Filed 11/18/19 Groth v. Gilad CA1/5

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION FIVE

WILLIAM GROTH et al.,

Plaintiffs and Respondents,

v.

AMI GILAD et al.,

Defendants and Appellants.

A151497/A150493

(Contra Costa County

Super. Ct. No. MSC10-02872)

William Groth loaned money to fund a cigar club business that subsequently failed. When the loan was not repaid in full, Groth and Groth Holdings & Consulting, Inc. (collectively, plaintiffs) sued Ami Gilad, Roy Gilad, and K.A.D. Alliance, Inc. (collectively, defendants), alleging breach of a written promissory note. The trial court granted Groth’s motion for summary adjudication, concluding there was no triable issue regarding the Gilads’ obligation to repay the loan. In these consolidated appeals, the defendants challenge that order, the trial court’s damages calculation after a bench trial on another cause of action, and a post-judgment attorney fees order. We conclude triable issues of material fact preclude summary adjudication and reverse the judgment.

BACKGROUND

A.

In June 2008, Groth, Roy, Ami, and Frank Carozza signed a “Partnership Engagement Letter,” which states that an unnamed partnership, to which they would “contribute capital equally,” “shall generally engage in the business of a [cigar club].” A month later, Ami opened a bank account under the name “Ami Gilad DBA Ami Gilad Business Account,” which was used exclusively for business related to the cigar club. Groth, Carozza, and each of the Gilads deposited funds in the Ami Gilad Business Account that were used to pay cigar club business expenses in July and August 2008.

Towards the end of that period, Groth agreed to provide approximately $625,000 to finance the acquisition of real property for the club. On September 5, 2008, a limited liability company, entitled 65 Oak Court LLC, was formed to own the property. Five days later, Ami instructed Groth: “Funds to close escrow need to be in our partnership account (will be converted to the LLC account upon receiving final documents)” before closing.

On September 17, 2008, Groth deposited $735,000, which included the now disputed $610,001, in the Ami Gilad Business Account. A few hours later, Ami transferred the funds into the 65 Oak Court LLC account. At the last minute, a bank agreed to make an acquisition loan to 65 Oak Court LLC and Groth’s funds were not needed to close escrow. Roy and Ami assert the entire amount of Groth’s transfer was originally considered to be a capital contribution to 65 Oak Court LLC, not a loan, but that Groth later changed his mind. Legacy Cigar Club, Inc. was incorporated on October 15, 2008.

In January 2009, Groth told the Gilads he wanted a written note evidencing the $610,001 loan and that he wanted “Legacy” to be the borrower. That same month, Ami prepared a promissory note, using a form he found on the internet, which provides “the undersigned hereby jointly and severally promise to pay” Groth $610,001 plus five percent interest per year. (Italics added.) The original note was signed by Ami as “Legacy Cigar Club (A California Corporation)” and was backdated to October 9, 2008. Groth requested revisions and to be paid the principal amount of $10,001 from 65 Oak Court LLC. A revised promissory note provides “the undersigned hereby jointly and severally promise to pay” Groth $600,000 plus five percent interest per year. Roy signed the revised note as “Secretary, Legacy Cigar Club.” As specifically requested by Groth, Ami also signed the revised note as “CFO for Legacy Cigar Club (A California Corporation).” According to Roy and Ami, Groth requested these revisions to the signature block to show the note was a corporation obligation because, as Groth explained, “Legacy was going to have income in the form of memberships.”

With the exception of the $10,001 payment Groth received from 65 Oak Court LLC and credited towards principal, Groth has not been repaid. Both Roy and Ami have denied personal liability on the note, claiming that only 65 Oak Court LLC and/or the corporation are obligated.

B.

Plaintiffs sued the defendants, alleging numerous causes of action, including breach of contract, negligence, and breach of fiduciary duty. In particular, Groth alleges he loaned over $600,000 to the partnership, in September 2008, with the understanding that Roy and Ami would be personally obligated on the loan. Groth also alleges he and the Gilads signed a written promissory note documenting the loan agreement that provided Ami, Roy, and “Legacy Cigar Club” would repay the principal and interest at five percent per year. Groth then alleges he performed under “the loan agreement,” that “the note” became due in 2010, and that the defendants “breached said loan agreement . . . by refusing to pay back the loan principal and interest.”

Groth filed a motion for summary adjudication with respect to his breach of contract cause of action. He asserted he was entitled to judgment as a matter of law because it was undisputed he and the Gilads had formed a partnership that pre-existed the formation of the corporation and LLC and he had made the loan to the partnership. As a result, the Gilads are liable for the partnership’s debts.

The Gilads opposed the motion and attempted to create a triable issue in several different ways: (1) by disputing that the Ami Gilad Business Account was a partnership account; (2) by asserting they never intended to create a “general partnership”; and (3) by submitting evidence suggesting only the corporation or 65 Oak Court LLC was obligated on the note.

The trial court granted Groth’s motion for summary adjudication. The trial court explained, “The Gilads have not created a triable issue on the formation of a partnership. [¶] . . . [¶] On September 17, 2008, [Groth] deposited $735,000 in the Ami Gilad Business Account, which included the $610,001 loan. . . . That same day, Ami transferred the funds from the Ami Gilad Business Account to the 65 Oak Court LLC account. . . . These facts show that on September 17, 2008, [Groth] loaned $610,001 to the partnership. [¶] . . . [¶] . . . The language of the promissory note does not clearly show that a novation was intended. . . . In addition, the note states that the undersigned are jointly and severally liable for the note, and each individual signed the note. Thus, it appears from the language of the note that it expanded liability on the loan to include the Legacy Cigar Club, Inc., but did not release the individuals from liability.” (Italics added.)

