Pauly's had a successful debut at the Plant, with lines of customers out the door and steadily increasing revenue. Approximately six months after Pauly's opened, Al's Beef opened two doors down. Pauly's business quickly declined and, within six months of the debut of Al's Beef, Pauly's at the Plant had closed.
Solid Restaurant Ventures and Orozco sued Vornado and Cole (a collection of related entities that had acquired the Plant from Vornado) for fraud. Following a trial, the jury rendered verdicts that Vornado had committed the torts of intentional misrepresentation and concealment in the negotiation of the lease and awarded Solid Restaurant Ventures compensatory damages, the bulk of which were for Pauly's lost profits. Orozco also sought equitable relief from Vornado and Cole in the form of rescission of the lease and guaranty. The trial court ruled that Orozco was not entitled to rescission of the guaranty, and neither Orozco nor Solid Restaurant Ventures was entitled to attorney's fees.
Vornado, Solid Restaurant Ventures, and Orozco have all appealed to this court, alleging either error by the jury or the trial court or both. On appeal, Vornado maintains that the jury verdict that it committed the tort of intentional misrepresentation and the jury's award of lost profits lacked substantial evidence. Vornado also argues that the trial court erred in admitting expert testimony offered by Solid Restaurant Ventures' expert on lost profits. Orozco has cross-appealed the trial court's finding that he was not entitled to rescission of the guaranty. Orozco and Solid Restaurant Ventures have filed a separate appeal of the trial court's denial of attorney's fees.
For reasons that we will explain, we conclude that substantial evidence supports both the jury finding that Vornado committed the tort of intentional misrepresentation and the jury's award of lost profits. We find no error in the trial court's admission of Solid Restaurant Ventures' expert testimony. We therefore find no merit in Vornado's attack on the judgment. However, as to Orozco's cross-appeal regarding rescission of the guaranty, we conclude that
With respect to Orozco's and Solid Restaurant Ventures' appeal of the trial court's ruling on attorney's fees, we affirm the order's conclusion that neither was entitled to attorney's fees under the terms of the lease and Civil Code section 1717. Nevertheless, we reverse the attorney's fees order because we conclude that Orozco
I. FACTS AND PROCEDURAL BACKGROUND
These facts are taken from certain undisputed facts and the evidence presented to the jury. We resolve any conflicts in the evidence-including credibility of witnesses-in favor of the jury's findings. (See Nestle v. City of Santa Monica (1972)
A. Pauly's at the Plant
Orozco, who had extensive experience in the restaurant business and had already developed a successful chain of "quick-service"
In May 2011, Orozco contacted Amber Weltner, who worked for Vornado Realty Trust and its subsidiary WPV San Jose, LLC (later succeeded by Vornado San Jose, LLC) (collectively, Vornado), and who was responsible for negotiating leases at the Plant. Weltner's job was to lease space at the Plant as quickly as possible, and she earned commission for the leases she negotiated in addition to her salary.
Orozco first requested a space between the restaurants Wingstop and Five Guys, but that space was already leased out. Orozco told Weltner that he had investigated Five Guys and felt it would not compete with his own restaurant. Orozco emphasized to Weltner that it was important for him to evaluate operations that were selling hot dogs.
At subsequent meetings Orozco would ask Weltner the same question whether they were considering any other restaurants with either competing concepts or products. Each time she told Orozco no.
While she was negotiating with Orozco, Weltner was also personally negotiating a lease at the Plant with another business that sold hot dogs, sausages, and french fries: a restaurant chain founded in Chicago called "Al's Beef." On July 7, 2011, the president of Al's Beef's parent company raised several issues with Weltner, including his need for "exclusive" language in the lease for Al's Beef to the effect that the Plant would not allow another tenant to sell "Italian Beef sandwiches, Italian Sausage sandwiches and/or Hot Dog sandwiches" as its primary business and that Al's Beef "shall have the unrestricted and exclusive right to sell said products and services." Weltner responded that she could not agree to the proposed "exclusive" language and later also noted that "there are others in the center that this would [a]ffect." Ultimately, Al's Beef received a more limited exclusive in its lease to sell hot beef sandwiches, a fact Orozco discovered only in 2014 in the course of litigation.
Shortly before signing the lease at the Plant, Orozco formed a limited liability company named Solid Restaurant Ventures, LLC (Solid Restaurant Ventures) to operate Pauly's. At the end of September 2011, Orozco signed a 10-year lease on behalf of Solid Restaurant Ventures for retail space at the Plant, effective October 20, 2011. On the day Orozco signed the lease, he again asked Weltner if there were any other restaurants being considered for the Plant that would offer competing concepts or competing products. She said no. Orozco told Weltner that this information was "critical" for him, and he testified at trial that he would not have entered the lease had he known at the time that Al's Beef had signed a lease for space at the Plant. Orozco believed it was reasonable to rely on Weltner in part because he believed her and viewed her as a professional who worked for "a reputable large company." For her work securing the Pauly's and Al's Beef leases, Weltner received thousands of dollars in commissions.
