Bishop Arbors, LLC v. Meadowcreek Mutual Water Co. CA4/2 ( 2014 )

Filed 6/30/14 Bishop Arbors, LLC v. Meadowcreek Mutual Water Co. CA4/2
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication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
FOURTH APPELLATE DISTRICT
DIVISION TWO
BISHOP ARBORS LLC,
Plaintiff and Appellant, E056232
v. (Super.Ct.No. SICVCV0744181)
MEADOWCREEK MUTUAL WATER OPINION
COMPANY, INC. et al.,
Defendants and Respondents.
APPEAL from the Superior Court of Inyo County. David L. Devore (Judge of the
Alpine Super. Ct. assigned by the Chief Justice pursuant to art. VI, § 6 of the Cal. Const.)
and William D. Palmer (Judge of the Kern Super. Ct. assigned by the Chief Justice
pursuant to art. VI, § 6 of the Cal. Const.) Affirmed.
Law Office of Michael Berger, Michael Berger and Robert S. Hanna for Plaintiff
and Appellant.
David S. Baumwohl; Jacobson, Hansen, Najarian & McQuillan, Leith B. Hansen;
Georgeson, Belardinelli, and Noyes, C. Russell Georgeson and Christopher B. Noyes for
Defendants and Respondents.
1
I
INTRODUCTION
This case arises from defendant Meadowcreek Mutual Water Co. (MMWC)
refusing to provide plaintiff Bishop Arbors LLC (Arbors) with water services, which
Arbors needed to develop its property. Arbors originally filed a complaint against
MMWC for breach of contract, based on five letters written in 2002 and 2005. Arbors
amended the complaint to allege MMWC’s claims were instead based on two 1997
annexation agreements (1997 Agreements) entered into between MMWC and previous
owners of Arbors’s property. The fifth amended complaint became the operative
complaint.
Arbors appeals from summary judgment and an order sustaining a demurrer to the
fourth cause of action of the fifth amended complaint, in favor of defendants MMWC and
MMWC board of directors members, Andrew Holmes and James Orr (referred to
collectively as defendants). The trial court determined that Arbors had no enforceable
rights to water under the 1997 Agreements.
Arbors contends the trial court erred in finding there was no express assignment of
the 1997 Agreements to subsequent property owners and Arbors could not enforce the
1997 Agreements because they were never recorded. Arbors also argues the trial court
erred in concluding the 1997 Agreements were terminated as a matter of law and because
there was a change in the intended development of Arbors’s property. Arbors further
asserts that the trial court erred in summarily adjudicating that Arbors failed to perform
the conditions precedent, necessary for issuance of water shares under the 1997
2
Agreements, and in denying Arbors’s cross-motion for summary adjudication. As to
defendants’ demurrer, Arbors argues the trial court erred in sustaining without leave to
amend defendants’ demurrer to the fourth cause of action for tortious interference with
contract.
After fully reviewing the record on appeal, we conclude Arbors has failed to raise
any material triable issues of fact and the trial court appropriately granted summary
judgment. The trial court also correctly sustained defendants’ demurrer to the fourth
cause of action without leave to amend. We affirm the judgment.
II
FACTS AND PROCEDURAL BACKGROUND
The material facts are essentially undisputed. It is how they are construed as a
matter of law that is at issue. The pertinent facts are as follows.
MMWC is a mutual water company formed for the sole purpose of delivering
water at cost to residential property owners of the Meadowcreek subdivisions and
neighboring commercial properties, contained within the express service area of MMWC.
MMWC, on occasion, expanded the areas it served by entering into annexation
agreements with property owners outside MMWC’s express service area.
Generally, each parcel within MMWC’s service area has one share of water stock
appurtenant to each parcel, entitling property owners to receive water service from
MMWC. MMWC permitted owners of larger parcels intended to be subdivided, to
receive multiple shares, with one share provided for each anticipated lot or interest in the
property. Shares of MMWC water stock confer water rights which run with the
3
appurtenant property located within the designated MMWC service area and annexed
parcels adjacent to and near the Meadowcreek subdivisions.
The 1997 Annexation Agreements
In 1997, MMWC’s attorney, David Baumwohl, drafted two annexation
agreements (the 1997 Agreements), which were essentially identical, with the exception
the agreements referred to different, adjacent, undeveloped parcels. One of the parcels
was owned by Peter Geris and his wife, Karen Geris, (Geris) and the other parcel was
owned by Kenneth Sample doing business as Inyo Crude, Inc. and Kenneth Sample’s
wife, Carole Sample (Sample).1 Arbors’s property is comprised of these two parcels (the
Property).
In the process of drafting and executing the 1997 Agreements, MMWC obtained a
California Department of Corporations (DOC) permit for issuance of two shares of water
stock for the Property (one share per parcel). The two water shares were needed for
building a public storage facility, gas station, car wash, and mini mart, which Geris and
Sample (Geris/Sample) jointly planned to build on the Property. The Department of
Corporations (DOC) permit, dated December 30, 1996, allowing MMWC to issue two
water shares, was valid for one year.
On January 2, 1997, Geris/Sample executed the 1997 Agreements. By letter dated
May 22, 1997, MMWC’s attorney, Baumwohl, retained Inyo-Mono Title Co. (IMT) to
assist Geris/Sample in carrying out the provisions of the 1997 Agreements. Attached to
1 On May 8, 2002, Inyo Crude, Inc. conveyed the property to Kenneth Sample and
his wife, Carole Sample.
4
Baumwohl’s letter requesting IMT to open escrow, were the two original 1997
Agreements signed by Geris and Sample. Baumwohl instructed IMT that, after
Geris/Sample complied with all of the terms and conditions under the 1997 Agreements,
IMT was authorized to record the 1997 Agreements.
