Coral Farms, L.P. v. Mahony

• Decision Date: 28 April 2021
• Docket Number: G058909
• Citation: 277 Cal.Rptr.3d 872,63 Cal.App.5th 719
• Court: California Court of Appeals
• Parties: CORAL FARMS, L.P., et al., Plaintiffs and Appellants, v. Thomas MAHONY et al., Defendants and Respondents.

63 Cal.App.5th 719

277 Cal.Rptr.3d 872

CORAL FARMS, L.P., et al., Plaintiffs and Appellants,

v.Thomas MAHONY et al., Defendants and Respondents.

G058909

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

Filed April 28, 2021

One, Christopher W. Arledge, Lawrence J. Hilton and Robert D. Hunt, Newport Beach, for Plaintiffs and Appellants.

Tressler and Mohammed S. Mandegary, Irvine, for Defendants and Respondents.

OPINION

MOORE, J.

It is a well-settled rule that when the parties to a contract agree that the sufficiency of a party's performance is to be decided by a third person (such as an engineer), that third person's decision is conclusive and binding on the parties in the absence of bad faith, fraud, or gross negligence. (See, e.g., Brown v. Aguilar (1927) 202 Cal. 143, 151, 259 P. 735.) This appeal involves two lawsuits, three parties, and one contract.

In the first lawsuit, three neighboring property owners incurred varying damages due to a mudslide. The three parties sued and countersued each other for negligence and other claims related to water drainage. The parties eventually settled. The owners agreed to perform mitigation and repair work on their own properties according to their own separate plans. The agreement was memorialized in a contract (the Settlement Agreement). The "Final Approval" provision stated: "Upon completion of the work, each party shall obtain a written report by the design engineer or geologist that the work performed is in substantial compliance with that Parties' plan ... and will provide a copy to all other Parties within 30 days of completion."

In the second lawsuit, two owners sued the third owner (a married couple). Plaintiffs alleged defendants breached the Settlement Agreement because their work was not in substantial compliance with their plan. But in a bench trial, the court found defendants complied with the contract by providing a copy of an engineer's report stating their work was " ‘substantially completed in accordance with the approved plans.’ " The court also found no evidence of bad faith, fraud, or gross negligence.

On appeal, plaintiffs ostensibly contend the trial court misinterpreted the Settlement Agreement. But what plaintiffs appear to truly regret is the "Final Approval" provision, which allowed each party's engineer to decide whether that party had substantially complied with its own plan. Courts are not in the business of rewriting ill-advised contract provisions. Plaintiffs are stuck with the contract they signed.

We agree with the trial court's interpretation of the Settlement Agreement and we find no merit to any claimed evidentiary errors. Thus, we affirm the judgment.

IFACTS AND PROCEDURAL BACKGROUND

In December 2010, a mudslide occurred that affected three large hillside properties located in San Juan Capistrano. The three neighboring properties are owned by: 1) Coral Farms, L.P. (the Coral Farms Property), 2) Paul and Susan Mikos (the Mikos Property), and 3) Thomas and Sonya Mahony (the Mahony Property).

There is a natural drainage channel coursing through the three properties. The Coral Farms Property is upslope and undeveloped. The Mikos Property is upslope and residential. The Mahony Property is downslope and residential.

The First Lawsuit

In April 2011, the Mahonys filed a complaint against Coral Farms for nuisance, negligence, and related claims. The Mahonys alleged Coral Farms had " ‘improperly altered the natural gradients and water flow patterns of their property.’ " As a result of this, the Mahonys alleged they incurred damages during the earlier mudslide. They sought "an injunction preventing Coral Farms from making future alterations to ‘the gradients and water flow patterns’ " of their property.

In June 2011, Coral Farms filed a cross-complaint for nuisance and trespass. Coral Farms alleged the Mahonys had constructed their property in a manner insufficient to accommodate the natural water channel. Coral Farms further alleged the Mahonys had redirected water and mud onto their property.

In July 2012, the Mahonys filed a first amended complaint adding the Mikoses as defendants. The Mahonys alleged the Mikoses had also contributed to the Mahonys' property damage by installing an outlet pipe that sent additional water flow into the natural drainage channel.

In August 2012, the Mikoses filed a cross-complaint against both Coral Farms and the Mahonys for negligence, nuisance, and related tort claims.

The Settlement Agreement

In October 2013, the three parties signed—and the superior court approved—the Settlement Agreement. Some of its provisions state:

"It is the intent of the parties to each undertake reasonable protective measures to mitigate the existing conditions on their respective properties for the purposes of reducing the risk of damage from erosion, mudflows and debris flows."

