Filed 2/21/20 Sealutions, LLC v. Schwab CA2/3

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION THREE

SEALUTIONS, LLC, et al.,

Plaintiffs and Appellants,

v.

CHARLES ROBERT SCHWAB, JR., et al.,

Defendants and Respondents.

B286897

(Los Angeles County

Super. Ct. No. BC546925)

APPEAL from a judgment of the Superior Court of Los Angeles County, Michael M. Johnson, Alan S. Rosenfield, Joseph Kalin (Ret.), Judges. Affirmed.

Larson O’Brien, Stephen G. Larson, Paul A. Rigali, Lauren S. Wulfe and Uri Niv; Litvak Law Group, Uri Litvak and S. Martin Keleti, for Plaintiffs and Appellants.

Allen Matkins Leck Gamble Mallory & Natsis, Robert R. Moore, Michael J. Betz and Alexander J. Doherty for Defendants and Respondents.

_________________________

Plaintiffs and defendants are former business associates who in 2010 created a limited liability company, SeaChange LLC (SeaChange), to invest in coastal real estate. The following year, plaintiffs terminated their involvement with SeaChange, and SeaChange ceased operating soon thereafter.

This action followed, in which plaintiffs alleged misconduct arising out of the cessation of the relationship between plaintiffs and SeaChange. Specifically, plaintiffs alleged they terminated their relationship with SeaChange in reliance on defendants’ promise to transfer plaintiffs’ share of SeaChange to a new company in which plaintiffs would have an interest, but defendants failed to give plaintiffs an interest in any subsequent venture. Plaintiffs therefore asserted causes of action for fraudulent inducement and breach of contract, among other things.

Defendants moved for summary judgment, which the trial court granted. We affirm. As we discuss, plaintiffs cannot establish they suffered damages as a result of defendants’ alleged breaches because SeaChange is valueless and there is no evidence its assets or opportunities were transferred to any other entity. Accordingly, summary judgment was properly granted.

FACTUAL AND PROCEDURAL BACKGROUND

I.

Background Facts

A. The Parties

Plaintiff Sealutions LLC (Sealutions) was formed in 2009 by plaintiffs Nicholas Behunin and The Grain Collective (collectively, Behunin) and defendants Michael Schwab and Big Sky Venture Capital III, LLC (collectively, Michael Schwab). Sealutions’s stated purpose was to acquire ASR Ltd., a New Zealand company that conducted marine research and consulting.

Defendant SeaChange LLC (SeaChange or the Company) was formed in 2010 by (1) Sealutions, (2) Michael Schwab, (3) defendants Matthew Burwood and Somerset Advantage, LLC (collectively, Burwood), and (4) defendants Charles Schwab and Live Oak Ventures, LLC (collectively, Charles Schwab). SeaChange’s Limited Liability Company Agreement (LLC Agreement) provided that the company was being formed “to pursue direct or indirect investments in sustainable environmentally conscious real estate and other development projects located in close proximity to coastlines . . . or offshore sites where ASR Products and Services have been, are, or may be provided.” The LLC Agreement further provided that Burwood, Michael Schwab, and Charles Schwab would capitalize SeaChange; Burwood would manage it; and Sealutions would “identify for the Company Investment Opportunities and, to the extent under Sealutions’ control, grant the Company a right of first offer to invest or otherwise participate in all Investment Opportunities, pursuant to the Advisory Services Agreement . . . [entered into] between the Company and Sealutions.” Finally, the LLC Agreement and Advisory Services Agreement provided that Sealutions would receive an annual consulting fee equal to .75 percent of the total capital contributions to SeaChange, an acquisition fee equal to .75 percent of the purchase price of each property SeaChange acquired, and 15 percent of SeaChange’s distributable cash and net profits.

B. Termination of the Relationship Between Sealutions and SeaChange

In August 2011, Sealutions and SeaChange entered into a “Membership Interest Termination Agreement and Mutual General Release” (Termination Agreement) that terminated the relationship between the companies. The Termination Agreement recited that as of the effective date of the agreement, Sealutions had not identified or sourced any investment opportunities for SeaChange, and thus “[t]he parties have determined that it is in all of their best interests to terminate the business relationship of Sealutions, on the one hand, and [SeaChange], on the other hand.” The Termination Agreement provided that SeaChange would purchase Sealutions’s interest in the Company, and “all right, title, and interest of Sealutions in and to [SeaChange] and its projects, including without limitation all rights to voting, capital, profits, losses [and] distributions, shall immediately terminate.” The Termination Agreement further provided that Sealutions and its representatives released SeaChange and its representatives from all claims, known or unknown, and that it, “together with the attached Exhibits to this Agreement and any Ancillary Agreements, is intended by the Parties as the final expression of their agreement and therefore contains the entire agreement between the Parties, and supersedes all prior understandings or agreements concerning the subject matter hereof . . . .”

