Filed 12/18/13 Ghilotti Brothers v. Monahan Pacific CA1/3
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              IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                       FIRST APPELLATE DISTRICT

                                                DIVISION THREE


GHILOTTI BROTHERS, INC.,
         Plaintiff, Cross-defendant and
         Respondent,                                                      A129562

v.                                                                        (Marin County
MONAHAN PACIFIC CORPORATION, et                                            Super. Ct. No. CV060168)
al.,
         Defendants, Cross-complainants and
         Appellants.


         Ghilotti Brothers, Inc. (Ghilotti) sued defendants Larkspur Capital Partners, LLC
(Larkspur Partners) and Monahan Pacific Construction Corporation (Monahan
Construction), seeking damages for breach of contract relating to certain work performed
by Ghilotti on the Drake’s Cove project site in the City of Larkspur. Larkspur Partners
and Monahan Construction jointly cross-claimed against Ghilotti seeking damages for
gross negligence, breach of contract, negligence, deceit, and contractual indemnification.
Monahan Pacific Corporation (Monahan), the managing member of Larkspur Partners,
filed a separate cross-action against Ghilotti seeking damages for gross negligence,
breach of contract, and contractual indemnification. After a jury rendered a verdict in
favor of Ghilotti on its claim of breach of contract, the court entered an amended
judgment on November 12, 2010, awarding Ghilotti the principal sum of $1,065,438.36,
and prejudgment interest of $500,234.50. The court entered a separate order on
November 12, 2010, dismissing Monahan’s cross-action against Ghilotti.


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       On their appeals Larkspur Partners, Monahan Construction, and Monahan seek
reversal based on the trial court’s rulings on two motions in limine. We conclude the trial
court properly granted Ghilotti’s motion in limine to strike Monahan’s cross-action on the
ground Monahan lacked standing to pursue a tort claim of gross negligence against
Ghilotti. We also conclude the trial court did not err in denying the motion in limine by
Larkspur Partners and Monahan Construction seeking to bar parol evidence concerning
the terms of the Ghilotti/Monahan Construction standard form contract. Accordingly, we
affirm the order of dismissal of Monahan’s cross-action against Ghilotti, and the
amended judgment in favor of Ghilotti.1

                 FACTUAL AND PROCEDURAL BACKGROUND2
       “[S]ince well before 2003,” Monahan, the managing member of Larkspur
Partners, a limited liability company, has been engaged in building a residential
subdivision on the Drake’s Cove project site that was owned by Larkspur Partners.
Monahan entered into an agreement with Monahan Construction, a separate entity and
licensed contractor, to develop the project site. Thereafter, in May 2004, Monahan
Construction entered into a subcontract with Ghilotti in which Ghilotti agreed to perform
certain work at the project site, including grading, paving, and the installation of certain
utilities, which agreement was later modified by a written change order No. 3. Ghilotti
entered into a “second tier subcontract” with another contractor to remove trees, stumps,
and brush from the project site.
       At trial Ghilotti contended Monahan Construction breached the parties’ May 2004
contract, as modified by change order No. 3, by failing to pay it for amounts due and
owing for work performed on the project site. Monahan Construction contended Ghilotti


1
       The amended judgment entered November 12, 2010, superseded a judgment
entered June 8, 2010, and an order entered August 9, 2010. Accordingly, we dismiss
appellants’ separate appeals from the judgment entered June 8, 2010, and the order
entered August 9, 2010.
2
       We set forth only those facts as are necessary to resolve the issues raised on this
appeal.