Baumwohl listed in his May letter the conditions Geris/Sample were required to
perform before IMT could record the 1997 Agreements. Those conditions included: (1)
the MMWC board of directors (Board) approving and ratifying the 1997 Agreements; (2)
MMWC obtaining the necessary DOC permits to issue two new water shares to
Geris/Sample, which would be deposited with IMT and delivered by IMT to
Geris/Sample simultaneously with recording; (3) before closing, Geris/Sample depositing
with IMT payment of IMT’s fees and MMWC’s costs incurred in connection with the
annexation; (4) issuance of a title insurance policy insuring the utility easements granted
by Geris/Sample to MMWC; and (5) Geris/Sample complying with the conditions stated
in paragraph 3 of the 1997 Agreements, with compliance confirmed in writing by
MMWC, before the 1997 Agreements were recorded. IMT was to record the easements
simultaneously with recording the 1997 Agreements.
Paragraph 3 of the 1997 Agreements contained the following conditions precedent
to receiving water: (1) Geris/Sample recording a Notice of Completion of all delivery
and water storage systems by Geris/Sample; (2) MMWC’s approving of all items on the
Property for water distribution, supply, and delivery, (3) Geris/Sample paying MMWC
all fees, costs, expenses, and reimbursements incurred in connection with the 1997
Agreements; and (4) Geris/Sample granting MMWC the required utility easements.
5
In October 1997, IMT notified Baumwohl that IMT had not heard from
Geris/Sample. Baumwohl contacted Peter Geris, who informed him that Geris/Sample
was not going forward with the original project but was working on plans to develop a
hotel on the Property. Baumwohl then notified IMT of these circumstances and informed
IMT that, if the hotel project went forward, the 1997 Agreements would be modified,
primarily due to the increased need for water. Baumwohl further advised that “the
parties” had instructed that the matter be placed on hold “until we see what Peter Geris is
going to do with his property.” Geris testified at his deposition that he and Sample
changed their plan for developing the Property, from building a gas station, storage
facility, and mini-mart, to building a 40- and 61-unit hotel. However, Geris/Sample
ultimately decided not to proceed with the hotel project because they could not find a
hotel company willing to join in the project. Sample testified at his deposition that the
terms of the 1997 Agreements were never carried out because the Property was sold.
The DOC permits for issuance of two MMWC water shares expired in December
1997, with no new shares of MMWC issued, and the 1997 Agreements were never
recorded. Due to a lack of activity, IMT discarded its escrow file for the Property
annexation, along with the two original 1997 Agreements.
New Residential Project Plan and Attempt to Annex Property
Almost five years later, in August 2002, Peter Geris approached MMWC to
request water shares and a Will Serve Letter for water service for a new project plan to
develop the Property. The new project was for a 22-unit residential development
requiring 23 shares of water for 23 lots, which included one lot for the common area. In
6
August 2002, Peter Geris sent Jim Orr, president of MMWC, a letter stating he was
applying for a zone change for the Property and therefore needed to designate who would
provide water for the Property. Peter Geris requested to meet with the MMWC Board to
discuss “the possibility of annexation” for purposes of obtaining water from MMWC.
Although he preferred to obtain water from MMWC, as a backup plan, Peter Geris was
considering developing his own water well system. Peter Geris wanted MMWC to
provide the county planning department with a Will Serve Letter by November 2002,
confirming that MMWC would provide water service for the Property. Peter Geris
testified during his deposition that he wrote the August 2002 letter because he wanted
MMWC to give him a concrete water connection fee amount for his project. Otherwise
he was going to build his own well.
In December 2002, the MMWC Board met and approved providing water service
for Geris/Sample’s 22-unit condominium project, with a connection fee of $115,000. By
letter dated December 6, 2002, James Orr, president of MMWC, notified the county
planning department and Geris/Sample that the MMWC Board had recently agreed to
provide water service for Geris/Sample’s proposed 22-unit residential project on the
Property, conditioned upon Geris/Sample submitting engineering plans to MMWC,
MMWC approving the plans, and the recording of the final map for the Property, Tract
Map No. 238.
Arbors’s Purchase of the Property
In September 2004, Geris/Sample sold their property to Arbors. Blaine Hansen
(Hansen) testified at his deposition that he formed Arbors, a limited liability company,
7
and purchased the Property for the sole purpose of continuing with the development of
the 22-unit residential project. Hansen Construction Company, Inc. (Hansen
Construction) is the sole member of Arbors, and Hansen is the sole owner and principal
of Hansen Construction.
At the time of purchase of the property, Hansen was aware that Geris/Sample had
entered into agreements with MMWC for water for the Property. However, Hansen was
unaware of the 1997 Agreements. Hansen testified that he did not see the 1997
Agreements until during Peter Geris’s deposition in March 2008, after the instant
complaint was filed in July 2007. He never saw the original 1997 Agreements, only
copies. Sample testified he never discussed the 1997 Agreements with anyone at Arbors
or provided anyone at Arbors with a copy of the 1997 Agreements when the Property was
sold.
In November 2004, Hansen met with MMWC’s Board members for the purpose of
determining the connection fee. The Board indicated that MMWC would provide water
service and issue 23 water shares, conditional upon Arbors paying a $115,000 connection
fee, MMWC’s approval of the project’s water improvement plans, MMWC’s approval of
completion of the improvements by MMWC’s engineer, and recording and approval of
the final tract map 238 by the county. By letter dated January 26, 2005, from James Orr
of MMWC to Hansen, MMWC confirmed that it would issue 23 shares of water stock,
subject to the enumerated conditions precedent.
The MMWC Board met in February 2005, discussed providing water for the
Arbors residential project, and sent Hansen a letter in March 2005, clarifying the January
8
26, 2005 letter and additional factors. Specifically, the letter stated that the connection
fee was $115,000, it was to be paid before recordation of the final tract map, and Hansen
was to file the map within two years (by March 2, 2007). If this did not occur, MMWC
would reevaluate its agreement and understanding. In September 2005, Hansen paid the
$115,000 connection fee.
In November 2005, MMWC sent property management company, VierraMoore,
Inc. (VierraMoore), a Will Serve Letter, stating that water would be provided to 22 lots
on the Property and that Arbors had paid a $115,000 connection fee. A final tract map
was recorded with the Inyo County Recorder in April 2006.
