Avidity Partners, LLC v. State

• Citation: 165 Cal.Rptr.3d 299,221 Cal.App.4th 1180
• Decision Date: 12 March 2014
• Docket Number: C070255
• Court: California Court of Appeals
• Parties: AVIDITY PARTNERS, LLC, as Trustee, etc., Plaintiff and Appellant, v. STATE of California, Defendant and Respondent.

221 Cal.App.4th 1180

165 Cal.Rptr.3d 299

AVIDITY PARTNERS, LLC, as Trustee, etc., Plaintiff and Appellant,

v.STATE of California, Defendant and Respondent.

C070255

Court of Appeal, Third District, California.

Filed December 4, 2013

Review Denied March 12, 2014

See 1 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts, § 798 et seq.

APPEAL from a judgment of the Superior Court of Sacramento County, Raymond Cadei, Judge. Affirmed. (Super. Ct. No. 34–2009–00042016–CU–BC–GDS)

Pillsbury WinthropShaw Pittman, Robert L. Wallan, Los Angeles, John M. Grenfell, San Francisco, and Kimberly L. Buffington, Los Angeles, for Plaintiff and Appellant.

Kamala D. Harris, Attorney General, Kathleen A. Kenealy, Senior Assistant Attorney General, Robert W. Byrne, Denise Ferkich Hoffman, Supervising Deputy Attorneys General, Daniel S. Harris and Jan Zabriskie, Deputy Attorneys General for Defendant and Respondent.

BLEASE, Acting P.J.

This case involves the historic Headwaters Agreement (Agreement) between Pacific Lumber Company (Pacific Lumber), the federal government, and the State of California (defendant or State) pursuant to which Pacific Lumber transferred 7,000 acres of old growth redwood forestland to State in exchange for other forestland and $495.5 million dollars. The Agreement was negotiated over the course of three years and included specified regulatory approvals required for Pacific Lumber's harvest of its forestland. The complaint was originally filed by Pacific Lumber and Scotia Pacific Company, LLC, a wholly owned subsidiary of Pacific Lumber. Plaintiff Avidity Partners, LLC, (Avidity) is the litigation trustee for the bankruptcy estate of Scotia Pacific Company, LLC.

Avidity's complaint for damages for breach of contract is based upon the claim that defendant State promised Pacific Lumber it would be able to harvest the trees on its remaining 211,000 acres of timberland at an average level of 176.2 million board feet per year during the first decade of the Agreement. The breach of the covenant of good faith and fair dealing claim is based upon Avidity's argument that in order for Pacific Lumber to harvest at that rate, defendant had to consider and approve Pacific Lumber's timber harvest plans in a timely manner, and that the delay in processing the timber harvest plans denied Pacific Lumber the contemplated benefits of the Agreement. Avidity's promissory estoppel claim is an alternative claim, by which Avidity argues State's promises can be enforced even if we determine the promises were not supported by consideration.

Avidity's arguments are based on the premise that the State has exercised its legislative and environmental powers to circumvent the promises made to it by the State in the Agreement, thereby breaching the Agreement and entitling it to damages. (United States v. Winstar Corp. (1996) 518 U.S. 839, 116 S.Ct. 2432, 135 L.Ed.2d 964 (Winstar ).) We find it unnecessary to reach these arguments because the State's contracts with Pacific Lumber do not contain a promise that Pacific Lumber could harvest at the rate of 176.2 million board feet per year for the first ten years.

The trial court granted State's motion for summary judgment. Avidity appeals from the ensuing judgment.

We shall affirm the judgment. The express terms of the Agreement do not promise Pacific Lumber a particular harvest level. The covenant of good faith and fair dealing does not operate to supply a term that the express contract does not otherwise contain. The term Avidity seeks to imply, a guaranteed harvest level, was specifically rejected in negotiations.¹ Moreover, such term is not necessary to prevent the Agreement from being illusory or unenforceable. Finally, the claim of promissory estoppel fails because Pacific Lumber's alleged reliance was the bargained-for consideration it promised as its part of the Agreement, making this case unsuited to a claim of promissory estoppel.

FACTUAL AND PROCEDURAL BACKGROUND ²

We begin with a few background facts as related in the Supreme Court opinion Environmental Protection Information Center v. California Dept. of Forestry & Fire Protection (2008) 44 Cal.4th 459, 80 Cal.Rptr.3d 28, 187 P.3d 888( EPIC ), an earlier case arising out of the Agreement. Pacific Lumber owned “approximately 211,000 acres of timberland in Humboldt County that have been used for commercial timber production for some 120 years. In 1986 Pacific Lumber was acquired by Maxxam Incorporated, and in order to pay off Maxxam's debt for the buyout, Pacific Lumber began cutting down old growth redwoods at a faster rate than ever before. The deforestation led to litigation and considerable local protest. [¶] In the 1990's, as a result of federal and state litigation, Pacific Lumber was enjoined from harvesting a particular stand of old growth timber that served as the habitat for the marbled murrelet, an endangered bird. Pacific Lumber, in turn, filed lawsuits alleging an unlawful taking by the state and federal governments of the land declared unusable for timber production and harvesting. [¶] To resolve the existing controversies, Pacific Lumber entered into the Headwaters Agreement of 1996 with the State of California and the United States. The Agreement provided for the sale of some 7,000 acres of Pacific Lumber's timberland to the federal government and the State of California, and for Pacific Lumber to obtain ... various regulatory approvals ... for its remaining 211,000 acres.” (EPIC, supra, 44 Cal.4th at pp. 472–473, 80 Cal.Rptr.3d 28, 187 P.3d 888.)

