Wells Fargo Bank v. Jackson Jenkins Renstrom CA1/4 ( 2015 )


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  • Filed 3/12/15 Wells Fargo Bank v. Jackson Jenkins Renstrom CA1/4
    NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication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.
    IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
    FIRST APPELLATE DISTRICT
    DIVISION FOUR
    WELLS FARGO BANK, N.A.,
    Plaintiff and Respondent,
    A138307
    v.
    JACKSON JENKINS RENSTROM LLP,                                        (City and County of San Francisco
    Super. Ct. No. CGC 11-511389)
    Defendants and Appellants.
    Prior to filing for dissolution, a law firm with secured debt obligations assigned
    various client accounts to a newly-formed entity and simultaneously entered into an
    agreement allocating fees between the two firms. The secured creditor sued the new law
    firm for, among other things, conversion, common count, and breach of contract under a
    third party beneficiary theory. By special verdict, a jury found in favor of the secured
    creditor and awarded damages in the amount of $229,690.42. We affirm.
    I. BACKGROUND
    A.       The Secured Transactions
    1.        The Security Agreement
    In 2005, Jackson & Wallace, LLP, (J&W) a now defunct law firm, granted a
    security interest to Wells Fargo, N.A. (Bank or Wells Fargo) (Security Agreement).
    Pursuant to the Security Agreement, J&W transferred to Bank a security interest “in all
    accounts, deposit accounts, chattel paper . . . promissory notes, documents, general
    intangibles, payment intangibles . . . and other rights to payment (collectively called
    ‘Collateral’), now existing or any time hereafter, and prior to the termination hereof,
    1
    arising (whether they arise from the sale, lease or other disposition of inventory or from
    performance of contracts for service, . . . or otherwise or from any other source
    whatsoever), including all securities, guaranties, warranties, indemnity agreements, . . .
    and other agreements pertaining to the same or the property described therein, . . .
    together with whatever is receivable or received when any of the Collateral or proceeds
    thereof are sold, collected, exchanged or otherwise disposed of, whether such disposition
    is voluntary or involuntary . . . . (hereinafter called ‘Proceeds’).”
    Pursuant to paragraph 6.2 of the Security Agreement, J&W agreed “not to sell . . .
    or otherwise dispose of, nor permit the transfer by operation of law of, any of Collateral
    or Proceeds or any interest therein.” J&W also agreed, “if requested by Bank, to receive
    and use reasonable diligence to collect Proceeds, in trust and as the property of Bank, and
    to immediately endorse as appropriate and deliver such Proceeds to Bank . . . .”
    Pursuant to paragraph 10 of the Security Agreement, in the event of default by
    J&W, the Bank, as a secured party under the California Uniform Commercial Code or
    otherwise provided by law, was entitled to immediate payment, as well as the right “to
    contact all persons obligated to [J&W] on any Collateral or Proceeds and to instruct such
    persons to deliver all Collateral and/or Proceeds directly to Bank . . . .” During any
    period of default, J&W agreed, among other things, “not [to] dispose of any Collateral or
    Proceeds except on terms approved by Bank.”
    2.     The Credit Agreement
    In 2008, Bank extended a $7 million line of credit to J&W (Credit Agreement).
    Pursuant to section 1.4 of the Credit Agreement, J&W granted Bank “security interests of
    first priority in all [J&W’s] accounts receivable and other rights to payment, general
    intangible.” This section further sets forth that all such collateral “shall be evidenced by
    and subject to the terms of such security agreements, financing statements, . . . and other
    documents as Bank shall reasonably require . . . .”
    Under section 6.2 of the Credit Agreement, upon default by J&W, “Bank shall
    have all rights, powers and remedies available under each of the Loan Documents, or
    accorded by law, including without limitation the right to resort to any or all security for
    2
    any credit subject hereto and to exercise any or all of the rights of a beneficiary or
    secured party pursuant to applicable law.”
    B.     Default, Dissolution, and Bankruptcy of J&W
    In 2010, J&W defaulted on the Credit Agreement with Bank and subsequently
    filed for bankruptcy. Also in 2010, two of the partners of J&W created a new law firm.
    1.     Assignment of Retention Agreement
    On January 15, 2009, Fireman’s Fund Insurance Company (FFIC) retained J&W
    to work on various matters (Retention Agreement). On or about May 13, 2010, just prior
    to its dissolution, J&W assigned a portfolio of accounts, including approximately 150 to
    200 FFIC cases to the newly created law firm of Jackson Jenkins Renstrom LLP (JJR),
    the latest iteration of co-founding J&W partner Gabriel Jackson and her fellow J&W
    partner and husband, Peter Renstrom. Pursuant to the Assignment of Retention
    Agreement (Assignment), the Retention Agreement between J&W and FFIC was
    assigned from J&W to JJR. The Assignment noted that FFIC had previously advised
    J&W that it would be terminating the Retention Agreement, but nevertheless requested
    continued legal representation by J&W in certain ongoing “Runoff Matters” and that the
    Retention Agreement be assigned to JJR. J&W agreed to maintain tail insurance for
    professional errors for a period of three years following the effective date of the
    Assignment.
    2.     Side Agreement
    On or about May 13, 2010, J&W also entered into a Side Agreement with JJR,
    Jackson individually, together with J&W co-founder John Wallace and his new law firm.
