577 B.R. 858
Bankr. C.D. Cal.2017Background
- SunCal Oak, LLC (the Debtor) and SunCal Management, LLC (SCM) had a Development Management Agreement (DMA) under which SCM would manage development of the Oak Knoll Project and receive a 4% management fee (3% operating + 1% sales) and reimbursement of third‑party project expenses.
- From DMA execution (Dec. 29, 2005) through the Debtor’s Nov. 19, 2008 bankruptcy petition, the Debtor paid SCM about $4 million in management fees and $3 million in expense reimbursements. Lehman’s Sept. 2008 bankruptcy halted funding; the Trustee later conveyed the project to Lehman for $48 million.
- The Court previously granted Defendants summary judgment on the Trustee’s breach‑of‑contract claim and reserved decision on the Trustee’s unjust enrichment/restitution claim to determine whether SCM’s damages exceeded the roughly $7 million the Debtor paid SCM.
- Defendants moved (supplementally) for summary judgment on unjust enrichment, arguing they met their initial burden by showing the Trustee had no evidence that payments exceeded SCM’s damages; they also submitted evidence (budgets, declarations) that SCM incurred unreimbursed costs and expected additional management fees (≈$21M gross; ~$2–3M expected profit at 10–15%).
- The Trustee opposed, arguing Defendants failed to present admissible evidence of SCM’s damages or lost profits, attacking admissibility and Rule 26 disclosures for witnesses (Bruce Elieff and Danielle Harrison) and disputing application of DMA termination liquidated‑damages clause and attorneys’ fees.
- The Court concluded Defendants met their initial burden of production (including admissibility of Elieff/Harrison testimony and business records) and the Trustee produced no evidence creating a genuine issue that payments exceeded SCM’s contractual damages; it granted summary judgment to Defendants on the unjust enrichment/restitution claim.
Issues
| Issue | Trustee's Argument | Defendants' Argument | Held |
|---|---|---|---|
| Whether Trustee may recover restitution/unjust enrichment for $7M paid to SCM | Trustee seeks restitution of management fees/expense payments; asserts payments exceeded SCM’s damages | SCM says recoverable only if payments exceed SCM’s damages; SCM’s damages (unreimbursed costs + lost profits + fees) exceed payments | Judgment for Defendants: Trustee failed to show payments exceeded SCM’s damages, so no restitution |
| Which party bears burdens on summary judgment (initial production vs ultimate proof) | Trustee contends Defendants must prove SCM’s damages amount | Defendants assert they met initial production by showing Trustee lacks evidence; burden then shifts to Trustee | Court: Defendants had an initial burden of production under Nissan Fire/Celotex; they met it; Trustee failed to produce opposing evidence |
| Admissibility of Elieff/Harrison testimony and May 2008 Project Budget to prove expected fees/profits | Trustee: testimony is speculative, hearsay, expert opinion not disclosed under Rule 26; inadmissible under Rules 701/702 | Defendants: witnesses are business insiders with particularized knowledge; budgets are business records; testimony admissible as lay opinion and factual authentication | Court: Overruled most objections; allowed Elieff/Harrison testimony and Project Budget as admissible foundational evidence under Rule 701 and business records doctrine |
| Measure and components of SCM's damages (including liquidated termination fee and attorneys' fees) | Trustee: §6.2 (90% termination fee) inapplicable if Debtor breached; attorneys' fees not recoverable in quasi‑contract claim | Defendants: expectancy damages include unreimbursed costs, lost profits, and contractual termination/fee provisions and attorneys' fees under DMA §9.6 | Court: Did not decide definitively on §6.2 applicability but held Defendants' evidentiary showing of unreimbursed costs (and potential lost profits/fees) sufficed to show SCM’s damages exceed payments; attorneys' fees may be included in damages if warranted |
Key Cases Cited
- Applied Equipment Corp. v. Litton Saudi Arabia Ltd., 7 Cal.4th 503 (Cal. 1994) (expectation damages measure for contract breach)
- Lewis Jorge Const. Mgmt., Inc. v. Pomona Unified Sch. Dist., 34 Cal.4th 960 (Cal. 2004) (expectation interest and contract damages principles)
- Nissan Fire & Marine Ins. Co. v. Fritz Cos., 210 F.3d 1099 (9th Cir.) (moving party's initial burden on summary judgment)
- Celotex Corp. v. Catrett, 477 U.S. 317 (U.S. 1986) (party moving for summary judgment may show absence of evidence supporting opponent)
- Harriman v. Tetik, 56 Cal.2d 805 (Cal. 1961) (breaching party may recover consideration paid to extent it exceeds damages to other party)
- Bird v. Kenworthy, 43 Cal.2d 656 (Cal. 1954) (burden on defaulting vendee to show payments exceed vendor's damages)
- United States v. Alvarez, 999 F.2d 544 (9th Cir.) (restitution traditionally analyzed as restitution in favor of breaching party)