The Agreement contemplated the approval of a Habitat Conservation Plan (HCP), an Incidental Take Permit (ITP), and a Sustained Yield Plan (SYP). The approvals expressly contemplated by the Agreement did not include a Timber Harvest Plan (THP). As explained in EPIC, “A[n SYP] is a kind of master plan for logging a large area, authorized by statute (Pub. Resources Code, § 4551.3) and regulation (Cal.Code Regs., tit. 14, §§ 1091.1–1091.14), designed to achieve the Forest Practice Act's objective of obtaining the maximum timber harvest consistent with various short- and long-term environmental and economic objectives. (Z'berg–Nejedly Forest Practice Act of 1973; Pub. Resources Code, § 4511 et seq.) ... [T]he SYP does not replace the more specific timber harvest plan (THP), but inasmuch as the SYP adequately analyzes pertinent issues, a THP may rely on that analysis. Although SYP's are usually voluntary at the option of the landowner, in this case the SYP was required by the Headwaters Agreement.³” ( EPIC, supra, 44 Cal.4th at p. 471, 80 Cal.Rptr.3d 28, 187 P.3d 888, fn. omitted.)

“Also required ... under federal law was a[n HCP]. Although the ‘taking’ of a federally listed endangered species, i.e., the killing, capturing or harming of such species (16 U.S.C. § 1532(19)), is generally unlawful ( id., § 1538), a permit for the taking of a species incidental to an otherwise lawful activity, known as an [ITP], may be issued when an applicant submits to the Secretary of the Interior a[n HCP]. (16 U.S.C. § 1539(a)(2)(A).) The plan is to specify, among other things, the impacts that will likely result from the taking and the steps the applicant intends to employ to minimize and mitigate those impacts. ( Ibid.) ... In addition to a federal [ITP], Pacific Lumber in this case was required to obtain a state [ITP] for species listed as endangered or threatened under the California Endangered Species Act (Fish & G.Code, § 2050 et seq.). [¶] In conjunction with approval of the HCP, the United States Fish and Wildlife Service, Pacific Lumber, and various state agencies entered into an Implementation Agreement for the HCP, defining the obligations of each party under the HCP.” (EPIC, supra, 44 Cal.4th at pp. 471–472, 80 Cal.Rptr.3d 28, 187 P.3d 888.) The deadline for obtaining the regulatory approvals necessary to close the Agreement was March 1, 1999. (EPIC, supra, at p. 470, 80 Cal.Rptr.3d 28, 187 P.3d 888.)

The 1996 Agreement was entered into by Maxxam, Inc., Pacific Lumber, the United States, and the State, and was signed on behalf of the State by Douglas Wheeler, who was then the Secretary of Resources. The Implementation Agreement was entered into by various agencies of the federal government, California's Department of Fish and Game,⁴ California's Department of Forestry and Fire Protection (CDF),⁵ and Pacific Lumber. A letter of approval (the Approval Letter) was sent to Pacific Lumber's president and CEO by Richard Wilson, the Director of CDF on March 1, 1999.

Escrow instructions for the Agreement were executed on February 28, 1999. The instructions required that the parties deposit into escrow, inter alia, the Implementation Agreement, the Agreement, the SYP, and the HCP. These documents, together with the Approval Letter are the documents on which Pacific Lumber relies in this action.

General Allegations

Avidity's second amended complaint alleged the following. The federal and state agencies provided written assurances that the implementation of the HCP and SYP would allow harvest levels that were acceptable to Pacific Lumber, and that the harvest level in the SYP was “approved at 176.2 mmbf [ (million board feet) ]” per year. Avidity also alleged that since 1987, the state and regional water boards have waived waste discharge requirements (WDR's) for timber harvesting, and have taken the position that timber harvesting operations were not subject to WDR's because the Forest Practice Rules constituted best management practices. Avidity claims this position was relied upon by the parties in negotiating and carrying out the Headwaters Agreement.

A few months after the Agreement closed, the Legislature passed Senate Bill No. 390 (1999–2000 Reg. Sess.), requiring that all waivers of WDR's that were in place in 1999 to sunset on January 1, 2003, and limiting the duration of any new waivers to five years or less. (Wat.Code, § 13269.) The North Coast Regional Water...