                                              2
breached the parties’ agreements by failing to timely perform the work pursuant to the
contract terms and by negligently performing the work. Larkspur Partners contended that
although it was not a party to the Ghilotti/Monahan Construction agreements, it was
entitled to damages as an intended third-party beneficiary.
       The jury returned a verdict in favor of Ghilotti on its breach of contract claim
against Larkspur Partners and Monahan Construction, and found no merit to the breach of
contract claim by Larkspur Partners and Monahan Construction against Ghilotti. The
jury also found Ghilotti was negligent but its negligence was not a substantial factor in
causing harm to Larkspur Partners and Monahan Construction.
                                       DISCUSSION
I.     Trial Court’s Grant of Ghilotti’s Motion in Limine to Dismiss Monahan’s
       Cross-Action for Gross Negligence
       A.    Relevant Facts
       Before trial Ghilotti filed a motion in limine seeking to strike Monahan’s cross-
action for lack of standing to sue on the ground that Monahan’s alleged injuries “flow[ed]
to the limited liability company [Larkspur Partners], as owner/developer, and not to its
managing member.” Monahan opposed the motion, arguing it had standing to seek to
recover for its own losses caused by Ghilotti’s alleged “negligence, grossly intentional
conduct.”
       The trial court granted the motion in limine to strike Monahan’s cross-action. In
so ruling, the court explained: “This isn’t a slander action. This is, more or less, a
contract action. I don’t think Monahan Pacific Corporation does have standing to pursue
any claims in this lawsuit. [¶] Its only allegations are that it’s the managing member of
Larkspur Capital Partners. Larkspur Capital Partners, certainly, has standing to prosecute
this lawsuit . . . . [¶] As an LLC, Monahan Pacific Corporation does not own Larkspur
Capital’s assets. It lacks standing to sue in its own behalf for claims belonging to
Larkspur Capital Partners.”




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       B.     Analysis
       Monahan seeks reinstatement of its cause of action for gross negligence, arguing it
has standing to assert that claim on its own behalf against Ghilotti and its claim was not a
derivative one that belonged only to Larkspur Partners. We disagree, and conclude the
trial court properly dismissed Monahan’s cross-action for lack of standing to sue Ghilotti.
       “In 1994, the Legislature enacted Corporations Code sections 17000-17655
governing limited liability companies. The law incorporates provisions of the
Corporations Code. [¶] ‘A limited liability company is a hybrid business entity formed
under the Corporations Code and consisting of at least two ‘members’ [citation] who own
membership interests [citation]. The company has a legal existence separate from its
members. Its form provides members with limited liability to the same extent enjoyed by
corporate shareholders [citation], but permits the members to actively participate in the
management and control of the company [citation.]’ ” (PacLink Communications
Internat., Inc. v. Superior Court (2001) 90 Cal.App.4th 958, 963 (PacLink).) Also,
“[l]ike corporate shareholders, members of a limited liability company hold no direct
ownership interest in the company’s assets.” (Denevi v. LGCC, LLC (2004) 121
Cal.App.4th 1211, 1214, fn. 1 (Denevi); see Corp. Code, § 17300 3.) “Because members
of the [limited liability company] hold no direct ownership interest in the company’s
assets (Corp. Code, § 17300), the members cannot be directly injured” when the
company’s property is injured. (PacLink, supra, at p. 964, fn. omitted.)
       Pertinent to our discussion, the courts have applied the law of corporations to a
limited liability company with regard to a member’s right to sue third persons. “In
determining whether an individual action as opposed to a derivative action lies [against
third persons], a court looks at ‘the gravamen of the wrong alleged in the pleadings.’ ”
(PacLink, supra, 90 Cal.App.4th at p. 965, quoting from Nelson v. Anderson (1999) 72


3
       Corporation Code section 17300, reads: “A membership interest and an economic
interest in a limited liability company constitute personal property of the member or
assignee. A member or assignee has no interest in the specific limited liability company
property.” (Italics added.)


                                             4
Cal.App.4th 111, 124 (Nelson).) Where “the gravamen of the complaint is injury to the
whole body of [the LLC’s members], it [is] for the [LLC] to institute and maintain a
remedial action.” (Nelson, supra, at pp. 125-126; see Sole Energy Co. v. Petrominerals
Corp. (2005) 128 Cal.App.4th 212, 232, fn. 6 [“[t]he principle that a shareholder may not
recover individually for injury to the corporation applies equally to claims against third
persons”].)
       Turning to Monahan’s appellate assertions, we initially reject its reliance on the
general rule that a member of a limited liability company may pursue both derivative and
individual claims. (See Denevi, supra, 121 Cal.App.4th at p. 1221.) While this is a
correct statement of the general rule, it is not applicable in this case. Monahan’s gross
negligence claim against Ghilotti is not “based on contract to which [Monahan] is a party,
or on a right belonging severally to [Monahan], or on a fraud affecting [Monahan]
directly . . . ,” or on defamation. (Sutter v. General Petroleum Corp. (1946) 28 Cal.2d
525, 530.) Rather, the allegations of gross negligence are based solely on Ghilotti’s
performance or nonperformance of its work at the project site.4 Ghilotti’s “obligations


