Site Mgmt. Servs., Inc. v. Cingular Wireless LLC

• Decision Date: 13 March 2014
• Docket Number: D057106
• Court: California Court of Appeals Court of Appeals
• Parties: SITE MANAGEMENT SERVICES, INC. et al., Plaintiffs, Cross-complainants, Cross-defendants and Appellants, v. CINGULAR WIRELESS LLC et al., Defendants, Cross-complainants, Cross-defendants and Appellants.

SITE MANAGEMENT SERVICES, INC. et al., Plaintiffs, Cross-complainants, Cross-defendants and Appellants, v. CINGULAR WIRELESS LLC et al., Defendants, Cross-complainants, Cross-defendants and Appellants.

D057106

COURT OF APPEAL, FOURTH APPELLATE DISTRICT DIVISION ONE STATE OF CALIFORNIA

Filed: March 13, 2014

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

(Super. Ct. No. GIC852215)

APPEALS from a judgment and appeal from a postjudgment order of the Superior Court of San Diego County, Kevin A. Enright, Michael M. Anello, Joan M. Lewis, Frederic L. Link, Judges. Judgment on jury verdict reversed with directions; prejudgment orders affirmed; postjudgment order reversed and vacated.

Lewis Brisbois Bisgaard & Smith, Jeffry A. Miller, Kenneth D. Watnick and David E. Reynolds for Plaintiffs, Cross-complainants, Cross-defendants and Appellants Site Management Services, Inc., Site Management Solutions, Inc., and Michael P. Flynn.

Proskauer Rose LLP, Michael H. Weiss, Bradley I. Ruskin and Kevin J. Perra for Cross-Complainant, Cross-defendant and Appellant TMO CA/NV, LLC.

McKenna Long & Aldridge LLP, Robert A. Cocchia and Gary K. Brucker, Jr. and David L. Balser; Reed Smith LLP and Margaret Anne Grignon for Defendants, Respondents and Cross-appellants Cingular Wireless, LLC, GSM Facilities, LLC, CA/NV Tower Holdings, LLC, SBC Wireless, LLC, and SBC Communications, Inc.

INTRODUCTION

This action involves multiple claims and cross-claims alleging breach of contract and fraud, among other wrongs, by and against plaintiff Michael Flynn (Flynn), two companies partly or wholly owned and controlled by Flynn, plaintiffs Site Management Services, Inc. (Services) and Site Management Solutions, Inc. (Solutions), and defendants Cingular Wireless, LLC (Cingular) and TMO CA/NV, LLC (TMO), successor companies to Pacific Bell Wireless LLC (Pacbell) (collectively, defendants). In 1999, Solutions and Pacbell entered into three agreements under which Solutions would provide wireless telecommunications site acquisition and management services for Pacbell. Flynn, then an employee of Pacbell, signed all three agreements on behalf of his employer.

Defendants contend that when Flynn signed the agreements, he had an undisclosed financial and ownership interest in Solutions, a company he allegedly started with an old friend, Charles O'Neal (O'Neal) and personally sought to profit from that venture in violation of his fiduciary duties to Pacbell. Flynn eventually left Pacbell and took over Solutions and started another company, Services, which acquired certain rights under the agreements from Solutions. After Flynn, Solutions, and Services sued Pacbell and itssuccessors for breach of two of the agreements, defendants filed cross-complaints for fraud and breach of fiduciary duty, among other causes of action. Defendants claimed the agreements were voidable for fraud in the inducement, and affirmatively sought to rescind the agreements and recover damages.

The parties, on their respective appeals, ask us to review numerous asserted errors by three different trial court judges who presided over various stages of this litigation. Among other contentions, plaintiffs contend that the trial court erred in granting defendants' motions for summary judgment on plaintiffs' operative fourth amended complaint on the ground the subject agreements were unenforceable because they were fraudulently induced. TMO contends, among other things, that the judgment after jury verdict must be reversed for insufficiency of the evidence to support the jury's findings on the issues of ratification and waiver of fraud, and for prejudicial error in jury instructions on waiver and ratification. TMO also contends the court erred in ordering that certain interpleaded funds be returned to Solutions. Cingular contends the trial court erred in failing to designate it and related entities in the judgment as prevailing parties entitled to costs.

We reverse the judgment on the jury verdict, affirm the order granting defendants' motion for summary judgment on the fourth amended complaint, and vacate the orderregarding the interpleaded funds. We review various other assignments of error as discussed below.¹

FACTUAL BACKGROUND²

I.Flynn's Alleged Conflict of Interest Regarding the Agreements at Issue

During the mid-to-late 1990's, defendant Pacific Bell Mobile Services (PBMS), doing business as Pacbell, was in the process of setting up the infrastructure, or network, required to provide its customers in the greater Los Angeles region with cellular phone service. Pacbell had been using a consultant (SBA) for the location, acquisition and development of network sites, but sought to pay lower fees. In late 1998, after SBA declined to lower its prices, Pacbell issued a Request for Proposal (RFP) to find a replacement.