    The Side Agreement provides, among other things, that Jackson and Wallace, as the
    equity partners of J&W, were “attempting to resolve a number of outstanding issues
    relating to the dissolution of [J&W], the collection of assets and the payment of liabilities
    of [J&W], and the future representation of clients of [J&W].”) Under the terms of the
    Side Agreement, FFIC was to pay certain flat fees or accelerated settlement payments
    regarding the Runoff Matters. To the extent any of the Runoff Matters settled or were
    otherwise resolved after the dissolution date, FFIC was to make payments directly to JJR,
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    which would then pay J&W its allocated share based upon an agreed formula. J&W
    agreed to obtain tail insurance for professional liability and general liability coverage for
    at least three years following the dissolution date.
    C.     Commencement of Litigation
    Pursuant to the Assignment and Side Agreement, FFIC made payments directly to
    JJR. JJR accepted the payments, but did not remit the agreed-upon allocable share to
    J&W.
    On April 22, 2011, having only recently learned of the Side Agreement, Wells
    Fargo sent a letter to JJR, asserting its right as a secured creditor to monies owed to J&W
    thereunder. Approximately a month later, JJR responded by letter dated May 31, 2011.
    In this letter, counsel for JJR advised Wells Fargo that “JJR intends to pay whatever
    monies it owes to J&W/Wells Fargo pursuant to [the Side Agreement].” As of the date
    of the letter, the amount due was $147,999.53. Counsel further advised that JJR was in
    the process of creating additional documentation for the remaining amounts owed.
    As of October 3, 2011, JJR had not yet paid Wells Fargo any of the monies due or
    provided the additional documentation. On that date, Wells Fargo filed its First
    Amended Complaint against JJR for the money owed by JJR to J&W and Wells Fargo, as
    the first priority secured creditor with the right to collect all of J&W’s accounts
    receivable. Nearly four months later, on February 16, 2012, JJR served supplemental
    discovery responses and produced detailed spreadsheets documenting the full amount
    owed to J&W, to wit: $229,690.42. Despite the May 31, 2011 letter, promising to pay
    Wells Fargo, and the subsequent spreadsheet evidencing the exact amount of $229,690.42
    owed to Wells Fargo, JJR refused to pay Wells Fargo; instead, JJR sought to retain
    J&W’s allocated share of the payments made from FFIC in 2010 and 2011.
    Wells Fargo sought damages against JJR for conversion, common count, and
    breach of contract as a third party beneficiary. Wells Fargo also sought an accounting.
    D.     Trial
    In January 2013, the matter proceeded to jury trial. The parties agreed and
    stipulated to all of the jury instructions and the special verdict forms to be presented to
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    the jury. While reserving all defenses, JJR stipulated in writing before the court and the
    jury to the amount owed under the Side Agreement by JJR to J&W was the sum of
    $229,690.42.
    1.      Wells Fargo’s Case
    Gabriel Jackson and Peter Renstrom testified in Wells Fargo’s case-in-chief as
    adverse witnesses. (See Evid. Code, § 776.)
    Gabriel Jackson testified that she knew Wells Fargo had a security interest in the
    accounts and accounts receivable of J&W. She also knew that Wells Fargo was the only
    secured creditor of J&W. Jackson understood that pursuant to section 6.2 of the Credit
    Agreement, Wells Fargo had the rights of a beneficiary in the event of default by J&W.
    She acknowledged that Wells Fargo advanced a $7 million line of credit to J&W.
    Jackson agreed that the Assignment and the Side Agreement were both integrated
    documents. She agreed that one of the purposes of the Side Agreement was to allow JJR
    to keep FFIC as a client. However, she disputed that another purpose of the Side
    Agreement was to set forth how payments from FFIC would be allocated between JJR
    and J&W. Jackson conceded that at the time of the signing of the Side Agreement, J&W
    had certain monetary obligations to Wells Fargo and that Wells Fargo, as a secured
    creditor, had a right to collect upon J&W’s accounts receivable. Jackson also knew that
    at the time of J&W’s dissolution, Wells Fargo was seeking to collect the money it was
    owed, which was in the millions.
    Jackson admitted that she signed the Side Agreement in three capacities, one being
    individually, yet she denied that she was personally responsible for obtaining tail
    insurance. Before she signed the Side Agreement, she did not ask anyone about the
    impact of the tail insurance provision.
    Peter Renstrom testified that he had been a partner at J&W and that he was a
    founding partner of JJR. He participated in negotiating the terms of the Assignment and
    the Side Agreement. He acknowledged that both documents represented integrated
    agreements. Renstrom was aware that at the time he signed the Side Agreement, Wells
    Fargo was one of J&W’s largest secured creditors.
    5
    Renstrom testified that he was involved in drafting the tail insurance provision in
    the Side Agreement. When asked whether he recalled “ever considering any language in
    paragraph 4 that made the obtaining of tail insurance contingent on whether [J&W]
    would receive payments” under the Side Agreement, Renstrom replied, “I don’t think so,
    because it was–,” at which point the court interrupted before the witness could continue
    with his answer. The court interjected, “Just a second. [¶] That’s an answer . . . . [¶]
    Yes or no is fully responsive in this context.” Following this interchange, trial counsel
    for Wells Fargo, queried, “Let me ask the question a different way. [¶] As part of
    negotiations, did you ever consider including any language in paragraph 4 that made the
    payment of monies to [J&W] under the side agreement contingent on [J&W] obtaining
    tail insurance?” This time Renstrom answered in the affirmative. When counsel for
    Wells Fargo asked Renstrom if “[a]nywhere in that language, is there a contingency [,]”
    defense counsel objected on the grounds that the document spoke for itself. The court
    sustained the objection and added the following: “I think your answer that, as one of the
    parties involved in this side agreement or as the point person, you did consider inserting
    language—correct me if I’m wrong—that would have provided that monies to be paid to
    [J&W] . . . were contingent upon [J&W] getting tail insurance; however, ultimately, the
    document that was executed in the [sic] integrated agreement is what it is? [¶] Is that
    accurate or not?” Renstrom replied, “No, it is not.”