Orozco did not read the entire 80-page lease before signing it because, in his view, the "major deal points" were included in the front part of the lease. The lease contained an integration clause as well as several disclaimers indicating that the landlord had not made any representations about other tenants, including future tenants, at the Plant. For example, the lease stated that the site plan attached to the lease did not constitute any "representation
The lease also included an exhibit entitled "Prohibited Uses and Exclusive Uses," that prohibited Solid Restaurant Ventures from using its premises for "exclusive uses set forth in leases of currently existing tenants in the Shopping Center" as listed in the exhibit. For instance, the exhibit's list included a reference to Five Guys and indicated that the landlord of the Plant could not execute a lease with another tenant within a certain area of the site plan whose primary business was "the sale of hamburgers, cheeseburgers and french fries." Al's Beef does not appear on this exhibit and was not referenced anywhere in the lease for Pauly's.
In addition to signing the lease on behalf of his wholly-owned subsidiary, Solid Restaurant Ventures, Orozco also signed in his individual capacity a
After signing the lease for the space at the Plant, Orozco began extensive preparations for Pauly's, including engaging in construction for approximately five months. In April 2012, approximately seven months after he had signed the lease on behalf of Solid Restaurant Ventures and while he was about 30 percent of the way through the construction phase for Pauly's, Orozco discovered Al's Beef was coming to the Plant when he saw a "coming soon" sign about two doors down from Pauly's.
Orozco called the property manager for the Plant and told her that Al's Beef was a "big problem." After a representative of the Plant emailed Orozco a copy of Al's Beef's menu, Orozco responded in an email that he saw a "HUGE conflict here" and that Al's Beef would "undercut" his own business given their "sausage and hotdog [sic ] offering and pricing." The property manager for the Plant, Nancy Wooten, testified that she recalled Orozco was "upset," and that she had told him that Al's Beef was having "financial problems." Orozco was told by the landlord not to worry about Al's Beef because of these financial issues, and Orozco proceeded with construction.
In late October 2012, Pauly's at the Plant opened for business. The opening was a success, with lines out the door. Sales continued to increase at Pauly's even beyond this opening period. According to Brian Skarbek, the financial advisor for Pauly's who maintained its financial records, the sales at Pauly's "trended up" about 15 percent for the time period from November 2012 through shortly before Al's Beef later opened in April 2013. Multiple witnesses testified that Pauly's was well-managed. At trial, the defense's sole expert, Robert Patterson, conceded that Pauly's sales were "good" in the two weeks prior to the opening of Al's Beef.
The jury also heard testimony that Vornado was in the process of selling the Plant in 2012, culminating in Cole's purchase of the shopping center in April 2013. A sales offering memorandum produced
In mid-April 2013 (approximately six months after Pauly's debut), Al's Beef opened for business at the Plant. Within one week, the sales at Pauly's had declined by approximately 24 percent. Pauly's sales dropped by roughly 35 percent over a three-week period, and Orozco's financial advisor, Skarbek, estimated sales declined by approximately 30 percent overall. The defense's expert, Patterson, also testified he saw a decline of roughly 30 percent in sales, which he viewed as caused by Al's Beef opening "to some extent."
Skarbek eventually advised Orozco that he should close Pauly's. About six months after the opening of Al's Beef, in November 2013, Orozco closed Pauly's due to dramatically declining sales.
In August 2013, three months before the closing of Pauly's at the Plant, Orozco and Solid Restaurant Ventures filed a lawsuit against Vornado and the business entities that had acquired the Plant, namely Cole MT San Jose CA, LP, Cole Real Estate Investments, Cole Credit Property Trust IV, Inc., and Cole GP MT San Jose CA, LLC (collectively, Cole).
As detailed further below, the trial court first conducted a jury trial on the fraud claims. After the jury found that Vornado had committed fraud, the jury next considered damages. Following the jury's award of damages, the trial court ruled on the claims sounding in equity. After entering judgment, the trial court issued an order on attorney's fees.
1. Liability Phase
The trial court bifurcated the jury trial into liability and damages phases, which were heard by the same jury. Trial in the liability phase consisted of approximately 10 court days of witness testimony, during which the parties presented evidence on Vornado's liability on the first, second, and third causes of action related to fraud, as well as whether the underlying conduct of Vornado constituted "malice, oppression, or fraud" sufficient to warrant punitive damages.
2. Damages Phase
The damages portion of the jury trial consisted of two days of witness testimony. We discuss the evidence presented in this phase of the trial in more detail in our examination of Vornado's claim that the jury's finding of damages lacked substantial evidence. Ultimately, the jury awarded $ 872,141 in total damages to Solid Restaurant Ventures, which was comprised of: (i) $ 676,967 for lost profits; (ii) $ 129,462 for operational losses incurred by Pauly's at the Plant; and (iii) $ 65,712 for startup costs for another Pauly's, located in downtown San Jose. Vornado challenges on appeal only the lost profits award.
C. Trial Court's Ruling on Rescission of the Guaranty and Entry of Judgment
Following the jury's verdicts, the trial court turned to the task of determining the remaining equitable issues, including rescission. Orozco and Solid Restaurant Ventures moved the trial court for rescission of the lease and guaranty, among other claims. They also sought a declaration that the lease and guaranty were unenforceable because the agreements had been procured by fraud.
On March 30, 2016, the trial court entered judgment. The judgment stated that Solid Restaurant Ventures shall recover $ 872,141 in damages with interest from Vornado for the fraudulent misrepresentation and concealment causes of action. Regarding rescission of the guaranty, the trial court rejected that remedy as to Orozco and entered judgment in favor of Vornado and Cole. As to the cause of action for declaratory relief, the trial court ruled it was "impossible and unnecessary" to issue the requested relief and declined to do so.
