Town & Country etc. v. King City etc. CA2/5 ( 2021 )

Filed 1/29/21 Town & Country etc. v. King City etc. CA2/5
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION FIVE
TOWN & COUNTRY B296864 c/w B303927
INVESTMENTS, I.P.,
(Los Angeles County
Plaintiff and Appellant, Super. Ct. No. SC128132)
v.
KING CITY ENTERTAINMENT,
INC., et al.,
Defendants and Respondents.
APPEAL from a judgment of the Superior Court of Los
Angeles County, H. Jay Ford, III, Judge. Affirmed.
Vivoli Saccuzzo, Michael W. Vivoli and Jason P. Saccuzzo
for Plaintiff and Appellant.
Law Offices of Andrew D. Weiss and Andrew D. Weiss for
Defendants and Respondents.
__________________________
Town & Country Investments, LP (Landlord) leased
commercial property to corporations controlled by Minerva
Munoz and Joe Baker to build out and operate a restaurant
called Cowboy Joe’s Sports Saloon. The restaurant did not timely
open, rent was unpaid, and there was a falling out between the
two tenants. Thereafter, Landlord entered into a secured note
with Baker, but not Munoz. The note, too, went unpaid. In this
action, Landlord brought suit against both Baker and Munoz on
the note, but not the lease. Baker defaulted and is not a party to
this appeal.
As the litigation proceeded against Munoz, Landlord sought
leave to amend its complaint to allege a cause of action against
Munoz for breach of the lease. The trial court denied the motion.
The case was tried without a jury on Landlord’s cause of action
for breach of the note and resulted in a judgment in favor of
Munoz, the trial court finding that she was not a party to the
note. Munoz then obtained her attorney fees as prevailing party
on a contract with an attorney fee provision (the note). Landlord
appeals from the judgment, challenging the denial of leave to
amend and the trial court’s finding that Munoz was not liable on
the note. Landlord separately appeals the postjudgment order
for attorney fees. We have consolidated the two appeals for
argument and opinion, and now affirm.
FACTUAL AND PROCEDURAL BACKGROUND
The failure of Cowboy Joe’s Sports Saloon spawned at least
five lawsuits, of which this is but one. Although we discuss the
somewhat tortured factual and procedural history, we, like the
trial court, emphasize that we are addressing only the limited
issues before us, and express no opinion on issues which are to
be, or have been, resolved in other cases.
2
1. The Arrangement Between Baker and Munoz
Baker and Munoz decided to go into business together, to
establish and run a restaurant to be called Cowboy Joe’s Sports
Saloon. On December 3, 2014, they memorialized their
agreement in a one-page document which was titled, “Contract,”
and subtitled, “Partnership Agreement” – although whether their
relationship was properly categorized as a partnership, as
opposed to a corporation or other legal entity, is unclear.
Neither Baker nor Munoz was a party to the agreement in
their individual capacities. The agreement was between
“Diamond B Ranch Enterprises, Inc. (Joe and Michelle Baker)
and King City Entertainment Inc (Minerva Munoz).” Unless we
otherwise indicate, references in our opinion to “Baker” shall
include Diamond B Ranch and references to “Munoz” shall
include King City Entertainment.1
Around the same time, Cowboy Joe’s Sports Saloon Inc.
was incorporated, with Baker and his wife the only officers and
directors. King City Entertainment, but not Munoz, on the one
hand, and Baker, but not Diamond B Ranch, on the other, were
50-50 shareholders.2 Under the “Contract,” Munoz was to
1 By this shorthand, we do not express any opinion on the
corporate formalities of any corporation mentioned in this
opinion.
2 This ownership of the stock of the Cowboy Joe’s corporation
would later become a matter of dispute between Munoz and
Baker. Although this division of stock was originally
contemplated by Munoz and Baker, Munoz would later allege
that Baker wrongfully excluded her from participation and
control of the corporation, and sold 80 percent of the stock of the
corporation to other individuals.
3
provide “the financial costs for the construction and startup
costs,” while Baker “will manage the construction project and
business once it is opened.”
2. The Lease
On December 3, 2014 – the same date Munoz and Baker
memorialized their relationship – they entered into a lease with
Landlord. The “tenant” was identified as “King City
Entertainment and Diamond B Ranch Ent Inc. dba Cowboy Joe’s
Sports Saloon.” The monthly minimum rent was $7,155 per
month, which was not to commence until 60 days after tenant
obtained a certificate of occupancy or 210 days after the lease was
executed, whichever first occurred. Obligations under the lease
were joint and several. It was signed by both Munoz and Baker,
on behalf of their respective corporations.
