1 2 3 4 5 C. Russell Georgeson (SBN 53589) Christopher B. Noyes (SBN 270094) GEORGESON, BELARDINELLI AND NOYES 7060 N. FRESNO STREET, STE. 250 FRESNO, CA 93720 Telephone: (559) 447-8800 Facsimile: (559) 447-0747 8 Phillip A. Baker (SBN 169571) Laurence C. Osborn (SBN 155209) BAKER, KEENER & NAHRA LLP 633 West 5th Street, Suite 5400 Los Angeles, CA 90071 Telephone: (213) 241-0900 Facsimile: (213) 241-0990 9 Attorneys for Plaintiffs and Cross-Defendants 6 7 10 11 SUPERIOR COURT OF THE STATE OF CALIFORNIA 12 IN AND FOR THE COUNTY OF KINGS 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 ) ) ) ) ) ) ) ) Plaintiffs, ) ) vs. ) ) McCARTHY FAMILY FARMS, INC., a ) California Corporation; SANDRIDGE PARTNERS, a California General Partnership; ) ) JOHN VIDOVICH, individually and as a general partner of Sandridge Partners, et al., ) ) ) Defendants. ) ) AND RELATED CROSS-ACTION. GROW LAND AND WATER LLC, a California Limited Liability company (f/k/a LIABILITY LAND AND WATER COMPANY LLC); and KINGS COUNTY VENTURES, LLC, a California Limited Liability Company, Case No. 09C 0378 (Consolidated With 09C 0381) PLAINTIFFS AND CROSSDEFENDANTS’ TRIAL BRIEF Trial Date: December 3, 2013 Plaintiffs, Grow Land and Water, LLC and Kings County Ventures, LLC, and CrossDefendants Kings County Ventures, LLC, Grow Land and Water, LLC (f/k/a Liberty Land and Water Company, LLC), Grow Holdings, William Quay Hays, Jr., individually and as trustee of 28 Page 1 1 the Hays Family Trust U/T/D April 12, 2005, Michael Bedner and Kathy Eldon submit the 2 following Trial Brief for the Court’s consideration: 3 I. 4 STATEMENT OF THE CASE 5 6 7 Plaintiffs, Kings County Ventures, LLC and Grow Land and Water, LLC filed this action in the Kings County Superior Court against Defendants, McCarthy Family Farms, Inc., Sandridge Partners, Sandridge Partners, LP, John Vidovich, John Vidovich, LLC, Michael A. 8 Vidovich, Kathryn A. Tomaino, as Trustee of the Tomaino Revocable Trust dated December 9 10 11 26, 1990, The Apricot Pit, LP, Larry Ritchie, Michael Nordstrom and Angiola Water District. Michael Nordstrom is no longer a party to this action. Plaintiffs are seeking monetary damages 12 and other relief based on their causes of action for breach of contract, intentional interference 13 with contractual relations, intentional interference with economic relations, conspiracy, 14 constructive trust and preliminary and permanent injunction. 15 16 II. 17 PARTIES 18 1) Kings County Ventures, LLC 19 Plaintiff and Cross-Defendant, Kings County Ventures, LLC (“KCV”) is a California 20 21 Limited Liability Company. KCV was the optionee to the Liberty 1 Option Agreement. 22 2) Grow Land and Water, LLC 23 Plaintiff and Cross-Defendant, Grow Land and Water, LLC (“Grow”) is a California 24 Limited Liability Company. Grow was formerly known as Liberty Land and Water Company, 25 LLC. Grow (then known as Liberty Land and Water Company) was the optionee to the 26 Liberty 2 Option Agreement. 27 //// 28 Page 2 1 3) McCarthy Family Farms, Inc. 2 Defendant and Cross-Complainant, McCarthy Family Farms, Inc. (“McCarthy”) is a 3 California Corporation. McCarthy was the optionor to both the Liberty 1 Option Agreement 4 5 and the Liberty 2 Option Agreement. McCarthy, in violation of its contractual obligations, entered into a contract of sale with a third party and then transferred the real property subject to 6 the Liberty 1 and 2 Option Agreements held by KCV and Grow to Sandridge Partners on or 7 8 about November 23, 2009. 4) Sandridge Partners and Sandridge Partners, LP 9 10 Defendant and Cross-Complainant, Sandridge Partners, a California General 11 Partnership entered into the contract of sale and purchased the real property subject to the 12 Liberty 1 and 2 Option Agreements held by KCV and Grow from McCarthy on or about 13 November 23, 2009. Defendant, Sandridge Partners, LP, is a California Limited Partnership. 14 Sandridge Partners, LP was formed on or about December 14, 2009 and is the successor to 15 Sandridge Partners, a California General Partnership (both Sandridge Partners entities are 16 collectively referred to as “Sandridge”). 17 5) John Vidovich 18 Defendant, John Vidovich (“Vidovich”) was a general partner in Sandridge Partners, a 19 20 California general partnership and is a limited partner of Sandridge Partners, LP, a California 21 Limited Partnership. John Vidovich is the brother of Michel A. Vidovich and Kathryn A. 22 Tomaino. 23 6) John Vidovich, LLC 24 Defendant, John Vidovich, LLC was a general partner in Sandridge Partners, a 25 26 California general partnership and is the general partner of Sandridge Partners, LP, a California Limited Partnership. 27 //// 28 Page 3 1 7) Michael A. Vidovich 2 Defendant, Michael A. Vidovich was a general partner in Sandridge Partners, a 3 California general partnership and is a limited partner of Sandridge Partners, LP, a California 4 5 Limited Partnership. Michael A. Vidovich is the brother of John Vidovich and Kathryn A. Tomaino. 6 7 8) Kathryn A. Tomaino, as Trustee of the Tomaino Revocable Trust dated December 26, 1990 8 Defendant, Kathryn A. Tomaino, as Trustee of the Tomaino Revocable Trust dated 9 10 December 26, 1990 was a general partner in Sandridge Partners, a California general partnership and is a limited partner of Sandridge Partners, LP, a California Limited 11 Partnership. Kathryn A. Tomaino is the sister of John Vidovich and Michael A. Vidovich. 12 9) The Apricot Pit, LP 13 Defendant, The Apricot Pit, LP was a general partner in Sandridge Partners, a 14 15 California general partnership and is a limited partner of Sandridge Partners, LP, a California 16 Limited Partnership. 17 10) Larry Ritchie 18 Defendant, Larry Ritchie was general partner in Sandridge Partners, a California 19 general partnership and is a limited partner of Sandridge Partners, LP, a California Limited 20 Partnership. 21 11) Angiola Water District 22 Defendant, Angiola Water District is a municipal water district located in Corcoran, 23 24 25 California. Angiola Water District is only a party to the eleventh cause of action for a preliminary and permanent injunction and is not participating in this trial. 26 //// 27 //// 28 Page 4 1 12) Grow Holdings 2 Cross-Defendant, Grow Holdings is incorrectly identified as a California general 3 partnership. Grow Holdings true name is Grow Land and Water, LLC, a California Limited 4 Liability Company. 