    Counsel for Wells Fargo then asked Renstrom, “So let me understand this.
    [¶] You did consider making the payment to [J&W] of monies owed under the side
    agreement, contingent on [J&W] obtaining tail insurance?” Renstrom replied, “It was
    understood, yes.” The following interchange then occurred: “[THE COURT]: We’re
    not asking about undisclosed intentions. [¶] He’s asking what your intention was, as a
    drafter. [¶] THE WITNESS: It’s kind of difficult for me, Your Honor, to answer these
    questions either yes or no. [¶] [THE COURT]: Well, I think they call for it . . . [¶] THE
    WITNESS: I’ll try my best.” After the question was read back, the court advised the
    witness, “You can answer that question.” Renstrom apologized and asked for the
    question to be read back again. The court noted that the “question, if you believe it to be
    6
    a clear one and can be answered yes or no, without further response, please do so.” After
    the question was read back a third time, but before Renstrom could answer, the court
    interjected: “Just think about it. [¶] If you can answer yes or no, can be straightforward,
    tell us. If you cannot, tell us.” Renstrom replied, “I cannot.”
    2.     Defense Case
    Jackson testified that she brought FFIC in as a client to J&W.
    She characterized the dissolution of J&W as being “[v]ery bitter and very difficult.”
    Following the dissolution of J&W, FFIC continued to be represented by Jackson through
    her new law firm, JJR. This continuity of representation was accomplished by the
    assignment of the FFIC cases from J&W to JJR. Jackson testified that tail insurance was
    never purchased. Following extensive argument outside of the jury’s presence, the trial
    court ruled that Jackson would not be able to testify as to whether tail insurance was an
    important consideration. The court also ruled that Jackson could not present evidence
    regarding the cost of obtaining tail insurance.
    Renstrom testified that he negotiated the Side Agreement. The subject of tail
    insurance was part of the negotiations. Renstrom, however, was not permitted to testify
    about the specifics of such negotiations and was precluded from describing what was
    offered in exchange for the procurement of the tail insurance. Renstrom testified that
    Wells Fargo was not mentioned “any place in” the Side Agreement.
    3.     Verdict and Post-trial Motion
    By special verdict, the jury all-but-unanimously found in favor of Wells Fargo on
    its three claims against JJR—conversion, common counts, and breach of contract/third
    party beneficiary, each in the non-aggregated sum of $229,690.42—and awarded
    damages to Wells Fargo in the amount of $229,690.42. Thereafter, JJR moved for
    judgment notwithstanding the verdict, which was heard, argued and submitted for
    decision on March 5, 2013. That same day, the court issued an order denying JJR’s
    motion as follows: “The motion is denied. The verdict in favor of WELLS FARGO
    BANK, N.A. on all causes of action, is well supported in law and in fact. The jury was
    7
    entitled to conclude the defendant [JJR] attempted to assert technical and insubstantial
    defenses in order to defeat clear obligations to plaintiff.”
    JJR filed a timely notice of appeal.
    II. DISCUSSION
    A.     Standards of Review
    The parties begin by making differing characterizations about the issues before the
    jury, which in turn affect the standard of review by which we evaluate the issues on
    appeal. JJR contends that the primary issue at trial was the legal question of the
    interpretation of the contract.1 JJR claims that there is no conflicting extrinsic evidence
    and, as such, de novo review is appropriate. For its part, Wells Fargo contends the jury’s
    findings that JJR challenges were factual determinations, rather than legal conclusions.
    We set forth the applicable legal principles that will guide us in resolving the claims of
    error that JJR presents on appeal.
    With respect to the legal correctness of the judgment entered after the special
    verdict, the following basic approach is required on review. Under Code of Civil
    Procedure section 624, a special verdict is defined as one in which “the jury find the facts
    only, leaving the judgment to the Court. The special verdict must present the conclusions
    of fact as established by the evidence, and not the evidence to prove them; and those
    conclusions of fact must be so presented as that nothing shall remain to the Court but to
    draw from them conclusions of law.” A special verdict will be upheld if it is consistent
    with the law and the evidence. (See 7 Witkin, Cal. Procedure (5th ed. 2008) Trial, § 345,
    pp. 401-403.)
    Here, the language of the special verdict tracked the jury instructions for
    determining whether JJR wrongfully exercised control over Wells Fargo property,
    whether JJR owed money to Wells Fargo, and whether JJR breached the Side Agreement
    by not paying J&W, and Wells Fargo as J&W’s first-priority secured creditor, its
    allocable share. In making these determinations, the jury was required to determine from
    1
    Our review of the stipulated jury instructions and special verdict indicates that the
    issues at trial extended well beyond the narrow legal issue raised on appeal by JJR.
