to determine whether the doctrine should be applied. [Citation.]" (Sonora, supra, 83 Cal.App.4th that pp. 538-539.)
Whether "a party is liable under an alter-ego theory is normally a question of fact. [Citations.] 'The conditions under which the corporate entity may be disregarded, or the corporation be regarded as the alter ego of the stockholders, necessarily vary according to the circumstances in each case inasmuch as the doctrine is essentially an equitable one and for that reason is particularly within the province of the trial court.' (Stark v. Coker (1942) 20 Cal.2d 839, 846.)" (Zoran Corp. v. Chen (2010) 185 Cal.App.4th 799, 811.) Therefore, the trial court's determination as to whether the evidence has established that the corporate veil should be ignored is primarily a question of fact which "should not be disturbed when supported by substantial evidence. [Citations.]" (Toho-Towa Co., Ltd. v. Morgan Creek Productions, Inc. (2013) 217 Cal.App.4th 1096, 1108.)
b. Trial court's statement of decision rejecting Shell's theory that Lomita was an alter ego of BHCP.
In ruling on the matter, the trial court stated, inter alia: "Alter ego is not to be used after the fact to rewrite a contract when the parties knew at the time of contracting the respective risks and entities with which they were dealing. [Citations.] The fact that defendant may currently lack sufficient resources to respond to a judgment in favor of Shell is not enough, by itself, to support imposition of alter ego liability. [Citation.] [¶] The Court finds that evidence admitted at trial does not establish that Shell has met its burden of proving the essential elements of its alter ego claim."
Specifically, the trial court found that on December 28, 1965, Mr. Barclay informed Shell that Lomita, a real estate partnership entity owned by Del Cerro Sales Co., Burwood Land Co., Bygrove Land Co., and Eastwood Land Co., was nominated as purchaser of the property. Shell was aware of the separate though interrelated ownership relationship that existed between BHCP and Lomita, and Lomita's four corporate owners. Despite its knowledge of the roles and participation of those entities, Shell did not request that Lomita execute the December 15, 1965 Indemnity Agreement, or that it provide any other contractual indemnity to Shell.
The trial court found further "the more persuasive evidence is that Shell was not misled or confused as to the respective roles and participation of [BHCP], Lomita or Mr. Barclay. Shell was represented by its legal department as to the [Indemnity Agreement] and its performance, and the evidence shows that Shell was not subjected to any fraudulent, bad faith or otherwise improper conduct by [BHCP], Mr. Barclay or Lomita with respect to the [Indemnity Agreement] . . . . At the time, Shell got its indemnification commitment from the persons most likely to have the largest amount of attachable assets, i.e. the five persons [the five general partners of BHCP] who owned the various limited liability corporations through which they conducted their multiple, concurrent real-estate development projects. If you have the best 'deep pockets' in the net, one does not need to add a list of less valuable entities owned by those same 'deep pockets' to the list of potential co-obligors."
The trial court concluded that "recognition of the separateness of [BHCP] and Lomita will not sanction a fraud or promote an injustice because at the time Lomita was nominated as purchaser of the Kast Site in December 1965, and in August 1966 when Shell agreed to extend the purchase date thereof from July to October, 1966, Shell understood the separate and distinct nature of the different parties with which it was dealing, including Mr. Barclay, [BHCP] and Lomita, such that none of those parties could be considered the alter ego of the other under a single enterprise liability theory. Even where there is some evidence of a unity of interest and ownership, difficulty in enforcing a judgment does not alone satisfy the element of an inequitable result should the separateness of [BHCP] and Lomita be recognized. There must also be some conduct amounting to bad faith that makes it inequitable. (Sonora Diamond v. Superior Court (2000) 83 Cal.App.4th 523, 539.)"
c. No merit to Shell's contention that the undisputed evidence establishes as a matter of law that Lomita was BHCP's alter ego; substantial evidence supports the trial court's determination that Lomita was not BHCP's alter ego.
Shell asserts this court should apply a de novo standard of review because the trial court did not make any credibility determinations, and it contends the evidence below established alter ego liability as a matter of law. In effect, Shell is asking this court to reweigh Shell's evidence which the trial court found was insufficient to meet Shell's burden. We conclude Shell's argument is without merit and uphold the trial court's ruling because it is supported by substantial evidence.
As indicated, two conditions must be met for application of the alter ego doctrine in a given case: (1) there must be such a unity of interest and ownership that the separateness of the two entities does not exist; and (2) adherence to the fiction of a separate existence for the two entities would promote injustice or cause an inequitable result. (Sonora, supra, 83 Cal.App.4th at pp. 538-539; Las Palmas Associates v. Las Palmas Center Associates (1991) 235 Cal.App.3d 1220, 1249.)
With respect to the first factor, Shell relies, inter alia, on evidence that Lomita was created solely for the purpose of developing the subject real property, that the two entities were under the common ownership of the five BHCP partners, that the development project ultimately was controlled by BHCP, that all of Lomita's officers and directors were also officers or directors of BHCP, and that the two entities shared the same address.
