Castlerock Development v. Cal. Mid-State Fair Heritage Foundation, 15CVP-0173

Hearing: Motion for Summary Judgment

Date: March 22, 2018

In July 2000, California Mid-State Fair Heritage Foundation, Inc. (the “Heritage Foundation”), a 501(c)(3) nonprofit corporation, entered into an agreement with the 16th District Agricultural Association (“District”) under which the Heritage Foundation agreed to provide “sponsorship” to the District and “commit to improving the grounds of the fair” (the “Agreement”).

The Heritage Foundation thereafter began offering memberships in exchange for a $50,000 payment.1 The membership included lifetime privileges such as: (1) two VIP photo IDs for the members which allowed for entrance to the fair and access to the Skybox Hospitality Suite and the Heritage Foundation Hospitality Suite; (2) a VIP parking pass; (3) a $250 VIP concert/ticket package; and (4) four reserved VIP seats in the Main Grandstand Skybox (“Skybox Membership”). Pursuant to the Agreement, the District agreed to provide the Heritage Foundation with these benefits for distribution to Skybox Members.

In 2003, Darren Shetler (“Darren”) and Mark Borjon (“Borjon”) began discussions regarding Darren’s purchase of a Skybox Membership. Borjon, a former director of the Board of Directors for the Heritage Foundation, was at the time a member of the Board of Directors for the District and serving as its president. Castlerock Development, Inc. (“Castlerock”), of which Darren is the president and Chief Executive Officer (“CEO”), made payments of $5,000 over a period of ten years for the Skybox Membership.

After purchasing the Skybox Membership, the relationship proceeded without incident until 2015 when the Heritage Foundation refused to provide any membership privileges until conclusion of the divorce proceedings between Darren and his wife, Kelli Shetler (the “Shetlers”). Darren objected claiming the Skybox Membership belonged to Castlerock and was not a community property asset.

In June 2015, Castlerock filed suit; and on April 7, 2016, filed a First Amended Complaint (“FAC”) which added the District as an additional defendant.2 The FAC alleges causes of action for breach of contract, specific performance, rescission, and
1 The parties dispute whether the payment constituted a charitable donation.

2 The Court takes judicial notice of the FAC. (Evid. Code, § 452(d).)

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injunctive relief.3 The crux of the parties’ dispute is whether the lifetime benefits of the Skybox Membership are to be measured by the Shetlers’ lifespans as individuals, or the duration of Castlerock.

The Heritage Foundation and the District (collectively, “Defendants”) now move for summary judgment, or in the alternative summary adjudication, on the grounds (1) no enforceable contract exists because the parties lacked mutual consent; (2) even if a contract was formed, it has been rescinded; (3) the rule of perpetuities prevents granting of lifetime benefits to Castlerock; and (4) the District cannot be liable under the alleged contract because it is not a party to the contract.

As the moving parties, Defendants have the initial burden to show that one or more elements of the cause of action cannot be established or there is a complete defense to a cause of action. (Code of Civ. Proc., § 437c(p)(2).) If Defendants meet that burden, the burden shifts to Castlerock to produce admissible evidence showing a triable issue of material fact exists as to the cause of action or defense thereto. (Code of Civ. Proc., § 437c(p)(2).) The court must view the evidence and reasonable inferences from the evidence in the light most favorable to the opposing party. (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 843.)

1. Was There Mutual Consent for Purposes of Contract Formation?

The essential elements of contract formation are (1) parties capable of contracting; (2) consent; (3) a lawful object; and (4) consideration. (Civ. Code, § 1550.) Defendants take issue with the second element claiming there was no mutual consent because Borjon understood the Skybox Membership was for the Shetlers as individuals, while Darren contends the Skybox Membership belongs to Castlerock.

The manifestation of mutual consent is typically established by an offer and acceptance; and “‘determined under an objective standard applied to the outward manifestations or expressions of the parties, i.e., the reasonable meaning of their words and acts, and not their unexpressed intentions or understandings.’ [Citation.]” (Deleon v. Verizon Wireless, LLC (2012) 207 Cal.App.4th 800, 813.)

