Premier Patio Heating Specialists v. WestAir Gases & Equipment CA4/1

• Court: California Court of Appeal
• Decided: July 23, 2013
• Docket: D058776
• Status: Unpublished

Opinion

Filed 7/23/13 Premier Patio Heating Specialists v. WestAir Gases & Equipment CA4/1 NOT TO BE PUBLISHED IN OFFICIAL REPORTS California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

PREMIER PATIO HEATING D058776 SPECIALISTS, LLC,

Plaintiff, Cross-defendant and Appellant, (Super. Ct. No. 37-2008-00093766- CU-BC-CTL) v.

WESTAIR GASES & EQUIPMENT, INC.,

Defendant, Cross-complainant and Respondent.

APPEAL from a judgment of the Superior Court of San Diego County,

Steven R. Denton, Judge. Affirmed.

Sulzner & Associates and Bruce E. Sulzner for Plaintiff, Cross-defendant and

Appellant.

Higgs Fletcher & Mack, John Morris and James M. Peterson for Defendant,

Cross-complainant and Respondent. This case involves a dispute over WestAir Gases & Equipment, Inc.'s (WestAir)

agreement to purchase Premier Patio Heating Specialists, LLC's (Premier) assets.

Premier contends the judgment in favor of WestAir must be reversed because (1) the trial

court improperly instructed the jury that it could consider whether WestAir was "honestly

and genuinely" dissatisfied (i.e., a subjective test) with the condition of certain assets and

instead should have instructed the jury to consider WestAir's purported dissatisfaction

based on a "reasonable person" standard (i.e., an objective test), (2) the jury's finding that

WestAir performed all of its obligations under the contract is not supported by substantial

evidence, and (3) the jury's finding that WestAir acted in good faith is not supported by

substantial evidence.

We disagree with Premier's contentions and affirm the judgment in favor of

WestAir.

FACTUAL AND PROCEDURAL BACKGROUND

Premier, a business owned by Ed Essey and his wife, leased industrial-grade patio

heaters and other items to restaurants and commercial businesses. WestAir, an industrial

gas and welding supply company, distributed gases, such as propane and carbon dioxide,

gas equipment and welding supplies to various businesses including restaurants. Steve

Castiglione was the president of WestAir.

In 2007, Essey called Castiglione to determine whether Castiglione was interested

in buying Premier. Castiglione believed the purchase of Premier would allow WestAir to

expand its business into the propane patio heater business with its own customer base.

Thus, the parties engaged in negotiations regarding the purchase.

2 In November 2007, Essey prepared a summary of Premier's assets and valued

them at approximately $1.2 million. The assets included patio heaters, which Essey

assigned a replacement value of $550 each, several trucks and various equipment. After

further discussions with Castiglione, Essey agreed to decrease the purchase price to

approximately $1.1 million by applying an 8.5% discount to his prior valuation.

In February 2008, Castiglione turned over primary responsibility for the potential

acquisition of Premier to WestAir's industrial sales manager, Chris Owen. Owen and

other WestAir employees researched Premier's business, took a tour of its facility,

reviewed Premier's books, financial records, contracts, human resource documents, and

did an audit of Premier's business operations.

In June 2008, the parties signed a letter of intent (LOI). The LOI provided basic

terms for the proposed transaction between Premier and WestAir, including that WestAir

would purchase Premier's assets for $1,096,772. The LOI also allowed for adjustments

to the purchase price, stating, "The Purchase Price shall be decreased $500 for each patio

heater that is not in good working order or rent-ready condition. If WestAir determines

in its sole discretion that the value of any other assets is less than set forth on the [asset

list prepared by Essey], it shall adjust the Purchase Price to its best estimate of fair

market value for such assets. [Premier] shall have the option to accept or reject the

adjusted price for any asset, and if [Premier] reject[s] the adjusted price [it] may retain or

otherwise dispose of such assets." The LOI further provided that its principal terms

would be incorporated into an asset purchase agreement (APA) and that both parties

would agree to "negotiate in good faith and use [their] best efforts to enter into the APA

3 on or before June 30, 2008." Lastly, the parties included conditions to closing, including

"[v]erification, to the satisfaction of WestAir regarding . . . [t]he condition of all [a]ssets."

WestAir expected the parties to carry on negotiations after executing the LOI and

it continued to investigate Premier's assets. In July 2008, Castiglione visited Universal

Propane to inquire about purchasing replacement Type 2 quick disconnect valves, which

were the type of valves used on Premier's heaters. Castiglione learned the Type 2 quick

disconnect valves were outdated and had safety issues, including that they potentially

caused fires. Castiglione relayed this information to Owen and stated he wanted to adjust

the purchase price for Premier's assets to approximately $500,000, which Castiglione

thought was the fair market value.