Following the judgment, Vornado moved both for a new trial and judgment notwithstanding the verdict. The trial court denied both motions. Vornado timely appealed the judgment entered on March 30, 2016, as well as the postjudgment order denying its motion for judgment notwithstanding the verdict and motion for new trial. Orozco filed a cross-appeal from the judgment. This court assigned Vornado's appeal (including Orozco's cross appeal)case No. H044014.
D. Trial Court's Ruling on Attorney's Fees
Several months after the trial court entered judgment, Solid Restaurant Ventures
Pursuant to an order previously issued by this court, we consider appeals H044014 and H044062 together.
Vornado attacks the judgment on two grounds. First, it argues that the jury's finding that Solid Restaurant Ventures justifiably relied on any misrepresentation was not supported by sufficient evidence. Second, it contends there was insufficient evidence to support the jury's award of lost profits damages. As explained further below, we reject Vornado's contentions that the judgment should be reversed on either of these grounds.
In his cross-appeal of the judgment, Orozco contends the judgment should be reversed because he was entitled to rescind the guaranty, and the trial court erred in refusing to do so. We agree with Orozco and therefore reverse this aspect of the judgment.
In their separate appeal, Orozco and Solid Restaurant Ventures argue that the trial court erred in denying them attorney's fees under Civil Code section 1717. Alternatively, Orozco argues he is entitled to attorney's fees as the prevailing party under the attorney's fee provision in the guaranty. We agree, but only as to the latter argument. Accordingly, we reverse the trial court's postjudgment order relating to attorney's fees and remand to the trial court for determination of the amount of attorney's fees Orozco incurred in prevailing in rescission of the guaranty.
A. Reasonable Reliance
Vornado contends that there was insufficient evidence to support the jury's finding that Vornado had committed the tort of intentional misrepresentation. Before turning to the merits of Vornado's claim, we address Solid Restaurant Ventures' contention that Vornado has waived the claim by failing to summarize both the unfavorable as well as the favorable evidence.
1. Vornado's Recitation of the Facts on Appeal
"When a finding of fact is attacked on the ground that there is not any substantial evidence to sustain it, the power of an appellate court begins and ends with the determination as to whether there is any substantial evidence contradicted or uncontradicted which will support the finding of fact." (
A party presenting an argument of insufficient evidence may not simply reargue its version of the facts but rather has a duty to "set forth the version of events most favorable to [respondents]"; indeed, "[w]here a party presents only facts and inferences favorable to his or her position, the 'contention that the findings are not supported by substantial evidence may be deemed waived.' " (See Schmidlin v. City of Palo Alto (2007)
Vornado's briefing falls short of this standard. For example, in making its argument that the facts do not show reasonable reliance, Vornado fails to mention Orozco's testimony about the many instances in which he asked Vornado's employee Weltner about any competing concepts or restaurants, her answer that there were no such competitors, and Orozco's statements to Weltner emphasizing the importance of knowing which other restaurants at the Plant would be selling hot dogs. While Orozco and Solid Restaurant Ventures point out such deficiencies in Vornado's briefing, they do not explicitly request that we determine Vornado has forfeited its claim on appeal. We do not find Vornado's failure to summarize all of the evidence so egregious that we should deem its arguments forfeited. Therefore, we will consider the merits of its contentions. (See Pope v. Babick (2014)
2. Substantial Evidence of Reasonable Reliance
" ' "Except in the rare case where the undisputed facts leave no room for a reasonable difference of opinion, the question of whether a plaintiff's reliance is reasonable is a question of fact." ' " ( Thrifty Payless, Inc. v. The Americana at Brand, LLC (2013)
Vornado contends that the jury's finding that Solid Restaurant Ventures reasonably relied on a false representation made by Vornado lacked substantial evidence. The crux of Vornado's argument is that Solid Restaurant
As an initial matter, the issue of Orozco's failure to read the entire lease is not dispositive, given the ample evidence of fraud. (See Chapman v. Skype Inc. (2013)
The evidence heard by the jury contained substantial evidence that Orozco told Weltner multiple times about his culinary concept and asked her many times, including on the day he signed the lease on behalf of Solid Restaurant Ventures, whether restaurants with either competing concepts or products were being considered. Each time she told Orozco no. At trial, Weltner testified at times that she did not "recall" such conversations, but she never denied they happened. Orozco further testified that he trusted Weltner given that she was a "professional" and worked for a "supposedly reputable company." Based on this evidence, it appears clear that the jury found Orozco's testimony credible, and its resolution of conflicting evidence upon the fact question of justifiable reliance is "conclusive upon this reviewing court." ( Horn v. Guaranty Chevrolet Motors (1969)
This case is thus distinguishable from the cases cited by Vornado in support of its contention that the jury lacked sufficient evidence of reasonable reliance. For example, Hinesley v. Oakshade Town Center (2005)
Here, Orozco would not have discovered the misrepresentations by reading the lease, which did not even mention Al's Beef. There is ample evidence that Orozco did not know about Al's Beef until after he signed the lease and had begun construction for Pauly's. Weltner told him that no competing restaurants were being considered for the few remaining spaces at the shopping center, including the space that was in close proximity to Pauly's. When Orozco first learned that Al's Beef was going to open virtually next door, the Plant's manager (also a Vornado employee)
Finally, it is well-established that the kind of disclaimers and exculpatory documents-such as the "estoppel" attached to the lease and signed by Orozco that disavowed any representations made by landlord or its agents to him-do not operate to insulate defrauding parties from liability or preclude Orozco from demonstrating justifiable reliance on misrepresentations. ( McClain v. Octagon Plaza, LLC (2008)
As Vornado does not attack any other aspects of the jury's finding that it committed the tort of intentional misrepresentation, we reject Vornado's claim that the jury erroneously found it liable on this ground.