In June 2006, MMWC sent a letter to the DOC, inquiring as to how to apply for
DOC approval of the 23 water shares for the Arbors project. Meanwhile, in 2006,
Hansen, through his attorneys, wanted to expedite annexation of the Property for
purposes of obtaining water for the project. By letter dated November 27, 2006,
Baumwohl told Hansen’s attorney, H.L. Koelewyn, that the MMWC Board had agreed to
work with Koelewyn in completing the requirements necessary to annex the Property and
obtain DOC permits for water shares. Baumwohl noted that Geris/Sample had previously
entered into agreements to annex the Property and obtain two shares for their planned
project. Baumwohl explained in the letter that Geris/Sample abandoned their project and
effort to obtain two water shares, resulting in the DOC permits for two water shares
expiring.
Baumwohl further stated in his letter that he understood that Arbors wanted the
Department of Real Estate (DRE) to issue a White Report, which required Arbors to enter
9
into an annexation agreement with the MMWC. Baumwohl enumerated the terms and
conditions that would be included in such an agreement. The annexation agreement
would be drafted after negotiating the terms of the agreement with Koelewyn and after
Arbors provided a deposit to cover the anticipated expenses.
Rather than complying with Baumwohl’s instructions, Koelewyn suggested
circumventing the requirements outlined in Baumwohl’s letter by MMWC providing (1)
a Certificate of the State Director of Health Services and (2) a signed statement by an
engineer or from a public agency confirming the Property water supply and distribution
system had been examined and tested. These items were required for the DRE to issue a
White Report. Baumwohl responded that he had requested and would provide the two
items Koelewyn requested, but noted Arbors had failed to provide the items he had
requested. Baumwohl noted that Arbors was requesting 23 water shares and this required
a DOC permit. Application for the permit required Arbors to comply with the items
enumerated in Baumwohl’s November 2006 letter.
In January 2007, Koelewyn told Baumwohl, he had still not received the requested
health certificate or engineering report. Koelewyn further stated that Arbors had paid the
$115,000 connection fee and constructed a water system, as required. Therefore Arbors
was entitled to 23 water shares, as promised. The only remaining condition was
MMWC’s approval of the utility easement, which was in MMWC’s possession.
Koelewyn claimed MMWC was delaying signing the easements in an attempt to delay
recording the map, which, in turn, prevented issuance of the water stock. Koelewyn
concluded in his letter that Arbors had fully performed its part of the bargain and
10
therefore MMWC was required to issue the promised water shares. Delay in doing so
was jeopardizing Arbors’s financing.
In response, Baumwohl provided Koelewyn with the requested health certificate
and engineering report. Baumwohl explained that MMWC could not issue the water
stock until it obtained permits from the DOC. This required Arbors to comply with
various requirements, previously enumerated, which Arbors had not addressed.
Koelewyn claimed Arbors had complied with all required terms and conditions and,
contrary to Baumwohl’s assertion, Arbors was not required to pay for fees and costs
involved in obtaining the DOC permits. Koelewyn added that Arbors would “execute an
annexation agreement if the terms are reasonable.”
By letter dated January 19, 2007, Baumwohl responded that it appeared that
Arbors believed MMWC’s January 26, 2005 letter constituted an agreement to supply
Arbors with 23 water shares. Baumwohl stated that there was only a “tentative
agreement,” in which there was an understanding that, (1) if Arbors paid the $115,000
connection fee, MMWC would provide water service, (2) the understanding was subject
to compliance with the law and satisfaction of all applicable conditions precedent before
water shares would be issued and water service provided, and (3) the parties must reach
agreement on completing the required tasks and satisfying the conditions precedent.
Baumwohl noted that Koelewyn had enclosed with his previous correspondence a copy
of a letter from MMWC to Geris/Sample, dated December 6, 2002. Baumwohl asked
why the letter was relevant, noting that Geris/Sample had entered into the 1997
Agreements for two water shares but the 1997 Agreements were never recorded or
11
carried out. Baumwohl said that it was MMWC’s understanding Geris/Sample
abandoned their project in late 1997.
Baumwohl further stated in his letter: “We have no information regarding any
further developments between Geris/Sample and the Water Company from late 1997
until the December 6, 2002 letter. It appears by way of that letter that Geris/Sample were
starting the process for a new project indentified as Tentative Tract Map No. 238. In
connection therewith, they were seeking a commitment from the Water Company to
supply water. [¶] Nothing happened for almost two years, and the Water Company sent
a letter to Geris referencing the Arbors project, dated October 29, 2004.” Arbors became
involved in the project thereafter.
Baumwohl notes in his lengthy, detailed letter that there was no express agreement
between Arbors and MMWC concerning the nature, extent, and scope of initial and
ongoing obligations of Arbors and MMWC. He concludes that “There must be an
express agreement between the parties dealing with the necessary issues . . . . [T]his is
why we have proposed the comprehensive Annexation Agreement.” Baumwohl
explained that MMWC would have to amend its Articles of Incorporation to provide for
the 23 shares, and this required shareholder approval. Before this could occur, the parties
were required to enter into an annexation agreement. Then MMWC could apply for
permits for issuance of water shares from the DOC.
According to Baumwohl, MMWC was willing to assist Arbors in annexing its
property for water service. Any existing agreement between the parties was tentative and
required shareholder approval. MMWC was willing to share the necessary administrative
12
costs with Arbors. In the alternative, MMWC was willing to rescind the tentative
agreement and return the connection fee funds to Arbors or mediate the matter with a
professional mediator. Baumwohl thanked Arbors for its willingness to enter into an
annexation agreement, which Baumwohl would begin drafting immediately, with
Koelewyn’s input.
Koelewyn responded that, “With regard to the annexation, my client has no
objection to an annexation with reasonable provisions presumably as set forth in the
Amendment to the CC&R’s.” In February 2007, Baumwohl informed Koelewyn that
MMWC had authorized going forward with drafting an annexation agreement.
Baumwohl reiterated that the parties currently only had a “tentative agreement.”
Baumwohl also stated that, although it was previously believed MMWC shareholder
approval was required for issuance of the 23 water shares, Baumwohl discovered this was
not necessary.