Working from Essey's asset summary, Owen created a spreadsheet and adjusted

the price of the assets to approximately $530,000. As part of that adjustment, Owen

reduced the price of the heaters to $250 each. Owen believed $250 was the fair market

value of the heaters based upon his observations and information from WestAir's

beverage division manager that some of Premier's heaters were "beat up." Castiglione

also observed some of Premier's heaters at various businesses and noticed they were

"pretty beat up," "dented," and "rusty." Further, Owen stated that Premier's business

operations did not meet his safety standards and was informed by another WestAir

employee that some of Premier's assets "looked tired."

Owen called Essey to inquire about the fire hazard associated with the heaters and

to explain that WestAir wanted to adjust the purchase price. Essey responded by stating

that he was aware of the potential fire risk and a related lawsuit, but was not concerned

4 about the valves. Owen confirmed that WestAir was concerned about the safety risks and

informed Essey that he was going to reduce the purchase price to around $500,000.

Thereafter, Owen sent Essey a letter stating WestAir was adjusting the purchase price to

$530,460 "to reflect [its] best estimate [of] the fair market value of the assets." The letter

further explained the price was adjusted because WestAir could purchase new heaters for

$368 instead of paying $500 for Premier's used heaters and WestAir was "concerned

about the risk of the quick disconnect valves [Premier was] using." Lastly, Owen

reminded Essey that under the terms of the LOI, Premier could accept or reject the

adjusted price.

Essey did not respond to Owen's letter or subsequent phone calls. Instead, Essey

asked his attorney to handle the matter. Premier's counsel then informed WestAir that the

purchase price reduction was not permitted by the LOI and WestAir's reasoning for the

reduction lacked merit. Accordingly, Premier rejected the price reduction and insisted

that WestAir complete the transaction according to the terms of the LOI. WestAir

responded by clarifying how they calculated the reduced purchase price and informing

Premier that it had prepared an APA. Essey believed the LOI was a binding contract

requiring WestAir to pay approximately $1.1 million for Premier's assets and thus,

refused to negotiate further regarding the purchase price.

In October 2008, Premier filed an action against WestAir for breach of contract

and breach of the implied covenant of good faith and fair dealing. The case was tried

before a jury in August 2010. The jury returned a verdict in favor of WestAir, finding,

among other things, that there was a contract between the parties, WestAir did all or

5 substantially all of the things the contract required it to do, all conditions had occurred

that required WestAir's performance, and WestAir did not fail to do something required

by the contract.

DISCUSSION

I. Alleged Instructional Error

A. Additional Background

During the jury instruction conference, the parties disagreed about a special

instruction relating to the satisfaction clause in the contract. WestAir requested the jury

be instructed to decide whether it was "honestly and genuinely dissatisfied with the

condition of the assets and whether it honestly and genuinely adjusted the purchase price

to its belief of the fair market value for those assets." Premier argued for a

"reasonableness standard" instead of a "good faith standard" because this was a

commercial transaction rather than one involving personal taste or fancy. The trial court

agreed with WestAir, reasoning that the good faith standard was appropriate because the

language in the contract at issue "reserved to the defendant in this case sole discretion as

to the value of the assets and conditions related to the condition of the assets as

inspected."

B. Analysis

Premier argues the trial court improperly instructed the jury that it could consider

whether WestAir was "honestly and genuinely" dissatisfied (i.e., a subjective test) with

the condition of certain assets and instead should have instructed the jury to consider

6 WestAir's purported dissatisfaction based on a "reasonable person" standard (i.e., an

objective test).

"A party is entitled upon request to correct, nonargumentative instructions on

every theory of the case advanced by him which is supported by substantial evidence."

(Soule v. General Motors Corp. (1994) 8 Cal.4th 548, 572.) However, it is the duty of

counsel for the respective parties to propose complete and correct instructions on all legal

theories advanced in the case. (See Willden v. Washington Nat. Ins. Co. (1976) 18 Cal.3d

631, 636.) "Instructions should state rules of law in general terms and should not be

calculated to amount to an argument to the jury in the guise of a statement of law."

(Fibreboard Paper Products Corp. v. East Bay Union of Machinists (1964) 227

Cal.App.2d 675, 718.) Therefore, our inquiry is whether the special instruction correctly

and completely stated the law applicable to the satisfaction clause at issue in this case.