5 13) William Quay Hays, Jr. 6 Cross-Defendant, William Quay Hays, Jr. is the trustee of The Hays Family Trust 7 8 9 U/T/D April 12, 2005. William Quay Hays, Jr. is a member of KCV and former managing member and board member of KCV. The Hays Family Trust is a member of Grow. 10 14) Michael Bedner 11 Cross-Defendant, Michael Bedner is the husband of Kathy Eldon. Michael Bedner is 12 not a member of KCV or Grow. 13 15) Kathy Eldon 14 Cross-Defendant, Kathy Eldon is the wife of Michael Bedner. Kathy Eldon is not a 15 member of KCV or Grow. 16 17 III. 18 STATEMENT OF FACTS 19 Prior to November 2009, McCarthy was the owner of approximately 22,254 acres of 20 21 real property in Kings County known as the “Liberty Ranch.” Plaintiffs KCV and Grow 22 entered into two option agreements with McCarthy to purchase all of Liberty Ranch. In 23 violation of its contractual obligations to KCV and Grow, McCarthy entered into a Purchase 24 Agreement with Sandridge and, prior to the close of escrow, sold the Liberty Ranch to 25 26 Sandridge. //// 27 //// 28 Page 5 1 Liberty 1 Option Agreement 2 On June 15, 2007, McCarthy entered into an Option Agreement and Agreement for 3 Purchase and Sale and Escrow Instructions (commonly referred to by the parties as the 4 5 “Liberty 1 Option Agreement”) with KCV for 4,447 acres contained within Liberty Ranch. Pursuant to the terms of the Liberty 1 Option Agreement, KCV had the right to exercise an 6 option to purchase the Liberty 1 property. On June 27, 2007, KCV recorded a Memorandum 7 8 9 of Option Agreement relating to the Liberty 1 Option Agreement. To exercise its option rights, KCV was required to send a copy of the Option Exercise Notice to the McCarthys on or before 10 September 30, 2009, the option termination date as provided in Addendum No. 1 to the Liberty 11 1 Option Agreement and make certain option payments. On September 1, 2009 KCV exercised 12 its option rights. 13 $305,142.03. The following Option payments were made to McCarthy: 14 15 Moreover in the interim, KCV made all option payments totaling $87,183.44 on June 15, 2007; $43,591.71 on June 1, 2008; 16 $87,183.44 on September 1, 2008; and 17 $87,183.44 on March 1, 2009. 18 19 20 Paragraph 15 of the Liberty 1 Option Agreement states that escrow “shall close … ninety (90) days after Buyer delivers the Option Exercise Notice… or on such other date as 21 may be agreed upon by the parties….” Thus, escrow was tentatively scheduled to close on 22 November 30, 2009. However, the escrow holder, Chicago Title, informed KCV and McCarthy 23 that there were various title issues relating to the Liberty 1 property. Chicago Title informed KCV 24 and McCarthy that title to certain parcels identified in the Liberty 1 Option Agreement as part of 25 26 the Liberty 1 property were not owned by McCarthy, and that certain other parcels owned by McCarthy, but not specifically identified in the Liberty 1 Option Agreement, were intended to be 27 part of the Liberty 1 property sold to KCV. Chicago Title further informed KCV and McCarthy 28 Page 6 1 that because of these title issues, the close of escrow would need to be extended until at least 2 December 11, 2009. This extension was required to work out the title issues with McCarthy and 3 to revise the legal descriptions of the Liberty 1 property. 4 5 Additionally, pursuant to Paragraph 16(a) of the Liberty 1 Option Agreement, it is a condition to KCV’s obligation to close escrow on the Liberty 1 Property that the title company is 6 “irrevocably committed to issue the Buyer’s Title Policy with respect to the Real Property in form 7 8 9 satisfactory to Buyer….” Furthermore, McCarthy was obligated to cooperate in resolving the title issues pursuant to the Liberty 1 Option Agreement. Because the Title Policy could not be timely 10 issued and other failed conditions and misrepresentations by McCarthy, KCV was not required to 11 close the purchase of the Liberty 1 property by November 30, 2009. 12 13 Moreover, the Liberty 1 Option Agreement states “The Closing Date shall be extended as provided in subsection 18(c) to permit the relevant party to cure any asserted default or breach.” 14 Paragraph 18(b) states: 15 “Seller may terminate this Agreement prior to the Closing Date if Buyer has materially failed to perform or satisfy any agreement or covenant required to be performed or satisfied by Buyer prior to or at the Closing or has materially breached any warranty or representation of Buyer contained in this Agreement, and following written notice of such failure or breach, Buyer has failed to cure such failure or breach within thirty (30) days of the effectiveness of such notice from Seller to Buyer.” 16 17 18 19 Paragraph 18(c) states: 20 “In the event a notice of default is delivered by Seller or Buyer to the other party in accordance with the notice and cure provisions of subsection 18(a) or 18(b) as the case may be, the Closing Date shall be extended for thirty (30) day curative period, plus (3) Business Days.” 21 22 23 No Notice of Default was ever sent by McCarthy to KCV even though McCarthy was 24 25 required to do so pursuant to paragraph 18(b) of the Liberty 1 Option Agreement. 26 //// 27 //// 28 Page 7 1 Liberty 2 Option Agreement 2 On March 2, 2009, McCarthy entered into an Option Agreement and Agreement for 3 Purchase and Sale and Escrow Instructions (commonly referred to by the parties as the 4 5 “Liberty 2 Option Agreement”) with Liberty Land and Water Company, LLC, now known as Grow, for the remaining acreage (17,807 acres) of the Liberty Ranch. On February 25, 2010, 6 Grow timely exercised its option to purchase the Liberty 2 property. Moreover, Grow made 7 8 9 option payments totaling $98,029.00. The Option Agreement between KCV and Grow 10 KCV assigned/sold its rights to purchase Liberty 1 Ranch to Grow. On September 1, 11 2009 KCV by an Action by Members Without a Meeting voted to accept and enter into the letter 12 of intent submitted by Grow to purchase all of the assets of KCV. On October 22, 2009, KCV 13 and Grow entered into an Option Agreement and Joint Escrow Instructions. 14 15 Pursuant to the terms of the KCV/Grow Option Agreement, Grow had the right to exercise an option to purchase the Liberty 1 property from KCV. On November 4, 2009, Grow recorded a 16 Memorandum of Option relating to the KCV/Grow Option Agreement. Pursuant to Paragraph 5.1 17 of the KCV/Grow Option Agreement, escrow was to close concurrently with the close of escrow 18 19 20 for KCV’s purchase of the Liberty 1 property. Title to the Liberty 1 property was to be conveyed to Grow as follows: (1) KCV would take fee title to the Liberty 1 property and concurrently 21 convey said fee title to Grow; or (2) KCV would obtain McCarthy’s cooperation in conveying fee 22 title directly to Grow; or (3) KCV would acquire a membership interest in Grow and directly 23 assign the Liberty 1 Option Agreement to Grow, who would purchase the Liberty 1 property from 24 McCarthy. 25 26 Sale of the Liberty 1 Property and Liberty 2 Property to Sandridge For many years, Sandridge, by and through its general partner Vidovich, had long coveted 27 the Liberty 1 and Liberty 2 properties. After KCV and Grow had entered into the above described 28 Page 8 1 Option Agreements to purchase the Liberty Ranch property and made all option payments, on 2 March 21, 2009 McCarthy and Sandridge entered into a contract to sell the Liberty 1 and Liberty 3 2 properties to Sandridge. On November 23, 2009, McCarthy conveyed the entire Liberty Ranch 4 5 property to Sandridge. Title to the Liberty 1 property and the Liberty 2 property was then transferred from McCarthy to Sandridge. 