Be that as it may, as the trial court recognized, evidence of a unity of interest and ownership is insufficient for alter ego liability—there must also be "an inequitable result if the acts in question are treated as those of the corporation alone." (Sonora, supra, 83 Cal.App.4th at p. 538.) With respect to the second factor, the trial court found it would not be inequitable to adhere to the existence of Lomita and BHCP as separate entities, in light of (1) Shell's awareness of the respective roles and participation of BHCP, Lomita and Mr. Barclay; (2) Shell's failure to request that Lomita either execute the Indemnity Agreement or provide other contractual indemnity to Shell; and (3) Shell having obtained its "indemnification commitment from the persons most likely to have the largest amount of attachable assets, i.e. the five persons who owned the various limited liability corporations through which they conducted their multiple, concurrent real-estate development projects." Therefore, as the trial court found, Shell did not need indemnification from the lesser entities owned by those individuals.
Shell, nonetheless, argues that "[t]hese findings, however, do not preclude an alter ego determination—no one factor governs. And in arriving at its determination, the trial court failed to account for undisputed evidence establishing alter ego—a unity of interest and two entities operating together as part of a single enterprise to purchase and develop the Property into a residential development. Where entities have common ownership and management, use the same assets and employees, and operate with integrated resources for a single purpose, the entities are alter egos. The trial court should have so concluded here." (Italics added.)
Shell's argument is meritless because it is settled that an appellate court is "not in a position to weigh any conflicts or disputes in the evidence. Even if different inferences can reasonably be drawn from the evidence, [the appellate court] may not substitute [its] own inferences or deductions for those of the trial court. [Its] authority begins and ends with a determination of whether, on the entire record, there is any substantial evidence, contradicted or uncontradicted, which will support the judgment." (Estate of Beard (1999) 71 Cal.App.4th 753, 778-779.)
Thus, our inquiry is not whether the evidence and the inferences that could be drawn from the evidence would have supported a different conclusion, but rather, whether the record supports the trial court's finding that it would not be unjust or inequitable to adhere to the separate corporate existence of Lomita and BHCP. Given Shell's decision to look solely to BHCP for a promise of indemnification, despite Shell's awareness of the relationship of Lomita to BHCP, the trial court properly concluded that refusing to treat Lomita as the alter ego of BHCP would not promote injustice, nor would it cause an inequitable result. Accordingly, the trial court properly rejected Shell's theory of alter ego liability.
Shell also argues that it objected to the statement of decision and proposed additional findings, and therefore findings cannot be implied to support the trial court's determination with respect to alter ego liability. The doctrine of implied findings "(1) directs the appellate court to presume that the trial court made all factual findings necessary to support the judgment so long as substantial evidence supports those findings and (2) applies unless the omissions and ambiguities in the statement of decision are brought to the attention of the superior court in a timely manner." (SFPP v. Burlington Northern & Santa Fe Ry. Co. (2004) 121 Cal.App.4th 452, 462.) It is unnecessary to address the issue of implied findings because the trial court's statement of decision adequately set forth the basis of the trial court's ruling, and specifically, its rationale for rejecting Shell's claim of alter ego liability.
3. No merit to Shell's alternative theory that BHCorp is the successor to BHCP's indemnity liability under the theory that BHCorp is a mere continuation of BHCP's business.
Next, Shell contends that even assuming Lomita is not liable under the Indemnity Agreement, BHCorp is directly liable under the Indemnity Agreement as BHCP's successor, because BHCorp acquired BHCP's real estate development business and was a mere continuation of that business. Shell argues the trial court improperly applied principles relating to successor liability to conclude that BHCorp was not BHCP's successor. We are not persuaded.
a. General principles and standard of review.
As typically formulated, the rule of successor liability 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." (Ray v. Alad Corp. (1977) 19 Cal.3d 22, 28, italics added.)
The theory of successor liability—where the purchasing corporation is a mere continuation of the seller—is based on the principle 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.' (Blank v. Olcovich Shoe Corp. (1937) 20 Cal.App.2d 456, 461.) 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.' (Ray v. Alad Corp., supra, 19 Cal.3d at p. 29, italics added.)" (Cleveland v. Johnson (2012) 209 Cal.App.4th 1315, 1327 (Cleveland); accord, Phillips, Spallas & Angstadt, LLP v. Fotouhi (2011) 197 Cal.App.4th 1132, 1139-1140.)
Further, "even when the same persons are officers or directors of the two corporations, liability is not imposed on the acquiring corporation when recourse to the debtor corporation is available and the two corporations have separate identities." (Beatrice Co. v. State Bd. Of Equalization (1993) 6 Cal.4th 767, 778 (Beatrice).) In Beatrice, there was "no merger or consolidation, but the opposite, and Standard Dry Wall [was] not a continuation of Beatrice. Beatrice continue[d] to exist." (Ibid.)