"When, as here, a contract provides that the satisfaction of one of the parties is a

condition precedent to that party's performance, two different tests are recognized: (1) the

party may make a purely subjective decision but it must be made in good faith; or (2) the

party must make the decision in accordance with an objective standard of

reasonableness." (Storek & Storek, Inc. v. Citicorp Real Estate, Inc. (2002) 100

Cal.App.4th 44, 58–59 (Storek).) "The choice of objective or subjective test to evaluate a

promisor's satisfaction depends upon the intent of the parties, as expressed in the

language of the contract. In the absence of a specific expression in the contract or one

implied from the subject matter, the preference of the law is for the less arbitrary

reasonable person standard. [Citations.] The reasonableness test is especially preferable

7 when factors of commercial value or financial concern are involved, as distinct from

matters of personal taste." (Id. at pp. 59–60.) "When a promisor has the power under a

contract to make a purely subjective decision, that decision must be made in 'good faith,'

but the courts will not examine its 'reasonableness.' " (FEI Enterprises, Inc. v. Yoon

(2011) 194 Cal.App.4th 790, 800.) "While contracts making the duty of performance of

one of the parties conditional upon his satisfaction would seem to give him wide latitude

in avoiding any obligation . . . , such 'satisfaction' clauses have been given effect."

(Mattei v. Hopper (1958) 51 Cal.2d 119, 122–123.)

Premier contends the objective standard was applicable in this case because

"Westair's satisfaction was tied to its evaluation of the operative fitness and/or

mechanical utility of the assets" rather than its fancy, taste or judgment. (Boldface

omitted.) In making this argument, Premier gives little weight to the language of the

LOI. Although the preference in the law is generally the objective or "reasonable person

standard," we must look to the intent of the parties as expressed in their contract. (Storek,

supra, 100 Cal.App.4th at p. 60.)

The LOI gave WestAir wide latitude in adjusting the purchase price. Specifically,

it stated, "The Purchase Price shall be decreased $500 for each patio heater that is not in

good working order or rent-ready condition. If WestAir determines in its sole discretion

that the value of any other assets is less than set forth on the [asset list prepared by

Essey], it shall adjust the Purchase Price to its best estimate of fair market value for such

assets." (Italics added.) Further, the parties included conditions to closing, including

"[v]erification, to the satisfaction of WestAir regarding . . . [t]he condition of all [a]ssets."

8 (Italics added.) This language demonstrated the parties intended to give WestAir broad

authority to adjust the purchase price for Premier's assets based on its best estimate of

their fair market value and to be satisfied with the condition of all assets. Accordingly,

the parties expressly gave WestAir subjective discretion in this case.

We are also not convinced by Premier's argument that WestAir's exercise of its

"sole discretion" to adjust the purchase price was limited to assets other than the patio

heaters. "[L]anguage in a contract must be construed in the context of that instrument as

a whole, and in the circumstances of that case." (Producers Dairy Delivery Co. v. Sentry

Ins. Co. (1986) 41 Cal.3d 903, 916, fn. 7.) "The whole of a contract is to be taken

together, so as to give effect to every part, if reasonably practicable, each clause helping

to interpret the other." (Civ. Code, § 1641.) Here, although the provision giving WestAir

sole discretion to adjust the purchase price referenced "any other assets," it also referred

to the asset list prepared by Essey, which included the patio heaters. Given this language

and the parties allowing WestAir to verify the condition of all assets to its satisfaction

before closing, it is clear that the parties intended to give WestAir broad discretion

including as to the patio heaters. Thus, we reject Premier's argument.

Based on the foregoing, the trial court did not err in instructing the jury on the

subjective standard as applied to the LOI's satisfaction clause.

II. Substantial Evidence Supported the Jury's Findings

A. Standard of Review

Premier's challenges to the jury's factual findings and conclusions, express or

implied, are reviewed under the substantial evidence standard of review. (SFPP v.

9 Burlington Northern & Santa Fe Ry. Co. (2004) 121 Cal.App.4th 452, 462.) Under this

standard, we review the entire record to determine whether there is substantial evidence

supporting the jury's factual determinations (Bowers v. Bernards (1984) 150 Cal.App.3d

870, 873–874), viewing the evidence and resolving all evidentiary conflicts in favor of

the prevailing party and indulging all reasonable inferences to uphold the judgment

(Jordan v. City of Santa Barbara (1996) 46 Cal.App.4th 1245, 1254–1255 (Jordan)).