6 Paragraph 43 of the Liberty 1 and 2 Option Agreements state: 7 8 9 “No party to this Agreement shall assign all or any part of this Agreement, or any interest therein, or delegate all or any part of its obligations under this Agreement without the prior written 10 consent of the other parties to this Agreement….” (Emphasis added). Both Option Agreements 11 prohibited McCarthy from assigning any of its rights, including, but not limited to, its title and 12 interest in the Liberty Ranch property to Sandridge, or any other person without the prior written 13 consent of KCV and Grow. McCarthy did not obtain KCV’s and Grow’s written consent to enter 14 into the Purchase Agreement with Sandridge. Therefore, by entering into the agreement with 15 Sandridge, and by agreeing to sell and, in fact, selling Liberty Ranch to Sandridge, McCarthy 16 breached the Liberty 1 and 2 Option Agreements with KCV and Grow. 17 Before acquiring the Liberty 1 and Liberty 2 properties, Sandridge knew of KCV’s option 18 19 20 to purchase the Liberty 1 property and Grow’s option to purchase the Liberty 2 property. Despite Sandridge’s knowledge of the contractual rights and obligations of KCV, Grow and McCarthy, 21 Sandridge engaged in acts intended to, and did in fact induce McCarthy to breach its contracts 22 with KCV and Grow. 23 IV. 24 STATEMENT OF LAW 25 26 27 A. McCarthy Breached their Contracts With KCV and Grow Plaintiffs seek monetary damages for McCarthy’s breach of contract. As stated in CDF Firefighters v. Maldonado (2008) 158 Cal.App.4th 1226, 1239 KCV and Grow must prove four 28 Page 9 1 elements to succeed on a breach of contract cause of action. “(1) existence of the contract; (2) 2 plaintiffs’ performance or excuse for nonperformance; (3) defendant's breach; and (4) damages 3 to plaintiffs as a result of the breach.” (See also Wall Street Network, Ltd. v. New York Times 4 Company (2008) 164 Cal.App.4th 1171, 1178). 5 McCarthy breached their option contracts with KCV and Grow by entering into a 6 contract of sale and transferring the Liberty 1 and Liberty 2 properties to Sandridge. McCarthy 7 8 9 breached the Option Agreements in March 2009 and repudiated the contracts on November 23, 2009 when it sold the entire Liberty Ranch to Sandridge, rendering it impossible to perform 10 under the Liberty 1 Option Agreement and the Liberty 2 Option Agreement with Plaintiffs. 11 When parties exchange binding promises, they agree “not only to perform under the contract, 12 but also not to repudiate his or her promise.” (Romano v. Rockwell Internat., Inc. (1996) 14 13 Cal.4th 479, 489). “It is well settled that an unequivocal repudiation of the contract by one party 14 15 prior to material breach of the contract by the other party excuses the other party from tendering performance of his concurrently conditional obligations. (Citations Omitted). Thus, plaintiffs 16 were relieved by defendant's repudiation of the contract from tendering performance.” (Kossler 17 v. Palm Springs Developments, Ltd. (1980) 101 Cal.App.3d 88, 102-103). McCarthy’s 18 19 20 21 22 23 24 25 anticipatory breach excused Plaintiffs’ obligation to tender performance and entitled them to damages. 1. Plaintiffs had the Ability to Perform on Both the Liberty 1 and Liberty 2 Option Contracts Defendants have advanced the defense Plaintiffs did not have the financial ability to perform under the Option Agreements. The financial ability to perform is different for breach of contract as compared to specific performance since it does not involve equitable factors. 26 “[W]hile the seller's anticipatory repudiation excuses the buyer's tender of performance, a 27 28 buyer seeking damages must still offer evidence showing that, but for the breach, he or she Page 10 1 would have had the ability to perform.” (Cal. Prac. Guide Real Prop. Trans. Ch. 11-D at Sec. 2 11:189.1). 3 nonbreaching party must prove that it had the ability to perform under the contract by making 4 5 6 In order to obtain damages in an action for anticipatory repudiation, the the necessary arrangements to fund the transaction. (County of Solano v. Vallejo Redevelopment Agency (1999) 75 Cal.App.4th 1262, 1276; Ersa Grae Corp. (1991) 1 Cal.App.4th 613, 626). 7 8 “‘Where [one party] repudiates, there is no necessity for [the other party] to allege a 9 tender, nor his readiness and willingness to perform. He must, of course, prove that he would 10 11 have been able to [perform], for otherwise he will fail in his proof of damages ....’” (5 Williston on Contracts (3d ed. 1961) § 669, p. 353, italics added). “‘The defendant's wrongful 12 repudiation justifies the plaintiff in taking him at his word and at once taking steps that may 13 14 15 make subsequent performance impossible. The willingness and ability to perform need not continue after the repudiation; it is merely required that they should have existed before 16 the repudiation and that the plaintiff would have rendered the agreed performance if the 17 defendant had not repudiated.’” (4 Corbin on Contracts (9th ed.1998) § 978, pg. 925). 18 Plaintiffs had the ability to perform under the Liberty 1 and Liberty 2 Option 19 20 21 Agreements. Escrow was not set to close until November 30, 2009 for the Liberty 1 property. Pursuant to Paragraph 11 of the Liberty 1 Option Agreement payment of the purchase price was to 22 occur one (1) business day prior to the closing date. 23 Option Agreements by entering into the March 21, 2009 purchase agreement to sell Liberty Ranch 24 to Sandridge. As a result, Sandridge and McCarthy interfered with Grow’s attempts to secure 25 financing. 26 27 McCarthy breached the Liberty Ranch Despite Defendants’ breach and interference, Grow had been engaged in talks and negotiations with various groups to obtain financing to purchase the Liberty 1 property prior to the 28 Page 11 1 scheduled close of escrow. Grow brought in two finance professionals, William Barkett and 2 Richard Cook to assist with securing financing and was being advised and assisted by Morgan 3 Stanley. Potential investment sources Grow had contact with included MSD Capital, Heckmann 4 5 Corporation, Morgan Stanley, Goldman Sachs, Craton Equity Partners, AEW, Summitt Global, Houlihan Lokey, Psomas Engineering and a private equity investment group led by Byron 6 Georgiou. When it was discovered that McCarthy had actually sold the Liberty Ranch property to 7 8 9 Sandridge and transferred title by a Grant Deed, Grow ceased its efforts to obtain a loan or investors. Because there was no property for McCarthy to convey Grow could not ask its lenders, 10 transaction partners, equity sources and trading partners to fund the purchase of the Liberty Ranch 11 property. 12 Byron Georgiou testified that he had interest in the particular investment and had the 13 capability of financing the acquisition in the required timeframe. Mr. Georgiou further testified 14 15 that he himself was sufficiently liquid that he could have handled either the $25,000,000 dollar equity portion himself, or prospectively the $40,000,000 dollars of debt without the assistance 16 of anyone else. Mr. Georgiou testified that at the conclusion of his conversation on November 17 18 25, 2009 he informed Quay Hays that he intended to pursue the transaction. 19 Additionally, Michael Bedner had sufficient funds to purchase the Liberty 1 property 20 and assist with the funding of the Liberty 2 property. Mr. Bedner was willing to loan the 21 necessary funds to Grow on a temporary basis to finance the purchase of Liberty 1 in the event 22 Grow did not procure financing in time from other sources. Mr. Bedner planned to obtain the 23 funds from personal and business sources. 