Copenbarger v. Morris Cerullo World Evangelism, Inc.

• Decision Date: 19 October 2018
• Docket Number: G054731
• Citation: 29 Cal.App.5th 1,239 Cal.Rptr.3d 838
• Court: California Court of Appeals Court of Appeals
• Parties: Lloyd COPENBARGER, as Trustee, etc., Plaintiff and Respondent, v. MORRIS CERULLO WORLD EVANGELISM, INC. Defendant and Appellant.

29 Cal.App.5th 1

239 Cal.Rptr.3d 838

Lloyd COPENBARGER, as Trustee, etc., Plaintiff and Respondent,

v.MORRIS CERULLO WORLD EVANGELISM, INC. Defendant and Appellant.

G054731

Court of Appeal, Fourth District, Division 3, California.

Filed October 19, 2018

Galuppo & Blake, Louis A. Galuppo, Carlsbad, Steven W. Blake, Andrew E. Hall and Daniel T. Watts, Carlsbad, for Defendant and Appellant.

HamptonHolley, George L. Hampton IV, Colin C. Holley, Corona Del Mar, and Laura J. Petrie for Plaintiff and Respondent.

OPINION

FYBEL, J.

INTRODUCTION

Lloyd Copenbarger, as Trustee of the Hazel I. Maag Trust (the Maag Trust), sued Morris Cerullo World Evangelism, Inc. (MCWE) for declaratory relief and breach of a settlement agreement made to resolve various disputes, including an unlawful detainer action.¹ The Maag Trust alleged MCWE breached the settlement agreement by failing to dismiss with prejudice the unlawful detainer action and sought, as damages, attorney fees incurred in that action from the date of the settlement agreement to the date on which MCWE did dismiss the action.

Following a bench trial, the trial court found MCWE had breached the settlement agreement by not timely dismissing with prejudice the unlawful detainer action. As damages, the court awarded the Maag Trust $118,000—representing the attorney fees it claimed to have incurred during the relevant time period.

On appeal, MCWE does not challenge the finding that its failure to dismiss the unlawful detainer action constituted a breach of the settlement agreement. Instead, MCWE makes a number of arguments challenging the damages awarded. Most significantly, MCWE argues (1) the Maag Trust could not as a matter of law recover its attorney fees incurred in the unlawful detainer action as damages for breach of the settlement agreement because attorney fees are costs of suit, and (2) the Maag Trust failed to present competent evidence sufficient to prove the amount of damages.

It appears to us the Maag Trust could recover, as damages for breach of the settlement agreement, its attorney fees incurred in the unlawful detainer action. One purpose for the Maag Trust entering into the settlement agreement was to avoid continuing to run up attorney fees in the unlawful detainer action; had MCWE performed its obligations under the settlement agreement by dismissing the action, the Maag Trust would not have incurred those fees.

We reverse the judgment against MCWE, however, because there was a wholesale failure of proof of the amount of damages on the part of the Maag Trust. At trial, the Maag Trust did not attempt to authenticate as business records its attorney invoices and admit them into evidence. Nor did the Maag Trust present testimony from its attorneys, or anyone else, of billing rates and the work performed in the unlawful detainer action. The Maag Trust offered only the testimony of Lloyd Copenbarger, whose testimony about the invoices was hearsay and violated the secondary evidence rule, and who testified he did not know what the Maag Trust’s attorneys did in the unlawful detainer action. As the evidence was insufficient to support the judgment, we reverse with directions to enter judgment in favor of MCWE on the Maag Trust’s complaint.

FACTS

MCWE is the lessee of a 50-year ground lease (the Ground Lease) of real property (the Property) in Newport Beach. The Property was improved with an office building and marina (the Improvements). The Ground Lease terminates on December 1, 2018.

In 2004, MCWE subleased the Property and sold all of the Improvements to NHOM (the Sublease). The Sublease terminates on November 18, 2018. Paul Copenbarger and Kent McNaughton were the members and managers of NHOM.

To acquire the Sublease and fund the purchase of the Improvements, NHOM obtained a $1.15 million loan from Plaza del Sol Real Estate Trust (Plaza del Sol) and a $3 million loan from the Maag Trust. Lloyd Copenbarger, who is Paul Copenbarger’s brother, is the trustee of the Maag Trust. The $3 million loan from the Maag Trust was evidenced by a promissory note (the Maag Note) and secured by a first priority deed of trust on the Sublease and the Improvements (the Maag Deed of Trust). The $1.15 million loan from Plaza del Sol was evidenced by a promissory note (the Plaza del Sol Note) and secured by a second priority deed of trust on the Sublease and the Improvements (the Plaza del Sol Deed of Trust).

Starting in 2009, NHOM experienced cash flow problems due to "a shortage of rents." In July 2009, Paul Copenbarger described NHOM’s cash flow as "rather grim." Necessary maintenance and repairs were not made, and NHOM’s property manager began notifying NHOM of deferred maintenance issues at the Property. In late August 2009, the Maag Trust notified NHOM of defaults of NHOM’s obligations under the Maag Note, including failure to maintain the Property and to make timely loan payments.