Along with the lease, Munoz and Baker each individually
executed a guaranty.
3. The Arrangement Sours
According to Munoz, things fell apart within the first six
months. In April 2015, the City of Norco stopped construction at
Cowboy Joe’s. Munoz also learned that Baker had started
construction without approved plans, permits, or a licensed
contractor.
In August 2015, Munoz and Baker entered into a
settlement agreement in which Baker would repay Munoz’s
investment.3 Baker agreed to arrange for Landlord to release
Munoz from the lease and guaranty within three months of
execution of the settlement agreement.
3 Baker would buy out King City’s shares in the Cowboy
Joe’s corporation.
4
4. Munoz Informs Landlord of the Dispute
David Neault was the real estate broker who had brought
Cowboy Joe’s to Landlord as a potential tenant. Neault was an
agent for both parties in the lease transaction. He served as the
intermediary between Baker and Munoz on one side and
Landlord on the other. Michael Rahimi, the manager of
Landlord, admitted at trial that most of his contact with Baker
and Munoz was indirectly through Neault. Rahimi used Neault
as an intermediary for his communications with Baker and
Munoz on multiple occasions throughout the lease term.
Munoz testified that, in June or July 2015, she notified
Neault of her falling out with Baker. She wanted him to know
that she was no longer involved and was “pulling out” of the
venture. This was disputed at trial. Rahimi testified that he
never heard in 2015 – from any source – that Munoz and Baker
had a parting of the ways.4 As we shall discuss, the trial court
did not find Rahimi credible on this point.
4 Neither party called Neault to testify at trial. At the close
of the case, landlord’s counsel stated, “I contemplated [calling]
Mr. Neault, but I don’t think it’s necessary.”
5
5. Baker Opens the Restaurant But Satisfies No
Obligations
In December 2016, Baker opened the restaurant. He did
not, however, make the payments he owed Munoz under their
settlement agreement.5 Nor was he current with rent.6
6. Baker Alone Signs the Secured Note
On January 17, 2017, Baker and Diamond B Ranch
executed a “Secured Note and Security Agreement” in favor of
Landlord. By the note, Baker agreed to pay $83,960 to Landlord,
with interest. Monthly payments of $708.50 were to begin in
July 2017. The note was secured by the furniture, fixtures and
equipment of Cowboy Joe’s. Neither Munoz nor her corporation
signed the note
The consideration for the note is not clear – and not directly
an issue on appeal. This much was established: no money
actually changed hands from Landlord to Baker. Rahimi testified
at trial that $83,960 was the amount of unpaid rent to that point.
But as to whether the note was a forbearance agreement, a new
obligation replacing the prior rent due, or simply an attempt to
5 This would ultimately lead Munoz to cancel the settlement
agreement and sue Baker for its breach. It appears that Baker
defaulted in that action.
6 The evidence at trial was unclear as to how much rent
Baker actually paid. Rahimi testified that he received some
checks from Baker, but most of them bounced. At some point, he
allowed Baker to pay partial rent. Rahimi believed that only two
checks for partial rent cleared.
6
obtain additional security for the unpaid rent was unresolved.7
The trial court expressly declined to make a finding on the note’s
effect on the prior lease obligations.
Key to this appeal is that Munoz was not a party to the
note – it was signed twice by Baker – once in his individual
capacity and once on behalf of Diamond B Ranch, his personal
corporate entity. He did not purport to sign on behalf of Munoz,
any partnership he may have had with her, or the Cowboy Joe’s
corporation.
Munoz was, however, mentioned in the note. The note
stated, “Debtors acknowledge the obligations secured by this
Secured Note and Security Agreement are being jointly incurred
by Minerva Munoz and King City Entertainment, Inc. and that
the parties’ obligations are joint and several until such time as
Lender is repaid all sums due hereunder.”8
7. The Unlawful Detainer Action
In July 2017, Landlord brought an unlawful detainer action
against Baker and Munoz, in Riverside County.9 In the unlawful
7 Landlord would take different positions on this. The
original complaint in this action alleged the execution of the note
and that $83,960 changed hands. The proposed amended
complaint alleged it was a forbearance agreement. When
questioned at trial as to whether the note zeroed out the rent due
on his ledger, Rahimi first said, “Well, we wanted just to secure
that.” When asked again if the note zeroed out the rent due,
Rahimi responded, “Well, yes. In a way, yes.”