Here, the parties’ conduct demonstrates the existence of a contract under which they operated for over a decade. (Civ. Code, § 1584 [performance is an acceptance]). The Heritage Foundation offered a Skybox Membership in exchange for $50,000, which Castlerock accepted by making payments of $5,000 over a ten-year period.4 Designation 3 On January 17, 2017, the Court sustained the District’s demurrer to the first cause of action without leave to amend on the ground Castlerock had failed to comply with the Government Claims Act (Gov’t. Code, § 945, et seq.) The Court denied the District’s demurrer to the other causes of action.

4 “Consent is not mutual, unless the parties agree upon the same thing in the same sense.” (Civ. Code, § 1580; see also § 1565 [elements of consent].) Here, the parties agreed upon a Skybox Membership in
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of the lifetime member does not appear to be a material term to the creation of that contract as evidenced by the fact that there is no evidence that such a term was ever discussed. (Borjon Declaration.)

Even if the Court were to consider Defendants’ argument that there is no enforceable contract due to lack of mutual consent, Defendants have failed to meet their burden as the moving parties. (Code of Civ. Proc., § 437c(p)(2); Aguilar, supra, 25 Cal.4th at p. 850 [moving party bears initial burden of production to make a prima facie showing of the nonexistence of any triable issue of material fact].)

The only admissible evidence put forth by Defendants on the issue is Borjon’s declaration stating he negotiated an oral agreement with Darren and, as part of that agreement, the Skybox Membership was for the lifespan of the Shetlers as individuals, not Castlerock.5 (Borjon Decl., ¶ 10.) Borjon does not confirm he expressly clarified that condition with Darren. (Deleon, supra, 207 Cal.App.4th at p. 813 [mutual assent determined by words and acts, not unexpressed intentions].) Moreover, Darren responds that Borjon never stated the Skybox Membership benefits were to be provided for the Shetlers’ lifetimes. (Shetler Decl., ¶ 6.) Such evidence is sufficient to create a triable issue of fact regarding the existence of mutual assent.

The motion for summary judgment on this ground is denied.

2. Has the Contract been Rescinded?

“A contract is extinguished by its rescission.” (Civ. Code, § 1688.)6 The substantive grounds for rescission are set forth in Civil Code section 1689, et seq., and include when consent was given by mistake. (Civ. Code, § 1689(b)(1).) Here, the alleged grounds for rescission are “mistake and lack of mutual assent” due to Castlerock’s “mistaken belief” that the membership could not be interfered with other than for cause and not based on exchange for payment of $50,000.

5 Borjon attached a copy of a 2003 Heritage Foundation Membership Application which identifies the Shetlers as the members and lists Castlerock as Darren’s occupation. (Borjon Decl., Ex. C.) Castlerock objects to admission of the application arguing the document is not properly authenticated. Defendants do not respond to the objection. The objection is sustained. (Evid. Code, § 403(a)(3) [burden on party offering writing to provide sufficient evidence of its authenticity].)

Borjon also attached a flyer advertising the Skybox Membership which lists the benefits of “Lifetime Memberships.” (Borjon Decl., Ex. B.) Nothing in the flyer limits the definition of “Lifetime Membership” to individuals.

6 Prior to 1961, there were “‘two types of action for rescissionary relief’ – the first an ‘an action to enforce a rescission’ and the second ‘an action to obtain a rescission.’” (Runyan v. Pacific Air Industries, Inc. (1970) 2 Cal.3d 304, 312.) In 1961, the Legislature “abolished the action to obtain court rescission and left only an action to obtain relief based upon a party effected rescission.” (Paularena v. Superior Court (1965) 231 Cal.App.2d 906, 913.)
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the divorce of its “sole shareholder from his spouse.” (FAC, Att. BC-6.)7

The procedure for effecting rescission is set forth in Civil Code section 1691. That provision requires that the rescinding party give notice of the rescission together with an offer to restore any consideration received. “[T]he service of a pleading in an action or proceeding that seeks relief based on rescission shall be deemed to be such notice or offer or both.” (Civ. Code, § 1691.) In this case, the FAC states “by this action [Castlerock] serves notice of rescission upon Defendants and offers to restore all consideration furnished to Plaintiff ….”8 (FAC, Att. BC-6.)