"Mahony agrees to implement and complete the mitigation/repair plan for their property attached hereto as Exhibit A [hereinafter, the Norris Plan]."

"Coral Farms LP agrees to implement and complete the repair plan for their property set forth attached hereto as Exhibit B entitled ‘Soil Stabilization Watercourse Area, Design Build Plan’ [hereinafter, the ‘Design Build Plan’]."

"Mikos agrees to implement and complete the mitigation plan for their property set forth attached hereto as Exhibit C [hereinafter, the Stoney-Miller Plan]."

"Each Party shall have sole discretion on the selection and payment of engineers and contractors to perform the work on their respective property and shall have the sole responsibility to pay his/her/its engineers, contractors and workers. The respective plans identified herein are separate and independent .... Each Party assumes sole responsibility for and is solely liable for the adequacy of the design and work performed on their respective property ...."

"In the event a Party is required to prepare an Alternate Plan due to impossibility or impracticability, notice and a written copy the Alternative Plan shall be provided to the other Parties ...."

"City Permits and Final Approval: The work shown in the plans will be performed pursuant to and in compliance with all requirements by the City of San Juan Capistrano .... Each Party covenants and agrees to use his/her/its best efforts to secure all required permits and comply with applicable building codes ....Upon completion of the work, each party shall obtain a written report by the design engineer or geologist that the work performed is in substantial compliance with that Parties' plan as set forth in Exhibits A, B and C, respectively, and will provide a copy to all other Parties within 30 days of completion."

"Fully Integrated Agreement : This Agreement is intended as a final and fully integrated agreement and the terms and conditions stated herein are contractual and not merely a recital. The terms and provisions of this Agreement may be modified or changed only by the mutual written consent of each Party."

Completion of the Work

In January 2014, Coral Farms obtained an engineer's report from Associated Soils Engineering, Inc., stating its repair work was " ‘found to be in substantial compliance’ with the plan."

In October 2014, the Mikoses obtained an engineer's report from Knudson Engineers & Construction, Inc. stating: " ‘The subject project was plan checked, permitted, inspected, and approved by the City of San Juan Capistrano. This project, under my direction, was designed, installed, inspected during construction, and approved ... as constructed at a Final Site Inspection.’ "

In December 2014, the Mahonys obtained an engineer's report from Engineering Design Group stating its mitigation/repair "work ‘has been substantially completed in accordance with the approved plan.’ "

The Second (Instant ) Lawsuit

In October 2017, Coral Farms and the Mikoses (collectively Coral Farms) filed a complaint against the Mahonys for breach of the Settlement Agreement and false promise. Coral Farms alleged the work performed by the Mahonys "is dramatically and substantively different than what was required of them under the Settlement Agreement." Coral Farms further alleged when "the Mahonys entered into the Settlement Agreement, they had no intention of ever performing their obligations under that agreement." Coral Farms asked for specific performance of the Settlement Agreement, and "damages in an amount to be proved at trial but in excess of $500,000."

In June 2019, the trial court presided over a seven-day bench trial and later filed a statement of decision. Coral Farms objected to the court's statement of decision on several grounds. The court found "the myriad of issues raised by [Coral Farms] are irrelevant and immaterial to the legal basis for the decision" and entered a judgment in favor of the Mahonys. Coral Farms appeals from the trial court's judgment.

IIDISCUSSION

Coral Farms contends the trial court: A) misinterpreted the Settlement Agreement; and B) made several evidentiary errors. We shall review both contentions.

A. The Settlement Agreement

Generally, the interpretation of a settlement agreement is governed by the same rules that apply to other contracts. ( Winet v. Price (1992) 4 Cal.App.4th 1159, 1165-1166, 6 Cal.Rptr.2d 554.) "When no extrinsic evidence is introduced, or when the competent extrinsic evidence is not in conflict, the appellate court independently construes the contract. [Citations.] When the competent extrinsic evidence is in conflict, and thus requires resolution of credibility issues, any reasonable construction will be upheld if it is supported by substantial evidence." ( Founding Members of the Newport Beach Country Club v. Newport Beach Country Club, Inc. (2003) 109 Cal.App.4th 944, 955-956, 135 Cal.Rptr.2d 505.)

Here, as the parties appear to agree, the trial court's interpretation of the Settlement Agreement (particularly the Final Approval clause) was not based on relevant conflicting extrinsic evidence. We will therefore apply a de novo standard of review.

Further,...