Further, the mere continuation theory of successor liability is "very similar [to the] principles of alter ego liability [that] will be applied where 'the recognition of the fiction of separate corporate existence would foster an injustice or further a fraud.' " (Cleveland, supra, 209 Cal.App.4th at p. 1329.) Whether the theory relied on is alter ego, piercing the corporate veil, or some other challenge to the fiction of the corporate entity, the doctrine of disregarding the corporate entity in appropriate cases limits the exercise of the corporate privilege to prevent its abuse. (Ibid.) "In short, the controlling point is that successor liability, like alter ego and similar principles, is an equitable doctrine. As with other equitable doctrines, 'it is appropriate to examine successor liability issues on their own unique facts' and '[c]onsiderations of fairness and equity apply.' " (Id. at p. 784.)
We apply the substantial evidence standard in reviewing the trial court's determination that BHCorp was not a mere continuation of BHCP. (McClellan v. Northridge Park Townhome Owners Assn., Inc. (2001) 89 Cal.App.4th 746, 755-756.)
b. Trial court's ruling that BHCorp was not the successor of BHCP.
In its statement of decision, the trial court found "[t]he weight of the evidence presented at trial establishes that Shell has not met its burden of proving the essential elements of its successor liability claim that [BHCorp] is a mere continuation of [BHCP]. The court [found] the evidence more persuasive that [BHCorp] is not a mere continuation of [BHCP] but rather those entities are separate and distinct." The trial court's factual findings included the following:
BHCP was a general partnership, formed by five individuals that owned and operated many companies before Shell agreed to sell the Kast Tank Farm to Mr. Barclay in 1965. In 1969, the five principals of BHCP agreed to sell 13 of their 36 BHCP companies to Castle & Cooke. The same five principals of BHCP were also the majority shareholders of the 13 entities sold to Castle & Cooke. The 13 companies acquired from BHCP in 1969 were not all active, nor were they all actively engaged in residential real estate development. Real estate development was the primary purpose of many of the companies that BHCP retained. Castle & Cooke formed BHCorp as a California corporation in 1969 as the entity to receive the 13 companies that it acquired from BHCP. Upon the effective date of the merger into BHCorp, the separate corporate existence of the 13 former BHCP corporations ceased to exist, and BHCorp succeeded to all the rights, privileges, powers, franchises and property, and was only subject to the debts and liabilities, of the 13 merged former BHCP corporations. BHCP did not sell all of its companies to Castle & Cooke, and continued to own and operate multiple companies after completion of the 1969 sale. As the Agreement of Merger acknowledged, only the liabilities of the companies BHCorp acquired from the general partners of BHCP were to be assumed by BHCorp. Nothing in the Agreement of Merger provided that any other liability of BHCP was to be assumed by BHCorp, and in particular, the Agreement of Merger did not purport to transfer BHCP's liabilities under the Indemnity Agreement to BHCorp.
The trial court further found that in exchange for the 13 companies, the five general partners of BHCP, and a few other minority shareholders, received a combined total of 425,000 shares of Castle & Cooke common stock that had a value exceeding $13 million, and there was no evidence the consideration was inadequate. Following the merger, the five principals of BHCP retained majority ownership of 23 remaining BHCP companies. BHCP did not merge with BHCorp in 1969, and continued in existence separate and apart from BHCorp.
The trial court concluded, inter alia, that Shell failed to establish that BHCorp's acquisition of 13 BHCP entities in 1969 amounted to an acquisition of an entire and separate line of business that had been conducted by BHCP so as to make BHCorp a mere continuation of BHCP. Rather, "the more persuasive evidence is that [BHCP] continued in existence with substantial assets." Further, Shell failed to show that the transfer of 13 BHCP entities to BHCorp was for the fraudulent purpose of escaping liability for BHCP's known debts or liabilities. Neither BHCorp nor BHCP engaged in any fraudulent or inequitable conduct or purpose with regard to Shell. The payment of $13 million in consideration, which was not shown to be inadequate, evidences the good faith of BHCP and BHCorp, and their lack of any fraudulent or inequitable intent toward Shell.
The trial court further found that the imposition of successor liability would be inequitable because BHCorp agreed to assume the liabilities of only the 13 named BHCP entities that it acquired, and not the liabilities of BHCP. In addition, Shell was able to negotiate the Indemnity Agreement with BHCP and thus "had an opportunity denied to third-party tort plaintiffs to structure its arrangements with such parties as Shell wanted. This case is thus fundamentally different from situations . . . where a third-party tort plaintiff must either collect from a successor product manufacturer or not collect at all because the original manufacturer is judgment proof." Imposition of successor liability would be inequitable and improper because BHCP's sale of 13 of its entities to BHCorp was made "in good faith in exchange for adequate consideration," leaving BHCP and its five principals with sufficient assets to meet their obligations. Further, BHCP continued to exist with substantial assets to meet its obligations after the 1969 merger. Thus, BHCorp may not be deemed a mere continuation of BHCP, or a successor in law or equity for BHCP's obligations under the December 1965 Indemnity Agreement. In addition, neither BHCP nor Lomita withheld information or otherwise deceived Shell about the ownership of Lomita or its obligations to Shell, or any other matter, such that Shell was induced to act or refrained from acting, to its detriment, based on a belief that Lomita was an obligor under the December 1965 Indemnity Agreement.
c. No merit to Shell's contention that the trial court erred in finding that successor liability does not attach to BHCorp.
