Ghk Associates v. Mayer Group, Inc.

• Citation: 224 Cal.App.3d 856,274 Cal.Rptr. 168
• Decision Date: 17 October 1990
• Docket Number: No. B040839,B040839
• Court: California Court of Appeals
• Parties: GHK ASSOCIATES, Cross-Complainant and Respondent, v. MAYER GROUP, INC., et al., Cross-Defendants and Appellants.

Page 168

274 Cal.Rptr. 168

224 Cal.App.3d 856

GHK ASSOCIATES, Cross-Complainant and Respondent, v. MAYER GROUP, INC., et al., Cross-Defendants and Appellants.

No. B040839.

Court of Appeal, Second District, Division 7, California.

Oct. 17, 1990.

Rehearing Denied Nov. 9, 1990.

Review Denied Jan. 3, 1991.

Rudin and Appel, Milton A. Rudin, Joseph L. Golden, Beverly Hills, for cross-defendants and appellants.

Pritchard & Fields, Diane E. Pritchard and Craig M. Fields, Los Angeles, for cross-complainant and respondent.

FRED WOODS, Associate Justice.

This is an appeal from a judgment of the Los Angeles County Superior Court, the Honorable Leon Savitch, Judge presiding, for respondent/cross-complainant GHK Associates, a general partnership, hereafter GHK, on the first (breach of contract), fourth (conspiracy), fifth (tortious interference with contract), and seventh (declaratory relief and constructive trust) causes of action of its first amended cross-complaint ¹ against appellants/cross-defendants, Metropolitan Development Corporation, a California corporation, hereafter MDC, Mayer Group, Inc., a California corporation, hereafter MGI, First City Properties, Inc., a Delaware corporation, hereafter FCP, Mayer Group, a general partnership, hereafter MG Coast Savings and Loan Association, a California corporation, hereafter Coast, d/b/a Coast Mortgage and Realty Investors, hereafter CMRI, Playa Blanca Ltd., a California limited partnership, hereafter PBL, Shearson Playa Blanca, Inc., a Delaware corporation, hereafter SPBI, Mayer Playa Blanca, Inc., a California corporation, hereafter MPBI, Mayer Management Inc., a California corporation hereafter MMI, and Alan I. Casden, an individual. We affirm.

I. INTRODUCTION

Pursuant to a written development agreement dated October 21, 1980, hereafter referred to as the "1980 Agreement," it was agreed that GHK would transfer a two-acre parcel of unimproved real property in Playa del Rey, hereafter referred to as the "Property," to MDC. MDC would develop and market the Property as an 80-unit residential condominium project, and GHK would receive 40 percent of the net profits of the project as defined in the 1980 Agreement. At the request of MDC and GHK, MDC and MGI entered into a July 1, 1981, amendment to the 1980 Agreement, hereafter referred to as the "First Amendment," whereby MGI assumed all of MDC's obligations under the 1980 Agreement.

Thereafter, MDC and MGI, engaged in a series of transfers of the Property and the syndication and development of the Property as an apartment complex. GHK contends that FCP (the parent of MDC), MGI, COAST (a general partner of Mayer Group), CMRI (a wholly owned subsidiary of Coast), PBL, SPBI, and MPBI (general partners of PBL), MMI (the manager of the apartment complex), and Alan I. Casden (the President of MGI, MPBI and MMI and a general partner of PBL), were parties to the transfers and development of the Property, and undertook these actions with full knowledge of the rights of GHK under the agreements. Despite their development of the Property, GHK contends that the cross-defendants, acting in consort, refused to recognize any of GHK's rights under the agreements, including GHK's profit interest.

The trial court ruled, inter alia, that MDC and MGI materially breached the agreements, by (1) transferring the Property without GHK's consent; (2) encumbering the Property without GHK's consent; (3) failing to develop the Property as condominium units within the time required by the agreements; (4) failing to sell the completed units to independent third party purchasers; (5) failing to provide GHK with a project budget for the Project; and (6) failing to pay GHK 40 percent of the profits (as defined by the agreements).

The trial court also found that MGI fraudulently induced GHK to enter into the First Amendment, and that all cross-defendants conspired with MDC and MGI to deprive GHK of its benefits under the agreements and all cross-defendants, exclusive of MDC and MGI, tortiously induced MDC and MGI to breach the agreements as set forth above.

The trial court found that GHK had suffered damages as the result of the action of the cross-defendants aforementioned. The trial court further determined that a proper measure of damages to be applied, under the circumstances of this case, was 40 percent of the net profits of the Project, as defined by the judgment. ² To carry out the judgment, the trial court imposed a constructive trust, appointed a receiver, and ordered that accountings and reports be made to the court. MGI, MDC and MG were ordered to pay GHK's attorneys' fees in the sum of $203,365.50, together with costs of suits in the sum of $4,305.91. All cross-defendants filed a timely notice of appeal.