In March 2007, Baumwohl provided Koelewyn with a draft annexation agreement
for review. In April, Baumwohl sent Koelewyn a letter stating he had not received any
response from Koelewyn regarding the draft annexation agreement. Baumwohl said he
had heard that Hansen had said there was “no way” he was going to sign the agreement
and, if the water stock was not delivered, he would sue. Baumwohl advised Koelewyn
that Arbors was legally required to enter into a written agreement containing the material
terms and provisions set forth in the proposed annexation agreement before MMWC
could apply for DOC permits and issue water stock. Since Hansen was not willing to
cooperate and execute an annexation agreement, Baumwohl concluded there was nothing
13
MMWC could do to assist Arbors with its project. MMWC therefore refunded the
$115,000 connection fee. Baumwohl stated there currently was no enforceable
agreement to issue water shares. Nevertheless, MMWC was willing to resume the
process of providing Arbors with water service, but not unless the parties entered into an
annexation agreement.
In May 2007, Koelewyn sent property management company, VierraMoore, a
letter advising that the following letters constituted an agreement between MMWC and
Arbors, requiring MMWC to issue stock and provide water:
1. Letter dated December 6, 2002, from MMWC to Inyo County Planning
Department, stating that the MMWC board had agreed to provide water service for
the 22-unit project, subject to various conditions precedent.
2. Letter dated December 6, 2002, from MMWC, notifying Geris/Sample that the
connection fee would be $115,000 for the 22-unit project.
3. Letter dated January 26, 2005, from MMWC to Hansen, in which MMWC
confirmed that it would issue 23 shares of water stock, subject to certain
conditions precedent.
4. Letter dated July 21, 2005, from MMWC to Inyo County Planning Department,
stating that Hansen was required to pay MMWC a $115,000 connection fee prior
to recordation of final tract map No. 238.
5. Letter dated December 2, 2005, from Hansen to MMWC, stating that Hansen had
paid the $115,000 connection fee.
6. Letter dated December 13, 2005, from MMWC to Hansen, acknowledging
14
receipt of payment of the $115,000 connection fee.
In May 2007, Koelewyn also sent Baumwohl a letter stating that he had been out
of the country and Hansen had not refused to sign the annexation agreement. Rather,
Hansen wanted the annexation agreement to comport with the terms stated in the letters
from MMWC to Hansen, Geris, and the county planning and water departments.
Koelewyn asserted that Arbors had fully complied with the agreed upon terms and
MMWC had failed to perform as promised. Arbors had no intention of allowing MMWC
to rescind its agreement. Koelewyn provided Baumwohl with a revised annexation
agreement. Thereafter, the parties attempted to negotiate the terms of the annexation
agreement, to no avail.
In June 2007, Baumwohl sent Koelewyn a letter declaring that the parties had
reached an impasse because Arbors did not want to include in the annexation agreement a
General Release and Waiver of Claims provision. As a consequence, Hansen could not
get a White Report,2 which required establishing water service for the Property. In turn,
Hansen could not build homes on the Property, which led to foreclosure in April 2010.
Original Complaint
On July 16, 2007, Arbors filed a verified complaint against MMWC, alleging
causes of action for (1) specific performance, (2) damages based on breach of contract,
2 A White Report, also known as a White Paper, is a Final Subdivision Public
Report issued by the Real Estate Commissioner. (Sumner Hill Homeowners’ Assn., Inc.
v. Rio Mesa Holdings, LLC (2012) 205 Cal.App.4th 999, 1006; Sequoia Park Associates
v. County of Sonoma (2009) 176 Cal.App.4th 1270, 1292; ABI, Inc. v. City of Los
Angeles (1984) 153 Cal.App.3d 669, 675-676; Bus. & Prof. Code, § 11018.2.)
15
and (3) injunctive relief. Arbors’s original verified complaint alleged that Geris entered
into an annexation agreement for water with MMWC in 1997, but Peter Geris changed
the development project. Geris and MMWC entered into a letter agreement dated
December 6, 2002 (attached to the complaint), in which Geris was to pay a $115,000
connection fee and MMWC agreed to annex the Property, provide water, and issue 23
shares of stock. In late 2004, Arbors purchased the Property. Before purchasing the
Property, Arbors confirmed with MMWC that MMWC would provide water service to
the Property, conditioned upon payment of a $115,000 connection fee. Arbors entered
into an agreement with MMWC that MMWC would provide water to the Property, annex
the Property for water service, and issue 23 shares of stock to Arbors, conditioned upon
Arbors fulfilling various conditions precedent. The agreement was evidenced by letters
dated January 26, 2005, and March 2, 2005, from MMWC to Hansen. Arbors complied
with the conditions precedent. MMWC allegedly breached the agreement by failing to do
what was necessary for issuance of the water shares and annexation of the Property for
water service.
First Amended Complaint
In October 2008, the trial court granted Arbors leave to amend the complaint.
Hansen Construction was added as a coplaintiff and MMWC Board members, James Orr
and Andrew Holmes, were added as defendants. The amended complaint was founded
entirely on the 1997 Agreements, as opposed to the alleged letter agreements relied on in
the original complaint.
16
After several demurrers and motions to strike, the fifth amended complaint (FAC)
became the operative complaint.
Demurrer to Fifth Amended Complaint and Summary Judgment
The fifth amended complaint against MMWC, Orr, and Holmes, alleged the
following causes of action: (1) breach of contract, (2) breach of fiduciary duty of director
toward subscriber, (3) fraud in performance of annexation agreement, (4) tortious
interference with contractual relations, and (5) breach of the covenant of good faith and
fair dealing. Arbors alleged that in 2002, the owners of the Property changed the
proposed development plan for the Property. MMWC approved the change in 2002 and
determined that 23 water shares would be required. The 1997 Agreements were intended
to inure to the benefit of successor owners of the Property, such as Arbors.