Defendants state they accepted Castlerock’s offer of rescission by sending a letter to Darren’s then counsel of record on May 11, 2017, along with a check for $50,000. (Barron Decl., Ex. A.) Defendants claim those actions constituted an effective rescission so that the only remaining issue is a determination of any offset due for value conferred.

Castlerock, however, rejected the acceptance of rescission on May 18, 2017, and responds that rescission was no longer an option because Castlerock had already elected to pursue specific performance of the contract.9

Defendants rely on Paularena, supra, 231 Cal.App.2d 906. The case is inapposite since the parties therein entered into a contract of rescission. Not so here for purposes of this motion. (Id. at p. 913.)

As noted above, the manifestation of mutual consent is typically established by an offer and acceptance. (Deleon, supra, 207 Cal.App.4th at p. 813.) While the complaint may
7 The rescission claim was also included in the initial complaint filed on June 19, 2015.

8 As for Castlerock’s objection to UMF No. 38 which includes this language from the FAC and then concludes the statement “constituted compliance with Civil Code section 1691,” the Court overrules the objection to the language itself which is quoted from the FAC but sustains the objection as to the conclusion of the quoted material’s legal effect.

9 In connection with the Motion for Confirmation of Rescission of Contract, Castlerock also argued the rescission cause of action was moot because the factual predicate for claim (i.e., the Shetlers’ divorce) was no longer an issue due to a ruling by the family court, in June 2016, that the Shetlers did not own any community property. (Barron Decl., Ex. C.)

Defendants argue that if the cause of action was moot, it is unclear why Castlerock opposed the District’s demurrer to the rescission cause of action in January 2017. There are several reasons why a plaintiff would oppose a demurrer, and argue to keep its causes of action viable. Defendants as the moving parties devoted only a couple of sentences to this argument without citing supportive facts or asking the Court to take judicial notice of the court records at issue. (Mtn., p. 15, ll. 6-10; Reply, p. 6, ll. 9-14.) The Court declines to undertake the analysis, which was Defendants’ task to perform. (See e.g., Quantum Cooking Concepts, Inc. v. LV Associates, Inc. (2011) 197 Cal.App.4th 927, 934 [trial court had no obligation to undertake its own search of the record].)

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have constituted an offer of rescission, an offer may be revoked “[b]y communication of notice of revocation” before it has been accepted.10 (Civ. Code, § 1587.) “California law [] recognizes indirect revocation where the offeree acquires reliable information indicating that the offeror has taken action inconsistent with the offer. (14 Cal.Jur.3d Contracts § 81; see also Civ. Code, §§ 1581, 1587 [revocation may be communicated by an act].)

In June 2015, Castlerock moved for a preliminary injunction seeking to prevent Defendants from interfering with its membership benefits for the 2015 Mid-State Fair.11 The Court did not issue a formal order granting the preliminary injunction because the matter was reported settled and it was asserted that Defendants had agreed to honor the Skybox Membership upon learning of the Court’s tentative ruling that granted injunctive relief. (Barron Decl., Ex. C, fn. 3.) Regardless, for purposes of arguing revocation of the offer of rescission, the lack of court order is irrelevant; it is Castlerock’s decision to seek specific performance by a preliminary injunction which is the salient fact for purposes of determining whether the offer for rescission had been revoked.

As noted in the Court’s June 2017 ruling on Defendants’ Motion for Court Order Confirming Rescission:

Here, Plaintiff’s conduct of the litigation through its pleadings and settlement negotiations was consistent with remedies favoring affirmance of the contract. In addition, the alleged factual predicate for rescission was resolved by the Family Law Judgment almost a year before the notice of acceptance of rescission was filed by Defendant. (Barron Decl., Ex. C.)

