Sierra Club Foundation v. Graham
| Decision Date | 10 June 1999 |
| Docket Number | A080685,Nos. A078387,s. A078387 |
| Citation | 85 Cal.Rptr.2d 726,72 Cal.App.4th 1135 |
| Parties | , 99 Cal. Daily Op. Serv. 4581, 1999 Daily Journal D.A.R. 5849 SIERRA CLUB FOUNDATION, Plaintiff and Respondent, v. Ray A. GRAHAM III, Defendant and Appellant. |
| Court | California Court of Appeals Court of Appeals |
Barbara A. Caulfield, Myra J. Pasek, Mary Pat Dooley, Orrick, Herrington & Sutcliffe, San Francisco, Peter Dixon, Barry Zoller, Larson & Burnham, Oakland, for Appellant.
Tom Udall, Attorney General of the State of New Mexico, Frederic S. Nathan, Jr., Assistant Attorney General, for Amicus Curiae on Behalf of Appellant.
Lawrence L. Curtice, San Francisco, Peter J. Adang, for Respondent.
This case has a hint of the "stranger than fiction" flavor: Foundation sues former, substantial donor for malicious prosecution based on the donor's fruitless federal suit against the foundation for fraud, breach of contract and other causes. Donor urges attorneys general from two states to get involved. One declines but the other launches an accounting action against the foundation in which a purported beneficiary of the donor's gift intervenes; this action settles.
This appeal--from a judgment for compensatory and punitive damages in favor of the foundation--probes all aspects of the malicious prosecution tort, as well as the constitutionality of punitive damages. It poses the interesting question of where to focus inquiry into whether the underlying action terminated favorably to the foundation--on the federal judgment, or the subsequent settlement in the accounting and related intervention action? We conclude the federal judgment is the proper focus, find the donor's other arguments to be without merit and affirm the judgment but reverse an order for sanctions.
Established in 1960, respondent Sierra Club Foundation (Foundation) is a California nonprofit corporation, organized as a charitable organization under the Internal Revenue Code. Operating as a separate entity from the Sierra Club, the Foundation's mission is to administer and disburse donated funds for broad charitable and environmental purposes.
In 1970, environmental activist Harvey Mudd executed an agreement with the Foundation called "Deed of Gift (Restricted)" which created the Frontera Del Norte Fund (Frontera) for purposes of financing conservation projects primarily located in New Mexico. The deed of gift called for Mudd to establish a committee to propose conservation projects for funding to the Foundation's board of trustees. He initially donated $130,067 to Frontera, with $100,000 treated as an endowment and the remainder passed to the granting fund to be disbursed for projects. 1
At that time, Frontera was primarily focusing its activities on air pollution. Mudd was also interested in purchasing a large tract of high mountain land for multiple uses. The idea for this "Land Project" was to identify land with some unique environmental qualities, save it from the developers and use it for a variety of activities including recreation for "barrio" children; scientific research in partnership with one or more universities; and limited livestock grazing if grazing could be accomplished conscientiously. In connection with the land project, discussions were held with La Cooperativa Agricola del Pueblo de Tierra Amarillo (La Cooperativa) about grazing opportunities for their membership. In July 1970 Mudd looked at some properties, but Frontera did not have enough money to proceed with a purchase.
Through their involvement in New Mexico Citizens for Clean Air and Water, appellant Ray A. Graham III and his wife met Mudd around this time. Graham had a reputation as a conscientious developer. Mudd spoke with Graham about all of Frontera's activities, including the land project, and showed him a "topo" map and some photographs.
Graham later expressed an interest in donating to Frontera. He sought assurance that his donation would be tax deductible. On November 11, 1970, Graham transferred stock to the Foundation as a gift, for use by Frontera. Neither Mudd nor anyone else represented that Graham's donation would be used for any particular purpose or for any particular beneficiary. Until 1990, Graham never inquired about the status of his donation.
Graham indicated to Mudd that he was making his donation to the project portion rather than the endowment portion of Frontera. Thus it was held in the "granting fund, generally," which was the source of support for Frontera's conservation projects. For accounting purposes of the Foundation, Graham's donation was specifically allocated to the land purchase account and the Frontera committee recommended that it be used for the land project.