    8
    the evidence whether Wells Fargo had “a right to possess the share” of the FFIC
    payments received by JJR and promised to J&W under the terms of the Side Agreement;
    whether JJR “intentionally and substantially” interfered with Wells Fargo’s property “by
    refusing to return the money promised to [J&W] under the terms of the Side Agreement
    after Wells Fargo [] demanded its return”; whether Wells Fargo consented; whether
    Wells Fargo was harmed; and whether JJR was a substantial factor in causing Wells
    Fargo’s harm.
    The jury was next tasked with determining whether JJR owed money to Wells
    Fargo. The jury was required to determine whether JJR received money “that was
    intended to be used for the benefit” of Wells Fargo; whether the money JJR received was
    “used for the benefit” of Wells Fargo; and whether JJR gave the money to Wells Fargo.
    Finally, the jury was instructed that Wells Fargo was not a party to the contract,
    but that it could be entitled to damages for breach of contract if it proved that the parties
    to the Side Agreement intended for Wells Fargo to benefit from their contract. The jury
    was further instructed that it was not necessary for Wells Fargo to have been named in
    the contract, and was told, “In deciding what the parties to the [Side Agreement]
    intended, you should consider the entire contract and the circumstances under which it
    was made.” The jury was required to determine whether JJR breached the Side
    Agreement and harmed Wells Fargo. In making this determination, the jury was required
    to decide whether JJR and J&W entered into a contract; whether J&W “d[id] all, or
    substantially all, of the significant things that the contract required it to do”; whether “all
    the conditions that were required for [JJR’s] performance occur[ed] or were they
    excused”; and whether JJR “fail[ed] to do something that the contract required it to do”;
    whether Wells Fargo was “an intended beneficiary of the contract” between J&W and
    JJR; and whether Wells Fargo was harmed.
    We conclude that the issues raised in the trial court involved both legal and factual
    questions. The interpretation of a contract generally presents a question of law for our
    independent determination. (See Hess v. Ford Motor Co. (2002) 
    27 Cal.4th 516
    , 527;
    Parsons v. Bristol Development Co. (1965) 
    62 Cal.2d 861
    , 865.) Nevertheless, when a
    9
    contract is reasonably susceptible to different interpretations based upon conflicting
    evidence requiring the resolution of credibility issues, its interpretation evolves into a
    question of fact that is governed by the substantial evidence test. (See Crocker National
    Bank v. City and County of San Francisco (1989) 
    49 Cal.3d 881
    , 888; ASP Properties
    Group, L.P. v. Fard, Inc. (2005) 
    133 Cal.App.4th 1257
    , 1270-1271 (ASP Properties).)
    With these standards of review in mind, we turn to the merits of the appeal.
    B.     Evidentiary Issues
    Preliminarily, we address JJR’s claim that the trial court erroneously excluded
    certain evidence at trial. According to JJR, the trial court erred by excluding evidence
    regarding the importance or materiality of the tail insurance provision and evidence of the
    cost of obtaining such insurance.
    1.     Background
    During defense counsel’s examination of Renstrom, the trial court excluded
    evidence relating to what, if anything, JJR offered J&W in exchange for J&W’s
    procurement of tail insurance. In so ruling, the court explained: “In light of the entire
    agreement which supersedes all prior discussions or understandings, and in light of the
    fact the satisfactory language was ultimately determined and signed off on . . . [t]he
    words in the negotiation are not relevant.”
    Defense counsel also attempted to ask Jackson whether it was “important to [her]
    in any way” that J&W have tail insurance; counsel for Wells Fargo objected and the court
    declared an early recess to discuss the matter further outside the presence of the jury.
    The court noted that in light of the fact that “everyone said they were integrated
    agreements[,] . . . we’re not here to vary the obligations undertaken.” The court then
    gave the parties a few moments to review the parol evidence rule. The court further
    advised defense counsel that it would “be helpful to get an offer so that I can give some
    kind of preliminary ruling on it, . . . so I’m in the background and not interrupting.”
    Defense counsel then explained that in her last question about whether tail insurance was
    important to Jackson, she “was simply trying to establish whether or not it was, since one
    of the arguments has been, it was not a material provision, and it shouldn’t be anything to
    10
    worry about, that it wasn’t bought.” Citing Civil Code section 1638, the court explained
    that “the language of a contract is to govern its interpretation. [¶] And I think the
    statement, it was important or not important, is really something that is offered as an
    interpretive comment . . . [¶] If the language is clear and explicit, it doesn’t involve an
    absurdity, when the contract is reduced to writing, the intention of the parties is to be
    ascertained from the writing of alone . . . .” When defense counsel asserted that the
    challenged evidence was relevant to whether obtaining tail insurance was a material term
    of the contract, the court opined that this question is “largely to be determined from the
    integrated contract . . . .”
    After hearing further argument about the significance of tail insurance, the court
    ruled that “the consequence of not getting it, or what would have happened, is very
    confusing and not directly relevant to any disputed fact or consequence in determining
    this action.” The court added that the real issue “should be on the question of whether
    it’s a condition precedent from the contracts.”
    The court also heard extensive argument on the admission of anticipated evidence
    pertaining to the cost of obtaining tail insurance. Counsel for Wells Fargo argued there
    was no foundation for Jackson to present evidence regarding the pricing of tail insurance.