8 The parties spend little time discussing the provision in
their briefs. We see no need to address it further.
9 Trial counsel in the current action did not represent
Landlord in the unlawful detainer action.
7
detainer complaint, Landlord alleged past due rent of $15,767.75
– for May and June 2017 only. The unlawful detainer resolved in
October 2017 by a stipulated judgment for possession and
$43,225.25 in rent and damages. The stipulated judgment stated
that it was between Landlord and all defendants including
Munoz; but in November 2017, counsel stipulated to set aside the
judgment against Munoz and dismiss the complaint against her
without prejudice.
8. Baker Defaults on the Note
On September 6, 2017, while the unlawful detainer was
pending, Landlord sent a letter to Baker’s counsel stating that
“Mr. Baker is in default under the Note in that he failed to make
the payment required on July 1, 2017, and has made no
payments at all.” Landlord elected to accelerate the note and
demanded payment of all principal, interest, late fees and
attorney fees. Baker did not pay.
9. Landlord Files Its Complaint In This Action
On September 25, 2017, Landlord filed the complaint in
this action against “Joe Baker, an individual, and dba Diamond B
Ranch Ent., Inc. dba Cowboy Joe’s Sports Saloon, Inc.; King City
Entertainment, Inc., a California Corporation; Minerva Munoz,
an individual,” and Does.10 (Capitalization omitted.) Landlord
alleged a number of causes of action, including foreclosure of
10 Both the caption and the allegations treat Cowboy Joe’s as
a dba of Baker alone. Landlord alleges that Baker “was
operating his business . . . under the fictitious business name
Diamond B. Ranch Ent. Inc. . . . and/or Cowboy Joe’s Sports
Saloon, Inc., interchangeably . . . .”
8
security interest and breach of promissory note.11 Landlord
alleged no causes of action under the lease or Munoz’s guaranty
of the lease.
In allegations which Landlord would ultimately concede
were “the result of mistake or inadvertence,” the complaint
alleged that, in late 2016, defendants had “approached [Landlord]
seeking a loan of money for use in the operation of their
restaurant,” which resulted in the note; and that Landlord
“transferred the $83,960.00 to defendants, thereby performing its
duty under the Note.”
Baker and Diamond B Ranch defaulted. Landlord
continued to litigate against Munoz and King City
Entertainment, even though neither was a signatory of the note.
10. Discovery Reveals the Falsity of the Allegations
As discovery proceeded, Munoz sought evidence that
Landlord had advanced the $83,960 pursuant to the note as
alleged in the complaint. As late as March 2018, Landlord was
still asserting that “we will . . . produce evidence that the $83,960
payment was made.” Landlord was also adamant that the case
involved the note only, and not the lease. When Munoz sought
discovery relating to the amounts due under the lease, Landlord’s
counsel responded, in a March 2018 meet and confer letter, “It is
unclear how, if at all, this request is reasonably calculated to lead
to the discovery of admissible evidence. The lease payments have
no relevance to the payments under the Note at issue in this
case.”
When Rahimi appeared for deposition on June 13, 2018,
Rahimi explained that no money changed hands in connection
11 The other causes of action, for common counts, would
ultimately be dismissed at trial.
9
with the note, and that it did not document a new loan. Instead,
it was made “for the rents that they never paid”; “we let them
give us a note versus the actual cash at the time.”12
On June 26, 2018, Landlord’s counsel wrote Munoz’s
counsel, asking to “stipulate to an amendment of the complaint to
assert the direct theory of liability or will that require a motion?”
When Munoz’s counsel asked what was meant by the “direct
theory of liability,” Landlord’s counsel stated that Munoz
“personally guaranteed the sums due under the lease – the very
same sums represented by the Note.” No stipulation was
forthcoming.
11. Landlord Unsuccessfully Moves For Leave to Amend
The Complaint
A. Landlord’s Motion
On July 12, 2018, Landlord moved for leave to file a first
amended complaint. The scheduled trial date of September 24,
2018 was fast approaching, and counsel could not obtain a
hearing date prior to trial. The motion for leave to amend was
therefore accompanied by an ex parte application for an order
shortening time. The court granted the ex parte and advanced
the hearing on the motion for leave to amend to September 5,
2018 – less than three weeks before trial.