B. Lost Profits
Vornado also contends that insufficient evidence supports the jury's award of lost profits. As described above, after hearing the evidence related to damages, the jury returned with a verdict awarding Solid Restaurant Ventures compensatory damages totaling $ 872,141, which included a unanimous verdict for damages representing "Startup costs for the Plant or lost profits for [Pauly's at] the Plant" totaling $ 676,967.
1. Evidence Presented at Trial
We briefly present the evidence heard by the jury related to lost profits.
Orozco testified that Pauly's had been profitable for five months during the period before Al's Beef opened. Skarbek, Orozco's bookkeeper and financial advisor, testified how he calculated and extrapolated Pauly's lost profits using the historical weekly sales data that existed from when Pauly's was in operation and before the opening of Al's Beef. From this historical sales data
More specifically, Skarbek graphed the weekly sales numbers that existed for the 21 weeks of sales at Pauly's starting from the week ending November 25, 2012 through the week ending April 14, 2013 (the week before Al's Beef opened). He observed from the numbers as well as the trend line he applied to those numbers that-prior to Al's Beef opening-the customer base and weekly sales at Pauly's were increasing. He therefore, in collaboration with Jeff Back (another expert for Solid Restaurant Ventures), concluded that it was reasonable to predict that weekly sales would increase going forward and to apply the trend line further to determine what the future sales would be on a "year-by-year basis for the lease."
After Skarbek calculated those yearly amounts through the life of the lease, he then deducted expenses-such as for costs of goods, labor, overhead, and rent-to arrive at a net income by year. For example, for the first year, he and Back projected a "very reasonable" income of $ 59,915 based on total sales of $ 586,861. For the nine years following, he and Back concluded that the growth rate would "temper some amount" or "level out to some degree." Accordingly, they used a smaller growth number for the later years and through the date of March 31, 2022, the end of the lease, and increased sales numbers by just 5 percent to account for inflation and a minimal increase in customer base. Ultimately, Skarbek calculated lost profits as totaling over $ 1.6 million over the life of the 10-year lease.
Skarbek then discounted these lost profits to net present value. In his words, "[a] higher reward, higher risk venture would carry a higher discount rate when reducing it to today's dollars. A lower risk, lower reward venture would carry a lower rate." He testified initially in favor of using a 5 percent discount rate, which yielded a lost profits figure of approximately $ 1.4 million (discounting the figure of $ 1.6 million). He felt this rate was appropriate for this "high risk, high reward" context and was still "very moderate as far as reward." For comparison purposes, he noted that applying a 26 percent discount rate (as used by the defense's expert), he calculated approximately $ 924,932 and using a 12 percent discount rate he calculated approximately $ 1.2 million in lost profits.
On cross-examination, Skarbek acknowledged he had made a mistake in his interpretation of the data sheet that he relied upon to justify the 5 percent
The defense offered the expert testimony of Patterson, a consultant in the hospitality industry and who had also testified during the liability phase. In his 10-year projection of profits, Patterson relied on the same weekly sales data used by Skarbek, that is the 21 weeks of data from just after the "honeymoon period" to the week before the opening of Al's Beef. Patterson also relied on many of Skarbek's computations of costs, such as labor costs, that he considered "reasonable." However, based on his analysis and applying a discount rate of 26 percent, Patterson calculated Pauly's lost profits as $ 498,192.
Patterson had not worked for a new "quick service" restaurant, and he testified that he did not know how to compute a trend line and was instead basing his computation on averages rather than any trend. On rebuttal, Back, who had also testified during the liability phase and is a "restaurant broker," described how he had worked with Skarbek to "conceptual[ize]" the lost profits analysis in order to keep the assumptions and projections "moderate."
Ultimately, the jury returned with a verdict awarding Solid Restaurant Ventures damages in the total amount of $ 872,141, including an award of lost profits for Pauly's at the Plant totaling $ 676,967.
2. Admission of Expert Testimony
Before turning to the issue of evidence in support of the lost profits verdict, we first address Vornado's argument that the trial court abused its discretion in allowing Skarbek, whom it characterizes as "incompetent," to testify as an expert in the damages phase of the trial. Vornado contends that the trial court erred in allowing admission of this testimony because Skarbek had no experience with lost profits and based his conclusions on "flawed methodology and flawed assumptions."