Arbors further alleged that, on January 25, 3005, MMWC confirmed that Arbors
was entitled to receive performance of the 1997 Agreements, which became effective
immediately upon execution, without recordation. MMWC was required to qualify and
issue 23 shares of water stock to Arbors, and deliver water to the Property, subject to
conditions precedent, which Arbors had performed. MMWC breached the 1997
Agreements by failing to apply for DOC stock permits, failing to provide the shares to
Arbors, repudiating the 1997 Agreements in January 2007, refusing to perform the 1997
Agreements in April 2007, and interfering with Arbors’s performance under the 1997
Agreements, including causing a delay in preparation of a required easement. Plaintiffs
further alleged that defendants breached their fiduciary duty to Arbors under the 1997
Agreements, as a subscriber of MMWC stock, and committed fraud by concealing their
17
intent not to perform the 1997 Agreements and deceiving Arbors as to defendants’
nonperformance. In addition, Arbors alleged in the fourth cause of action that defendants
interfered with Arbors’s agreements with third parties to develop the Property, sell the
units, and obtain financing and insurance.
The trial court overruled defendants’ demurrer to the FAC, with the exception of
the demurrer to the fourth cause of action for tortious interference with contractual
relations. As to that cause of action, the court sustained the demurrer without leave to
amend.3 After answering the FAC, defendants filed a motion for summary judgment or,
alternatively, summary adjudication. Arbors filed a cross-motion for summary
adjudication. The trial court granted defendants’ motion for summary judgment, denied
Arbors’s motion for summary adjudication, and entered judgment for defendants and
against Arbors. The trial court concluded it was undisputed Arbors had no claim arising
from, or standing under, the 1997 Agreements.
III
SUMMARY JUDGMENT STANDARD OF REVIEW
“[T]he party moving for summary judgment bears the burden of persuasion that
there is no triable issue of material fact and that he is entitled to judgment as a matter of
law.” (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850 (Aguilar), fn.
3 Defendants’ demurrers as to Hansen Construction’s claims ultimately were all
sustained without leave to amend, resulting in entry of a judgment of dismissal against
Hansen Construction. This court affirmed the trial court judgment against Hansen
Construction in a separate, prior appeal (Hansen Construction, Inc. v. Meadowcreek
Mutual Water Company, Inc. (Oct. 18, 2012, E053620) [nonpub. opn.].) Hansen
Construction is not a party to this appeal.
18
omitted.) “Once the [movant] has met that burden, the burden shifts to the [other party]
to show that a triable issue of one or more material facts exists as to that cause of action
. . . .” (Code Civ. Proc., § 437c, subd. (p)(2); Aguilar, at p. 850.) The party opposing
summary judgment “may not rely upon the mere allegations or denials of its pleadings,”
but rather “shall set forth the specific facts showing that a triable issue of material fact
exists . . . .” (§ 437c, subd. (p)(2).) A triable issue of material fact exists where “the
evidence would allow a reasonable trier of fact to find the underlying fact in favor of the
party opposing the motion in accordance with the applicable standard of proof.” (Ibid.)
We affirm summary judgment where it is shown that no triable issue of material fact
exists and the moving party is entitled to judgment as a matter of law. (Code Civ. Proc.,
§ 437c, subd. (c).) Where summary judgment has been granted, we review the trial
court’s ruling de novo. (Aguilar, at p. 860.)
IV
ENFORCEABILITY OF THE 1997 AGREEMENTS
The pivotal issue here is whether the 1997 Agreements were abandoned or
modified before Arbors purchased the Property. We conclude Arbors has not provided
evidence refuting that the 1997 Agreements were abandoned before Arbors purchased the
Property. Arbors has thus not met its burden of establishing that a reasonable trier of fact
would find that Arbors had enforceable rights under the 1997 Agreements.
In considering whether the 1997 Agreements were terminated or modified, we first
look to the terms of the 1997 Agreements. Paragraph 2 of the 1997 Agreements state that
“[t]he covenants, conditions, terms, and promises set forth herein are to run with the land
19
of OWNER and shall be binding upon and be a benefit to all parties and all persons or
entities claiming under each of the parties until termination of any such provision in
writing by the parties or any persons or entities claiming under them.” (Italics added.)
Similarly, modification of the 1997 Agreements also was required to be in writing.
Paragraph 10.4 of the 1997 Agreements states: “Any modifications to this Agreement
shall be of no force or effect unless made in writing and signed by the party to be
charged.”
Termination of a contract differs from modification of a contract in that, “[a]n
‘alteration’ is a modification or change in one or more respects which introduces new
elements into the details of the contract, or cancels some of them, but leaves the general
purpose and effect undisturbed. [Citations.] To ‘terminate’ a contract, on the other hand,
means to abrogate so much of it as remains unperformed, thereby doing away with the
existing agreement upon the terms and with the consequences agreed upon. [Citation.]
This distinction has been frequently applied by the California courts, and it is now well
settled that the termination or abrogation of a written contract may be achieved by an oral
agreement, whether executed or not, and that in such a case section 1698 of the Civil
Code has no application.” (Grant v. Aerodraulics Co. (1949) 91 Cal.App.2d 68, 74-75.)
Civil Code section 1698 provides that a contract in writing may be altered by a contract
in writing, or by an executed oral agreement, and not otherwise. (See also Grant, at p.
75.)
Here, it is undisputed MMWC and Geris/Sample did not execute any written
agreement to terminate or modify the 1997 Agreements. The absence of such a written
20
agreement, however, does not preclude the possibility of extinguishment of the 1997
Agreements by abandonment. Abandonment differs from the parties expressly agreeing
to terminate or modify the 1997 Agreements. “[A]bandonment requires a finding that
both parties intended to disregard the contract, and abandonment may be implied from
the acts of the parties. [Citations.]” (C. Norman Peterson Co. v. Container Corp. of
America (1985) 172 Cal.App.3d 628, 643.) “‘[A]bandonment requires a finding that both
parties intended to disregard the contract.’ ([C. Norman Peterson Co. v. Container Corp.
of America,] at p. 643; Ben-Zvi v. Edmar Co. (1995) 40 Cal.App.4th 468, 474
[‘Abandonment occurs . . . only where both contracting parties agree “that the contract is
terminated and of no further force and effect”’].)” (Amelco Electric v. City of Thousand
Oaks (2002) 27 Cal.4th 228, 236.)