The proposed first amended complaint included two major
changes. First, it recharacterized the note as a forbearance
agreement, by which Landlord agreed to forbear collecting past
due rent in consideration for the note and security interest.
12 Munoz had moved to compel Rahimi’s deposition. The
court eventually awarded $1,000 in sanctions against Rahimi,
although the motion itself was moot as Rahimi had finally
appeared.
10
Second, it added a new cause of action against Munoz and King
City Entertainment for breach of the lease and her guaranty.
With respect to this latter cause of action, Landlord sought
damages of $83,960 (the amount of the note) plus interest and
attorney fees “along with any and all other economic damages,
which Plaintiff currently estimates will total no less than
$173,315.00 by the time this lawsuit is reduced to final
judgment.”13
The motion for leave to amend explained that the change to
the nature of the note was simply a clarification, which would
make no difference to Munoz, as her defense was that she was
not bound by the note in any event. It argued that the new cause
of action for breach of lease and guaranty “dovetails on the above
clarifications regarding the nature of the Note: whereas in the
original complaint [Landlord] characterized the Note as a
straight ‘loan,’ in reality, the Note represented overdue rent that
Plaintiff, as landlord, had agreed to forbear upon in favor of
Plaintiff’s tenants – Munoz, K[ing] C[ity] E[ntertainment], and
their partner, defaulted defendant Joe Baker.”
The motion argued that there would be no prejudice to
Munoz by the amendments, in that she has “long been on notice
the Note represents rent due under the Lease and Guaranty and
[has] exhausted all appropriate avenues of discovery on that
obligation. The addition of the clarifications and the cause of
action for breach of contract changes little about the gravamen of
this action.” Landlord suggested that the factual underpinnings
of its new cause action were known to Munoz “since, at a
13 In a later motion for a writ of attachment, Landlord
explained that the damages it sought included an estimated
$50,000 for the cost of refurbishing the property for a new tenant.
11
minimum, the institution of the unlawful detainer proceedings”
against her and Baker in Riverside County.
The motion was supported by a declaration of counsel,
which tracked the requirements of California Rules of Court, rule
3.1324(b). Under that rule, the moving party must show, among
other facts: “(3) When the facts giving rise to the amended
allegations were discovered; and (4) The reasons why the request
for amendment was not made earlier.” Landlord’s counsel
asserted that the facts as to the note being a forbearance
agreement were discovered in April or May 2018, and the breach
of lease allegations were discovered in “[a]pproximately July of
2017.” As the complaint in this case was filed in September 2017,
the declaration effectively admitted that the breach of lease
allegations could have been, but were not, included in the initial
complaint. Turning to the reasons why the request for
amendment was not made sooner, counsel stated, “[Munoz]
would not stipulate to the amendment, despite the fact that it
could just as easily be filed as a separate suit, related to this one,
and consolidated.”
B. Munoz’s Opposition
Munoz opposed the motion, asserting that the breach of
lease claim was an entirely new cause of action, which sought
twice as much in damages as the initial complaint. Munoz also
argued that the attempt to change the nature of the note into a
forbearance agreement was contradicted by Rahimi’s deposition
testimony that the note actually paid off the back rent. (Cf.
Falcon v. Long Beach Genetics, Inc. (2014) 224 Cal.App.4th 1263,
1281-1282 [trial court may properly reject an amendment which
12
is inconsistent with the plaintiff’s prior allegations and theory of
the case.].)14
Munoz argued that the addition of the new claims would
prejudice her because it would “require extensive additional
discovery, including retention of multiple experts, and delay the
existing trial for at least six to eight months.” To bring home the
point about discovery, Munoz argued that, although Landlord, on
August 2, 2018 (after filing the motion for leave to amend),
produced some documents purportedly reflecting the rent
obligation, Landlord did not provide all of the documents, and
Munoz had not yet had the opportunity to depose anyone
regarding the documents already produced. Moreover,
Landlord’s additional claim for damages for the cost of repairing
the property would require Munoz to retain an expert regarding
the cost of repairs and mitigation of damages.
Finally, Munoz argued that leave to amend should be
denied because Landlord failed to act diligently. Landlord had
admitted that it knew about the alleged breach of lease before
even filing this action, yet failed to explain why it did not sue on
the lease in the original complaint.