    Defense counsel, however, maintained that Jackson, as the owner of the firm, personally
    spoke with a broker about the cost of obtaining such insurance. Counsel for Wells Fargo
    insisted any such evidence was hearsay. The trial court ruled as follows: “In this case . . .
    the questions related to the consequences to . . . either firm—based upon assumed
    malpractice would be X, the cost of obtaining a hypothetical policy of insurance coverage
    for Y is inadmissible on the following basis []: [¶] It assumes facts not in evidence. [¶]
    It calls for expert . . . testimony from people not designated as an expert [sic]. [¶] It is,
    under these facts, highly collateral to any claim or defense, so that under Evidence Code
    [s]ection 352, the line of questioning . . . would be very confusing . . ., depriving each
    side of an opportunity to have proper focus, direct and cross-examination. [¶] And it
    does not call for personal knowledge . . . [¶] And it does not call for admissible opinion
    11
    testimony from a layperson who can . . . offer opinion testimony on matters actually
    perceived.”
    2.     Applicable Law
    The parol evidence rule, which is codified in Code of Civil Procedure section 1856
    and Civil Code section 1625, establishes that extrinsic evidence is not admissible to
    ascribe a meaning to an agreement to which it is not reasonably susceptible. (Wells
    Fargo Bank v. Marshall (1993) 
    20 Cal.App.4th 447
    , 453.) “It provides that when parties
    enter an integrated written agreement, extrinsic evidence may not be relied upon to alter
    or add to the terms of the writing. (Casa Herrera, Inc. v. Beydoun (2004) 
    32 Cal.4th 336
    ,
    343 (Casa Herrera ).) ‘An integrated agreement is a writing or writings constituting a
    final expression of one or more terms of an agreement.’ (Rest.2d Contracts, § 209, subd.
    (1); see Alling v. Universal Manufacturing Corp. (1992) 
    5 Cal.App.4th 1412
    , 1433.)”
    (Riverisland Cold Storage, Inc. v. Fresno-Madera Production Credit Assn. (2013) 
    55 Cal.4th 1169
    , 1174 (Riverisland), fn. omitted.) There is no dispute in this case that the
    Side Agreement was integrated.
    “Although the parol evidence rule results in the exclusion of evidence, it is not a
    rule of evidence but one of substantive law. (Casa Herrera, 
    supra,
     32 Cal.4th at p. 343.)
    It is founded on the principle that when the parties put all the terms of their agreement in
    writing, the writing itself becomes the agreement. The written terms supersede
    statements made during the negotiations. Extrinsic evidence of the agreement’s terms is
    thus irrelevant, and cannot be relied upon. (Casa Herrera, at p. 344.) ‘[T]he parol
    evidence rule, unlike the statute of frauds, does not merely serve an evidentiary purpose;
    it determines the enforceable and incontrovertible terms of an integrated written
    agreement.’ (Id. at p. 345; cf. Sterling v. Taylor (2007) 
    40 Cal.4th 757
    , 766 [explaining
    evidentiary function of statute of frauds].) The purpose of the rule is to ensure that the
    parties’ final understanding, deliberately expressed in writing, is not subject to change.
    (Casa Herrera, at p. 345.)” (Riverisland, supra, 55 Cal.4th at p. 1174.)
    In this case extrinsic evidence on the parties’ intended meaning of language in the
    Side Agreement was ultimately admissible only if it was relevant to show a meaning to
    12
    which that language is reasonably susceptible. (Pacific Gas & E. Co. v. G.W. Thomas
    Drayage etc. Co. (1968) 
    69 Cal.2d 33
    , 37; Winet v. Price (1992) 
    4 Cal.App.4th 1159
    ,
    1165.) “ ‘The decision whether to admit parol [or extrinsic] evidence involves a two-step
    process. First, the court provisionally receives (without actually admitting) all credible
    evidence concerning the parties’ intentions to determine “ambiguity,” i.e., whether the
    language is “reasonably susceptible” to the interpretation urged by a party. If in light of
    the extrinsic evidence the court decides the language is “reasonably susceptible” to the
    interpretation urged, the extrinsic evidence is then admitted to aid in the second step-
    interpreting the contract. [Citation.]’
    “ ‘Different standards of appellate review may be applicable to each of these two
    steps, depending upon the context in which an issue arises. The trial court’s ruling on the
    threshold determination of ‘ambiguity’ (i.e., whether the proffered evidence is relevant to
    prove a meaning to which the language is reasonably susceptible) is a question of law,
    not of fact. [Citation.] Thus the threshold determination of ambiguity is subject to
    independent review. [Citation.]’
    “ ‘The second step—the ultimate construction placed upon the ambiguous
    language—may call for differing standards of review, depending upon the parol evidence
    used to construe the contract.’ (Winet v. Price, supra, 4 Cal.App.4th at pp. 1165-1166.)”
    (ASP Properties, supra, 133 Cal. App. 4th at pp. 1266-1268, fn. omitted.)
    3.      Analysis
    JJR asserts that the trial court erred in failing to provisionally consider extrinsic
    evidence of the parties’ intent regarding the importance of the tail insurance provision.
    We disagree.
    Paragraph 4 of the Side Agreement provided as follows: “[Gabriel] Jackson and
    [John] Wallace agree that [J&W] shall obtain tail insurance for professional liability and
    general liability coverage for a period of not less than three years after the Dissolution
    Date, in an amount of $3 million per occurrence/$5 million aggregate.” On its face, this
    provision in the Side Agreement is unambiguous. It clearly and explicitly stated that
    J&W was required to obtain tail insurance—nothing more, nothing less. There is nothing
    13
    in the plain language of the Side Agreement that would indicate that the parties intended
    for this provision to constitute a condition precedent to J&W receiving its allocable share.