Here, after entering into the 1997 Agreements, Geris/Sample substantially
changed the scope of the development plan for the Property by proposing to build a 22-
unit condominium project on the Property, which required 23 water shares. The original
project required only two water shares and was a commercial development, rather than
residential. Acknowledging this significant change, MMWC and Geris/Sample began
negotiations and entered into a new tentative agreement for annexation and issuance of
water stock, instead of modifying the existing 1997 Agreements. There is no evidence of
Geris/Sample and MMWC relying on or modifying the 1997 Agreements in connection
with the 22-unit residential project.
“‘“There can be no question that a contract can be mutually abandoned by the
parties at any stage of their performance and each of the parties released from any further
21
obligation on account thereof; that it may be done by parol, and the fact of its having
been done established by evidence of the acts and declarations of the parties.”’” (Martin
v. Butter (1949) 93 Cal.App.2d 562, 566.) Arbors has not presented any evidence
refuting that the parties to the 1997 Agreements abandoned the agreements before Arbors
purchased the Property. MMWC and Geris/Sample’s acts and declarations establish that
they were not relying on the 1997 Agreements when they discussed annexation and
issuance of shares for the newly proposed development plan of building a 22-unit
residential project on the Property. “While the question of abandonment is one of
intention to be determined only upon an investigation of all the facts and circumstances,
still where there is no dispute as to the facts or the inferences to be drawn therefrom the
question becomes one of law.” (Herbert v. Graham (1925) 72 Cal.App. 314, 316;
Templar Mining Co. v. Williams (1937) 23 Cal.App.2d 45, 51.) Here, there is no dispute
as to the material facts relevant to the determination of whether Geris/Sample abandoned
the 1997 Agreements.
Arbors argues there is a triable issue of fact as to whether the 1997 Agreements
were abandoned, because the 1997 Agreements do not include termination dates, there
are no due dates for performance or completion, and there are no “time is of the essence”
clauses. Therefore, a reasonable time for performance was permitted under the 1997
Agreements. Civil Code section 1657 provides: “If no time is specified for the
performance of an act required to be performed, a reasonable time is allowed. If the act
is in its nature capable of being done instantly – as, for example, if it consists in the
payment of money only – it must be performed immediately upon the thing to be done
22
being exactly ascertained.” “What constitutes such a reasonable time ordinarily presents
a question of fact, dependent upon the circumstances of the case. [Citation.]” (Kotler v.
PacifiCare of California (2005) 126 Cal.App.4th 950, 956.)
“[T]he standard of reasonableness applicable in this case is a conventional one,
derived from ‘the situation of the parties, the nature of the transaction, and the facts of the
particular case’ [citation].” (Kotler v. PacifiCare of California, supra, 126 Cal.App.4th
at p. 956.) Based on the terms within the four corners of the 1997 Agreements, as well as
the undisputed facts of this case and nature of the transaction to provide water for the
Property, we conclude the evidence would not allow a reasonable trier of fact to find the
1997 Agreements were performed within a reasonable time. (Aguilar, supra, 25 Cal.4th
at p. 850.) The 1997 Agreements specify that “The parties shall use due diligence and
their best efforts to annex the property of OWNER to the WATER COMPANY.”
Although not expressly stated, this suggests time was of the essence in performing the
1997 Agreements. Geris/Sample’s inactivity for approximately five years cannot be said
to constitute due diligence in carrying out the terms and conditions of the 1997
Agreements. Rather, such inactivity reflected abandonment, as concluded by IMT, the
escrow company responsible for assisting Geris/Sample with annexation of the Property
under the 1997 Agreements.
When IMT asked Baumwohl in October 1997 what the status was on annexing the
Property, Baumwohl advised IMT that the matter was on hold because Geris/Sample was
not going forward with the original project and was considering a new project of building
a hotel on the Property. The hotel project also never went forward, because Geris could
23
not find a hotel company that would join in the project. Geris/Sample’s efforts to annex
the Property under the 1997 Agreements languished for several years. Because of this
inactivity for a relatively lengthy period of time, IMT assumed Geris/Sample had
abandoned their efforts to annex the Property under the 1997 Agreements. IMT
discarded its escrow file for the Property annexation, along with the two original 1997
Agreements. The DOC permits for issuance of two MMWC shares also expired in
December 1997, with no new shares of MMWC issued, and the 1997 Agreements were
never recorded.
It was not until about five years later, in 2002, that Geris/Sample began
negotiating a new annexation agreement for an entirely different project, which was a
residential project, rather than a commercial project, and required 23 water shares instead
of two water shares. There is no evidence indicating either MMWC or Geris/Sample
relied on the 1997 Agreements or believed the 1997 Agreements remained binding and
enforceable regarding the new project. This is apparent from evidence that, in August
2002, Peter Geris approached MMWC to request water shares and a Will Serve Letter for
water for his new project plan to build 22 residential units. Peter Geris’s letter to
MMWC, dated August 29, 2002, stated that he was applying for a required zone change
for the Property and therefore needed to designate who would provide water for the
Property. Peter Geris requested to meet with the MMWC Board to discuss “the
possibility of annexation” for purposes of obtaining water from MMWC. Peter Geris
stated that he preferred to obtain water from MMWC but, as a backup plan, was
considering developing his own water well system.
24
The August 2002 letter shows that Peter Geris did not believe the 1997
Agreements remained in effect or were still binding on the parties. Peter Geris indicated
he was not required to annex the Property under the 1997 Agreements or receive water
from MMWC. Geris/Sample were considering building their own water well in the event
the connection fee and water service charges were too high. Geris testified during his
deposition that he wrote the August 2002 letter because he wanted MMWC to give him a
concrete, reasonable connection fee amount for his project. Otherwise Geris was going
to build his own well. There is simply no evidence that the negotiations, discussions, and
agreements between MMWC and Geris/Sample commencing in 2002, regarding the new
22-unit project, were founded on the 1997 Agreements. The parties did not mention the
agreements and all communications indicated the parties intended to create a new
annexation agreement.