We conclude that Vornado waived this contention by failing to object to Skarbek's qualifications to testify as an expert in the damages phase of the
During the damages phase of the trial, the trial court specifically asked Vornado's counsel whether Skarbek should be
In any event, we have reviewed the testimony of Skarbek and see no basis for concluding that the trial court abused its discretion in allowing Skarbek to testify as an expert. Skarbek had experience in providing financial services to restaurants, including analyzing trending sales, and he possessed relevant education in accounting, finance, and statistics. The trial court's gatekeeping role as to expert testimony, including as to lost profits, is to determine "whether the expert opinion is founded on sound logic," rather than to assess its "persuasiveness." ( Sargon Enterprises, Inc. v. University of Southern California (2012)
Skarbek's testimony relied on actual sales data generated by Pauly's, and Skarbek made logical extrapolations of that data to arrive at his conclusions. As the California Supreme Court has cautioned, "[t]he lost profit inquiry is always speculative to some degree. Inevitably, there will always be an element of uncertainty. Courts must not be too quick to exclude expert evidence as speculative merely because the expert cannot say with absolute
3. Substantial Evidence of Lost Profits
We now turn to Vornado's contention that the jury lacked sufficient evidence to make its determination as to the amount of lost profits for Pauly's location at the Plant over the 10 years of the lease. We review a lost profits award for substantial evidence. ( Greenwich S.F., LLC v. Wong (2010)
The California Supreme Court set out in Sargon the standard for the appropriate calculation of lost business profits. "Regarding lost business profits, the cases have generally distinguished between established and unestablished businesses." ( Sargon, supra ,
" 'On the other hand, where the operation of an unestablished business is prevented or interrupted, damages for prospective profits that might otherwise have been made from its operation are not recoverable for the reason that their occurrence is uncertain, contingent and speculative. [Citations] ... But although generally objectionable for the reason that their estimation is conjectural and speculative, anticipated profits dependent upon future events are allowed where their nature and occurrence can be shown by evidence of reasonable reliability.' " ( Sargon, supra ,
" 'Where the fact of damages is certain, the amount of damages need not be calculated with absolute certainty. [Citations.] The law requires only
As an initial matter, we note that Vornado mischaracterizes Pauly's as an "unestablished" business. As there is no dispute that Pauly's operated for approximately one year at the Plant, Pauly's was to some degree "established." Therefore, there was a "track record" by which to base the projections of future lost profits, which is what both sides' experts in fact did when they used 21 weeks of Pauly's actual sales data. (See Asahi Kasei Pharma Corp. v. Actelion Ltd. (2014)
While Vornado argues now that Pauly's was a new and untested concept with an uncertain likelihood of success, it ignores contradictory evidence, including the conclusion of its own senior executive, who approved Pauly's 10-year lease and concluded at the time that Pauly's had a high likelihood of success. Indeed, the defense's own expert, Patterson, reviewed the same underlying sales data and did not assert that lost profits were zero or nominal, but
Vornado also argues the evidence supporting the jury's award of lost profits is insufficient because Solid Restaurant Ventures presented no evidence of the experience of similar businesses to demonstrate prospective profits. Vornado misconstrues the caselaw. Even in cases of unestablished businesses, while a plaintiff may base its lost profits on the experience of comparable businesses, there is no requirement that it must do so. (See, e.g., Kids' Universe v. In2Labs (2002)
" 'The question as to the amount of damages is a question of fact.' " (See IIG Wireless, Inc. v. Yi (2018)
Ultimately, Vornado's arguments on appeal misconstrue the substantial evidence standard of review by asking us to draw inferences in its favor-for example, that the trend line used by Skarbek was not a "good fit" to the sales data or that daily rather than weekly sales data should have been used. As a reviewing court, we do not sit as a trier of fact nor do we assess the credibility of expert witnesses. Moreover, Vornado's own expert conceded he had no expertise in trend lines to effectively rebut this evidence, and he relied on the same sales data that Skarbek did.
Vornado also challenges the discount rate used by Skarbek as "unreasonable," although the jury heard various discount figures (as well as differing growth rates used by the experts)that were lower or higher. We have already determined that the trial court did not err in admitting Skarbek's testimony, and Vornado has not persuaded us that Skarbek's testimony on this point was so unreasonable that it should have been excluded. (See Sargon, supra ,
In any event, although Vornado attacks the 5 percent discount rate that Skarbek initially applied, it is clear from the record that the jury did not award this amount, nor did it even accept the larger discount rate of 12 percent that Skarbek later testified might be appropriate. The discount rate selected by the jury ultimately
It is of no moment that the jury's lost profits calculation ultimately did not precisely match any of the figures testified to by the parties' experts. As one court has noted about a jury's determination of economic damages based on expert testimony, "between black and white are various shades of gray, and all of the colors of the rainbow as well," and "[w]e refuse to transform the jury's inherently subjective task of calculating damages into a mechanical exercise of voting to accept or reject the testimony of any witness in toto." ( Abbott v. Taz Express (1998)
For these reasons, we reject all of Vornado's claims against the judgment.