24 The financing being actively sought by Grow prior to McCarthy’s transfer of the 25 property to Sandridge would have been arranged prior to the scheduled close of escrow. In 02 26 27 28 Development, the defendant’s evidence showed only that plaintiff had neither the $8.7 million to fund the transaction nor legally binding commitments from third parties to Page 12 1 provide the funding. Defendant presented no evidence that plaintiff would have been 2 unable to arrange for the necessary funding to close the transaction on time if defendant 3 had given it the opportunity instead of repudiating the contract in advance. (02 4 Development, LLC v. 607 South Park, LLC (2008) 159 Cal.App.4th 609, 613). 5 This is the exact situation in the instant case. Plaintiffs were not given the opportunity 6 7 8 to conclude their financing efforts because McCarthy made such efforts impossible. Defendants have no evidence demonstrating that Plaintiffs would not have been able to 9 arrange for financing prior to the close of escrow. On the contrary, Plaintiffs have sufficient 10 evidence that they had various financing sources that were actively engaging in financing 11 negotiations with Grow prior to the November 30, 2009 closing date on the Liberty 1 Property 12 (the closing date being advanced by Defendants). 13 14 15 In Ersa Grae Corp. v. Fluor Corp. (1991) 1 Cal.App.4th 613, the deal contemplated the buyer would put together a consortium headed by the buyer to finance construction and land lease of the property. (Ersa Grae Corp. v. Fluor Corp. (1991) 1 Cal.App.4th 613, 618). The 16 appellate court held that after the seller repudiated the contract, the buyer was not obligated, 17 18 19 despite the seller's breach, to put together the consortium and raise the financing. Rather, the buyer must prove that, but for the seller's breach, the buyer had the ability to put 20 together the package and “fund the deal.” (Ersa Grae Corp. v. Fluor Corp. (1991) 1 21 Cal.App.4th 613, 626). 22 Proof of capacity to perform rather than full performance was sufficient in County of 23 Solano v. Vallejo Redevelopment Agency (1999) 75 Cal.App.4th 1262. There, the appellate 24 court held that substantial evidence supported the court's implied conclusion the plaintiff had 25 the ability to perform the contract's conditions but for the defendant's breach where the plaintiff 26 “had taken substantial steps to perform under the contract.” (County of Solano v. Vallejo 27 28 Redevelopment Agency (1999) 75 Cal.App.4th 1262, 1276-1277). Page 13 1 The testimony in this case reveals various potential lenders and investors were 2 interested in providing funds to Grow and continued to move towards the next steps of 3 negotiation. Furthermore, testimony and documents establish Mr. Bedner had the available 4 5 funds if the other funds being sought were slow or unavailable. The negotiations and discussions with these potential investors ceased after it was discovered that McCarthy 6 conveyed Liberty Ranch to Sandridge. 7 8 9 It is undisputed Grow was well under way to satisfying its funding obligations and thus is entitled to appropriate relief under the guidelines set out in 02 Development, LLC, supra, 10 Ersa Grae, supra and County of Solano, supra. 11 conclusively prove Grow would not have been able to deposit the funds in escrow for the 12 purchase of the Liberty 1 property, because the simple fact remains McCarthy transferred title 13 to Liberty Ranch to Sandridge on November 23, 2009; six (6) days prior to deadline for Grow 14 15 The Defendants will never be able to to deposit the necessary funds into escrow (assuming a November 30, 2009 close date rather than the 30 day extension as provided in the Option Agreements). 16 17 18 19 2. Defendants’ Interference with Plaintiffs’ Ability to Perform Under the Option Contracts Constitutes a Breach of the Implied Covenant of Good Faith and Fair Dealing and made Plaintiffs’ Ability to Secure Conventional Financing for the Purchase Impossible 20 A typical formulation of the burden imposed by the implied covenant of good faith and 21 fair dealing is “‘that neither party will do anything which will injure the right of the other to 22 receive the benefits of the agreement.”’ (Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 23 573). “The implied covenant imposes upon each party the obligation to do everything that the 24 25 contract presupposes they will do to accomplish its purpose.” (Schoolcraft v. Ross (1978) 81 Cal.App.3d 75, 80). In addition, Civil Code Section 1512 provides, “If the performance of an 26 obligation be prevented by the creditor, the debtor is entitled to all the benefits which he would 27 28 have obtained if it had been performed by both parties.” “Where, without fault on his part, Page 14 1 one party to a contract who is willing to perform it is prevented from doing so by the 2 other party, the primary measure of damages is the amount of his loss, which may consist 3 of his reasonable outlay or expenditure toward performance, and the anticipated profits 4 5 which he would have derived from performance.” (Buxbom v. Smith (1944) 23 Cal.2d 535, 541). 6 7 By entering into a purchase contract with Sandridge and ultimately transferring the 8 Liberty Ranch property to Sandridge, McCarthy made it impossible for Grow to secure 9 conventional financing for the purchase of the property. 10 11 “The law never requires impossibilities.” (Civ. Code § 3531). No lender would expend time and approve financing on a property for Grow, such as the property in this case, where there is another written contract to 12 sell the same property to a third party (Sandridge) and where the seller (McCarthy) refuses to 13 14 15 sell to Grow and KCV. Courts have questioned whether a “lender would make a firm commitment to loan money for the purchase of property the present owner refuses to sell.” 16 (Henry v. Sharma (1984) 154 Cal.App.3d 665, 672). Given the acute dynamics of the real 17 estate market combined with the size of the financing being sought, no traditional financing 18 opportunity could have been effectively negotiated, let alone secured where Grow and KCV 19 cannot establish basic title to the property. McCarthy’s breach of contract in refusing to sell to 20 Plaintiffs prevented Grow from proceeding and eventually securing conventional financing for 21 the purchase of Liberty Ranch. 22 23 “It is not the purpose of the law to adhere to a rule of evidence in proof of the ability 24 and readiness of a customer to purchase the property so stringent as to encourage an owner to 25 breach his contract without just cause.” (Ramsdell v. Krehmke (1928) 95 Cal.App. 195, 200). 26 Here, the Court should liberally interpret the requirement that Plaintiffs would have had the 27 ability to perform especially where Plaintiffs were stopped and prevented from being able to 28 Page 15 1 secure financing for the property. In a situation such as this, the benefit must go to the 2 Plaintiffs under these factors and should be liberally interpreted. 