As the trial court found, following BHCP's sale of the 13 companies to Castle & Cooke in 1969, BHCP remained in existence, and it received significant consideration for the sale of the 13 companies, in the form of $13 million in common stock in Castle & Cooke. Thus, BHCP had sizable assets following the sale of the 13 companies, and BHCP remained in a position to indemnify Shell, which had agreed in the December 1965 Indemnity Agreement to look exclusively to BHCP for indemnification.
Shell contends the trial court erred in finding no successor liability because the uncontradicted evidence established that BHCorp should be held liable as BCHP's successor, due to BHCorp's acquisition of the 13 companies that comprised the principal assets of BHCP's real estate development business and BHCorp's continuation of that business. Shell argues the trial court mistakenly focused on the 23 companies that were retained by BHCP, because the retained entities did not engage in active real estate development for the next five years due to an agreement not to compete; the retained entities merely were soil and engineering companies, companies involved in ancillary specialized projects such as golf courses and mobile homes, or were inactive. Shell then goes on to argue that the trial court erred in concluding that the absence of fraud and the payment of adequate consideration precluded successor liability. Shell complains: "Here, the trial court based its conclusion that [BHCorp] was not the mere continuation of [BHCP] primarily on the absence of fraud or inadequate consideration. But as the case law makes clear, these are just two factors for the courts to consider and one or two factors alone cannot be dispositive. The trial court's reliance on these two factors does not support its conclusion that [BHCorp] is not [BHCP's] successor."
However, Shell cites no authority for the proposition that in deciding the issue of successor liability, the trial court erred in giving great weight to its findings that there was no fraud and that BHCP received adequate consideration upon the sale of the 13 companies to Castle & Cooke. As with its earlier contention relating to alter ego liability, Shell is simply asking this court to reweigh the evidence concerning successor liability and to substitute our judgment for that of the trial court. To reiterate, the issue before us is not whether the trial court could have drawn a different conclusion from the evidence, but rather, whether the record supports the conclusion that the trial court did reach.
In ruling on the matter, the trial court specifically found that "Shell failed to persuade the Court by a preponderance of the evidence that the transfer of 13 [BHCP] entities to [BHCorp] was for the fraudulent purpose of escaping liability for [BHCP's] known debts or liabilities," and that "the more persuasive evidence is that neither [BHCorp] nor [BHCP] engaged in any fraudulent or inequitable conduct or purpose with regard to Shell." The trial court further found "that the payment of stock of Castle & Cook valued at the time in 1969 at more than $13,000,000 demonstrates the good faith of [BHCorp] and [BHCP], and evidences a lack of any fraudulent or inequitable intent as to Shell. The Court is further persuaded that [BHCP] did not intend to escape or evade its indemnity obligations under the [Indemnity Agreement] with Shell."
Shell does not challenge the sufficiency of the evidence to support any of these findings by the trial court, but merely takes issue with the weight that should have been assigned to them. However, as we have stated, the mere continuation theory of successor liability is "very similar [to the] principles of alter ego liability [that] will be applied where 'the recognition of the fiction of separate corporate existence would foster an injustice or further a fraud.' " (Cleveland, supra, 209 Cal.App.4th at p. 1329.) Here, given Shell's failure to establish that any injustice or fraud would result from the continued recognition of BHCP and BHCorp as separate entities, the trial court did not err in rejecting Shell's theory of successor liability.
Shell reiterates its argument that it objected to the statement of decision and that it proposed additional findings, and therefore findings cannot be implied to support the trial court's determination concerning successor liability. It is unnecessary to address the issue of implied findings because the trial court's statement of decision adequately set forth its rationale for rejecting Shell's claim of successor liability.
4. No merit to claim of prejudicial error in trial court's exclusion of evidence based on attorney-client privilege and attorney work product.
Shell contends the trial court prejudicially erred in quashing a trial subpoena based on objections of attorney-client privilege and attorney work product, requiring reversal and a new trial on successor liability. The argument is unavailing.
a. Standard of review.
We review the trial court's order quashing the subpoena for an abuse of discretion. "A trial court has abused its discretion in determining the applicability of a privilege when it utilizes the wrong legal standards to resolve the particular issue presented." (Seahaus La Jolla Owners Assn. v. Superior Court (2014) 224 Cal.App.4th 754, 766.)
b. Proceedings.
By way of background, in 1969, in connection with the sale of the 13 BHCP companies to Castle & Cooke, the law firm of Irell & Manella (Irell) represented BHCP, including the 13 BHCP companies that BHCP sold to Castle & Cooke in that transaction and that were merged into BHCorp.
In the summer of 2016, BHCorp, as the successor of the 13 entities, requested through its counsel Lewis Brisbois Bisgaard & Smith (Lewis Brisbois), that Irell deliver its files relating to the 1969 transaction. Irell recognized BHCorp as the successor to the 13 entities it previously represented, and Irell provided Lewis Brisbois with files relating to its former clients.