    Thus, to the extent JJR sought to introduce evidence regarding the alleged materiality of
    this provision, any such evidence would have varied the terms of the Side Agreement and
    was squarely within the ambit of the parol evidence rule. As the trial court correctly
    concluded, the understanding of the parties during negotiations was simply not relevant.
    Equally without relevance was the proffered evidence regarding the cost of
    obtaining tail insurance. Even assuming for the sake of argument that paragraph 4 of the
    Side Agreement was ambiguous (a position we flatly reject), we fail to discern how the
    evidence pertaining to the cost of the tail insurance was relevant to the interpretation
    urged by JJR. In other words, the procurement of tail insurance, whether it be
    economical or cost prohibitive, has no bearing on whether paragraph 4 could be
    construed as a material provision in the Side Agreement.
    In sum, the language of the Side Agreement was clear and its plain terms control.
    Accordingly, the trial court did not err in failing to consider extrinsic evidence regarding
    the negotiation of the Side Agreement.
    C.     Breach of Contract
    To establish a cause of action for breach of contract, the plaintiff must plead and
    prove (1) the existence of a contract, (2) the plaintiff’s performance or excuse for
    nonperformance, (3) the defendant’s breach, and (4) resulting damages to the plaintiff.
    (Oasis West Realty, LLC v. Goldman (2011) 
    51 Cal.4th 811
    , 821.)
    The undisputed evidence demonstrates that J&W and JJR entered into a written
    agreement under which JJR agreed to allocate future payments from FFIC to J&W
    regarding J&W’s work on certain Runoff Matters. J&W agreed to purchase tail
    insurance. FFIC made payments directly to JJR for work performed by J&W. It is
    undisputed that JJR received $229.690.42 from FFIC. The undisputed facts further show
    that JJR accepted payment from FFIC but failed to pay J&W its allocable share. It is also
    undisputed that J&W failed to procure tail insurance.
    14
    1.     Third Party Beneficiary Status
    The salient query on appeal is whether Wells Fargo was entitled to recover for
    breach of contract despite not being a named party to the Side Agreement. Under Civil
    Code section 1559, a third party can enforce the terms of a contract “made expressly for
    the benefit of [the] third person.” “ ‘Expressly’ ” in this context is interpreted to mean
    “merely the negative of ‘incidentally.’ ” (Gilbert Financial Corp. v. Steelform
    Contracting Co. (1978) 
    82 Cal.App.3d 65
    , 70.) The contract need not be exclusively for
    the benefit of the third party in order to permit enforcement, and the third party does not
    need to be the sole or the primary beneficiary. Further, the third party need not be
    identified as a beneficiary, or even named, in the contract. (Prouty v. Gores Technology
    Group (2004) 
    121 Cal.App.4th 1225
    , 1232.) “ ‘If the terms of the contract necessarily
    require the promisor to confer a benefit on a third person, then the contract, and hence the
    parties thereto, contemplate a benefit to the third person. The parties are presumed to
    intend the consequences of a performance of the contract.’ (Johnson v. Holmes Tuttle
    Lincoln–Mercury, Inc. (1958) 
    160 Cal.App.2d 290
    , 296-297.)”
    On the other hand, “ ‘ “[t]he fact that . . . the contract, if carried out to its terms,
    would inure to the third party’s benefit is insufficient to entitle him or her to demand
    enforcement.” ’ ” (Landale–Cameron Court, Inc. v. Ahonen (2007) 
    155 Cal.App.4th 1401
    , 1411.) Rather, “ ‘ “ ‘[i]t must appear to have been the intention of the parties to
    secure to him personally the benefit of its provisions.’ ” ’ ” (Prouty v. Gores Technology
    Group, supra, 121 Cal.App.4th at p. 1233.)
    To reflect the above distinctions, the law classifies beneficiaries as either an
    intended or incidental. (Prouty v. Gores Technology Group, supra, 121 Cal.App.4th
    p. 1233.) Intended beneficiaries are often further categorized as either creditor or donee
    beneficiaries. (Lake Almanor Associates L.P. v. Huffman–Broadway Group, Inc. (2009)
    
    178 Cal.App.4th 1194
    , 1199.) Here, we are concerned only with creditor beneficiaries;
    there is no suggestion that secured creditor Wells Fargo was a donee beneficiary of
    J&W’s Side Agreement with JJR. “ ‘A creditor beneficiary is a party to whom a
    promisee owes a preexisting duty which the promisee intends to discharge by means of a
    15
    promisor’s performance.’ [Citations.]” (Id. at p. 1200.) A person cannot be a creditor
    beneficiary unless the promisor’s performance of the contract will discharge some form
    of legal duty owed to the beneficiary by the promisee. (Ibid.)
    “ ‘ “Whether a third party is an intended beneficiary or merely an incidental
    beneficiary to the contract involves construction of the parties’ intent, gleaned from
    reading the contract as a whole in light of the circumstances under which it was entered.
    [Citation.]” ’ ” (Landale–Cameron Court, Inc. v. Ahonen, supra, 155 Cal.App.4th at
    p. 1411.) Where, as here, the facts are undisputed, the issue is one of law. (Prouty v.
    Gores Technology Group, supra,121 Cal.App.4th at p. 1233.)
