236 Cal. App. 4th 91
Cal. Ct. App.2015Background
- In 2007 Isaac Agam, Eran Cohen, and Eliyahu & Yifah Gavra formed a partnership to subdivide and develop a Los Altos Hills parcel into three lots, build houses, and sell for profit; Agam had 45%, Cohen 25%, the Gavras 30%.
- The partners purchased the property with a seller carryback (Driscoll) loan due Nov. 1, 2008; financing and personality conflicts followed, and the partners struggled to fund payoffs and construction.
- At the 11th hour the parties signed a "Driscoll Agreement" giving the Gavras protective rights (including discretion to record title back) in exchange for cash to help avoid default; the deed of trust called for by that agreement was never recorded.
- The Gavras subsequently refused to participate in construction or contribute beyond sale-related expenses; Agam and Cohen pursued construction financing (Agam applied alone) and later sold the undeveloped lots at a large overall loss.
- Agam sued for breach of the Partnership Agreement and fiduciary duties; the Gavras cross-claimed including enforcement of the Driscoll Agreement. After a bench trial the court found the Gavras breached the Partnership Agreement and fiduciary duties, awarded Agam reliance (out-of-pocket) damages of about $732,201 (plus small accounting amount) and attorney fees; the Gavras appealed.
Issues
| Issue | Plaintiff's Argument (Agam) | Defendant's Argument (Gavras) | Held |
|---|---|---|---|
| Proper allocation of burden for reliance damages and causation | Agam: he met burden by proving his reliance expenditures; the Gavras must prove those expenditures were unnecessary or that Agam would have lost on full performance | Gavras: trial court shifted burden to them improperly; Agam should have proved that, but-for their breach, the project would have been profitable (i.e., Borel would have approved joint loan, construction would have occurred, profits would follow) | Court: affirmed allocation — plaintiff proves reliance expenditures and causation; defendant must show expenditures were unnecessary and/or the plaintiff would have lost had contract been performed; Gavras failed to meet that burden |
| Sufficiency of evidence that Agam would have lost if contract performed | Agam: presented evidence of expenditures and causal link from Gavras’ refusal to cooperate with construction; Borel offered smaller loan options that could have reduced losses | Gavras: evidence shows loans/joint financing unlikely; Agam could not have met loan-to-cost and loan-to-value requirements; thus reliance award should be reduced or eliminated | Court: substantial evidence supports finding Gavras failed to prove with reasonable certainty how much Agam would have lost on full performance; evidence supported reasonable inference that smaller loans or alternative construction could have reduced losses, so no reduction warranted |
| Enforceability of the Driscoll Agreement (procured by fiduciary breach) | Agam: Driscoll Agreement was product of adverse pressure by the Gavras and thus procured by fiduciary breach; unenforceable | Gavras: did not breach fiduciary duties in negotiating the Driscoll Agreement; it should be enforceable | Court: substantial evidence (threats, last-minute negotiation, protective deed discretion favoring Gavras) supported breach of fiduciary duties; Driscoll Agreement unenforceable |
| Attorney fees award | Agam: fees recoverable as prevailing party | Gavras: fees should be reversed if primary judgment reversed | Held: because judgment for Agam is affirmed, attorney fee award stands |
Key Cases Cited
- Careau & Co. v. Security Pacific Business Credit, Inc., 222 Cal.App.3d 1371 (1990) (elements of breach of contract claim)
- Buxbom v. Smith, 23 Cal.2d 535 (1944) (reliance damages include reasonable outlay toward performance)
- Cederberg v. Robison, 100 Cal. 93 (1893) (longstanding rule that outlay in preparation is recoverable)
- United States v. Behan, 110 U.S. 338 (1884) (nonbreaching party entitled to actual outlay unless breaching party proves otherwise)
- Mendoyoma, Inc. v. County of Mendocino, 8 Cal.App.3d 873 (1970) (plaintiff establishes expenditures; defendant may show they were unnecessary)
- Troyk v. Farmers Group, Inc., 171 Cal.App.4th 1305 (2009) (causation requirement in contract damages)
- Sonic Manufacturing Technologies, Inc. v. AAE Systems, Inc., 196 Cal.App.4th 456 (2011) (standard of review when appellant had burden of proof below)
- Enea v. Superior Court, 132 Cal.App.4th 1559 (2005) (partners owe trustee-like fiduciary duties to each other)
- Amtower v. Photon Dynamics, Inc., 158 Cal.App.4th 1582 (2008) (factual question for breach of fiduciary duties reviewed for substantial evidence)
- Bausch & Lomb Inc. v. Bressler, 977 F.2d 720 (2d Cir. 1992) (reliance recovery offset by losses defendant proves plaintiff would have suffered on full performance)