The issue is not whether there is evidence in the record to support a different finding, but

whether there is some evidence that, if believed, would support the findings of the trier of

fact. (Rupf v. Yan (2000) 85 Cal.App.4th 411, 429–430, fn. 5.) Credibility is an issue of

fact for the trier of fact to resolve (Johnson v. Pratt & Whitney Canada, Inc. (1994) 28

Cal.App.4th 613, 622) and the testimony of a single witness, even a party, is sufficient to

provide substantial evidence to support a factual finding (In re Marriage of Mix (1975)

14 Cal.3d 604, 614).

B. WestAir's Performance

Premier argues the jury's finding that WestAir performed all or substantially all of

its obligations under the LOI is not supported by substantial evidence. Specifically,

Premier contends WestAir failed to meet its obligations under the LOI because WestAir

did not provide Premier with "information about the adjusted fair market value of any

specific assets." Premier's argument is unavailing.

In making its argument, Premier focuses on Owen's testimony that he prepared a

spreadsheet with adjusted asset values to determine the new purchase price for Premier's

assets. Premier describes the spreadsheet as " 'phantom' documentation" and contends

10 Owens testimony about the creation of the spreadsheet was contrary to his deposition

testimony in which he stated he did not have any documentation on how he arrived at the

adjusted price of $530,460. Owen's deposition testimony was presented to the jury and

we presume the jury considered it. Weaknesses, conflicts, and inconsistencies in the

evidence were for the jury to evaluate and our task on appeal is to determine whether any

reasonable trier of fact could have reached the same conclusion as the jury did. Premier's

citation to evidence from which a jury could have drawn a different conclusion is nothing

more than an invitation to reweigh the credibility of the witnesses, something we cannot

do in assessing the sufficiency of evidence.

Further, Premier ignores other evidence in the record from which the jury could

reasonably conclude WestAir complied with its obligation to provide its best estimate of

the fair market value of the assets to Premier. Notably, Owen sent Essey a letter stating

WestAir was adjusting the purchase price to $530,460 "to reflect [its] best estimate [of]

the fair market value of the assets." Thereafter, WestAir's counsel clarified how WestAir

calculated the reduced purchase price. Further, when presented with his deposition

testimony, Owen stated he worked with Premier on everything during the negotiations

and "it was pretty much open." Based on this evidence, the jury could have reasonably

concluded WestAir did all or substantially all of the things it was required to do under the

LOI. Accordingly, we decline to reweigh the evidence and credibility of the witnesses

and overturn the jury's verdict.

11 C. Good Faith

Premier argues the jury's finding that WestAir acted in good faith is not supported

by substantial evidence. We disagree.

In making its argument, Premier focuses on the absence of evidence showing

WestAir consulted with outside sources to determine the fair market value of Premier's

assets. However, the LOI did not require WestAir to consult with outside sources for its

asset valuation. Rather, the LOI allowed WestAir to adjust the price based on "its best

estimate of fair market value" and verify the condition of the assets to "[its] satisfaction."

(Italics added.) Regardless, WestAir did consult with Universal Propane about the quick

disconnect valves and learned they were outdated and had safety issues. WestAir also

compared the price of Premier's heaters to new Teeco heaters, which they could purchase

for $368.

Further, Premier ignores other evidence demonstrating WestAir acted in good

faith. Notably, Owen testified he attempted to negotiate and act in good faith at all times

with Essey. After Owen sent Essey a letter indicating the reduced purchase price, he

called Essey numerous times and did not get a response. Castiglione also testified he

believed the LOI permitted WestAir to "do its due diligence and investigate all of the

parts of [Premier's] business." Castiglione went on to state he believed "in good faith"

that the value of Premier's assets was only approximately $500,000 and he would have

continued discussions if Essey would have returned WestAir's calls. Arguably, Premier

thwarted WestAir's ability to continue negotiations and provide further explanation

regarding the adjusted purchase price.

12 Premier is again asking us to reweigh the evidence in its favor. However, we must

review the entire record, viewing the evidence and resolving all evidentiary conflicts in

favor of WestAir and indulging all reasonable inferences to uphold the judgment.

(Jordan, supra, 46 Cal.App.4th at pp. 1254–1255.) Based on the evidence presented at

trial, a reasonable jury could conclude WestAir acted in good faith and we will not

disturb that finding on appeal.

DISPOSITION

The judgment is affirmed. WestAir is entitled to its costs on appeal.

MCINTYRE, Acting P. J.

WE CONCUR:

O'ROURKE, J.

IRION, J.