II. QUESTIONS ON APPEAL

A. Did the trial court abuse its discretion in ruling that GHK is entitled to 40 percent of the net profits (as defined by the judgment) of the Project?

B. Does the record contain substantial evidence to support the trial court's calculation of the profits of the Project?

C. Did the trial court abuse its discretion in imposing a constructive trust on the proceeds of the Project?

D. Does the record contain substantial evidence to support the trial court's ruling that certain of the appellants conspired to induce breach of contract and tortiously interfered with the contracts?

E. Does the record contain substantial evidence to support the trial court's ruling that appellants COAST and MPB, Inc. are liable on the first amended complaint?

III. PROCEDURAL AND FACTUAL SYNOPSIS

GHK Associates is a general partnership that was formed for the purpose of developing an 80-unit condominium project on an undeveloped piece of real property that it owned at 8300 Manitoba Street, Playa del Rey. GHK's partners at the time of trial were Patrick Higashi and James Kozen. Charles Gotanda was a former member of the partnership.

GHK purchased the Property in June 1980 from the Mormon Church for $2 million, $100,000 of which was paid in cash and the balance of which was represented by a note in favor of the Mormon Church. The Property was unique because it was a large parcel (2.01 acres) in proximity to the beach and zoned for multi-family housing. After purchasing the Property, GHK engaged an architect and engineer to design an 80-unit condominium building. GHK also approached several lending institutions to be a joint venture partner in the Project.

In the course of this process, GHK approached William Belzberg to be a passive investor in the Project. It was Belzberg who suggested that his holding company's subsidiary, MDC, actually do the development. Pursuant to the 1980 Agreement between GHK and MDC, MDC agreed that, in exchange for GHK's transferring the Property to MDC, MDC would develop the Property as an 80-unit condominium building and would pay GHK 40 percent of the net profits (as defined by the agreement) from the sale of the condominiums. Pursuant to the 1980 Agreement, title to the Property was transferred to MDC, MDC reimbursed GHK for its out-of-pocket costs of acquiring and developing the Property as of that time, and MDC assumed the $1.9 million Mormon Church loan.

Other material terms of the 1980 Agreement included:

1. MDC agreed not to sell the Property other than as provided for in the agreement.

2. "MDC shall use its best efforts to promptly develop the Property with an 80-unit residential condominium complex ... and to sell the completed Units at or above what is reasonably believed by MDC to be their then fair market value to independent third party purchasers. Any sale to any MDC employee, agent, representative, subsidiary or related or affiliated person, firm or corporation shall require GHK's prior written consent."

3. Construction of the Project was to be finally completed and the condominiums ready for sale to the public within two years after commencement of construction. In the event the Project was not completed within that time period, MDC would receive no further sums to be paid pursuant to paragraph 5.5 of the agreement (interest on the construction costs being advanced by MDC).

4. MDC agreed to pay the entire cost of constructing and selling the condominiums and to provide GHK with a "project budget" before construction began. The project budget was to contain the actual or reasonably estimated project costs (as defined). GHK could object to the project budget.

5. MDC was to receive (a) a general contractor's fee of 6 1/2 percent of the total estimated direct construction costs (as defined) as included in the project budget to be approved by GHK, (b) 3 percent of the approved project budget, in exchange for agreeing to advance the projected construction costs, and (c) interest (imputed interest) on the project costs it advanced at the rate of prime plus 3 percent until the advances were repaid.

6. The "Net Sales Proceeds" (as defined) were to be distributed as follows: First, MDC was to be repaid the total "project costs" it had advanced, as defined in the agreement. Second, MDC was to receive the next $1.2 million. Third, GHK was to receive the next $800,000. And fourth, GHK and MDC were to divide the balance, if any, 60 percent to MDC and 40 percent to GHK. If the actual project costs exceeded the project budget approved by GHK by more than 15 percent, then the 60-40 profit split was to begin with the first dollar after MDC was repaid its project costs allowed by the agreement.

In or about January 1981, Rudolph Schaefer, the president of MDC, introduced GHK to representatives of MGI, for the purposes of having MGI take over the development of the Project from MDC. One of the representatives of MGI was its president, appellant Alan I. Casden.

Alan I. Casden suggested that, as part of the transfer of the development responsibilities from MDC to MGI, the 60-40 profit split between MDC and GHK be changed to 70-30, with MDC/MGI to receive 70 percent and GHK's share to...