Furthermore, Sample testified at his deposition that the terms of the 1997
Agreements were never carried out because the Property was sold. Sample also testified
he never discussed the 1997 Agreements with Arbors or provided a copy of the 1997
Agreements to Arbors when the Property was sold. Hansen acknowledged he never even
saw the 1997 Agreements until after he had filed the complaint in this case. Hansen
testified he did not see copies of the 1997 Agreements until during Geris’s deposition in
March 2008. Furthermore, Hansen never saw the original 1997 Agreements, since IMT
discarded them because of the parties’ inactivity.
The instant lawsuit arose from a dispute between Arbors and MMWC over
whether negotiations and letter agreements relating to the 22-unit project constituted an
25
enforceable agreement requiring MMWC to annex the Property and provide 23 water
shares. Hansen initially argued that the letter agreements constituted a binding agreement
to annex the Property and issue 23 water shares. MMWC argued there was no formal,
signed agreement by the parties, which was legally required in order to annex the
Property and provide water service. Eventually, Hansen agreed to consider executing an
annexation agreement but then refused to sign the proposed annexation agreement drafted
by Baumwohl, because the agreement included a General Release and Waiver of Claims
provision, which Hansen did not want included in the annexation agreement.
When it became apparent that the parties could not resolve their differences,
Hansen brought the instant lawsuit, which was founded on MMWC’s 2002 and 2005
letters, stating that MMWC would agree to annexation and providing water service
subject to the Property owner’s compliance with various conditions precedent. It was not
until almost a year after Hansen filed this action, that Hansen viewed a copy of the 1997
Agreements, retained a new attorney, and completely changed the theory of his case, and
amended the complaint to allege that MMWC was contractually obligated to annex the
Property, issue 23 water shares, and provide water service based on the 1997
Agreements.
Based on our review of the totality of the evidence, we conclude it is undisputed
that Geris/Sample and defendants did not diligently attempt to annex the Property under
the 1997 Agreements after Geris/Sample dropped their initial projects in 1997. Instead,
for approximately five years, Geris/Sample discontinued their efforts to annex the
Property. There is no evidence showing that, when they initiated efforts to annex the
26
Property for water service in 2002, either MMWC or Geris/Sample had any intention of
relying on or modifying the 1997 Agreements in connection with the new 22-unit project.
The undisputed evidence shows that, as a matter of law, Geris/Sample and MMWC
abandoned the 1997 Agreements by nonaction and a lack of due diligence in performing
the 1997 Agreements’ terms and conditions. The evidence further demonstrates that in
2002, Geris/Sample initiated completely new negotiations for annexation and water
service for the 22-unit project, and the negotiations were not in any way founded on the
abandoned 1997 Agreements.
Arbors argues it has standing to enforce the 1997 Agreements terms and
conditions as a successor-in-interest and assignee of Geris/Sample’s interest in the
Property. Paragraph 2 of the 1997 Agreements state that “It is the express intent of the
parties hereto that the covenants, conditions, promises, and obligations set forth herein be
made for the express benefit of the WATER COMPANY, its shareholders, and the
properties benefitted by the creation and existence of the WATER COMPANY, and with
the express intent to bind and benefit OWNER, the property of OWNER, and the
successors-in-interest, heirs, and assigns of each of the parties hereto. The covenants,
conditions, terms, and promises set forth herein are to run with the land of OWNER and
shall be binding upon and be a benefit to all parties and all persons or entities claiming
under each of the parties . . . .” (Italics added.) Paragraph 10.5 of the 1997 Agreements
states: “This Agreement shall be binding upon and inure to the benefit of the . . .
successors, and assigns of each of the parties hereto.”
27
These provisions do not provide Arbors with standing or rights under the 1997
Agreements because the 1997 Agreements were extinguished through Geris/Sample’s
abandonment of the 1997 Agreements before the Property was sold to Arbors in 2004.
Since at the time of Arbor’s purchase of the Property, Geris/Sample had no enforceable
contractual rights under the 1997 Agreements, Arbors likewise, as a matter of law,
received no contractual rights under the abandoned 1997 Agreements and was never a
party to the 1997 Agreements. Arbors thus has no standing to enforce the abandoned,
extinguished 1997 Agreements.
All other issues raised in Arbors’s appeal, such as whether the 1997 Agreements
were unenforceable because they were not recorded, whether the covenants in the 1997
Agreements ran with the land, whether the 1997 Agreements were enforceable even
assuming the covenants did not run with the land, whether Arbors fully performed all of
the conditions precedent required under the 1997 Agreements, and whether Arbors was
required to comply with Corporations Code section 14312,4 are moot and therefore need
not be addressed in this decision because Arbors’s entire complaint is founded on the
1997 Agreements, which we conclude are unenforceable as a matter of law, since
4 Corporations Code section 14312, subdivision (a), provides in relevant part:
“(a) Any person who intends to offer for sale or lease lots within a subdivision within this
state and to provide water for domestic use to purchasers of the lots within a subdivision
through the formation of a mutual water corporation described in Section 14311, shall
include as part of the application for a public report, as described in Section 11010 of the
Business and Professions Code, a separate document containing all of the following
information, representations, and assurances . . . .”
28
Geris/Sample abandoned the agreements. Also, as a nonparty to the 1997 Agreements,
Arbors has no standing to enforce the 1997 Agreements.
Arbors has not established any disputed material issue of fact. It is unrefuted that
Arbors cannot prevail on any of its causes of action, which are all founded on the
abandoned 1997 Agreements. The trial court therefore appropriately granted summary
judgment against Arbors.
V
DEMURRER TO THE FOURTH CAUSE OF ACTION
In July 2007, Arbors filed a verified complaint alleging breach of contract. The
alleged contract was memorialized in five letters attached to the complaint, which Arbors
alleged formed an agreement that MMWC would provide water services for the Property.
In October 2008, the trial court granted Arbors leave to amend the complaint. The first
amended complaint and subsequent amended complaints were founded on the 1997
Agreements, instead of the contract allegedly derived from the five letters attached to the
original complaint.
After several additional demurrers and motions to strike, the FAC became the
operative complaint. The trial court overruled defendants’ demurrer to the FAC, with the
exception of defendants’ demurrer to the fourth cause of action for tortious interference
with contractual relations (interference with contract). As to that cause of action, the
29
court sustained the demurrer without leave to amend.5 Arbors challenges the ruling in
this appeal.