Whether Castlerock’s actions in this litigation constitute a revocation of the offer of rescission is a triable issue of material fact. The motion for summary adjudication on this ground is therefore denied.

10 On appeal, the rescinding party in Paularena questioned whether the trial court had jurisdiction to confine the trial to the issue of damages on the rescission claim and force an election of remedies between the claim disaffirming the contract (i.e., rescission) and the other claims affirming the contract (i.e., breach of warranty, violation of statutory duty, etc.) However, there was no dispute, as there is in this case, that the offer made in the complaint had been revoked. (Paularena, supra, 231 Cal.App.2d at p. 913 [“no issue respecting the accomplished rescission was pending”].) Moreover, unlike the defendants in Paularena who appeared to have immediately accepted the offer of rescission prior to answering the complaint, Defendants here waited almost two years from the filing of the initial complaint to accept the alleged offer.

11 The Court takes judicial notice of Castlerock’s ex parte application for a temporary restraining order and preliminary injunction. (Evid. Code, § 452(d).)

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3. Does the Rule Against Perpetuities Apply?

Defendants next argue the Rule Against Perpetuities (“RAP”)12 prevents granting lifetime benefits to Castlerock, a corporation with an unlimited existence.

The RAP provides that a nonvested property interest is invalid unless “when it is created, it is certain to vest or terminate no later than 21 years after the death of an individual then alive” or “vests or terminates within 90 years after its creation.” (Prob. Code, § 21205.) In general, the RAP does not apply to nondonative transfers. (Prob. Code, § 21225(a) [setting forth exceptions inapplicable here]; see also Shaver v. Clanton (1994) 26 Cal.App.4th 568, 574 [commercial lease with perpetual options to renew did not violate the RAP but is limited to 99 years under Civil Code section 718].)

Defendants here equate a charitable donation to a donative transfer. The Probate Code does not define the term “donative transfer.” However, Probate Code section 21360, et seq. which prohibits “donative transfers” to care custodians, recognizes “[a] donative transfer to … an entity that qualifies for an exemption from taxation under Section 501(c)(3) or 501(c)(19) of the Internal Revenue Code ….” (Prob. Code, § 21382(d) [excluding such transactions from the list of transfers presumed to be the product of fraud or undue influence].)

It is therefore arguable that by analogy, charitable donations constitute “donative transfers” for purposes of the RAP as well. Regardless, this is not the usual case where a transferor13 executes an instrument14 making a donative transfer without consideration. Here, the parties entered into an arm’s length transaction to exchange a Skybox Membership for payment of $50,000. The Heritage Foundation’s status as a 501(c)(3) corporation does not change the nature of that transaction.15

Defendants respond that a donative transfer can be supported by consideration and still be subject to the RAP. (Reply, p. 9, ll. 16-17.) In support, Defendants cite to the Law Revision Commission Comments to Probate Code section 21225. Those comments state:
12 The Uniform Statutory Rule Against Perpetuities, codified in Probate Code section 21200, et seq., supersedes the common law rule against perpetuities. (Prob. Code, § 21201.)

13 “Transferor” is defined as “the testator, settlor, grantor, owner, or other person who executes an instrument.” (Prob. Code, § 81.)

14 “Instrument” is defined as “a will, trust, deed, or other writing that designates a beneficiary or makes a donative transfer of property.” (Prob. Code, § 45.)

15 Defendants argue the Heritage Foundation was “formed among other purposes to accept charitable donations for capital improvements at the fair.” (Reply, pp. 9-10.) While donations to the Heritage Foundation might be “donative” (particularly, when they are not in exchange for a consideration) benefits bestowed by the foundation (i.e., the Skybox Membership) are not “donative.”