After the Termination Agreement was executed, Burwood shut down SeaChange. Shortly thereafter, Michael Schwab, Burwood, and defendant Timothy Albinson (Albinson) created a new investment fund, called the Emergent Indonesia Opportunity Fund (EIOF), to invest in Indonesian real estate.

II.

First Amended Complaint

Behunin and Sealutions (collectively, plaintiffs) filed the present action in May 2014, and filed the operative first amended complaint (complaint) in April 2015. The complaint asserts five causes of action (fraud, negligent misrepresentation, breach of fiduciary duty, constructive fraud, and breach of contract) against Charles Schwab, Michael Schwab, Burwood, Albinson, and SeaChange, as well as against EIOF, Emergent Capital Management, LP, and Emergent Capital Partners, LLC (collectively, the Emergent parties), Big Sky Real Estate (Big Sky RE), and Big Sky Venture Capital V, LLC (Big Sky V).

In brief, the complaint alleges that in about June 2011, Michael Schwab, Charles Schwab, Burwood, and Albinson formed a conspiracy to oust Behunin and Sealutions from SeaChange. Pursuant to this conspiracy, the individual defendants orally represented that if Sealutions would agree to terminate its connection with SeaChange, Michael Schwab would create a new entity, to be owned in equal shares by himself and Behunin, that would “receive all ownership interests, compensation, and remuneration from SeaChange that Sealutions was entitled to receive pursuant to both the LLC Agreement and the Advisory Services Agreement.” Based on this representation, Behunin signed the Termination Agreement on behalf of Sealutions. Subsequently, although Michael Schwab and Behunin formed a new entity, Big Sky Asia PTE Ltd., Sealutions’s interest in SeaChange was never transferred to it. Instead, defendants formed the Emergent parties and transferred all of SeaChange’s assets to them.

III.

Motions for Summary Judgment

In 2017, all of the defendants filed motions for summary judgment—(1) Charles Schwab on February 10, 2017, (2) Burwood, Albinson, and the Emergent parties on February 24, 2017, and (3) Michael Schwab, Big Sky RE, and Big Sky V on May 28, 2017.

Each of the defendants asserted there were no triable issues of fact as to any of the five causes of action. As relevant to the present appeal, defendants contended Behunin’s reliance on the alleged fraudulent misrepresentations was not reasonable as a matter of law; defendants’ alleged promises were too vague to be actionable; there was no evidence of a conspiracy among the defendants; and plaintiffs could not establish damages.

Plaintiffs opposed the summary judgment motions. They urged that justifiable reliance was a question of fact; the alleged promises were sufficiently specific to be actionable; each of the defendants was liable as a co-conspirator of the other defendants; and there was substantial evidence of damages.

The motions were granted as to Charles Schwab by Judge Kalin on April 18, 2017; as to Burwood, Albinson, and the Emergent parties by Judge Rosenfield on May 16, 2017; and as to Michael Schwab, Big Sky RE, and Big Sky V by Judge Johnson on October 27, 2017. The trial courts concluded, among other things, that plaintiffs’ alleged reliance on defendants’ representations was not reasonable as a matter of law, the alleged promises were too indefinite to be actionable, and plaintiffs could not establish that they suffered any damages as a result of the alleged misrepresentations.

On November 30, 2017, judgment was entered in favor of Charles Schwab, Burwood, Albinson, the Emergent parties, and Big Sky V. Notice of entry of judgment was served on December 7, 2017. Plaintiffs timely appealed from the judgment.

DISCUSSION

I.

Standard of Review

“ ‘The purpose of the law of summary judgment is to provide courts with a mechanism to cut through the parties’ pleadings in order to determine whether, despite their allegations, trial is in fact necessary to resolve their dispute.’ (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 843 (Aguilar).) ‘[T]he party moving for summary judgment bears the burden of persuasion that there is no triable issue of material fact and that he is entitled to judgment as a matter of law.’ (Id. at p. 850.) A defendant can meet this burden by ‘present[ing] evidence which, if uncontradicted, would constitute a preponderance of evidence that an essential element of the plaintiff’s case cannot be established.’ (Kids’ Universe v. In2Labs (2002) 95 Cal.App.4th 870, 879 (Kids’ Universe).) ‘Once the [defendant] has met that burden, the burden shifts to the [plaintiff] to show that a triable issue of one or more material facts exists as to the cause of action.’ (Code Civ. Proc., § 437c, subd. (p)(1) & (2); see Aguilar, supra, at p. 850.) A triable issue of material fact exists when ‘the evidence would allow a reasonable trier of fact to find the underlying fact in favor of the party opposing the motion in accordance with the applicable standard of proof.’ (Aguilar, supra, at p. 850.)