Shortly thereafter, on September 14, 2016, BHCorp produced 251 pages of the Irell files to Shell. BHCorp also produced a log identifying 32 documents that it withheld as protected by the attorney work product doctrine, and 13 documents, a subset of the 32 documents, that it also withheld based on attorney-client privilege.
On October 4, 2017, the day before the second phase of the bench trial was to commence, Shell served a trial subpoena on defense counsel, Lewis Brisbois, requesting that the Irell documents identified in the privilege log more than a year earlier be produced at trial.
On October 5, 2017, when the matter was before the court, the trial court stated, "I do think it was very unprofessional and a misuse of the court's scarce time for [Shell's counsel] not to raise the issue at the final status conference." Nonetheless, the court requested briefing in order to consider the privilege and work product issues on the merits.
After considering the matter, the trial court quashed the trial subpoena, finding that BHCorp was authorized to assert privilege on behalf of the predecessor corporations that were acquired through the merger.
c. No merit to claim of prejudicial error.
Attorney-client privilege. Shell admitted that Irell was counsel for the 13 BHCP entities "that were being merged into [BHCorp]." Years later, BHCorp's trial counsel, Lewis Brisbois, obtained Irell's files relating to that transaction. As BHCorp argues, the transfer of the Irell documents to successor counsel did not break the privilege. It is established that a corporation is a person whose confidential communications with its attorney are protected by the attorney-client privilege, and "[a]fter a merger, the attorney-client privilege of the corporation no longer in existence belongs to the successor corporation." (Venture Law Group v. Superior Court (2004) 118 Cal.App.4th 96, 102-103.) Therefore, as the trial court found, the attorney-client privilege transferred from the 13 former BHCP entities to BHCorp, and BHCorp, as the holder of the privilege, was entitled to assert it.
Shell contends that BHCorp cannot have it both ways—either BHCorp is the successor to BHCP, including its obligations under the Indemnity Agreement, or BHCorp is not BHCP's successor and cannot assert BHCP's attorney-client privilege. Shell's argument conflates the issues of successor liability and attorney-client privilege. Insofar as Irell represented the 13 companies that were merged into BHCorp, BHCorp is entitled to assert their attorney-client privilege in the Irell documents.
Attorney work product. Shell relies on the principle that counsel, rather than the client, is the holder of the attorney work product protection. (Citizens for Ceres v. Superior Court (2013) 217 Cal.App.4th 889, 911.) Shell contends that only Irell could assert work product protection for its documents, Irell did not do so for the subject documents, and Lewis Brisbois was precluded from asserting work product protection for Irell's work product. The argument is unpersuasive. As Lewis Brisbois argued below, Lewis Brisbois was successor counsel to Irell, and as such, Lewis Brisbois properly asserted the work product protection that was held by Irell.
No showing of prejudice by Shell. Even assuming the trial court erred in quashing the trial subpoena, a conclusion we do not reach, Shell has failed to meet its burden to show that exclusion of the evidence was prejudicial. (Evid. Code, § 354.) Here, Shell asserts without specificity that the excluded documents were material to its theory of successor liability, i.e., that BHCorp was a mere continuation of BHCP. However, as discussed above, the trial court's rejection of Shell's claim of successor liability was based on its findings that Castle & Cooke paid adequate consideration to BHCP for the 13 companies, and that neither BHCP nor BHCorp engaged in any fraudulent or inequitable conduct or purpose with regard to Shell. Shell has not shown that the excluded evidence had any bearing on the factors on which the trial court based its decision. Thus, Shell has not shown that " 'a different result would have been probable' " on the issue of successor liability had the Irell documents been admitted at trial. (Pannu v. Land Rover North America, Inc. (2011) 191 Cal.App.4th 1298, 1317.) Accordingly, Shell has failed to show that the quashing of the trial subpoena constituted prejudicial error.
Because Shell has failed to show it was prejudiced by the quashing of the trial subpoena, it is unnecessary to discuss Shell's additional argument that the trial court erred in quashing the subpoena because Irell waived the attorney work product protection by not asserting it for the disclosed documents.
II.
ISSUES RELATING TO EQUITABLE INDEMNITY
As indicated, following the second phase of the bench trial, the trial court granted BHCorp's motion for judgment on the pleadings on Shell's causes of action for contribution, equitable indemnity, and declaratory relief. We now address those issues.
1. Standard of appellate review.
"A motion for judgment on the pleadings may be made on the ground that the complaint fails to state facts sufficient to constitute a legally cognizable claim. [Citations.] In reviewing the grant of such a motion, an appellate court applies the same rules that govern review of the sustaining of a general demurrer. [Citation.] Thus, 'we are not bound by the determination of the trial court, but are required to render our independent judgment on whether a cause of action has been stated.' [Citation.]" (Mendoza v. Continental Sales Co. (2006) 140 Cal.App.4th 1395, 1401.)