3 4 5 6 3. McCarthy Cannot Take Advantage of its Breach and Conduct to Bar Plaintiffs from Recovery McCarthy has been steadfast in its defense since the inception of this litigation- that Plaintiffs cannot demonstrate the ability to pay under the Option Agreements and thus are 7 barred from any recovery. McCarthy overlooks the fact that it was the cause that prevented 8 9 10 11 12 Plaintiffs’ ability to perform through financing. “No one can take advantage of his own wrong.” (Civ. Code § 3517). “A person cannot take advantage of his own act or omission to escape liability. If he prevents or makes impossible the performance or happening of a condition precedent, the condition is excused.” 13 (Exchequer Acceptance Corp. v. Alexander (1969) 271 Cal.App.2d 1, 14). “A party to a 14 15 16 contract cannot take advantage of his own act or omission to escape liability thereon. (Citation). Where a party to a contract prevents the fulfillment of a condition precedent or 17 its performance by the adverse party, he cannot rely on such condition to defeat his 18 liability.” (Watson v. Aced (1957) 156 Cal.App.2d 87, 92). As discussed herein, McCarthy’s 19 conduct made Plaintiffs’ obligations to secure conventional financing for the purchase price 20 under the Option Agreements impossible. 21 Plaintiffs cannot satisfy their ability to perform. Thus, McCarthy is prevented from claiming 22 23 24 4. Unique Set of Circumstances Exist Because the Contracts at Issue Are Option Agreements Here, McCarthy repudiated the Option Agreements with KCV and Grow on March 21, 25 2009 by entering into the Purchase Agreement with Sandridge for the entire Liberty Ranch 26 27 28 property. It is critical to note, the contracts at issue are not standard purchase agreements for the sale of real property. The contracts with KCV and Grow are Option Agreements. McCarthy’s Page 16 1 repudiation of these agreements on March 21, 2009 was prior to the Plaintiffs’ contractual 2 deadline to exercise their options for Liberty 1 and Liberty 2 under the terms of the Option 3 Agreements. 4 5 “In an option contract the optionor stipulates that for a specified or reasonable period he 6 waives the right to revoke the offer. (Warner Bros. Pictures v. Brodel (1948) 31 Cal.2d 766, 7 772). An option contract “is clearly different from the contract to which the irrevocable offer of 8 the optionor relates, for the optionee by parting with special consideration for the binding 9 promise of the optionor refrains from binding himself with regard to the contract or conveyance 10 11 to which the option relates.” (Warner Bros. Pictures v. Brodel (1948) 31 Cal.2d 766, 772). “An option contract relating to the sale of land is therefore ‘by no means a sale of property, but 12 is a sale of a right to purchase.’” (Warner Bros. Pictures v. Brodel (1948) 31 Cal.2d 766, 772). 13 14 15 “Thus the option contract gives the optionee a right against the optionor for performance of the contract to which the option relates upon the exercise of the option, which the 16 optionor cannot defeat by repudiating the option.” (Warner Bros. Pictures v. Brodel (1948) 17 31 Cal.2d 766, 773). 18 irrevocable offer proposed to him by the optionor. (Palo Alto Town & Country Village, Inc. 19 v. Bbtc Company (1974) 11 Cal.3d 494, 503). Although, Plaintiffs had the ability to perform, 20 Plaintiffs do not have to demonstrate their ability to perform due to McCarthy’s repudiation of 21 “[T]he optionee has no duty until, and unless, he accepts the the Option Agreements prior to the option exercise dates. 22 23 5. Plaintiffs do not have to Demonstrate Ability to Perform Under the Option Agreements to Recover Damages Authorized by Statute 24 It is undisputed McCarthy breached its duty to permit KCV and Grow the right to 25 26 27 28 purchase and its duty to convey the Liberty 1 and Liberty 2 properties to Plaintiffs. As a result, Plaintiffs, among other items of damage, are entitled to recover all amounts already paid toward the purchase price. (Civ. Code, § 3306). Civil Code § 3306 provides: Page 17 1 2 3 4 5 “The detriment caused by the breach of an agreement to convey an estate in real property, is deemed to be the price paid, and the expenses properly incurred in examining the title and preparing the necessary papers, the difference between the price agreed to be paid and the value of the estate agreed to be conveyed at the time of the breach, the expenses properly incurred in preparing to enter upon the land, consequential damages according to proof, and interest.” (Civ. Code, § 3306). McCarthy has admitted Option Payments were received by McCarthy on the Liberty 1 6 Option Contract and on the Liberty 2 Option Contract from Plaintiffs. KCV made Option 7 8 9 Payments totaling $305,142.03 as required by the Liberty 1 Option Agreement. These amounts were deposited into the escrow account with Chicago Title Company for the Liberty 1 Property 10 and ultimately received by McCarthy. Grow made Option Payments totaling $98,029.00 as 11 required by the Liberty 2 Option Agreement. These amounts were deposited into the escrow 12 account with Chicago Title Company for the Liberty 2 Property and ultimately received by 13 McCarthy. At a bare minimum, Plaintiffs are entitled to damages consisting of the $403,171.03 in 14 Option Payments made to McCarthy. 15 Additionally, KCV spent millions of dollars to obtain the entitlements to the Quay Valley 16 Ranch project. Further KCV would have received $10 million dollars from Grow pursuant to the 17 KCV/Grow Option Agreement if escrow closed on the Liberty 1 Property. Alternatively, KCV 18 19 20 would have received $7.5 million dollars from Grow if Grow elected to pay the full purchase price at the closing as provided in the KCV/Grow Option Agreement. These monies represent “expenses 21 properly incurred in preparing to enter upon the land” and consequential damages. (Civ. Code, § 22 3306, Baran v. Goldberg (1948) 86 Cal.App.2d 506, 511-512; Stevens Group Fund IV v. 23 Sobrato Development Co. (1991) 1 Cal.App.4th 886, 892-893). The Option Payments, money 24 incurred in preparing to enter the land, consequential damages and interest are all recoverable 25 26 damages. Plaintiffs are not required to show their ability to perform under the Option Agreements for the Liberty Ranch in order to recover these statutory items of damage based on 27 McCarthy’s breach. 28 Page 18 B. 1 Sandridge is Liable for the Interference with KCV and Grow’s Option Agreements 2 “The elements which a plaintiff must plead to state the cause of action for intentional 3 4 interference with contractual relations are (1) a valid contract between plaintiff and a third 5 party; (2) defendant's knowledge of this contract; (3) defendant's intentional acts designed to 6 induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of 7 the contractual relationship; and (5) resulting damage. (Pacific Gas & Electric Co. v. Bear 8 Stearns & Co. (1990) 50 Cal.3d 1118, 1126). 9 10 The parties testimony and the McCarthy and Sandridge Purchase Agreement demonstrates Sandridge knew of KCV’s and Grow’s Option Agreements for Liberty 1 and Liberty 2. 