C. Rescission of the Guaranty
We now turn to Orozco's cross-appeal of the judgment challenging the trial court's ruling and subsequent judgment that Orozco was not entitled to rescission of the guaranty. We review the trial court's decision whether to grant relief based on rescission for abuse of discretion. ( Wong v. Stoler (2015)
1. Procedural Background
Both Solid Restaurant Ventures and Orozco sought rescission of the lease and guaranty. Following the jury trial and prior to the trial court's final ruling on the request for rescission, the parties filed a written stipulation that stated: "The parties hereto hereby stipulate that all procedural and proof requirements of conditions necessary for rescission of the lease and the guaranty have been satisfied. However, defendants reserve their rights to seek vacation of the rescission determination (including any attendant damage awards)
Following the stipulation, the trial court stated in an oral ruling that it would not award lost profits damages if a party elected rescission as the remedy. Thereafter, Solid Restaurant Ventures elected damages rather than rescission. Orozco continued to pursue the remedy of rescission. At a subsequent hearing, the trial court ruled that Orozco was not entitled to rescind the
Following this oral ruling, the trial court issued a written judgment that stated in relevant part, "plaintiff [Solid Restaurant Ventures] declined the remedy of rescission, and elected the remedy granted by the jury verdict for fraud and concealment by which it was entitled to a judgment for fraud and concealment in the total amount of $ 872,141. [¶] Plaintiff Paul Orozco, in his individual capacity, continued to seek rescission of the personal guaranty. The Court ruled that since Paul Orozco had no individual damages, he was not entitled to rescission under the authority of Molfino v. Levinson Produce Co. (1947)
2. Legal Analysis
In general, a party to a contract may rescind a contract on the ground that it was obtained through fraud. ( Civ. Code, § 1689.) "In the usual case of fraud, where the promisor knows what he is signing but his consent is induced by fraud, mutual assent is present and a contract is
We first address the trial court's ruling that Orozco did not suffer any "individual damages" and therefore could not rescind the guaranty. As a factual matter, the trial court's finding lacks substantial evidence in light of Vornado's stipulation (unchallenged on appeal) that "all procedural and proof requirements of conditions necessary for rescission of the lease and the guaranty have been satisfied."
In any event, it is well-settled that a party may rescind a contract even where the party does not suffer any pecuniary loss. In a decision issued several years after the appellate court's decision in Molfino , the California Supreme Court rejected the implication that "in every case there must be 'pecuniary' loss to obtain rescission for fraud." ( Earl v. Saks & Co. (1951)
A long line of decisions after Earl has emphasized that a party does not have to suffer any pecuniary loss to rescind a contract that it was induced to enter into through fraud. ( Engalla v. Permanente Medical Group, Inc. (1997)
We now turn to the second ground for the trial court's ruling-namely its determination that the lease and guaranty were not separate instruments and therefore Orozco could not elect rescission where the tenant (Solid Restaurant Ventures) had elected damages and affirmed the lease. We note that neither the trial court's oral nor written order cites any legal authority for the proposition that whether Orozco was entitled to rescission of the guaranty turned on whether the lease and guaranty could be "treated separately." In defending the trial court's ruling, Vornado similarly does not cite any authority for this point, and our independent research has not located any.
"Where a person has two concurrent remedies to obtain relief on the same state of facts, and these remedies are inconsistent, he must choose or elect between them; and if he has clearly elected to proceed on one, he is bound by this election and cannot thereafter pursue the other." ( Denevi v. LGCC, LLC (2004)
In other words, the trial court asked the wrong question before concluding that "the lease and guaranty could not be treated separately." The relevant question was not whether the lease and guaranty were separate but instead whether Orozco and Solid Restaurant Ventures were legally separate entities.
"The guarantor's obligation rests on the contract of guaranty, not on the note itself, and an action against the guarantor must be brought on the contract of guaranty." ( Niederer v. Ferreira (1987)
Vornado does not argue that it is impossible or impracticable to award Orozco rescission of the guaranty and to award Solid Restaurant Ventures damages for lost profits based on the jury finding of fraudulent inducement in the lease. Vornado's trial counsel told the trial court that, in light of the jury's finding of fraud, the lease was not enforceable. Furthermore, nothing in the language of the guaranty forecloses Orozco from seeking its rescission. The provision in the guaranty that addresses election of remedies provides that Orozco "hereby waives and agrees not to assert or take advantage of ... (d) any right or defense arising by reason of the ... cessation (in bankruptcy, by an election of remedies, or otherwise) of the liability of Tenant." This language does not limit Orozco's own right to rescind the guaranty for fraud.
The trial court's ruling denying rescission of the guaranty to Orozco is based on facts that are contradicted by the stipulation. In addition, the ruling rests on two incorrect legal conclusions-first, that Orozco was required to show individual damages to be entitled to rescission and second, that Orozco's right to pursue a remedy distinct from that selected by Solid Restaurant Ventures turned on whether the lease and guaranty were a single agreement or multiple agreements. Because the trial court's order was premised on these factual and legal errors, we conclude that the trial court abused its discretion in denying Orozco the remedy of rescission. We therefore reverse the judgment and remand to the trial court to effectuate Orozco's rescission of the guaranty as to Vornado.
Solid Restaurant Ventures and Orozco separately appeal the trial court's order denying their requests for attorney's fees (totaling over $ 700,000). Solid Restaurant Ventures and Orozco contend they are entitled to attorney's fees based on the fee provision in the lease and under Civil Code section 1717, which provides for reciprocal application of an otherwise one-sided attorney's fees clause when the action is "on the contract." ( Civ. Code, § 1717, subd. (a).) Orozco further maintains that the guaranty contains a separate attorney's fees clause that provides an independent contractual basis to award him attorney's fees.