The court denied a subsequent motion for reconsideration, and, after a court trial on Groth’s remaining causes of action and a cross-complaint, entered judgment against the Gilads for $400,000 plus interest in contract damages. The court also awarded Groth his costs and, under a clause in the note, contractual attorney’s fees.

DISCUSSION

A.

Defendants contend the trial court erred in granting Groth’s motion for summary adjudication because they established a triable issue of fact. They also contend the erroneous summary adjudication ruling prejudiced the subsequent bench trial. We agree.

1.

“[A] motion for summary judgment [or summary adjudication] shall be granted if all the papers submitted show that there is no triable issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” (Code Civ. Proc., § 437c, subd. (c).) A plaintiff who moves for summary adjudication “must present evidence that would require a reasonable trier of fact to find any underlying material fact more likely than not–otherwise, he would not be entitled to judgment as a matter of law, but would have to present his evidence to a trier of fact.” (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 851; accord, § 437c, subd. (p)(1).) If the plaintiff meets that burden, the burden shifts to the defendant to show a triable issue of material fact. (§ 437c, subd. (p)(1).)

In reviewing an order granting summary adjudication, “we independently examine the record in order to determine whether triable issues of fact exist to reinstate the [cause of] action.” (Wiener v. Southcoast Childcare Centers, Inc. (2004) 32 Cal.4th 1138, 1142.) We accept as true all facts and reasonable inferences shown by the losing parties’ evidence and resolve evidentiary ambiguities in their favor. (Saelzler v. Advanced Group 400 (2001) 25 Cal.4th 763, 768.)

In order to recover for breach of contract, a plaintiff must prove: (1) a contract; (2) plaintiff’s performance or excuse for nonperformance; (3) defendant’s breach; and (4) damages. (Reichert v. General Ins. Co. (1968) 68 Cal.2d 822, 830.) Here, the element in dispute is the existence of a contract rendering the Gilads personally liable for a debt to Groth. This depends on whether the partnership was obligated on the promissory note. (See Corp. Code, § 16306, subd. (a) [“all partners are liable jointly and severally for all obligations of the partnership unless otherwise agreed”]; Northwest Energetic Services, LLC v. California Franchise Tax Bd. (2008) 159 Cal.App.4th 841, 852 [members and owners of corporations and limited liability companies “have limited liability for the entity’s debts and obligations”].)

“The fundamental rules of contract interpretation are based on the premise that the interpretation of a contract must give effect to the ‘mutual intention’ of the parties.” (Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 18.) “ ‘The mutual intention to which the courts give effect is determined by objective manifestations of the parties’ intent, including the words used in the agreement, as well as extrinsic evidence of such objective matters as the surrounding circumstances under which the parties negotiated or entered into the contract; the object, nature and subject matter of the contract; and the subsequent conduct of the parties.” (Wolf v. Superior Court (2004) 114 Cal.App.4th 1343, 1356.)

2.

In our view, the trial court erred. The question is whether the parties agreed the partnership—as opposed to solely the corporation or the LLC—would be obligated on the note. The evidence on this point supports competing inferences. When interpreting a contract, a question of fact is presented if objective manifestations of intent do not resolve a contractual ambiguity and the extrinsic evidence conflicts. (Wolf v. Superior Court, supra, 114 Cal.App.4th at pp. 1357, 1359.)

Here, the note itself is ambiguous. (See Palmer v. Truck Ins. Exchange (1999) 21 Cal.4th 1109, 1115 [contract is ambiguous “only if it is susceptible to two or more reasonable constructions,” a determination that is a question of law].) The original note was signed by Ami on behalf of “Legacy Cigar Club (A California Corporation).” In the revised version of the note, Ami signed as Chief Financial Officer of “Legacy Cigar Club (A California Corporation)”, and Groth and Roy signed as President and Secretary, respectively, of “Legacy Cigar Club.” These signatures reasonably suggest only the corporation is obligated. Yet, in conflict with that understanding, both versions also provide for joint and several liability on the “undersigned.” This inconsistent legal terminology appears attributable, at least in part, to the fact that an attorney did not draft the document—Ami used a form that he found on the Internet, which the parties modified. Precisely what they intended is unclear.

To resolve the ambiguity, the fact finder will need to consider the conflicting extrinsic evidence presented by the parties. For instance, the fact finder may consider that the corporation had not yet been formed in September 2008, that Roy notified Groth the partnership needed $735,000, and that Groth responded by transferring funds into the partnership account. On the other hand, the fact finder should also consider the Gilads’ evidence showing that the LLC existed at the time of the transfer, that the money was almost immediately transferred to the LLC account, and that both the LLC and Legacy Cigar Club, Inc. existed at the time the note was signed a few months later. The Gilads submitted evidence that the parties intended the partnership to be temporary and that it was Groth who requested changes in the signature blocks on the note, saying he wanted “Legacy” to be the borrower.

In short, we agree with the Gilads that there are competing reasonable inferences regarding their personal liability on the note. A triable issue of material fact precludes summary adjudication. Our conclusion moots the defendants’ appeal (A151497) from the post-judgment fees order and the parties’ remaining arguments.

DISPOSITION

The judgment and the post-judgment fees order are reversed. Plaintiffs shall bear the defendants’ costs on appeal.

 

_________________________

BURNS, J.

WE CONCUR:

_________________________

JONES, P. J.

_________________________

SIMONS, J.

A150493/A151497