2. Shell's cause of action for contribution.
Shell's amended complaint included a cause of action seeking contribution from BHCorp for its proportionate share of the Water Board's Abatement Order which required the former owners to pay for environmental remediation of the property. At the time the motion for judgment on the pleadings was before the trial court, an appeal by BHCorp was pending from a judgment denying its petition for writ of mandate, by which BHCorp challenged the Water Board's Abatement Order that named BHCorp as a responsible party. The trial court granted BHCorp's motion for judgment on the pleadings on this cause of action, without prejudice, on the ground that Shell could not seek contribution from BHCorp until the finality of BHCorp's appeal from the judgment that upheld the Water Board's determination.
Contribution among joint obligors is governed by Civil Code section 1432, which provides that "a party to a joint, or joint and several obligation, who satisfies more than his share of the claim against all, may require a proportionate contribution from all the parties joined with him." The statutory right to contribution is based on equity. (Morgan Creek Residential v. Kemp (2007) 153 Cal.App.4th 675, 684.) " '[W]here two or more parties are jointly liable on an obligation and one of them makes payment of more than [its] share, the one paying possesses a new obligation against the others for their proportion of what [it] has paid for them.' " (Ibid.) This equitable rule's purpose is to accomplish substantial justice by equalizing the common burden shared by co-obligors, and to prevent one obligor from profiting at the expense of others. (Ibid.)
The trial court's dismissal of the cause of action for contribution without prejudice does not deprive the judgment of appealability, "as 'claims that are dismissed without prejudice are no less final for purposes of the one final judgment rule than are adjudicated claims . . . .' [Citation.]" (Kurwa v. Kislinger (2013) 57 Cal.4th 1097, 1104.)
During the pendency of the instant appeal, BHCorp's appeal from the judgment denying its petition for writ of mandate to set aside the Abatement Order reached finality. On August 6, 2019, that judgment was affirmed by this court in Barclay Hollander Corporation v. California Regional Water Quality Control Bd. (2019) 38 Cal.App.5th 479 (Barclay Hollander), which upheld the trial court's determination that BHCorp is jointly and severally responsible with Shell for the cleanup and abatement of petroleum hydrocarbon compounds and other contaminants at the former Shell tank farm in the City of Carson. The Supreme Court denied a petition for review on October 23, 2019, and the remittitur issued the following day. Thus, Barclay Hollander is now final.
In its respondent's brief, which was filed before Barclay Hollander became final, BHCorp merely argues that "the trial court properly dismissed the contribution cause of action without prejudice, given that the Water Board order ha[d] not been reduced to a final judgment." However, no authority is cited by respondent for the proposition that the judgment on which the contribution claim is based must have reached appellate finality. In any event, now that the judgment in Barclay Hollander is final, there is no impediment to Shell proceeding with its cause of action against BHCorp for contribution. Therefore, Shell's cause of action for contribution shall be reinstated.
3. Shell's cause of action for equitable indemnity.
Shell's amended complaint also pled a cause of action seeking equitable indemnity from BHCorp for the cost of complying with the Water Board's Abatement Order. BHCorp moved for judgment on the pleadings on this cause of action on the ground that a cause of action for equitable indemnity does not accrue until the indemnitee suffers loss through payment of an adverse judgment or settlement, and here, the Water Board's Abatement Order was not the equivalent of a money judgment or settlement. The trial court agreed and granted BHCorp's motion for judgment on the pleadings on this cause of action. We conclude the trial court erred because Shell adequately pled a cause of action for equitable indemnity to recover from BHCorp monies that Shell has paid to comply with the Water Board's Abatement Order.
BHCorp's legal argument is predicated on language in Western Steamship Lines, Inc. v. San Pedro Peninsula Hospital (1994) 8 Cal.4th 100 (Western Steamship), that states " 'a fundamental prerequisite to an action for partial or total equitable indemnity is an actual monetary loss through payment of a judgment or settlement.' (Christian v. County of Los Angeles (1986) 176 Cal.App.3d 466, 471 [(Christian)].)" (8 Cal.4th at p. 110.)
The Christian decision, which Western Steamship cited with approval, explained the language quoted above as follows: "In Sunset-Sternau Food Co. v. Bonzi (1964) 60 Cal.2d 834, the Supreme Court stated the applicable rule of law as follows: 'The implied promise of indemnity and reimbursement applies only to the actual loss and not to the liability incurred. [Citations.] Thus, the cause of action does not arise until the agent has actually paid the obligation." (Id., at p. 843, fn. omitted.) [¶] The principle has been reiterated in subsequent decisions of the Supreme Court: [¶] In E. L. White, Inc. v. City of Huntington Beach (1978) 21 Cal.3d 497, 506, the court, citing the Sunset-Sternau case, stated: 'It is well settled that a cause of action for implied indemnity does not accrue or come into existence until the indemnitee has suffered actual loss through payment.' [¶] In People ex rel. Dept. of Transportation v. Superior Court (Frost) [(1986)] 26 Cal.3d 744, at pages 751-752, the Court explained: ' "The claim accrues at the time the indemnity claimant suffers loss or damage, that is, at the time of payment of the underlying claim, payment of a judgment thereon, or payment of a settlement thereof by the party seeking indemnity." [Citation.]' [¶] The right to indemnity ' "depends upon the principle that everyone is responsible for the consequences of his own wrong, and if others have been compelled to pay damages which ought to have been paid by the wrongdoer, they may recover from him." ' (Card Const. Co. v. Ledbetter (1971) 16 Cal.App.3d 472, 478, citing Herrero v. Atkinson (1964) 227 Cal.App.2d 69, 74.)" (Christian, supra, 176 Cal.App.3d at pp. 471-472.)