At that time, Flynn was Director of Network Deployment at PBMS for the Costa Mesa/Los Angeles market. His responsibilities included finding, leasing and developing network sites. Sensing a lucrative business opportunity, Flynn asked his supervisor atPacbell if he could participate in the RFP, i.e., submit a bid as a vendor, independent from Pacbell. His supervisor, Charles Vranek (Vranek), informed him he would not be able to do so.

Flynn devised another way by which he could profit from this opportunity. He contacted O'Neal, an old school friend, about bidding on the Pacbell site acquisition contract, even though O'Neal had no experience in the wireless industry. According to his deposition testimony in this case, Flynn's intention was to help O'Neal set up a site acquisition business to make a bid under the RFP and then, when Flynn left Pacbell, he (Flynn) would "receive ownership" of the new venture. During their initial negotiations in 1998, Flynn and O'Neal discussed forming a company in which Flynn would receive a 70 percent ownership stake. Flynn intended from the beginning to "actually have the ownership of the company" once he left Pacbell, because he was "the one who knows the industry." He believed that if he left Pacbell he "would come over, take over running the company, and be the owner."

In accordance with their plan, O'Neal formed O'Neal & Associates to bid on the RFP. Flynn helped O'Neal by giving him advice on how to "model" his RFP proposal as a "temp agency," using experienced SBA employees to hold down costs. Flynn provided no such assistance to any other bidders. O'Neal was awarded the site acquisition contract in October 1998. In deposition testimony, Flynn admitted that O'Neal obtained a business relationship with Pacbell in part because of Flynn's efforts.

In December 1998, O'Neal incorporated O'Neal Communications Group, Inc. (OCG) which later became The Consulting Group (TCG). OCG assumed the consultingcontract Pacbell had awarded O'Neal & Associates under the RFP. In 1999, Pacbell entered into three other agreements with a different company formed by O'Neal — plaintiff Solutions. These agreements are at the center of the parties' disputes in this litigation.

On February 25, 1999, Solutions and Pacbell entered into a contract whereby Solutions would act as sublicensor with respect to cellular transmission equipment used by Pacbell on property licensed from Caltrans in Southern California, for which Solutions would receive a sublicense fee (the Caltrans Agreement). In May 1999, Solutions and Pacbell entered into the Sublicense Agreement (SLA), which was similar to the Caltrans Agreement in that Solutions would act as a contractual intermediary between Pacbell and municipalities and public agencies other than Caltrans, and would charge a sublicensing fee. In July 1999, Solutions and Pacbell entered into the Site Management Agreement (SMA), which retroactively commenced in December 1998. The SMA made Solutions the exclusive manager of Pacbell's "colocations" in the Los Angeles region, whereby Pacbell subleased or sublicensed space on its cellular sites to other carriers. Under the SMA, Solutions was given authority to collect all colocation rents for that region and retain 25 percent of the rents for its fee. The SMA also provided that Solutions would share in any cost savings resulting from n agreements. On all three agreements, O'Neal signed for Solutions, and Flynn signed for Pacbell.

Solutions was incorporated just two days before the Caltrans Agreement was executed specifically for the purpose of giving Pacbell a means of subleasing space on Caltrans rights-of-way. O'Neal testified that Solutions had no employees of its own;rather, it utilized OCG employees, and the companies had the same address. Pacbell was Solutions's only client. O'Neal testified that Solutions did not enter into contracts with any other wireless carriers.

Flynn testified in deposition that he believed he had a "gentleman's agreement" with O'Neal from the time of their initial discussions in August 1998 that once he left Pacbell he would come over to OCG and eventually run and own that company. Flynn came to believe, however, that O'Neal would not honor that agreement, testifying, "There [were] times when I felt that I wasn't sure if I did move over, that one, he even wanted me to move over; and then, two, whether he would, you know, give me ownership in it." Ultimately, Flynn told O'Neal that he would go into a competing business on his own if O'Neal did not "strike a deal" with him. Flynn and O'Neal thereafter reached an agreement, and on September 21, 1999, they executed an Agreement of Understanding (AOU) memorializing the evenly-shared ownership structure of both OCG and Solutions. The AOU provided: "Michael Flynn has received a 50% ownership position in [OCG], equal to 1250 shares of the...