C. Landlord’s Reply
In reply, Landlord conceded that its proposed amendment
would require a continuance. Indeed, four days prior to its reply,
Landlord had filed an ex parte application to continue trial on a
number of grounds, including its pending motion for leave to
14 The new theory advanced in the proposed first amended
complaint on July 12, 2018, directly contradicted Rahimi’s
counsel’s statement in his March 2018 letter that, “The lease
payments have no relevance to the payments under the Note at
issue in this case.”
13
amend. Landlord argued that, as a result of this concession,
Munoz’s arguments regarding prejudice were moot.
Landlord’s reply did not specifically address Munoz’s
arguments regarding the need for additional experts and
Landlord’s increased claim for damages, or why it did not sue on
the lease from the beginning of this action.15
D. Hearing
Before the September 5, 2018 hearing, the court circulated
its tentative decision. The tentative was to deny the motion. The
court explained, “While delay alone is insufficient grounds to
deny leave to amend, denial is appropriate where there is undue
delay in seeking amendment combined with prejudice as a result
of the amendment.” Here, the court found that the proposed first
amended complaint, “radically changes the nature of this action,
interjecting new facts and legal theories. As such, [Munoz is]
correct that allowing this amendment would require a delay of
the trial date, which is only two weeks away, and reopening of
discovery. [Landlord] also fails to provide any credible
explanation for failing to seek amendment sooner or the
recharacterization of the Note as one memorializing forbearance,
not a straightforward loan, as previously alleged. Although leave
to amend is generally liberally granted, allowing Plaintiff to file
15 Landlord argued that it was diligent in moving to amend
because discovery “shook loose some of the material facts at issue
in the proposed” amended complaint, but that counsel “was only
in a position to move for the filing of the [amended complaint]
after the facts were more fully developed in discovery.” Landlord
did not explain which facts “shook loose,” or what was “fully
developed” that purportedly enabled it to sue on the lease only
now, or why these facts were not already known by Landlord.
14
the [first amended complaint] at this late date would severely
prejudice the Defendants.”
Counsel was then invited to argue. Landlord’s counsel
attempted to explain the delay in seeking leave to amend.
Counsel recalled that the first few months of the case were
devoted to pursuing Baker and attempting to protect the property
from Baker’s efforts to remove the security from the restaurant.
Counsel also explained that his failure to understand the nature
of the note was because, “[i]t wasn’t very well explained to us,
and that’s the cause for the mistake.” Counsel, again, did not
specifically address the delay in asserting a cause of action based
on the lease. Instead, he argued that breach of lease was not an
entirely new theory, but provided context for the note.
The trial court stated, “[Y]ou haven’t provided any
additional information that would convince the court that, at this
time, this 11th hour, what you are proposing wouldn’t radically
change the nature of the action, which is indicated in the
tentative, and defense has also indicated certain items of
prejudice in the event that was allowed.”
Landlord’s counsel replied, “For the record, Your Honor, the
reason that there was an earlier pleading was the result of
mistake or inadvertence.” He went on to explain, “I am taking
responsibility for that as counsel. I misunderstood what was
being told when I drafted these pleadings. I’m now trying to
correct that. That’s the reason for that. We started trying to
correct this back in May.” The court responded that the motion
was not presented as one seeking relief for attorney mistake.16
16 Relief under Code of Civil Procedure section 473 is not
raised on appeal.
15
The court adopted its tentative and denied the motion. In
light of its denial of leave to amend, the court denied Landlord’s
request for a continuance. The trial date remained
September 24, 2018.
12. Additional Procedural Wrangling Before Trial
The case would not actually be tried until January 3, 2019.
Landlord’s counsel later obtained a continuance for a different
reason: he was engaged in trial in another matter. Between the
denial of Landlord’s motion for leave to amend and the trial,
Landlord made two additional unsuccessful efforts to add a
breach of lease cause of action to this case.
First, Munoz had sued Landlord in Riverside for, among
other things, a declaratory judgment that she owed nothing on
the lease and her guaranty. In light of this action, Landlord
sought reconsideration of its motion for leave to amend, arguing
that judicial economy would be served by consolidating or
coordinating Munoz’s case into this one, allowing it to amend,
and trying both actions together. The trial court denied the
motion after a hearing.17
Second, Landlord filed a new action in Los Angeles
Superior Court against Munoz for breach of lease and the
guaranty. It then moved to consolidate that action with this one.