4
        In its second amended cross-complaint, Monahan set forth in 39 numbered
paragraphs its version of the events that resulted in this litigation, repeatedly alleging it
was acting as the managing member of Larkspur Partners both before, during, and after
the time that Ghilotti performed work at the Drake’s Cove project site. In a separate
paragraph number 40, Monahan set forth the following “special allegations”: “As a result
of [Ghilotti’s] grossly negligent acts, [Monahan] was cause to itself directly suffer injury
and legally compensable damages as set forth herein. [Monahan] has been directly
damaged by loss to its business reputation on account of [Ghilotti’s] acts in destroying
over 100 trees on and about Drake’s Cove and by [Ghilotti] conducting unpermitted
grading on the site. [Monahan] itself was named in the largest newspaper in circulation
in Marin County in a story appearing on the front page, describing a public outrage
against [Monahan] as being responsible for the unpermitted destruction of heritage and
non-heritage trees in the Drake’s Cove project. [Monahan] itself was reviled in the press
and in public hearings before duly constituted City of Larkspur boards and agencies, for
[Ghilotti’s] unlawful tree destruction and for [Ghilotti’s] grading on the site at Drake’s
Cove without a permit. [Ghilotti] performed all of the acts which were incorrectly
attributed to [Monahan]. The damage to [Monahan] was not incidental to that of
Larkspur Partners but was directly incurred by [Monahan], as a result of [Monahan] itself
being publicly singled out, whereas Larkspur Partners was not itself identified in the

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[if] violated were duties” owed to the owner of the project site Larkspur Partners, not
Monahan. (Nelson, supra, 72 Cal.App.4th at p. 125.) Monahan’s purported injuries only
arose after Larkspur Partners suffered injury from Ghilotti’s alleged misconduct, starting
with its September 2003 conduct of allegedly unpermitted grading and removal of trees
on the project site. Consequently, Monahan’s individual claim of gross negligence is not
“temporally distinct” from the similar claim unsuccessfully pursued by Larkspur Partners
at trial in this litigation. (Denevi, supra, 121 Cal.App.4th at p. 1222.)
       Monahan also argues it may pursue an individual claim for gross negligence
against Ghilotti based on a May 27, 2003, Letter of Intent, drafted by Ghilotti, regarding
the work it proposed to perform at the project site. According to Monahan, the letter
describes a “partnering agreement,” “suggesting a fiduciary relationship” between
Monahan and Ghilotti, which is much earlier and different from Ghilotti’s purely
contractual relationship with Larkspur Partners. However, before Ghilotti “can be
charged with a fiduciary obligation, [it] must either knowingly undertake to act on behalf
and for the benefit of another, or must enter into a relationship which imposes that
undertaking as a matter of law.” (Committee on Children’s Television, Inc. v. General
Foods Corp. (1983) 35 Cal.3d 197, 221.) Neither situation exists in this case. The May
27, 2003, letter was not an agreement between “Ghilotti and Monahan, alone;” it was
signed by a representative of Ghilotti and a representative of Monahan, as the managing
member of Larkspur Partners, and not as a separate entity to which Ghilotti owed any
duties, fiduciary or otherwise.
       Nor do we see any merit to Monahan’s argument that it may pursue an individual
claim for gross negligence against Ghilotti because “[e]ven when aspects of Ghilotti’s


articles. [Monahan] was likewise harmed in its relations with the City of Larkspur and
with all Marin governmental agencies, and it was prevented from conducting its regular
business of development due to the public outrage arising from [Ghilotti’s] acts alleged
herein.” In paragraph number 47, Monahan also alleged it had suffered damages “to its
business reputation and has been curtailed in its ability to develop other properties in
Larkspur and in Marin County, suffered loss of community esteem, and loss of business
goodwill, all in an amount expected to exceed $5,000,000.”