Vornado contends that no attorney's fees are justified here given that the underlying action is not "on a contract" but rather sounds in fraud. Vornado does not separately address Orozco's claim that he is entitled to attorney's fees under the guaranty, but Vornado maintains that the trial court correctly ruled that Orozco was not entitled to rescission of the guaranty.
"On review of an award of attorney fees after trial, the normal standard of review is abuse of discretion. However, de novo review of such a trial court order is warranted where the determination of whether the criteria for an award of attorney fees and costs in this context have been satisfied amounts to statutory construction and a question of law. In other words, 'it is a discretionary trial court decision on the propriety or amount of statutory attorney fees to be awarded, but a determination of the legal basis for an attorney fee award is a question of law to be reviewed de novo.' In this case, where the material facts are largely not in dispute, our review is de novo." ( Mountain Air Enterprises, LLC v. Sundowner Towers, LLC (2017)
"Under the American rule, each party to a lawsuit ordinarily pays its own attorney fees. Code of Civil Procedure section 1021, which codifies this rule, provides: 'Except as attorney's fees are specifically provided for by statute, the measure and mode of compensation of attorneys and counselors at law is left to the agreement, express or implied, of the parties....' Thus, '[p]arties may validly agree that the prevailing party will be awarded attorney fees incurred in any litigation between themselves, whether such litigation sounds in tort or in contract.' " ( Mountain Air, supra ,
"If such litigation does sound in contract, however, an agreement allocating attorney fees may be 'within the scope of [Civil Code] section 1717 ' and subject to its restrictions. [Citation.] 'Before section 1717 comes into play, it
Accordingly, we start with the language of the lease's attorney's fees provision. ( Mountain Air, supra ,
However, despite the one-sided nature of this provision, Civil Code section 1717"make[s] reciprocal any provision awarding attorney's fees regardless of any wording purporting to make the right unilateral." ( Wilson's Heating & Air Conditioning v. Wells Fargo Bank (1988)
In particular, Civil Code section 1717, subdivision (a) provides, "[i]n any action on a contract, where the contract specifically provides that attorney's fees and costs, which are incurred to enforce that contract, shall be awarded either to one of the parties or to the prevailing party, then the party who is determined to be the party prevailing on the contract, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorney's fees in addition to other costs."
The requirement under Civil Code section 1717 that the action be "on a contract" has been liberally construed. ( Douglas E. Barnhart, Inc. v. CMC Fabricators, Inc. (2012)
Although the phrase "on a contract" in Civil Code section 1717 has been liberally construed, it does not stretch to tort claims. " '[T]ort claims do not "enforce" a contract' and are not considered actions on a contract for purposes of section 1717." ( Kangarlou v. Progressive Title Co., Inc. (2005)
Although Solid Restaurant Ventures and Orozco's claims relate to the lease, "a cause of action does not warrant a recovery under ... [Civil Code] section 1717 merely because a contract with an attorney's fees provision is part of the backdrop of the case." ( Perry v. Robertson (1988)
Here, the fee clause in the lease is not broadly worded. While Orozco and Solid Restaurant Ventures contend the provision is "broad," in fact its text limits its application to actions "arising from the provisions of this Lease or any default hereunder." Moreover, the overall dispute proceeded to trial solely on three fraud causes of action. The key question at trial was whether Vornado fraudulently induced Solid Restaurant Ventures to enter into the long-term lease. Neither Orozco nor Solid Restaurant Ventures argued that Vornado had breached the lease in any way. Similarly, Orozco's and Solid Restaurant Ventures' action did not seek to interpret or enforce any provision in the lease or guaranty.
Civil Code " section 1717 is only meant to establish reciprocity of provisions for attorney's fees for enforcement of the contract," and when a party recovers on a legal theory of fraud in the inducement of a contract such actions "seek[ ] to avoid the contract rather than to enforce it." ( Perry, supra , 201 Cal.App.3d at pp. 342-343,
California-American Water Co. v. Marina Coast Water Dist. (2017)
California-American thus did not address the circumstance under Civil Code section 1717 potentially applicable here, namely a contract involving a unilateral attorney's fees provision. Nor did it involve tort claims. In addition, California-American cited with approval the statement that " 'Whether an action is based on contract or tort depends upon the nature of the right sued upon, not the form of the pleading or relief demanded ... ¶ In the final analysis we look to the pleading to determine the nature of plaintiff's claim.' " ( California-American, supra ,
Contrary to the contention of Solid Restaurant Ventures and Orozco that California-American marked a shift in determining whether an action is "on a contract" under Civil Code section 1717, California-American reiterated longstanding interpretive principles that counsel us to look to the overall nature of Solid Restaurant Ventures' and Orozco's complaint. Applying those principles, we conclude that the overall nature of their complaint sounded in tort and was not "on a contract."
Despite these well-settled principles, Orozco and Solid Restaurant Ventures maintain that the California Supreme Court's recent decision in Mountain Air compels an award of attorney's fees in this action. We disagree. Mountain Air involved a "breach of contract action" brought against the backdrop of a complex real estate transaction. ( Mountain Air, supra ,
The claims brought by the plaintiffs in Mountain Air involved breach of contract rather than tort claims. (
Here, by contrast, Solid Restaurant Ventures' and Orozco's entitlement to attorney's fees does not depend on the attorney's fee provision in the lease (which, by its terms, benefits only Vornado) but instead on the reciprocal entitlement to fees afforded by the operation of Civil Code section 1717. Solid Restaurant Ventures prevailed solely on two tort claims against Vornado. Under these facts, Solid Restaurant Ventures' and Orozco's suit was not an "action on a contract," and thus Civil Code section 1717 does not provide a basis for an award of attorney's fees.