In 2010, the Maag Trust offered to make NHOM’s note payments to Plaza del Sol if MCWE agreed to forbear from declaring a default of the Sublease for one year. MCWE agreed. In April 2010, Cerullo, Plaza del Sol, and the Maag Trust entered into an "Agreement re: Assignment and Transfer of Promissory Note and Deed of Trust and Ground Lease Enforcement" (the Agreement Re: Assignment). Under the terms of the Agreement Re: Assignment, the Maag Trust agreed to make certain payments on the Plaza del Sol Note, reimburse Plaza del Sol for real property taxes it paid on the Improvements and the Property, and make future payments to Plaza del Sol in an amount equal to payments due on the Plaza del Sol Note as such payments became due. MCWE and Plaza del Sol agreed not to declare a default under the Sublease on account of then-existing defaults so long as the Maag Trust made the agreed-upon payments.

In June 2011, MCWE commenced an unlawful detainer action against NHOM, Orange County Superior Court Case No. 30-2011-00485656 (the UD Action), based on allegations NHOM failed to maintain and undertake required repairs to the Improvements. Six months later, the Maag Trust intervened in the UD Action as a party defendant under the theory that if NHOM were evicted and the Sublease terminated, then the Maag Trust’s security interest created by the Maag Deed of Trust would be destroyed.

In August 2012, MCWE, Plaza del Sol, and the Maag Trust entered into a settlement agreement (the Settlement Agreement). The Settlement Agreement "rescind[ed] and cancel[ed] the Agreement Re: Assignment," required the Maag Trust to pay $400,000 (split into two payments) to MCWE, and obligated Plaza del Sol to assign the Plaza del Sol Note and the Plaza del Sol Deed of Trust to the Maag Trust. The Settlement Agreement states each party would bear its own costs and attorney fees, but that "[i]n any dispute involving the enforcement of this [Settlement] AGREEMENT, the prevailing party shall be entitled to recover ... its reasonable attorneys’ fees and all other reasonable costs and expenses incurred therein."

The Settlement Agreement states MCWE "[w]ill, and hereby does, dismiss the UD [Action] with prejudice." Lloyd Copenbarger wanted to end the litigation and stop paying attorney fees in the UD Action. Although the Settlement Agreement was signed in August 2012, and required a dismissal with prejudice, MCWE did not dismiss the UD Action until October 2015, and then did so without prejudice.

PROCEDURAL HISTORY

In October 2012, counsel for MCWE sent a letter to the Maag Trust purporting to rescind the Settlement Agreement. Two weeks later, the Maag Trust filed a complaint against MCWE and Plaza del Sol for declaratory relief and breach of contract.² The complaint alleged MCWE and Plaza del Sol breached the Settlement Agreement by failing to dismiss the UD Action and by not delivering the Plaza del Sol Note and Plaza del Sol Deed of Trust to the Maag Trust. As damages for breach of contract, the Maag Trust alleged it "suffered damages in an amount in excess of the jurisdiction of this court in an amount subject to proof in that: a) its title to and security interest in the P[roperty] has been and continues to be damaged, clouded and disparaged, and b) it has not received the [Plaza del Sol Note], the [Plaza del Sol Deed of Trust] or the Three Hundred Thousand Dollars ($300,000.00) note for which it has already paid a sum in excess of Three Hundred Thousand Dollars ($300,000.00) as well as other goods and valuable consideration."

MCWE and Plaza del Sol filed a cross-complaint for rescission of the Settlement Agreement. However, in 2015, MCWE and Plaza del Sol changed course and amended their cross-complaint to assert reformation and specific performance. Only then did MCWE dismiss the UD Action, without prejudice.

A bench trial was conducted over four days in May 2016. The trial court granted MCWE’s motion in limine to exclude evidence and argument that MCWE breached the Settlement Agreement by failing to turn over the Plaza del Sol Note and the Plaza del Sol Deed of Trust. The Maag Trust’s only theory of damages presented at trial was that it incurred $118,000 in attorney fees defending the UD Action between August 2012, when the Settlement Agreement was executed, and November 2015, when MCWE dismissed the UD Action. In support of this theory of damages, Lloyd Copenbarger testified he had received invoices from his attorney in the amount of $118,000. The trial court overruled MCWE’s objections to that testimony based on hearsay and the secondary evidence rule. Lloyd Copenbarger testified he had the invoices, but did not bring them to court and had never reviewed them. Lloyd Copenbarger claims he had paid about $90,000 toward the invoices out of his own pocket.

The trial court ruled in favor of the Maag Trust and against MCWE and Plaza del Sol on the declaratory relief and breach of contract causes of action and awarded the Maag Trust $118,000 in damages. Plaza del Sol moved to correct the judgment or for a new trial on the ground there was no evidence it had done...