                                              6
misconduct caused injury to all three appellants, [Ghilotti] caused different injury to
Monahan because of its unique business.” “The test is not whether [Monahan’s] damages
were unique, as [its] argument suggests. . . .” (Nelson, supra, 72 Cal.App.4th at p. 124.)
A “cause of action is individual, not derivative, only ‘ “where it appears that the injury
resulted from the violation of some special duty owned to [the member of the liability
company] by [a third person] and having its origin in circumstances independent of [the
member’s] status.” ’ ” (Ibid.) Here, Monahan’s cross-action consists only of allegations
that at all relevant times in its relations with Ghilotti, Monahan was acting in its status as
the managing member of Larkspur Partners, and not as separate entity to which Ghilotti
owed any duties, special or otherwise.
       Accordingly, we reject Monahan’s request to reinstate its cause of action against
Ghilotti for gross negligence as Monahan lacked standing to pursue that claim, which was
in every “sense derivative of [its] status as [the managing member] of” Larkspur Partners.
(Denevi, supra, 121 Cal.App.4th at p. 1222.) Therefore, the order of dismissal of
Monahan’s cross-action against Ghilotti must be affirmed.

II.    Trial Court’s Denial of Motion in Limine to Exclude Parol Evidence
       A.     Relevant Facts
       Before trial, Larkspur Partners and Monahan Construction (hereafter referred to as
appellants) filed a joint motion in limine seeking a preliminary fact hearing to bar parol
evidence on the meaning of the Ghilotti/Monahan Construction standard form contract.
According to appellants, the contract terms were so specific that Ghilotti should not be
allowed to introduce parol evidence that would either expressly or impliedly contradict
the terms. Ghilotti opposed the motion, arguing that the evidence produced in discovery
mandated that parol evidence be admitted to resolve the parties’ contract dispute.
       At the pretrial hearing on the matter, the trial court initially announced its tentative
ruling on appellants’ motion: “Next, ‘Exclusion of parol evidence or [Evidence Code
section] 402 hearing regarding admissibility of parol evidence.’ . . . I don’t need a 402
hearing in order to rule on this one. [¶] The defense statement, ‘To exclude parol
evidence will shorten the trial,’ is clearly true . . . . But I really have no choice but to

                                                7
deny this motion. [¶] It’s evident that the parties’ written contracts can only be construed
in view of their interpretation at the time of their conduct, city officials’ conduct, other
people’s conduct, other documentary evidence, and the parties’ admissions. [¶] . . . [¶]
We all know [Code of Civil Procedure] Section 1856 [the general parol evidence statute]
contains numerous exceptions. I find that Subsections (b), (c), (e) and (f) may apply
here. Moreover, [Ghilotti] is entitled to offer evidence of defendant’s conduct in
connection with [its] estoppel defense.”
       Appellants disagreed with the court’s tentative ruling, arguing that parol evidence
should be barred “because the words of the contract are so clear.” In opposition, Ghilotti
argued appellants had “cherry-picked” phrases out of the contract without “any factual
background at all,” and that parol evidence should be allowed as to the parties’ intent and
interpretation of any contract terms, and what the parties actually did to comply with the
contract terms. In reply, appellants conceded they had no objection to Ghilotti presenting
evidence as to what the parties did or what happened in the case. Rather, appellants were
only asking that the court preclude Ghilotti from arguing to the jury that appellants had
certain obligations that were contrary to the express terms of the standard form contract.
       The court replied that its ruling was limited to allowing in “parol evidence. That
doesn’t mean the piece of parol evidence is going to come in. It’s arguable, this isn’t
really a proper motion in limine at all. . . . [¶] . . . [¶] In this case, in my opinion, having
read all these briefs, it’s just not that simple. . . . So request for ruling excluding all parol
evidence about this contract is denied for the reasons I’ve now stated.”

       B.      Analysis
       Code of Civil Procedure section 1856, the general parol evidence statute, provides,
in pertinent part, that: “(a) Terms set forth in a writing intended by the parties as a final
expression of their agreement with respect to such terms as are included therein may not
be contradicted by evidence of any prior agreement or of a contemporaneous oral
agreement. [¶] (b) The terms set forth in a writing described in subdivision (a) may be
explained or supplemented by evidence of consistent additional terms unless the writing
is intended also as a complete and exclusive statement of the terms of the agreement. [¶]