The trial court viewed the motion as an attempt to obtain the
relief previously denied in the context of Landlord’s motion for
leave for amend, and denied it for the same reasons.
13. Bench Trial
The case proceeded to a bench trial on the breach of note
17 The hearing was reported, but not included in the
transcript on appeal.
16
cause of action in the original complaint.18 There were two
witnesses: Rahimi and Munoz.
On the dispositive issue of whether Munoz was liable under
the note, Landlord argued that, although Baker alone signed the
note, Munoz was liable either because (1) the debt was a
partnership debt; or (2) Baker was Munoz’s ostensible agent.
Munoz testified that she had informed him, via the dual agent
Neault, that her partnership with Baker had terminated in 2015
– long before Baker signed the note. Munoz testified to the
contrary.
14. Trial Court Rules in Favor of Munoz
After trial, the court gave an oral tentative decision, in
which it concluded that Landlord failed to meet its burden to
establish that Munoz was liable on the note. The court
specifically considered, and rejected, Landlord’s arguments under
partnership and agency law.
The court found that the note was signed only by Baker for
a good reason – it was understood to bind only Baker. The court
found Rahimi’s testimony that he believed Baker had authority to
bind Munoz “not credible,” especially in light of the testimony
regarding what he knew at the time the note was made. The
court also found it significant that Baker had signed the note
once in his individual capacity and once on behalf of Diamond B
Ranch, but never on behalf of the partnership or Munoz. The
court found there was no persuasive evidence that would cause
Rahimi or any reasonable person to conclude Baker had authority
to create any new legal obligations between Landlord and Munoz.
18 Landlord agreed that its foreclosure of security cause of
action was moot, and all that remained was breach of the note.
17
After overruling Landlord’s objections, the court adopted its
tentative as its statement of decision.
15. Judgment and Appeal
Judgment was entered in favor of Munoz. Landlord filed a
timely notice of appeal.
16. Munoz Obtains Her Attorney Fees as Prevailing Party
on the Note
Munoz then moved for her attorney fees as prevailing party
on the note – which contained an attorney fee clause.
Landlord opposed the motion, claiming only that the
attorney fees were excessive. Landlord specifically stated it “does
not contest the prevailing party determination . . . .” It argued
only that the amount Munoz sought should be reduced.
The court granted Munoz’s motion at an unreported
hearing. Fees were awarded in the amount of $92,622.50. The
award was incorporated in an amended judgment. Landlord filed
a second timely notice of appeal.
We ordered the two appeals consolidated for oral argument
and opinion and now affirm.
DISCUSSION
On appeal, Landlord argues: (1) the court erred in denying
it leave to amend; (2) it was entitled to judgment against Munoz
on the note as a matter of law; and (3) the attorney fee award
should be reversed because the attorney fee clause in the note
does not apply to Munoz.
1. Leave to Amend
“The trial court has discretion to allow amendments to the
pleadings ‘in the furtherance of justice.’ [Citation.] This
discretion should be exercised liberally in favor of amendments,
for judicial policy favors resolution of all disputed matters in the
18
same lawsuit. [Citation.]” (Kittredge Sports Co. v. Superior
Court (1989) 213 Cal.App.3d 1045, 1047.) “ ‘ “Leave to amend a
complaint is thus entrusted to the sound discretion of the trial
court. ‘. . . The exercise of that discretion will not be disturbed on
appeal absent a clear showing of abuse. More importantly, the
discretion to be exercised is that of the trial court, not that of the
reviewing court. Thus, even if the reviewing court might have
ruled otherwise in the first instance, the trial court’s order will
. . . not be reversed unless, as a matter of law, it is not supported
by the record.’ ” [Citations.]’ [Citation.] [¶] Although pleadings
may be amended at any stage of the litigation [citations], if a
party seeking amendment has been dilatory and/or the delay has
prejudiced or will prejudice the opposing party, the trial court in
its discretion may deny leave to amend. [Citation.]” (M&F
Fishing, Inc. v. Sea-Pac Ins. Managers, Inc. (2012)
202 Cal.App.4th 1509, 1534.) “Courts must apply a policy of
liberality in permitting amendments at any stage of the
proceeding, including during trial, when no prejudice to the
opposing party is shown. [Citation.] ‘However, “ ‘even if a good
amendment is proposed in proper form, unwarranted delay in
presenting it may—of itself—be a valid reason for denial.’ ” ’
[Citations.]” (P&D Consultants, Inc. v. City of Carlsbad (2010)
190 Cal.App.4th 1332, 1345.)
Here, Landlord’s unwarranted delay in bringing its motion
to amend alone was sufficient support for the trial court’s
exercise of discretion to deny leave to amend. Landlord sought to
amend the complaint to add a cause of action for breach of lease.