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A transfer can be supported by consideration and still be donative in character and hence not excluded from the statutory rule. A transaction that is essentially gratuitous in nature, accompanied by donative intent on the part of at least one party to the transaction, is not to be regarded as nondonative simply because it is for consideration. Thus, for example, the exclusion would not apply if a parent purchases a parcel of land for full and adequate consideration, and directs the seller to make out the deed in favor of the purchaser’s daughter for life, remainder to such of the daughter’s children as reach 25. The nonvested property interest of the daughter’s children is subject to the statutory rule. (Emphasis added.)

Defendants have not shown that the transaction at issue here was “essentially gratuitous in nature” and “accompanied by donative intent.” The motion for summary judgment based on the RAP is denied.

4. Is the District a Party to the Contract?

Defendants argue that the District is entitled to summary judgment because it was not a party to the contract; did not authorize the Heritage Foundation to enter into a contract on its behalf; and did not consent to the contract or authorize such an agreement (i.e., a lifetime membership to a corporation).

In support, Defendants rely on (1) Borjon’s declaration stating (a) he negotiated the contract on behalf of the Heritage Foundation and (b) the District was not a party to the agreement; and (2) the Agreement, which provides that the Heritage Foundation, and its agent and employees, “shall act in an independent capacity and not as officers or employees or agents of the State of California. (Borjon Decl., ¶ 10 and Ex. A, ¶ 2.)

Castlerock responds that at the time of contracting, Borjon was a member of the Board of Directors for the District and serving as the District’s president; and was not a director or officer of the Heritage Foundation. (Hamilton Decl., Ex. 10 [Borjon Deposition].)16
16 Defendants’ objections (Nos. 9, 10, and 11) to Exhibits 6, 7, and 8 of Attorney Hamilton’s declaration are sustained as the documents are not properly authenticated. (Evid. Code, § 1401.) Attorney Hamilton states only that (a) the Exhibits 6 and 8 were sent by Defendants’ counsel to Castlerock’s former counsel, and (b) Exhibit 7 was received from the Heritage Foundation during the course of discovery. Attorney Hamilton, however, provides no facts supporting those assertions. (Evid. Code, § 403(a)(3) [burden on party offering the writing]; see also Serri v. Santa Clara Univ. (2014) 226 Cal.App.4th 830, 855 [noting in dicta “only effort to authenticate her exhibits was [] declaration that the ‘exhibits attached hereto are true and correct copies of the originals … produced by Defendants in this case.’”]; and Weil & Brown, Cal. Practice Guide: Civ. Proc. Before Trial (Rutter 2017) ¶ 10:168 [documents obtained in discovery must be properly authenticated].)

The Court does not rule on Defendants’ other objections (Nos. 1-8) as they are immaterial to its disposition of the motion. (Code of Civ. Proc., § 437c(q).)
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While the Agreement provides that the Heritage Foundation and its agents will act independently of the District, Borjon was not an officer or agent of the Heritage Foundation at the time of contracting. The Agreement is, therefore, unavailing since it appears that the only negotiator (Borjon) was neither an officer nor agent of the District. As for Borjon’s statements that he was negotiating the Skybox Membership on behalf of the Heritage Foundation, he does not confirm that he made that known to Darren at the time; nor do Defendants address whether Darren could rely on Borjon’s ostensible authority to act on the District’s behalf. In other words, the effect of the Agreement language in this regard is a triable issue.

Moreover, Defendants argue that “Castlerock provides no evidence that the [District] consented to the alleged oral contract.” (Reply, p. 10, l. 19.) When arguing the absence of evidence on an element of the plaintiff’s claim, “[i]t is not enough for defendant to show merely that plaintiff ‘has no evidence’ on a key element …, [d]efendant must also produce evidence showing plaintiff cannot reasonably obtain evidence to support that claim. [Citations.]” (Weil & Brown, supra, at ¶ 10:244; see also Aguilar, supra, 25 Cal.4th at p. 855 [e.g., admissions by plaintiff that he has discovered nothing].) Defendants have failed to make such a showing here.

The motion for summary judgment is denied.