“ ‘We review an order granting summary judgment de novo, “considering all the evidence set forth in the moving and opposition papers except that to which objections have been made and sustained.” ’ (Sakai v. Massco Investments, LLC (2018) 20 Cal.App.5th 1178, 1183 (Sakai).) ‘ “In performing our de novo review, we must view the evidence in a light favorable to plaintiff as the losing party [citation], liberally construing [his or] her evidentiary submission while strictly scrutinizing defendants’ own showing, and resolving any evidentiary doubts or ambiguities in plaintiff’s favor.” ’ ” (Webster v. Claremont Yoga (2018) 26 Cal.App.5th 284, 287–288.)

II.

The Trial Court Did Not Err in Granting

Defendants’ Motions for Summary Judgment

Although the trial court summarily adjudicated all five causes of action, plaintiffs urge the judgment should be reversed as to only two: fraud and breach of contract. As to fraud, plaintiffs contend there was substantial evidence of justifiable reliance, and Burwood, Albinson, and Charles Schwab were liable for aiding and abetting Michael Schwab’s fraud. As to breach of contract, plaintiffs contend the terms of the alleged oral contract were sufficiently certain to be enforced, and Michael Schwab acted as Burwood’s and Albinson’s agent when he breached the contract. As to both causes of action, plaintiffs assert their alleged damages were not speculative.

As we discuss, plaintiffs have not introduced evidence they suffered any damages as a result of defendants’ failure to transfer Sealutions’s interest in SeaChange to a new entity in which Behunin would have a 50 percent interest. Accordingly, summary adjudication was properly granted as to the causes of action for fraud and breach of contract.

A. Applicable Law

Damages are an essential element of causes of action for fraudulent inducement and breach of contract. (E.g., Copenbarger v. Morris Cerullo World Evangelism, Inc. (2018) 29 Cal.App.5th 1, 9 (Copenbarger) [breach of contract]; Oasis West Realty, LLC v. Goldman (2011) 51 Cal.4th 811, 821 [breach of contract]; Behnke v. State Farm General Ins. Co. (2011) 196 Cal.App.4th 1443, 1453 [fraud]; Muraoka v. Budget Rent–A–Car (1984) 160 Cal.App.3d 107, 119 [fraud].)

A plaintiff fraudulently induced to enter into a contract “has two different remedies when it has been injured by a breach of contract or fraud . . . . (Akin v. Certain Underwriters at Lloyd’s London (2006) 140 Cal.App.4th 291, 296.) The party may disaffirm the contract, treating it as rescinded, and recover damages resulting from the rescission. (Ibid.) Alternatively, the party may affirm the contract, treating it as repudiated, and recover damages for breach of contract or fraud. (Ibid.)” (Wong v. Stoler (2015) 237 Cal.App.4th 1375, 1384; see also Orozco v. WPV San Jose, LLC (2019) 36 Cal.App.5th 375, 403 [“ ‘[A] person claiming to be defrauded by false representation has a choice of two inconsistent remedies, to wit, he may elect to rescind the contract; or, to affirm it and claim damages.’ ”].)

If a plaintiff elects to affirm the alleged contract and seek damages for its breach, the measure of damages is “ ‘the amount which will compensate the party aggrieved for all the detriment proximately caused thereby, or which, in the ordinary course of things, would be likely to result therefrom.’ (Civ. Code, § 3300.) ‘Contract damages seek to approximate the agreed-upon performance. “[I]n the law of contracts the theory is that the party injured by breach should receive as nearly as possible the equivalent of the benefits of performance.” ’ (Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 515.)” (Copenbarger, supra, 29 Cal.App.5th at p. 9.)

B. Plaintiffs Have Not Demonstrated Triable Issues of Fact as to Damages

1. Allegations Relevant to Damages

As we have said, the complaint alleged that defendants induced plaintiffs to enter into the Termination Agreement by representing that “if Sealutions agreed to terminate all connections with SeaChange, Michael Schwab would form a new entity, to be owned one-half by Behunin and one-half by Michael Schwab, that would take over the interests of Sealutions in SeaChange” and “would receive all ownership interests, compensation and remuneration from SeaChange that Sealutions was entitled to receive pursuant to both the LLC Agreement and the Advisory Services Agreement.” The complaint alleged that defendants never transferred Sealutions’s interest in SeaChange to an entity in which Behunin had an interest, but instead retained that interest for themselves. Subsequently, defendants “formed EIOF and moved all of the assets of SeaChange into [the Emergent parties].” As a result, plaintiffs alleged they were entitled to “rights of ownership in and rights to compensation in” both SeaChange and the Emergent parties.