Landlord conceded that it was aware of the facts supporting its
breach of lease cause of action in July 2017 – two months before
this lawsuit was initially filed and a year before Landlord moved
19
to amend – but offered no explanation why it did not plead breach
of lease (and guaranty) from the beginning. (See Record v.
Reason (1999) 73 Cal.App.4th 472, 486-487 [affirming trial
court’s denial of a motion for leave to amend when it was based
on circumstances of which plaintiff had been aware when he filed
his initial complaint].)19
Landlord relies on Honig v. Financial Corp. of America
(1992) 6 Cal.App.4th 960, in which a prior panel of this Division
concluded a trial court had abused its discretion in denying leave
to amend. But Honig is distinguishable. There, the proposed
amended complaint “added facts which occurred after the initial
complaint,” while, here, the amendment arises from conduct prior
to the complaint. (Id. at p. 964; see Record v. Reason, supra,
73 Cal.App.4th at pp. 486-487.)
On appeal, Landlord suggests that, not only did the court
err in denying it leave to amend, but we should rule in its favor
on its claim for breach of the lease and guaranty. As the court
did not err in denying leave to amend, the merits of the proffered
19 We also believe the trial court reasonably exercised its
discretion in concluding the proposed amendment so close to trial
would have greatly prejudiced Munoz. By seeking damages for
breach of lease, including the cost of renovating the premises for
a new tenant, landlord sought to dramatically change the scope of
the case by injecting additional complex issues into the case on
the verge of trial. This would no longer be a one day trial. But
the potential prejudice to Munoz was not necessary for the trial
court’s denial to be within its discretion, given Landlord’s
unexplained and unwarranted delay in bringing the motion. For
this reason, the court also did not err in denying reconsideration
once it had agreed to continue trial due to the unavailability of
Landlord’s counsel.
20
cause of action for breach of the lease and guaranty were not
before the trial court and are not before us.
2. The Merits of the Court’s Decision on the Note
Landlord argues that it was entitled to judgment against
Munoz on the note as a matter of law. It contends that
application of partnership and/or agency law to the undisputed
facts leaves no doubt that, as a matter of law, Munoz was
necessarily liable on the note.
“ ‘It goes without saying that a contract cannot bind a
nonparty.’ [Citation.]” (Crowley Maritime Corp. v. Boston Old
Colony Ins. Co. (2008) 158 Cal.App.4th 1061, 1069.) The
exception to this bald rule is that a nonsignatory can be bound
when a party to the agreement has authority to bind the
nonsignatory – such as via partnership or agency. (Id. at
p. 1070.)
It is undisputed that Munoz did not sign the note.
Landlord argues that she is nonetheless bound because Baker
was indisputably established to be her partner and he signed the
note for the benefit of the partnership.20 (See, e.g., Wall v. Siegel
(1998) 62 Cal.App.4th 875, 878 [a note made to facilitate a
20 Landlord relies on the settlement agreement Munoz and
Baker signed to terminate their partnership. The agreement
includes a recital that they had, in fact, formed a general
partnership for purposes of opening the bar and grill. Landlord
cites to Evidence Code section 622 for the proposition that the
facts recited in a written instrument are conclusively established
to be true between the parties or their successors in interest. As
Landlord was not a party to the Munoz-Baker settlement
agreement or a successor to one of the parties, the code section
does not apply. (Knowles v. Tehachapi Valley Hosp. Dist. (1996)
49 Cal.App.4th 1083, 1092.)
21
partnership is binding on the partners, even if the face of the note
does not show it was made for the partnership’s benefit].) But
the trial court implicitly found that Munoz’s partnership with
Baker had terminated more than a year before Baker signed the
note. Thus, Baker could not have legally bound Munoz as a
partner.
Landlord then turns to the theory of ostensible agency.