With respect to whether it is essential that the indemnity claimant incurred a loss through the payment of a money judgment, Carrier Corp. v. Detrex Corp. (1992) 4 Cal.App.4th 1522 (Carrier), cited by Shell in its opening brief but not mentioned in the respondent's brief, is on point. Carrier, a manufacturer of air conditioning units, contracted with Detrex to provide it with a system to remove the grease which accumulates on air conditioning coils during the manufacturing process. The contract provided that Detrex would design, manufacture, and install the system. (Id. at pp. 1524-1525.) Years later, it was discovered that PCE, a solvent, was being lost through the system's degreaser sump and had leached through the soil into the groundwater. The Water Board issued Carrier a formal cleanup and abatement order, and Carrier allegedly expended $10 million to rectify the PCE contamination. (Id. at pp. 1525-1526.) Carrier made a written demand to Detrex for indemnification. After Detrex declined the demand, Carrier sued for indemnification and Detrex obtained summary judgment. (Id. at p. 1526.)
On appeal, one of Detrex's arguments was that "there [were] no facts warranting indemnification since Carrier did not become liable to or pay damages to any third party." (Carrier, supra, 4 Cal.App.4th at p. 1529.) The reviewing court disagreed, stating: "It is true that in a traditional setting, an indemnitee becomes liable to a third party and/or pays damages to a third party in order to pursue an action against the indemnitor. (Civ. Code, § 2778, subd. 2; 14 Cal.Jur.3d, Contribution and Indemnification, § 47, p. 700.) However, we view the facts in this case as having the potential to merit indemnification. Carrier became liable to the State of California by virtue of the cleanup and abatement order of March 7, 1986. Had Carrier not complied with the order, it likely would have had to defend an injunctive action brought by the Attorney General. Additionally, if the Water Board did the abatement work, it would be entitled to recover the costs thereof from Carrier in a civil action. (Wat. Code, § 13304.) [¶] Under the facts presented, we do not believe Carrier should be penalized for taking appropriate preventative measures instead of sitting back and waiting to be sued by either its landlord, a neighbor, or a governmental agency." (Carrier, supra, 4 Cal.App.4th at pp. 1529-1530.)
Therefore, BHCorp's assertion that the Water Board's Abatement Order cannot be the basis of an equitable indemnity claim merely because it does not constitute a money judgment is simply incorrect. Like the plaintiff in Carrier, which sought indemnification for the cost of environmental compliance, Shell became liable to the state for complying with the Water Board's Abatement Order. Insofar as Shell has complied with the Abatement Order by paying for the cost of environmental cleanup of the property, Shell is entitled to maintain a cause of action against BHCorp for equitable indemnity, in order to recover cleanup costs which allegedly should have been borne by BHCorp.
Powerine Oil Co. v. Superior Court (2005) 37 Cal.4th 377, 389-390, and Certain Underwriters at Lloyd's of London v. Superior Court (2001) 24 Cal.4th 945, 950-951, involving the interpretation of indemnification provisions in insurance policies, are inapposite.
Accordingly, Shell's cause of action for equitable indemnity must be reinstated.
4. No merit to BHCorp's argument that its good faith settlement in the Acosta litigation bars Shell's causes of action herein for contribution and equitable indemnity.
In its respondent's brief, BHCorp contends the judgment on the pleadings with respect to the contribution and equitable indemnify claims may be affirmed on the alternative ground that BHCorp's good faith settlement in Acosta is a bar to Shell's equitable indemnity and contribution claims herein. (Code Civ. Proc., § 877.6, subd. (c); Gackstetter v. Frawley (2006) 135 Cal.App.4th 1257, 1271.) As explained, BHCorp's reliance on the good faith settlement determination that it obtained in Acosta is unavailing.
By way of background, upon entering into a $30 million settlement with the Acosta plaintiffs, BHCorp made a motion for an order barring Shell's noncontractual claims against BHCorp for indemnity and contribution, including the cost of environmental remediation of the property. In an order filed March 3, 2017, the trial court in Acosta ruled that BHCorp's $30 million settlement with the Acosta plaintiffs was in good faith, so as to shield BHCorp from any claim by Shell for equitable indemnity and contribution for monies that Shell had paid to the Acosta plaintiffs, but that the good faith settlement bar did not shield BHCorp from the cost of compliance with the Water Board's Abatement Order.