1 John Vidovich worked with Kathleen Kramer of KCV 11 in negotiating and drafting what became known as the July 12, 2009 letter. Defendants have 12 13 14 advanced the theory that this letter is a binding agreement wherein KCV purportedly gave up its option rights to the Liberty 1 property. 15 C. 16 17 Conspiracy and Contractual Interference Conspiracy is not a separate cause of action recognized under the law. (Kidron v. Movie Acquisition Corp. (1995) 40 Cal.App.4th 1571, 1581). “In an action for civil conspiracy, 18 19 20 it is the civil wrong resulting in damage and not the conspiracy which constitutes the cause of action.” (Hazelwerdt v. Industrial Indem. Exchange (1958) 157 Cal.App.2d 759, 763, fn. 3). 21 Each member of the conspiracy may be held responsible as a joint tortfeasor, regardless of 22 whether that member directly participated in the act. (Saunders v. Superior Court (1994) 27 23 Cal.App.4th 832, 845). 24 Sandridge acted under a common understanding, plan, or scheme, to favor its own 25 position, in an effort to seize KCV’s and Grow’s contractual rights in the Liberty Ranch 26 27 28 property. Sandridge also made false statements that Sandridge was purchasing the Liberty 1 Sandridge was able to convince McCarthy to dishonor its Option Agreements with KCV and Grow and instead sell Liberty Ranch to Sandridge. Page 19 1 Ranch property, that the Liberty 1 and 2 Option Agreements were invalid and unenforceable, 2 induced McCarthy to breach the Option Agreements with KCV and Grow and attempted to 3 disrupt the contractual relationship between Grow and KCV. 4 5 V. 6 DEFENDANTS’ DEFENSES 7 1. 8 Defendants argue KCV was obligated to purchase the real property which is the subject of 9 10 Purchase of the Morris Property the Melvin Morris Option (“Morris Property”) before KCV could close on Liberty 1 and Grow could close the purchase Liberty 2 pursuant to paragraph 16(h)(iii) of the Liberty 2 Option 11 Agreement. 12 13 14 The obligation to purchase the Morris Property was waived and eliminated. A waiver is the intentional relinquishment of a known right or such conduct as warrants an inference of the 15 relinquishment of such right and may result from an express agreement or inferred from 16 circumstances indicating an intent to waive. (cites omitted).” (Bastanchury v. Times-Mirror 17 Co. (1945) 68 Cal.App.2d 217, 240). Waiver looks solely to the intent of the waving party, here 18 Plaintiffs. (See Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 31). Crest Catering 19 Co. v. Superior Court (1965) 62 Cal.2d 274, 278 defines waiver thusly: 20 22 “A waiver may occur (1) by an intentional relinquishment or (2) as the result of an act which, according to its natural import is so inconsistent with an intent to enforce the right as to induce a reasonable belief that such right has been relinquishment.” 23 Waiver may be proved by declarations, by acts, or by forbearance to act. (California 24 Southern Hotel Co. v. Callender (1892) 94 Cal. 120, 126). Waiver may be shown by conduct. 21 25 26 (J. Frank & Co. v. New Amsterdam Cas. Co. (1917) 175 Cal. 293, 299). Waiver may also be proved expressly, by implication, or by conduct. (Kerr v. Reed (1921) 187 Cal. 409, 413- 27 414). In the case of a true waiver implied in fact from conduct, the intent to waive must be 28 Page 20 1 clearly manifested or the conduct must be such that an intent to waive may be reasonably 2 inferred. (Williston On Contracts (4th Ed. 2000) §39.28, p. 625, Fns. Omitted). 3 4 5 6 Waiver does not require detrimental reliance (See McDanels v. General Ins. Co. of America (1934) 1 Cal.App.2d 454, 459-460), but merely the intentional relinquishment of a right as to induce a reasonable belief that such right has been relinquished. (Waller v. Truck Ins. Exchange, Inc., (1995) 11 Cal.4th 1, 31). “Thus, [t]he pivotal issue in a claim of waiver is the 7 8 9 intention of the party who allegedly relinquished the known legal right.” (Old Republic Ins. Co. v. FSR Brokerage, Inc. (2000) 80 Cal.App.4th 666, 678). 10 The Morris Property purchase, which is the subject of the Condition Precedent in 11 Paragraph 16(h)(iii) of the Liberty 2 Option, was waived and eliminated by two agreements that 12 were entered into between KCV and McCarthy on July 16, 2008: (1) Assignment of Lease/Option 13 Agreement and (2) Performance Agreement. 14 15 Defendants argue this provision cannot be waived because of language contained in the Liberty 2 Option Agreement that paragraph 16(h)(iii) cannot be waived. However, the simple fact 16 remains that all parties, including McCarthy, waived this condition expressly and by conduct. 17 It is undisputed McCarthy directly assigned its Option to purchase the Morris Property to KCV. 18 19 20 21 KCV held the contractual rights to purchase the Morris Property and the Morris Property was one of the assets of KCV. As such, KCV had the exclusive right to assign, transfer, sell, purchase and/or extend the option to purchase the Morris Property. 22 Because McCarthy believed it could not obtain an extension of the Option on the Morris 23 Property from Melvin Morris, McCarthy agreed to assign its Option rights directly to KCV, so that 24 KCV could try to negotiate an extension. Pursuant to the assignment, McCarthy agreed to directly 25 26 assign its Option to purchase the Morris Property to KCV. Concurrently, McCarthy and KCV entered into the Performance Agreement in order to account for the profit McCarthy would have 27 earned had KCV purchased the Morris Property under the original April 2006 Option Agreement 28 Page 21 1 between McCarthy and Morris. Under the terms of the Performance Agreement, McCarthy would 2 realize its $30 million profit margin upon the performance of certain milestones by KCV: (1) the 3 payment of $5 million by KCV to McCarthy upon the initial release for public review and 4 5 comment of the draft EIR for the Quay Valley Ranch Project; (2) the payment of $10 million from KCV to McCarthy upon KCV’s final payment to Morris for the Property; and (3) the payment of 6 $15 million from KCV to McCarthy upon certification of the final EIR for the Quay Valley Ranch 7 8 9 Project by the Kings County Board of Supervisors. Pat McCarthy testified the Performance Agreement replaced the Morris Option Agreement. The need for the purchase of the Morris 10 Property was eliminated because McCarthy’s expected profit margin was no longer solely tied to 11 KCV’s actual purchase of the Morris Property. Instead it was tied to KCV being able to obtain the 12 necessary entitlements for the Quay Valley Ranch Project. 13 Further, Paragraph 2 of the Performance Agreement states that “[t]he parties hereto shall 14 take such actions, or execute, acknowledge and deliver, or obtain the execution, acknowledgment, 15 and delivery of such further documents, as are reasonably necessary, appropriate or desirable to 16 give effect to the terms of this Agreement, including without limitation revisions or amendments to 17 the agreements know colloquially to the parties hereto as ‘Liberty I’ and ‘Liberty II.’” The 18 19 20 Performance Agreement fully contemplates that the Liberty 1 and Liberty 2 Option Agreements can and will be amended to eliminate the purchase of the Morris Property. 