    We conclude there was substantial evidence upon which the jury could find that
    Wells Fargo is a third party beneficiary of the Side Agreement for two interrelated
    reasons. First, Wells Fargo will necessarily benefit from the Side Agreement. As
    discussed above, one purpose of the Side Agreement is the “collection of assets and the
    payment of liabilities” of J&W. Another purpose of the Side Agreement is to resolve
    outstanding issues regarding the “future representation of clients” of J&W following its
    dissolution. To the extent JJR’s performance of its contractual duties allocates payments
    to J&W for certain Runoff Matters performed by J&W for FFIC, it confers a benefit on
    Wells Fargo. This benefit is not incidental; rather, it flows directly from one of the stated
    purposes of the contracting parties, which was to resolve outstanding issues regarding
    “the collection of assets and the payment of liabilities” of J&W. Second, the undisputed
    facts demonstrate that Jackson, as a founding partner of both J&W and JJR, was fully
    aware that Wells Fargo was J&W’s sole secured creditor and that J&W owed millions of
    dollars to Wells Fargo. With knowledge of this considerable, extant secured debt,
    Jackson signed the Side Agreement in her individual capacity, as a partner of J&W, and
    as a partner of JJR. The language of the Side Agreement clearly and explicitly references
    that JJR and J&W intended to resolve “a number of outstanding issues relating to the
    dissolution” of J&W, including, among other things, payment of J&W’s liabilities. To be
    sure, a multi-million secured debt falls within the ambit of J&W’s “liabilities” to be
    addressed by the Side Agreement. The intended goal of resolving J&W’s “liabilities”
    16
    existing at the time of dissolution demonstrates the intent of the parties to benefit Wells
    Fargo. Accordingly, Wells Fargo qualifies as a third party beneficiary of the Side
    Agreement.
    JJR argues that even if Wells Fargo could be considered a third party beneficiary
    of the Side Agreement, it was not entitled to recover due to J&W’s failure to procure tail
    insurance. According to JJR, J&W’s failure to obtain tail insurance constituted a material
    breach of the Side Agreement. In essence, JJR seeks to transform paragraph 4 of the Side
    Agreement into a condition precedent. Nothing, however, in the plain language of the
    Side Agreement supports such an interpretation. Likewise, nothing in the record supports
    JJR’s position. Although Renstrom testified that he had considered including language in
    the Side Agreement that would have made the procurement of tail insurance a condition
    precedent, the jury clearly rejected JJR’s theory at trial.
    2.     Damages
    Finally, JJR, cites the rule that a third party beneficiary may not obtain greater
    recovery than that which would have been available under the contract (see Souza v.
    Westlands Water Dist. (2006) 
    135 Cal.App.4th 879
    , 894-895). JJR contends that even if
    Wells Fargo could be considered a third party beneficiary, it was not entitled to damages
    under the Side Agreement because the cost of obtaining the tail insurance was “far more”
    than the damages claimed by Wells Fargo. This argument is without merit. As
    discussed, the cost of obtaining tail insurance was simply not relevant in interpreting the
    Side Agreement and the trial court did not err in excluding such evidence. The damages
    claimed by Wells Fargo flow not from J&W’s failure to obtain tail insurance, but from
    JJR’s breach in failing to remit to J&W the agreed upon share of the FFIC proceeds.
    JJR’s corollary argument that “J&W’s breach” forced JJR to shoulder the risk of
    operating without proper liability insurance is similarly inapposite in determining the
    amount of Wells Fargo’s recovery under the Side Agreement.
    D.     Common Count
    A common count is a simplified form of pleading normally used to aver the
    existence of various forms of monetary indebtedness. (McBride v. Boughton (2004) 123
    
    17 Cal.App.4th 379
    , 394.) “The . . . essential [elements] of a common count are ‘(1) the
    statement of indebtedness in a certain sum, (2) the consideration, i.e., goods sold, work
    done, etc., and (3) nonpayment.’ [Citation.]” (Farmers Ins. Exchange v. Zerin (1997) 
    53 Cal.App.4th 445
    , 460.) A common count is used as an alternative way of seeking the
    same recovery demanded in a specific cause of action, and is based on the same facts.
    (See Farmers Ins. Exchange v. Zerin, supra, 53 Cal.App.4th at pp. 459-460.) Thus, in
    the present case, Wells Fargo’s common count must stand or fall with its breach of
    contract cause of action. Like Wells Fargo’s claim for breach of contract, we are
    satisfied that the special verdict in favor of Wells Fargo on its common count cause of
    action was proper.
    E.       Conversion
    JJR next contends that Wells Fargo’s conversion claim must fail because its rights
    are limited to those provided by the Side Agreement. According to JJR, Wells Fargo “is
    not allowed to bring” a tort cause of action, and even if it could, JJR “cannot be held
    liable for conversion because the subject of this action is money.” Neither contention has
    merit.
    “ ‘Conversion is the wrongful exercise of dominion over the property of another.
    The elements of a conversion claim are: (1) the plaintiff’s ownership or right to
    possession of the property; (2) the defendant’s conversion by a wrongful act or
    disposition of property rights; and (3) damages . . . . [Citations.]’ ” (Los Angeles Federal
    Credit Union v. Madatyan (2012) 
    209 Cal.App.4th 1383
    , 1387; see CACI 2100; Gruber
    v. Pacific States Sav. & Loan Co. (1939) 
    13 Cal.2d 144
    , 148 [conversion is the wrongful
    exercise of dominion “over another’s personal property in denial of or inconsistent with
    his rights therein”]. (Welco Electronics, Inc. v. Mora (2014) 
    223 Cal.App.4th 202
    , 208
    (Welco).)