“ ‘[O]stensible authority arises as a result of conduct of the
principal which causes the third party reasonably to believe that
the agent possesses the authority to act on the principal’s behalf.’
[Citations.]” (Chicago Title Ins. Co. v. AMZ Ins. Services, Inc.
(2010) 188 Cal.App.4th 401, 426.) But Landlord does not address
at all Munoz’s testimony – believed by the trial court – that in
2015, some 18 months before the note was signed by Baker, she
told Neault that she was extricating herself from the business.
Landlord’s argument is that it is entitled to judgment as a
matter of law based on undisputed facts. But the facts were
disputed. The case proceeded to a bench trial on conflicting
evidence. The trial court found that neither Landlord nor any
reasonable person could have believed that Baker had the
authority to bind Munoz to the note. That finding is supported
by substantial evidence. (Orange Catholic Foundation v. Arvizu
(2018) 28 Cal.App.5th 283, 292.)
3. Attorney Fees
Landlord challenges the award of attorney fees to Munoz.
Civil Code section 1717, subdivision (a), provides, in pertinent
part: “In any action on a contract, where the contract specifically
provides that attorney’s fees and costs, which are incurred to
enforce that contract, shall be awarded either to one of the
parties or to the prevailing party, then the party who is
22
determined to be the party prevailing on the contract, whether he
or she is the party specified in the contract or not, shall be
entitled to reasonable attorney’s fees in addition to other costs.”
As a general rule, fees are only awarded under an attorney
fee clause when the lawsuit is between signatories to the
contract. However, section 1717 reciprocity principles may be
applied in actions involving signatory and nonsignatory parties.
As relevant here, a nonsignatory defendant, sued on a contract as
if she were a party to it, may recover attorney fees when the
plaintiff would clearly be entitled to attorney fees if it prevailed
in enforcing the contractual obligation against the defendant.
(Reynolds Metals Co. v. Alperson (1979) 25 Cal.3d 124, 128; see
also Burkhalter Kessler Clement & George LLP v. Hamilton
(2018) 19 Cal.App.5th 38, 40-41, 46 [when sublessor sued
sublessee for breach of contract, and also named sublessee’s
managing partner on an alter ego theory, the successful
managing partner was entitled to attorney fees because the
sublessor would have been entitled to fees against her if it had
prevailed on its alter ego theory].)
The note includes an attorney fee clause. Specifically, it
provides that, in the event of default. “Debtors” shall “pay all
costs incurred by Secured Party in collecting note . . . including
reasonable attorney’s fees . . . .”
When Munoz sought attorney fees under this provision at
trial, Landlord conceded that Munoz was the prevailing party on
the note and therefore entitled to fees; it simply contested the
amount of those fees. On appeal, Landlord abandons its
argument that fees were excessive and instead, for the first time,
Landlord contends Munoz is not entitled to fees under this
23
provision, because she was not included in the contractual term
“Debtors.”
A fundamental precept of appellate practice is that a party
cannot raise a new theory for the first time on appeal. An
appellate court does have “discretion to consider an issue raised
for the first time on appeal where the relevant facts are
undisputed and could not have been altered by the presentation
of additional evidence in the trial court. [Citation.]” (Alki
Partners, LP v. DB Fund Services, LLC (2016) 4 Cal.App.5th 574,
599.) Here, Landlord suggests we can consider the issue for the
first time as a matter of law, because it turns on the
interpretation of the word “Debtors” in the note. As Landlord did
not raise the issue before the trial court, we decline to exercise
our discretion to consider on appeal whether Landlord would
clearly be entitled to attorney fees if it had prevailed in enforcing
the note against Munoz. We consider the issue forfeited.21
///
///
///
21 Landlord also failed to obtain a reporter’s transcript or
settled statement of the hearing on attorney fees. The absence of
a record provides an additional reason for our finding of
forfeiture. It is Landlord’s burden as appellant to submit a
record affirmatively demonstrating error. We must presume that
what occurred at the hearing for which the appellant has
provided no reporter’s transcript supports the judgment.
(McClain v. Kissler (2019) 39 Cal.App.5th 399, 406.)
24
DISPOSITION
The judgment and postjudgment attorney fee order are
affirmed. Landlord is to pay Munoz’s costs on appeal.
RUBIN, P. J.
WE CONCUR:
MOOR, J.
KIM, J.
25