The Acosta court, in approving the settlement as being in good faith, found the $30 million to be paid by BHCorp was "in the ballpark" of BHCorp's proportionate liability as compared to the $90 million paid by Shell to the Acosta plaintiffs. The court also ruled that pursuant to Dole, the cost of complying with the Water Board's environmental cleanup order was not a relevant consideration in assessing the reasonableness of the proposed good faith settlement. The court observed that if the cost of complying with the Water Board's Abatement Order were included in the valuation of the case, the "ballpark" number would be in the range of $250 million to $400 million, in which case the $30 million payment by BHCorp would be an inadequate settlement amount, and therefore it would have exercised its discretion to deny the motion for approval of the good faith settlement.
Shell previously had entered into a good faith settlement with the Acosta plaintiffs for $90 million. In Dole Food Co., Inc. v. Superior Court (2015) 242 Cal.App.4th 894 (Dole), this court upheld that good faith settlement order, finding that Shell's payment of $90 million to the Acosta plaintiffs was within the range of Shell's proportionate liability. We further held that Shell's compliance with the Water Board's Abatement Order had been mandated by the state pursuant to its police power, and thus the cost of the environmental remediation, estimated at $146 million, was not to be included in the valuation of the good faith settlement. (Id. at p. 898.)
In its respondent's brief in the instant appeal, BHCorp contends that pursuant to Code of Civil Procedure section 877.6, Shell's claims for equitable indemnity and contribution are barred by BHCorp's $30 million settlement in Acosta, and that the trial court in Acosta "erroneously denied BHCorp" the full benefit of the good faith settlement, by refusing to extend the bar to the cost of investigation and remediation of the property.
BHCorp's argument is meritless because it failed to challenge the good faith settlement order in Acosta by way of a petition for writ of mandate following the 2017 ruling. "When a determination of the good faith or lack of good faith of a settlement is made, any party aggrieved by the determination may petition the proper court to review the determination by writ of mandate. The petition for writ of mandate shall be filed within 20 days after service of written notice of the determination, or within any additional time not exceeding 20 days as the trial court may allow." (Code Civ. Proc., § 877.6, subd. (e).) Thus, as this court held in O'Hearn v. Hillcrest Gym & Fitness Center, Inc. (2004) 115 Cal.App.4th 491, 498-499, any party wishing to challenge the merits of a good faith settlement determination must do so via a petition for writ of mandate in the manner and within the time prescribed by statute. Therefore, BHCorp's contention that the trial court in Acosta erred in limiting the impact of the good faith settlement bar is not reviewable at this juncture.
Consequently, there is no merit to BHCorp's argument that its $30 million good faith settlement in Acosta bars Shell's claims against BHCorp for contribution and equitable indemnity with respect to the Abatement Order.
5. Declaratory relief.
In the sixth cause of action, Shell sought declaratory relief with respect to its allegation that BHCorp was "obligated to indemnify and reimburse Shell for . . . any environmental investigation and remediation costs that have been and will be incurred by Shell in response to the orders issued by the [Water Board] relating to the Property." The trial court granted the motion for judgment on the pleadings with respect to this cause of action on the ground the declaratory relief claim was "purely derivative" of the causes of action for contribution and equitable indemnity, as to which judgment on the pleadings had also been granted.
Because our decision reinstates Shell's causes of action for contribution and equitable indemnity, the cause of action for declaratory relief shall also be reinstated.
III.
ATTORNEY FEES
The issue of attorney fees is premature.
Shell's final contention is that the trial court erred in awarding attorney fees for the Acosta litigation or for defendant Dole in the indemnity action. However, given the posture of the case, we do not reach the merits of this contention.
As indicated, following entry of judgment on March 8, 2018, BHCorp filed a motion for prevailing party attorney fees, seeking to recover its attorney fees in their entirety. BHCorp asserted that it had "defeated Shell's claims in this action on the merits after a series of bench trials and motions. By operation of law, the attorney fees provision in the [Indemnity Agreement] is made mutual. Cal. Civ. Code § 1717. BHCorp is therefore entitled to recover all of its reasonable attorney's fees, incurred not only in defending this action, but also those incurred in all three matters because they were necessary to defeat or diminish BHCorp's legal liability to Shell." The trial court's award of attorney fees to BHCorp included fees related to the equitable claims as to which BHCorp had obtained judgment on the pleadings.
Because we partially reverse the judgment by reinstating the three causes of action that were eliminated by the order granting the motion for judgment on the pleadings, the postjudgment order awarding attorney fees to BHCorp cannot stand, as an "order awarding attorney fees falls with a reversal of [the] judgment on which it was based." (Law Offices of Dixon R. Howell v. Valley (2005) 129 Cal.App.4th 1076, 1105.)
DISPOSITION
The judgment is reversed with respect to the causes of action for contribution, equitable indemnity, and declaratory relief, with directions to reinstate those causes of action, and is otherwise affirmed. The postjudgment order awarding attorney fees to BHCorp is reversed. The parties shall bear their respective costs on appeal.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
EDMON, P. J. We concur:
LAVIN, J.
EGERTON, J.