    In California, the tort of conversion has expanded well beyond its original
    parameters, which were limited to items of tangible personal property. (Welco, supra,
    223 Cal.App.4th at pp. 209-210.) In determining whether property that has been taken is
    subject to a conversion claim, “courts have recognized that ‘[p]roperty is a broad concept
    18
    that includes “every intangible benefit and prerogative susceptible of possession or
    disposition.” [Citation.]’ [Citation.]” (Id. at p. 211.) “Generally, conversion has been
    held to apply to the taking of intangible property rights when ‘represented by documents,
    such as bonds, notes, bills of exchange, stock certificates, and warehouse receipts.’
    [Citation.] As one authority has written, ‘courts have permitted a recovery for conversion
    of assets reflected in such documents as accounts showing amounts owed, life insurance
    policies, and other evidentiary documents. These cases are far removed from the
    paradigm case of physical conversion; they are essentially financial or economic tort
    cases, not physical interference cases.’ (3 Dobbs, The Law of Torts (2d ed. 2011) § 710,
    p. 804, fn. omitted; see Prosser, Handbook of the Law of Torts (2d ed. 1955) 69–70 [‘It is
    now held that there may be an action for conversion, not only of the intangible rights
    represented by special instruments which give control, such as a check, a bill of lading, a
    bank book, an insurance policy, or a stock certificate, but also of such rights alone, as in
    the case of the corporate stock apart from the certificate. There is perhaps no essential
    reason why there might not be a conversion of a debt, the good will of a business, or even
    an idea, or “any species of personal property which is the subject of private ownership;”
    but thus far there has been no particular need for any extension of the remedy beyond
    commercial securities’]; but see Prosser & Keeton on Torts (5th ed. 1984) § 15, p. 92.)”
    (Welco, supra, 223 Cal.App.4th at pp. 209-210.)
    Although a generic claim for money is not actionable, money may be the subject
    of conversion if the claim involves a specific, identifiable sum, such as “ ‘where an agent
    accepts a sum of money to be paid another and fails to make the payment. [Citation.]’ ”
    (PCO, Inc. v. Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, LLP (2007) 
    150 Cal.App.4th 384
    , 395.) In California, actionable cases for conversion of money typically
    involve misappropriation, commingling, or misapplication of specific funds held for the
    benefit of others. (See, e.g., Welco, supra, 223 Cal.App.4th at pp. 211-212
    [misappropriation of line of credit on credit card actionable]; Los Angeles Federal Credit
    Union v. Madatyan, supra, 209 Cal.App.4th at p. 1388 [credit union with lien on car
    prevailed where body shop cashed insurance proceeds]; Plummer v. Day/Eisenberg, LLP
    19
    (2010) 
    184 Cal.App.4th 38
    , 48 [attorney with contingent fee lien had actionable
    conversion claim]; Fremont Indemnity Co. v. Fremont General Corp. (2007) 
    148 Cal.App.4th 97
    , 125 [misappropriation of net operating losses actionable conversion];
    Weiss v. Marcus (1975) 
    51 Cal.App.3d 590
    , 599-600, [attorney’s lien on settlement
    proceeds of settlement subject to lien]; McCafferty v. Gilbank (1967) 
    249 Cal.App.2d 569
    , 572, [equitable lien on divorce settlement proceeds].)
    In this case, Wells Fargo had a perfected security interest in the assets and
    accounts, including accounts receivable, of J&W. “A holder of a security interest may
    maintain an action for the impairment of a security by a third party tortfeasor.
    [Citations.]” (Baldwin v. Marina City Properties, Inc. (1978) 
    79 Cal.App.3d 393
    , 403
    [plaintiffs had security interest in limited partnership they sold to defendant to secure
    purchase money indebtedeness].) Moreover, secured parties, although not owners, have a
    special interest with a right of possession in cases where there is a default and the security
    agreement allows the secured creditor to take possession. (Id. at p. 410.) As noted, the
    security agreement in this case allows for such possession. Accordingly, Wells Fargo
    was entitled to collect on its security interest at the time of J&W’s default. However, the
    dissolution of J&W and the diversion of assets to JJR firm prevented Wells Fargo from
    collecting the outstanding debt. Although this claim necessarily relates to the Side
    Agreement, Wells Fargo is not, contrary to JJR’s assertion, seeking tort damages for a
    breach of contract. Rather, this claim is based on the wrongful interference with Wells
    Fargo’s security interest. The unauthorized retention of fees by JJR constituted an
    impairment of Wells Fargo’s security interest, which was a conversion.
    Cases holding that a conversion claim fails because the simple failure to pay
    money owed does not constitute conversion (see, e.g., Kim v. Westmoore Partners, Inc.
    (2011) 
    201 Cal.App.4th 267
    , 284), are not applicable here, because in those cases, there
    was no taking of intangible property.
    In sum, there was substantial evidence upon which the jury based its special
    verdict finding that JJR wrongfully converted Wells Fargo’s security interest.
    20
    III. DISPOSITION
    The judgment is affirmed. Wells Fargo is entitled to its costs on appeal.
    21
    _________________________
    REARDON, J.
    We concur:
    _________________________
    RUVOLO, P.J.
    _________________________
    RIVERA, J.
    22
    

Document Info

Docket Number: A138307

Filed Date: 3/12/2015

Precedential Status: Non-Precedential

Modified Date: 4/17/2021