However, we reach a different conclusion as to Orozco's claim for attorney's fees pursuant to the guaranty. The guaranty includes a provision entitling a prevailing party in "an action against the other arising out of or in connection with this Guaranty" the right to "recover from the other attorneys' fees and costs, including collection costs incurred." This expansive language, which applies to any prevailing party (unlike the unilateral language of the lease's attorney's fee provision) is sufficient to encompass Orozco's fraud action and rescission remedy. ( Lerner v. Ward (1993)
Therefore, the order denying Orozco's motion for attorney's fees is reversed and the matter is remanded to the trial court for a determination of the amount of reasonable attorney's fees to be awarded to Orozco in connection with his action related to the guaranty. We express no opinion on the amount of attorney's fees that the trial court in its "wide discretion" should award on remand. ( Heppler v. J.M. Peters Co. (1999)
The judgment is reversed. The trial court is directed to vacate its judgment of March 30, 2016, and to modify its judgment to effectuate Orozco's rescission of the guaranty as to Vornado. In all other respects, the trial court should reenter its judgment.
The order denying Orozco and Solid Restaurant Ventures' motion for attorney's fees is reversed. On remand, the trial court
WE CONCUR:
MIHARA, ACTING, P.J.
GROVER, J.
Notes
An expert witness defined a "quick-service" restaurant for the jury as an establishment "where you went up to the counter, you ordered your food, they put it out on a counter, and you picked it up."
Pauly's and Al's Beef were separated by one other business and a breezeway.
The trial court later granted Cole's motion for nonsuit, which the parties do not challenge on appeal.
Orozco and Solid Restaurant Ventures later dismissed their unfair business practices claim, and it is not the subject of any appeal before us.
In its notice of appeal, Vornado also stated that it was appealing the trial court's postjudgment order denying their motion for judgment notwithstanding the verdict and motion for new trial. However, Vornado's briefing does not raise any substantive arguments related to that order beyond mentioning the general standard of review for such motions. Accordingly, Vornado has forfeited any claimed error as to the trial court's rulings on those postjudgment motions. (See Ellenberger v. Espinosa (1994)
The trial court gave the jury a special instruction titled "Reasonable Reliance-Effect of Disclaimer," which stated: "Provisions in contracts stating that the agreement is the sole agreement between the parties and supersedes any and all prior oral or written agreements or understandings among them pertaining to the transaction and that no express or implied representations have been made, as well as other absolving contractual provisions, do not insulate a party from the consequences of its fraud. [¶] However, in determining whether Solid Restaurant Ventures, LLC's reliance on the alleged misrepresentation or alleged concealment was reasonable, you may consider whether the lease agreement and/or Tenant's Estoppel expressly disavowed any purported representations. [¶] You may also consider whether Solid Restaurant Ventures, LLC had a lawyer assist with lease review, whether Solid Restaurant Ventures, LLC asked for changes in the lease documentation, whether Solid Restaurant Ventures, LLC asked questions and any responses given, whether Solid Restaurant Ventures, LLC communicated the importance of its concerns about whether others were being considered as prospective tenants who offered competing concepts or who offered competing products. These are some, but not all, of the factors you may consider in making this determination."
Having concluded that substantial evidence supported the jury's determination of reasonable reliance, we need not address Solid Restaurant Ventures' argument that Vornado "invited error" by proposing the wording of the jury instruction addressing reasonable reliance.
Vornado does not challenge the other components of the jury award for damages, specifically the separate awards for operational losses for the Plant, and startup costs for the Pauly's location in downtown San Jose.
Although Orozco also claimed individual damages, the trial court did not permit him to put on evidence at trial as to his individual damages. Orozco does not challenge that ruling on appeal.
Although the special verdict allowed for the jury to award damages either as start-up costs or lost profits for Pauly's at the Plant, there is no dispute that the jury awarded lost profits rather than start-up costs.
The stipulation is titled "Stipulation Between Plaintiffs and Defendants" (some capitalization omitted) and includes Cole in the case caption. As Cole is not a party to this appeal, we express no view on the effect of the stipulation as to Cole.
The parties do not challenge on appeal the trial court's grant of Cole's motion for nonsuit. However, Orozco's cross-appeal in case H044014 seeks rescission of his guaranty associated with the lease at the Plant against both Vornado and Cole. While Orozco contends that Cole is a successor in interest to the guaranty, Orozco did not make Cole a party to this appeal. In addition, the record on appeal does not contain the final agreements between Cole and Vornado setting out the terms of the sale of the Plant to Cole. Therefore, we address rescission of the guaranty only as to Vornado.
As Cole is not a party to this appeal, we express no opinion on Orozco's rescission of the guaranty as to Cole.
Because we conclude the action here was not "on a contract," we need not reach the parties' arguments on the separate question under Civil Code section 1717 of which party prevailed on the contract. (Civ. Code, § 1717, subds. (a) & (b)(1).)