The donation was pooled and invested along with other Foundation funds. The interest was used by the Foundation in lieu of an administrative fee, per agreement with Mudd. Thus, no interest accrued to the granting fund. Graham did not ask that interest accrue to his donation, and never discussed the issue.
Throughout the 1970's, Frontera continued to investigate properties for the land project. Brant Calkin, a member of the Frontera committee, looked into more than 57 parcels for the land project. The 2,000-acre "High Mountain Ranch" was a parcel with some potential. With a $200,000 price tag and Graham's gift, Frontera had half the money in the granting fund to purchase it. There was uncertainty about the location of the water source, but by the time a survey was underway, the sellers took the property off the market. Other properties were examined, but all were problematic for one reason or another: price; title; access, etc. The board of trustees of the Foundation twice gave Mudd authority to bid on property, but its members generally were chary about the Foundation becoming a landowner and managing property.
In 1979 the Foundation asked Frontera if it would release Graham's donation for the general purposes of the Foundation, including support for the Sierra Club. In return, the Foundation proposed to transfer to Frontera $150,000 from a recent bequest restricted to use for land preservation. In January 1980 Graham released the Frontera condition in writing, stating that his contribution could be used "for the general support of the Sierra Club." Calkin told Graham that the Frontera Committee would continue to try to find property for the land project, and it did continue looking.
The Foundation did not replace Graham's donation with the bequest until 1989.
In 1975 the Foundation acquired by gift a 9.825-acre sweetwater cattail marsh on the western edge of Albuquerque called the "Oxbow" marsh. Pursuant to the terms of the gift, the Foundation was to preserve the property in its natural state. Coincidentally, the Oxbow marsh was contiguous to the southern boundary of a large tract of land which Graham purchased in 1968. Graham had the property masterplanned for commercial and residential development. In 1990 the assessed value for tax purposes was $87,500 per acre.
Graham had his property surveyed in 1989. The survey revealed a 1.884-acre boundary overlap with the Oxbow marsh. Graham demanded that the Foundation deed the overlap area to him. His plan was to then deed the area to the City of Albuquerque to resolve a dispute over his development plan. After the parties met with a local title company, the Foundation retained a real estate attorney to render an independent title opinion. That opinion indicated that the Foundation had superior title to the overlap area.
The Foundation decided it could not just deed the overlap area to Graham. Calkin notified Graham of the Foundation's decision as well as the results of the boundary opinion. Graham became very angry, asked about the disposition of his gift and was informed that the Foundation had not yet purchased any land. He threatened to make trouble about that. Graham then complained to the Sierra Club (not the Foundation) and his senator about the overlap area and the status of his donation. He asked the Sierra Club director for a report on the contribution, its balance and previous uses. The Foundation director responded that the balance had been augmented to $150,000, but interest did not accrue.
By March 1990 Graham's attorneys advised the Foundation that Graham's "two outstanding disputes with the Foundation should be considered together and jointly resolved...." Graham began taking the position that all parties concerned intended his 1970 donation for a specific beneficiary--Ganados del Valle (Ganados). Ganados did not come into existence until January 1984--some 14 years later--although it was founded by some of the same people who started La Cooperativa.
Throughout 1990 the Foundation tried to settle both disputes. In July 1990, attorneys for the Foundation proposed (1) transferring the $270,000 land fund 2 to a suitable donee for use by Ganados; and (2) conveying the Oxbow tract to the City of Albuquerque for its open space program in a transaction whereby Graham would get credit for the overlap area. Graham rejected the first proposal but wanted to separately accept the second and settle the Oxbow incident. Ultimately the Foundation was unwilling to proceed with the Oxbow conveyance "in view of the California litigation" (see below).
On December 18, 1990, Graham filed suit against the Foundation and Calkin in the United States District Court, Northern District of California (case No. C 90 3595 CAL), praying for individual as well as representative relief on behalf of Ganados. He alleged breach of fiduciary duty, fraud, breach of contract and enforcement of trust, and called for an accounting and declaratory relief.
The following July Graham sought leave to amend the complaint in...
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