2. The Undisputed Evidence Established that SeaChange Is Defunct, and There Is No Evidence that the Emergent Parties are SeaChange’s “Successors”

In support of summary judgment, defendants contended that even if they had promised to transfer Sealutions’s interest in SeaChange to another entity in which Behunin was a part owner—an allegation defendants denied—their failure to do so could not have caused plaintiffs to suffer any damages. This was so, defendants urged, because SeaChange was defunct and plaintiffs had no valid claim to the Emergent parties. Specifically, defendants introduced evidence that:

● Sealutions’s alleged right to a share of SeaChange was worth nothing because SeaChange was defunct.

● Sealutions had no damages with respect to its right to receive a consulting fee amounting to .75 percent of the total capital contributions to SeaChange. Sealutions received its share ($7,500) of SeaChange’s initial capital contributions of $1 million, and no further contributions were ever made to SeaChange from which Sealutions was due additional consulting fees.

● Sealutions had no damages with respect to its right to receive an acquisition fee equal to .75 percent of the purchase price of each property SeaChange acquired because SeaChange never acquired any property.

● Sealutions had no damages with respect to its right to receive 15 percent of SeaChange’s distributable cash and net profit because SeaChange never had any such cash or profit.

● The Emergent parties were formed without plaintiffs’ involvement, and there is no evidence to support plaintiffs’ alleged interest in the Emergent parties.

On appeal, plaintiffs do not contend there is evidence that SeaChange received additional capital contributions, acquired property, or had any distributable cash or net profits. Plaintiffs also do not contend that Sealutions’s alleged right to units in SeaChange had any value. To the contrary, plaintiffs concede that “the interest in SeaChange . . . is worthless.”

Plaintiffs assert, however, that they should have received an interest in the Emergent parties because those parties are “the successor entit[ies] of SeaChange.” They therefore urge that they are entitled to an award of damages equal to “the difference between what [plaintiffs] actually received—nothing—and what they would have enjoyed had [defendants] performed their portion of the contract—the interest in SeaChange being transferred to another entity.”

Although plaintiffs pled this theory in their complaint, on appeal they have not cited any evidence to support their “successor entity” claim. On this basis, alone, their appellate claims necessarily fail. (E.g., Alki Partners, LP v. DB Fund Services, LLC (2016) 4 Cal.App.5th 574, 590 [“In reviewing a ruling on a motion for summary judgment, ‘de novo review does not obligate us to cull the record for the benefit of the appellant in order to attempt to uncover the requisite triable issues. As with an appeal from any judgment, it is the appellant’s responsibility to affirmatively demonstrate error and, therefore, to point out the triable issues the appellant claims are present by citation to the record and any supporting authority.’ ”].)

Notwithstanding plaintiffs’ failure to cite any evidence to support their damages claim, we have independently examined the record and conclude there is no evidence that the Emergent parties are “successors” to SeaChange. In opposition to summary judgment, Behunin provided a lengthy declaration describing his efforts to develop relationships with wealthy Indonesian landowners, as well as documentary evidence that some of those individuals subsequently consummated real estate deals with EIOF. However, nowhere in Behunin’s 39-page declaration did he identify any particular real estate investments that EIOF acquired through his efforts. Nor did Behunin provide any evidence that defendants “diverted” specific investments developed by SeaChange, that defendants acquired any properties that were to have been acquired by SeaChange, or that defendants transferred any of SeaChange’s assets or holdings to EIOF.

“To avoid summary judgment, admissible evidence presented to the trial court, not merely claims or theories, must reveal a triable, material factual issue. [Citation.] . . . [T]he opposition to summary judgment will be deemed insufficient when it is essentially conclusionary, argumentative or based on conjecture and speculation. [Citations.]” (Wiz Technology, Inc. v. Coopers & Lybrand (2003) 106 Cal.App.4th 1, 11; see also Code Civ. Proc., § 437c, subd. (p)(2) [plaintiff “shall set forth the specific facts showing that a triable issue of material fact exists as to the cause of action”], italics added; Saelzler v. Advanced Group 400 (2001) 25 Cal.4th 763, 769 [summary judgment properly granted where plaintiff’s submission in opposition to summary judgment lacked specific facts demonstrating claim].) In the present case, plaintiffs’ evidence lacks “specific facts” sufficient to demonstrate a triable issue of material fact as to damages, and thus defendants’ motions for summary judgment were properly granted.

DISPOSITION

The judgment is affirmed. Respondents are awarded their appellate costs.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

EDMON, P. J.

We concur:

EGERTON, J.

DHANIDINA, J.