Sugarman Family Partners v. Banc of Cal. CA4/3, G059219

Background

The Steven and Ainslie Sugarman Trust (the Trust) held a warrant to purchase 960,000 Class B (nonvoting) shares in Banc of California (BofC); warrants could convert to voting shares only if transferred in a “Widely Dispersed Offering.”
In August 2016 while CEO, Steven Sugarman executed a "Subscription–Irrevocable Election" (SIE) electing to irrevocably exercise 480,000 warrant shares in four tranches and requiring surrender of the original warrant; the Trust received the first 90,000 nonvoting shares in Sept. 2017.
On Dec. 27, 2017 the Trust assigned a 130,000–share tranche to Sugarman Family Partners (Michael Sugarman), who reviewed BofC’s SEC filings stating that assignees in a widely dispersed offering could receive voting shares; the filings did not disclose the Trust’s SIE.
Sugarman Partners submitted subscription paperwork requesting voting shares; BofC issued 77,413 nonvoting shares and refused to issue voting shares.
Sugarman Partners sued for specific performance (or damages). The trial court granted summary judgment for BofC, finding the SIE unambiguous and irrevocable and binding on the Trust prior to assignment; the Court of Appeal affirmed.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether federal securities/public SEC filings prevent enforcement of the private SIE against the assignee	Sugarman: as a “public investor” it relied on SEC disclosures and BofC cannot rely on a private, nondisclosed agreement to alter public representations	BofC: this is a state-law contract dispute; Sugarman stands in the Trust’s shoes and is bound by Trust’s prior election	Held: Rejected. Assignment bound Sugarman to Trust’s actions; federal securities argument not raised below and in any event does not override contract law here
Whether the SIE is ambiguous or revocable (contract interpretation)	Sugarman: SIE should be read as revocable or at least ambiguous given 10b5-1 context and SEC materials	BofC: SIE’s language is clear—repeatedly calls the election "irrevocable," specifies Class B nonvoting shares, and requires surrender of the warrant	Held: SIE unambiguous; PG&E rule considered but language not reasonably susceptible to revocable interpretation; summary judgment proper
Whether the SIE was revoked before assignment or otherwise not effective as to the Trust	Sugarman: Steven believed SIE was a formality and could be revoked or amended; no effective surrender/notice occurred	BofC: No evidence SIE was revoked or that BofC was notified; assignment documents are consistent with sale of the already-elected Class B shares	Held: No triable issue—no evidence of revocation before assignment
Whether Steven, acting alone, had authority to bind the Trust by executing the SIE	Sugarman: Trust requires all co-trustee signatures for trustee powers; Steven lacked authority to forfeit right to sell warrants	BofC: Trust expressly authorizes a single trustee to exercise or sell stock subscription/conversion rights; warrant is an option	Held: Steven had authority under the Trust terms; no triable issue on authority

Key Cases Cited

Pacific Gas & E. Co. v. G. W. Thomas Drayage & Rigging Co., 69 Cal.2d 33 (1968) (parol-evidence rule and when extrinsic evidence may show latent ambiguity)
Waller v. Truck Ins. Exchange, Inc., 11 Cal.4th 1 (1995) (court determines contract interpretation as a question of law)
Curcio v. Svanevik, 155 Cal.App.3d 955 (1984) (party may not raise a new theory on appeal not presented at trial)
California Bank & Trust v. Piedmont Operating Partnership, L.P., 218 Cal.App.4th 1322 (2013) (assignee stands in assignor's shoes and takes rights subject to prior defenses)
Lloyd’s Underwriters v. Craig & Rush, Inc., 26 Cal.App.4th 1194 (1994) (objective intent of parties from contract language)
Ratcliff Architects v. Vanir Construction Management, Inc., 88 Cal.App.4th 595 (2001) (give force and effect to every contractual provision)
Robert Half Internat., Inc. v. Franchise Tax Bd., 66 Cal.App.4th 1020 (1998) (warrant is an option to purchase shares)
Universal Sales Corp. v. California etc. Mfg. Co., 20 Cal.2d 751 (1942) (forfeitures disfavored; must show unmistakable intention to forfeit)