21 Moreover, the division of the Morris Property into the “Option 1” property and the “Option 22 2” property was made in the Project Agreement between McCarthy and KCV. After McCarthy 23 and KCV entered into the Assignment Agreement and the Performance Agreement, the Project 24 Agreement was terminated because KCV now held the option to the entire Morris Property 25 26 outright. The artificial division of the Morris Property into the “Option 1” and “Option 2” property, as set forth in the Project Agreement, was eliminated. After July 16, 2008, the “Option 27 1” property, as the term was defined in the Project Agreement, no longer existed. 28 Page 22 1 Additionally, Addendum No. 1 to the Liberty 1 Option Agreement revised Paragraph 2 5(b)(iv) of the Liberty 1 Option Agreement to read: “Notwithstanding anything to the contrary in 3 this Agreement, the Option Termination Date shall be no later than September 30, 2009, unless the 4 5 Parties shall otherwise agree in writing; provided, however that the option shall terminate on September 1, 2008, if Buyer has not then closed the purchase of that certain property defined as 6 ‘Option 1 Property’ ....” 7 Pursuant to the Addendum, KCV was required to purchase the “Option 1” Property by 8 9 September 1, 2008 or the Liberty 1 Option Agreement would terminate. KCV did not purchase the 10 “Option 1” Property by September 1, 2008. However, the Liberty 1 Option Agreement was not 11 terminated. In fact, McCarthy accepted option payments from KCV on the Liberty 1 Option 12 Agreement on September 1, 2008 and March 1, 2009. Further, after KCV exercised its option 13 rights by timely delivering the option exercise notice, KCV and McCarthy (without objection) 14 continued to work together on the escrow for KCV’s purchase of the Liberty 1 property. 15 After KCV and McCarthy entered into the Assignment of the Morris Property, KCV was 16 able to obtain two extensions of the option to purchase the Morris Property from Melvin Morris. 17 Pursuant to the KCV Option Agreement, KCV’s option rights to the Morris Property were acquired 18 19 20 21 by Grow. Grow has extended its option rights to the Morris Property with Melvin Morris. Moreover, the Morris Property was not included in the escrow that was opened between the parties. 22 The condition precedent regarding the obligation to purchase the Morris Property was 23 waived. The parties expressly waived this condition by stating in the Performance Agreement 24 that “revisions or amendments” to the Liberty 1 and 2 Option Agreements were to occur. The 25 26 parties waived the obligation to purchase the Morris property by conduct: (1) pursuant to the assignment to KCV of the Option right to purchase the Morris Property, (2) by McCarthy not 27 terminating the Liberty 1 Option on September 1, 2008 (pursuant to Addendum 1 to the Liberty 28 Page 23 1 1 Option Agreement), (3) by continuing to accept Option payments from KCV, (4) by 2 McCarthy continuing to work on the escrow with KCV and (5) by not including the Morris 3 property in the escrow for purchase of Liberty 1 by Plaintiffs. 4 5 2. Purchase of the Liberty 1 Property The other condition set forth in paragraph 16(h)(iii) of the Liberty 2 Option Agreement 6 involves KCV’s purchase of the Liberty 1 property. The Liberty 1 property could not be 7 8 9 purchased because McCarthy sold the Liberty 1 property to Sandridge, in violation of the terms of the Liberty 1 Option Agreement. McCarthy’s sale of the Liberty 1 property to Sandridge 10 prevented KCV from purchasing the Liberty 1 property. Hence, because of the conduct of 11 McCarthy and Sandridge, and through no fault of KCV or Grow, Paragraph 16(h)(iii) of the 12 Liberty 2 Option Agreement could not be satisfied. 13 3. 15 Defendants’ Argument that Grow has no Enforceable Rights Under The Liberty 2 Option Because that Option was Assigned to KCV, is Without Merit; No Assignment of Liberty 2 was ever Effectuated Between Grow and KCV 16 Defendants argue Grow has no standing to sue to enforce the Liberty 2 Option because 14 17 18 that option had previously been assigned to KCV on March 2, 2009, and therefore KCV, and not Grow, is currently the holder of the Option and only KCV has any right to enforce it. The 19 argument is meritless. 20 21 22 The Liberty 2 Option was never assigned to KCV on March 2, 2009, or at any other time. There are no actual executed documents that would constitute such an assignment. To the 23 contrary, the actual facts are that the Liberty 2 Option was never assigned by Liberty Land and 24 Water, LLC (now Grow) to KCV because the purported assignment agreement was never 25 accepted or executed by anyone from KCV. The purported Assignment Agreement between 26 Liberty Land and KCV was never executed by KCV’s chairman, or any other managing agent 27 of KCV. It is hornbook law that an agreement is not formed unless acceptance is 28 Page 24 1 communicated to the offeror. (See, Civil Code § 1585; Russell v. Union Oil, Inc. (1970) 7 2 Cal.App.3d 110, 114). Here, the obvious manner of acceptance by KCV would have been for 3 its chairman, Vince Barabba, to sign the Assignment Agreement and return the same to Grow. 4 5 This was never done. Acceptance was not communicated by any other means. KCV never accepted the agreement. 6 There is an abundance of evidence nullifying Defendants’ argument on the assignment 7 8 9 issue. (1) KCV never presented any assignment of the Liberty 2 option to McCarthy for its consent as required pursuant to the Liberty 2 Option Agreement. (2) McCarthy never provided its written 10 consent to any assignment of the Liberty 2 option from Grow to KCV as required pursuant to the 11 Liberty 2 Option Agreement. (3) Sean McCarthy informed Quay Hays in the May/June 2009 12 timeframe that Sandridge would be taking the Liberty Ranch property subject to the options held 13 by KCV and Grow. (4) Sean McCarthy inquired of Metta Spiller at Chicago Title whether KCV or 14 Grow approved of the transfer of water. (5) Sandridge had agreed to buy the Liberty Ranch 15 Property subject to KCV’s and Grow’s Option Agreements. (6) Sean McCarthy sent Metta Spiller 16 an email on November 24, 2009 stating that the sale to Sandridge was subject to KCV’s and 17 Grow’s Option Agreements. 18 19 20 Liberty Land and Water, LLC (Grow) was the original owner of the Liberty 2 Option. Grow Land and Water, LLC and Liberty Land and Water, LLC are actually the same entity 21 because on September 1, 2009, Liberty Land and Water amended its name to Grow Land and 22 Water, LLC. Therefore, because the assignment of Liberty 2 to KCV was never effectuated 23 (since KCV never accepted the assignment offer or got permission from McCarthy for the 24 assignment), the Liberty 2 Option remained the property of Grow and thus Grow has standing to 25 enforce its rights under its option. 