Arbors and Hansen Construction (plaintiffs) alleged in the fourth cause of action
for interference with contract that Arbors entered into the following agreements to further
the development and sale of units built on Arbors’s property: (1) a development loan
agreement and a line of credit agreement between Arbors and Colonial Bank; (2) a policy
of liability insurance issued to Arbors by Westchester Surplus Lines; (3) three purchase
notes; and (4) reservation agreements with prospective purchasers of the units.
Defendants allegedly knew of these third-party construction and development-related
agreements, and interfered with the contracts by committing acts in breach of fiduciary
duties and fraud in the performance of the 1997 Agreements. The complaint alleges that
“The allegations with respect to the Defendants’ conduct apply to both Plaintiffs in the
same way, and Plaintiffs ARBORS and HC properly join together as plaintiffs in this
Cause of Action.”
Plaintiffs further alleged in the fourth cause of action that defendants’ alleged
interference with Hansen’s contracts included (1) thwarting Hansen’s development of the
Arbors project until Arbors was coerced into modifying the annexation agreements, (2)
exploiting for the benefit of Triad and Holmes Associates, an undisclosed conflict of
5 Defendants’ demurrers to Hansen Construction’s claims ultimately were all
sustained without leave to amend, resulting in entry of a judgment of dismissal against
Hansen Construction. This court affirmed the trial court judgment against Hansen
Construction in a separate, prior appeal (Hansen Construction, Inc. v. Meadowcreek
Mutual Water Company, Inc. (Oct. 18, 2012, E053620) [nonpub. opn.]). Hansen
Construction is not a party to this appeal.
30
interest of Holmes as an officer of both MMWC and Triad, (3) concealing defendants’
lack of performance of the annexation agreements, (4) concealing that MMWC lacked
the water shares needed to transfer to Arbors, (5) colluding with Triad and Holmes in
repudiating the annexation agreements, (6) delaying work required by MMWC for the
provision of water on the property, and (7) breaching the annexation agreements.
In Hansen Construction’s separate appeal, this court affirmed the trial court’s
ruling sustaining without leave to amend defendants’ demurrer to the fourth cause of
action of the fifth amended complaint (Hansen Construction, Inc. v. Meadowcreek
Mutual Water Company, Inc. (Oct. 18, 2012, E053620) [nonpub. opn.].) This court
concluded Hansen Construction had no standing as either a party or third party
beneficiary under the 1997 Agreements to maintain causes of action for breach of
contract and fraud in the performance of contract (the first and third causes of action).
We explained in our decision that nothing in the 1997 Agreements was intended to
benefit the builder, Hansen Construction. Any benefits that Hansen Construction might
receive from developing the Property, would be incidental.
This court also concluded in our previous decision that Hansen did not allege
sufficient facts demonstrating that defendants knew about the third-party contracts or
intentionally interfered with them. Hansen Construction argued the alleged acts of
intentional interference included defendants’ concealment and collusion between
MMWC and Triad, with Holmes exploiting his role as an officer of both Triad and
MMWC. We concluded that, as to interference with Hansen Construction’s construction-
related contracts, the complaint made conclusionary allegations that defendants
31
intentionally interfered with those contracts without alleging any supporting facts.
Hansen Construction also failed to allege any facts that it suffered damages from
interference with each of the contracts. These same deficiencies in the fourth cause of
action apply equally to Arbors.
A. Standard of Review
We review de novo the trial court’s rulings sustaining defendants’ demurrers
without leave to amend. (Schauer v. Mandarin Gems of California, Inc. (2005) 125
Cal.App.4th 949, 955.) “‘[W]e give the complaint a reasonable interpretation, and treat
the demurrer as admitting all material facts properly pleaded, but not the truth of
contentions, deductions or conclusions of law. We reverse if the plaintiff has stated a
cause of action under any legal theory. [Citation.]’” (Ibid., quoting Barnett v. Fireman’s
Fund Ins. Co. (2001) 90 Cal.App.4th 500, 507.)
B. Analysis
Arbors briefly, in two paragraphs, argues that the trial court erred in sustaining
defendants’ demurrer to the fourth cause of action. Arbors asserts that the fourth cause of
action is proper because it is based on acts which are independent of the breach of
contract between Arbors and MMWC. The fraud claim is based on defendants’ alleged
concealment of MMWC’s failure to seek qualification of the water shares and
concealment of defendants’ intent to repudiate the 1997 Agreements. The breach of
fiduciary duty is based on defendants’ alleged collusion and exploitation of a conflict of
interest by Holmes, who was on the MMWC Board while acting as Arbors’s engineer.
32
This conflict allegedly enabled the engineering company and MMWC to conceal their
wrongful conduct.
“The elements which a plaintiff must plead to state the cause of action for
intentional interference with contractual relations are (1) a valid contract between
plaintiff and a third party; (2) defendant’s knowledge of this contract; (3) defendant’s
intentional acts designed to induce a breach or disruption of the contractual relationship;
(4) actual breach or disruption of the contractual relationship; and (5) resulting damage.
[Citations.]” (Pacific Gas & Electric Co. v. Bear Stearns & Co. (1990) 50 Cal.3d 1118,
1126.)
As we concluded in Hansen Construction’s separate appeal, plaintiffs did not
allege sufficient facts demonstrating that defendants knew about the third-party contracts
or intentionally interfered with them. As to interference with Arbors’s construction-
related contracts, Arbors has made conclusionary allegations that defendants intentionally
interfered with those contracts but has not alleged any supporting facts. Arbors also has
not alleged any facts that it suffered damages from interference with each of the
contracts. Arbors’s allegations of interference are premised on allegations incorporated
from the second and third causes of actions, but those causes of action are premised on
the 1997 Agreements, which Arbors had no standing to enforce.
33
VI
DISPOSITION
The judgment is affirmed. Defendants are awarded their costs on appeal.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
CODRINGTON
J.
We concur:
RAMIREZ
P. J.
MILLER
J.
34