                                                8
(c) The terms set forth in a writing described in subdivision (a) may be explained or
supplemented by course of dealing or usage of trade or by course of performance. [¶] . . .
[¶] (e) Where a mistake or imperfection of the writing is put in issue by the pleadings,
this section does not exclude evidence relevant to that issue. [¶] (f) Where the validity of
the agreement is the fact in dispute, this section does not exclude evidence relevant to that
issue. [¶] (g) This section does not exclude other evidence of the circumstances under
which the agreement was made or to which it relates, as defined in Section 1860, or to
explain an extrinsic ambiguity or otherwise interpret the terms of the agreement, or to
establish illegality or fraud.” 5
       Appellants argue the trial court’s in limine ruling was erroneous as a matter of law
because the Ghilotti/Monahan Construction standard form contract terms were so specific
as to preclude parol evidence regarding any oral agreement that would contradict the
contract terms. We disagree. Ghilotti’s theories at trial were that it had either (1)
complied with the contract terms, or (2) the contract terms were modified by either
waiver or estoppel after the execution of the contract and before any dispute arose
regarding the contract terms. As to both theories, parol evidence of the parties’ course of
conduct was admissible to resolve “what the parties understood and intended” the
contractual terms to mean. (City of Hope National Medical Center v. Genentech, Inc.
(2008) 43 Cal.4th 375, 393.) Despite the fact that the parties’ contract excluded
modifications except by a signed writing, that provision did not preclude Ghilotti from
proffering parol evidence of waiver or estoppel by the parties’ conduct inconsistent with
the contract terms. (See Civ. Code § 16986; Diamond Woodworks, Inc. v. Argonaut Inc.

5
       On August 13, 2013, the Legislature amended Evidence Code section 1856 to
make nonsubstantial changes in the language of certain subdivisions, and to include trust
instruments in the definition of the term “agreement.” (Stats. 2013, ch. 81, § 1 [2013-
2014 Reg. Sess.].) The amendment will become effective January 1, 2014. (Gov. Code,
§ 9600.)
6
       Civil Code section 1698 reads: “(a) A contract in writing may be modified by a
contract in writing. [¶] (b) A contract in writing may be modified by an oral agreement to
the extent that the oral agreement is executed by the parties. [¶] . . . [¶] (d) Nothing in this
section precludes in an appropriate case the application of rules of law concerning

                                               9
Co. (2003) 109 Cal.App.4th 1020, 1037-1038 [modification by waiver], disapproved on
other grounds in Simon v. San Paolo U.S. Holding Co. Inc. (2005) 35 Cal.4th 1159, 1182-
1183; Conley v. Matthes (1997) 56 Cal.App.4th 1453, 1466 [modification by estoppel];
Frank T. Hickey, Inc. v. Los Angeles Jewish Community Council (1954) 128 Cal.App.2d
676, 682-683 [modification by waiver].) Because we see no error in the trial court’s in
limine ruling, we must affirm the amended judgment in favor of Ghilotti. 7

                                     DISPOSITION
       The appeals from the June 8, 2010 judgment and the August 9, 2010 order are
dismissed. The November 12, 2010 amended judgment and the November 12, 2010




estoppel, oral novation and substitution of a new agreement, rescission of a written
contract by an oral agreement, waiver of a provision of a written contract, or oral
independent collateral contracts.”
7
        Appellants also argue that because Ghilotti was contractually obligated to obey the
law, the standard form contract could not be construed otherwise, “[e]ven if the contract
could be construed to relieve Ghilotti of its obligation to obey the law, whether by parol
evidence or otherwise . . . .” In support of its argument appellants rely on Civil Code
section 3513, which reads: “Any one may waive the advantage of a law intended solely
for his benefit. But a law established for a public reason cannot be contravened by a
private agreement.” However, we are not here concerned with a private agreement that
contravened the law. At issue here is “ ‘[t]he general principle[, which] remains
unaltered that “there is no public policy which ‘ “opposes private, voluntary transactions
in which one party, for a consideration, agrees to shoulder a risk which the law would
otherwise have placed upon the other party . . . .” ’ [Citations.]” ’ ” (Benedek v. PLC
Santa Monica (2002) 104 Cal.App.4th 1351, 1359.) Azteca Construction, Inc. v. ADR
Consulting, Inc. (2004) 121 Cal.App.4th 1156, which concerned the disqualification of
arbitrators, is factually distinguishable from this case, and does not support appellants’
argument that “even if the meaning of the contract were in any doubt, settled law bars the
construction advocated by Ghilotti.”


                                            10
order dismissing the cross-action of Monahan Pacific Corporation are affirmed. Ghilotti
Brothers, Inc. is awarded costs on appeal.



                                                  _________________________
                                                  Jenkins, J.


We concur:


_________________________
Pollak, Acting P. J.


_________________________
Siggins, J.




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