26 27 28 Page 25 1 Defendants have no other evidence to contradict Plaintiffs’ position that Grow is in 2 direct privity on the Liberty 2 Option Agreement. Defendants cannot meet their burden of 3 establishing that the Liberty 2 Option Agreement was ever assigned to KCV. 4 5 4. The Alleged Sandridge/KCV Agreement Defendants argue KCV gave up its rights to exercise either Liberty Ranch Option 6 pursuant to the purported July 12, 2009 letter agreement between Sandridge and KCV. 7 8 9 Defendants are wrong. First, KCV is not a party to the Fourth Cause of Action. Thus, even if the alleged Sandridge/KCV Agreement is valid, which it is not, it would not dispose of the Fourth 10 Cause of Action for Breach of Contract regarding the Liberty 2 property since Grow is the Plaintiff 11 under both of that Cause of Action and Grow is not alleged to be a party to the alleged 12 Sandridge/KCV Agreement. 13 14 15 Moreover, the alleged Sandridge/KCV Agreement is invalid and non-binding upon KCV for the following reasons: (1) pursuant to the alleged agreement Sandridge and KCV were to negotiate and come to an agreement on the terms of certain options that Sandridge was to provide 16 to KCV, but the parties failed to reach an agreement on the terms of the options; (2) Sandridge 17 failed to execute and deliver the option agreements required under the purported Sandridge/KCV 18 19 20 Contract; (3) pursuant to the alleged agreement Sandridge was required to provide KCV a preliminary title report and documentation verifying what type of mineral rights were on the 21 land; (4) Kathleen Kramer did not have the actual authority to execute the alleged Sandridge/KCV 22 Contract pursuant to KCV’s operating agreement; and (5) the KCV Board failed to approve the 23 alleged Sandridge/KCV Contract in accordance with KCV’s operating agreement. 24 25 26 5. McCarthy’s and Sandridge’s Cross-Complaint McCarthy and Sandridge have filed a Cross-Complaint. The Cross-Complaint lacks merit. Cross-Complaintants’ First, Second and Third Causes of Action for Breach of 27 Contract/Declaratory Relief are premised on McCarthy and Sandridge’s defenses to Plaintiffs’ 28 Page 26 1 complaint namely, KCV’s obligation to purchase the Morris Property, KCV was required to first 2 purchase Liberty 1 before Grow could close escrow for the purchase of Liberty 2, KCV and Grow 3 never had the financial ability to pay the purchase price for Liberty Ranch and the KCV/Sandridge 4 5 Agreement, all of which are discussed in detail above. Cross-Complaintants’ First and Second Causes of Action also allege the anti-assignment 6 clauses in the Option Agreeements bar KCV from assigning their rights to the Liberty 1 Property to 7 8 9 Grow. Pursuant to the terms of the KCV/Grow Option Agreement, Grow has the right to exercise an Option to purchase the Liberty 1 Ranch from KCV. Pursuant to Paragraph 5.1 of the 10 KCV/Grow Option Agreement, escrow was to close concurrently with the close of escrow for 11 KCV’s purchase of the Liberty 1 property. Title to the Liberty 1 property was to be conveyed to 12 Grow as follows: (1) KCV would take fee title to the Liberty 1 property and concurrently convey 13 said fee title to Grow; or (2) KCV would obtain McCarthy’s cooperation in conveying fee title 14 directly to Grow; or (3) KCV would acquire a membership interest in Grow and directly assign the 15 Liberty 1 Option Agreement to Grow as permitted in paragraph 43 of the Option Agreements. 16 Cross-Complainants’ anti-assignment argument will fail. 17 Cross-Complainants’ Fourth Cause of Action for Quiet Title is moot in light of the 18 19 20 dismissal of the First and Third Causes of Action in Plaintiffs’ Complaint. Plaintiffs are no longer seeking title to or claiming an interest in Liberty Ranch. 21 Cross-Complainants’ Fifth Cause of Action for Interference with Contract and Sixth Cause 22 of Action for Interference with Economic Advantage is premised on the KCV/Sandridge 23 Agreement. 24 numerous reasons. With respect to Interference with Economic Advantage, Cross-Complainants 25 26 As previously discussed, the alleged Sandridge/KCV Agreement is invalid for cannot prove Cross-Defendants intended to induce a breach or that Cross-Defendants engaged in conduct that was wrongful other than the fact of interference itself which was the proximate 27 cause of the injury. (See Kasparian v. County of Los Angeles (1995) 38 Cal.App.4th 242, 261 28 Page 27 1 and Della Penna v. Toyota Motor Sales, U.S.A., Inc. (1995) 11 Cal.4th 376, 393). Further, 2 Grow, not KCV, was the holder of the Liberty 2 Option Agreement. As such, KCV could not 3 have an economic relationship with Sandridge in which KCV would refrain from exercising the 4 Liberty 2 Option Agreement. 5 6 Cross-Complainants’ Seventh Cause of Action is for Slander of Title and Cancellation 7 of Instrument. The elements of a cause of action for slander of title are “(1) a publication, (2) 8 which is without privilege or justification, (3) which is false, and (4) which causes direct and 9 immediate pecuniary loss. (Citations).” (M.F. Farming, Co. v. Couch Distributing Co. (2012) 10 11 207 Cal.App.4th 180, 198). Cross-Complainants’ cause of action for slander of title will fail at trial because they cannot show the requisite elements. 12 13 “A rival claimant of property is conditionally privileged to disparage or justified in 14 disparaging another's property in land by an honest and good faith assertion of an inconsistent 15 legally protected interest in himself. (Citation).” (M.F. Farming, Co. v. Couch Distributing Co. 16 17 (2012) 207 Cal.App.4th 180, 198; see also Civ. Code § 47 and §48). Grow was privileged and is immue from liability for slander of title because it was the holder of the Liberty 2 Option and 18 had a contractual right pursuant to the KCV/Grow Option Agreement to purchase the Liberty 1 19 20 21 property. The recording of the Memorandum of the KCV/Grow Option Agreement was not a false statement. Cross-Defendants Hays, Bedner and Eldon are also not liable as no evidence 22 exists that they recorded the Memorandum of the KCV/Grow Option Agreement. Moreover, 23 the recording of the Memorandum of the KCV/Grow Option Agreement did not cause direct 24 and immediate pecuniary loss. The Memorandum was recorded on November 11, 2009, almost 25 two weeks before Sandridge acquired title to Liberty Ranch. As of November 11, 2009, Grow 26 had a contractual right to purchase Liberty Ranch and was legally permitted to record the 27 Memorandum of the KCV/Grow Option Agreement. 28 Page 28 Sandridge’s unlawful conduct in 1 convincing McCarthy to disavow its contractual obligations to Plaintiffs does not permit 2 Sandridge to recover damages based on the Seventh Cause of Action in their Cross-Complaint. 3 VI. 4 DAMAGES 5 6 Plaintiffs have employed a water transfer expert for California water. He opines the 7 monetary loss of the Liberty Ranch water to be $255.7 million dollars. As discussed above, the 8 option payments, money incurred in preparing to enter the land, consequential damages and 9 interest are all recoverable damages pursuant to Civil Code § 3306. Additionally, Plaintiffs will 10 11 seek punitive damages against Defendants in an amount according to proof at trial for their intentional wrongful conduct. 12 13 14 DATED: November 21, 2013 GEORGESON, BELARDINELLI AND NOYES 15 16 17 18 By_____________________________________ C. Russell Georgeson Attorneys for Plaintiffs and CrossDefendants 19 20 21 22 23 24 25 26 27 28 Page 29