Judge Jill Feeney, Case Number: 23STCV22497, Date: 2023-12-08 Tentative Ruling

This is an action for specific performance, breach of contract, breach of the covenant of good faith and fair dealing, and declaratory relief. Plaintiff ABG Holdings-Bell Gardens, LLC alleges in 2020, the founder of Parkwest Casinos, Inc., John Park, became a minority shareholder of a casino in southern California. (SAC ¶10.) In 2020, Park met the principals of Silverado Management and Holding Company, Inc. (Silverado). (TAC ¶11.) Park was interested in acquiring the other shareholders’ interest in the casino by acquiring the operating company which owned and operated the casino and purchasing the leasehold interest in the ground lease with the city. (Id.) Park discussed acquiring Silverado with its principal, Anthony Barkett, and expressed he would acquire $210 million in financing secured against his equity. (TAC ¶12.) Silverado indicated it was willing to assist him in locating financing in exchange for compensation. (TAC ¶13.) Barkett and Park discussed financing through bonds. (TAC ¶14.)

Silverado introduced Park to Hilltop Securities, Inc. (Hilltop), an investment banker and underwriter. (TAC ¶15.) Hilltop, Park, and Silverado executed a Non-Disclosure Agreement (NDA) for Park to deliver information and documentation to allow Silverado and Hilltop to explore financing options. (Id.) In March 2021, Hilltop provided a letter of commitment, and the parties circulated a draft term sheet. (TAC ¶16.) Park and Barkett discussed the terms of a lease which would be between Parkwest and a soon-to-be formed entity. (Id.) In April 2021, Barkett formed ABG to be a joint venturer with a company formed by Park, Monument Properties-Bell Gardens, LLC (Monument). (TAC ¶18.) Barkett and Park finalized the terms of their Joint Venture for the purchase and operation of the Ground Lease from the City of Bell Gardens. (TAC ¶19.) The operation of the casino was not part of the Joint Venture. (Id.) The Joint Venture would be owned 80% by ABG and 20% by Monument. (TAC ¶20.) Under the terms of the Joint Venture, the parties would secure joint financing, Parkwest Casinos, Inc. would own the operating company, Defendant Parkwest Bicycle Casino, LLC (Parkwest), and the Joint Venture would purchase and lease land to Parkwest. (TAC ¶21.)

To secure financing, Hilltop required a lease agreement between Operator and ABG. (TAC ¶24.) Parkwest and ABG entered into a formal lease agreement in May 2021. (TAC ¶25.) The lease term was 30 years and would commence on the date ABG acquired its interest in the property. (TAC ¶26.) The lease would automatically terminate if the Asset Purchase Agreement was terminated prior to the close of the sale of assets. (Id.)

In May 2021, ABG and Parkwest entered into a Side Letter Agreement modifying the terms of the lease which would permit termination of the lease if the final base rent, insurance payments, face amount of the Letter of Credit, or any other part of the lease became unacceptable to Parkwest. (TAC ¶ 28.) The parties understood ABG would not contribute any equity to the transaction and that if ABG contributed funds, the transaction must be approved by the California Gambling Control Commission. (TAC ¶30.) Park learned that 30-year financing was unavailable because the casino was unrated. (Id.)

In May 2021, Hilltop committed to providing debt financing of up to $210 million. (TAC ¶32.) Parkwest provided Hilltop’s securities financing commitment to continue with the Asset Purchase Agreement. (TAC ¶33.) In July 2021, Parkwest, ABG, and Hilltop discussed financing options and determined 30-year financing was not available because there was insufficient collateral for long term financing and casino operations had not yet been rated. (TAC ¶34.) Additionally, bond securities were unavailable because casino operations had not yet been rated. (Id.) The parties discussed other options, including short term financing, which were sufficient to fund the transaction. (TAC ¶¶36-37.) As proposed, Parkwest would be required to pay rent under the Lease Agreement. (TAC ¶36.) Parkwest then terminated the lease despite the parties’ lease and the availability of financing. (TAC ¶38.) Plaintiff alleges that Park intended to use its expertise and knowledge to establish a relationship with Hilltop to obtain Hilltop’s commitment to provide financing. (TAC ¶39.) Parkwest later did in fact use Hilltop to obtain alternative financing. (TAC ¶40.)

A party may move for summary judgment “if it is contended that the action has no merit or that there is no defense to the action or proceeding.” (Code Civ. Proc., section 437c, subd. (a).) “[I]f all the evidence submitted, and all inferences reasonably deducible from the evidence and uncontradicted by other inferences or evidence, show that there is no triable issue as to any material fact and that the moving party is entitled to judgment as a matter of law,” the moving party will be entitled to summary judgment. (Adler v. Manor Healthcare Corp. (1992) 7 Cal.App.4th 1110, 1119.)

The moving party bears an initial burden of production to make a prima facie showing of the nonexistence of any triable issue of material fact, and if he does so, the burden shifts to the opposing party to make a prima facie showing of the existence of a triable issue of material fact. (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850; Code Civ. Proc. § 437c, subd. (p)(2).)

“When deciding whether to grant summary judgment, the court must consider all of the evidence set forth in the papers (except evidence to which the court has sustained an objection), as well as all reasonable inferences that may be drawn from that evidence, in the light most favorable to the party opposing summary judgment.” (Avivi v. Centro Medico Urgente Medical Center (2008) 159 Cal.App.4th 463, 467; see also Code Civ. Proc., section 437c(c).)

Defendants move for summary judgment on the grounds that (1) Parkwest had the contractual right to terminate the lease agreement, (2) there was no agreement on the essential terms of the alleged joint venture, (3) Parkwest was not a party to the Joint Venture agreement, (4) Monument did not breach the Joint Venture agreement, (5) there is no evidence Monument is the alter ego of Parkwest, and (5) the second and third causes of action for breach of the implied covenant of good faith and fair dealing and declaratory relief are derivative of the cause of action for breach of contract.

“[T]he elements of a cause of action for breach of contract are (1) the existence of the contract, (2) plaintiff’s performance or excuse for nonperformance, (3) defendant’s breach, and (4) the resulting damages to the plaintiff.” (Thrifty Payless, Inc. v. The Americana at Brand, LLC (2013) 218 Cal.App.4th 1230, 1244.)

the parties acknowledge that the actual base rent, insurance requirements or face amount of the [Letter of Credit] will be established as part of [ABG’s] financing for the acquisition of the Premises…If any part of the final base rent, insurance requirements or face amount of the [Letter of Credit] is unacceptable to [Parkwest] or [ABG], each in its sole discretion, or if [ABG’s] lender requires any other change to the Lease which is not acceptable to [Parkwest] in its sole discretion, or if any lender requirements renders the Lease unacceptable to [ABG] for any reason and the parties are not able to agree on mutually acceptable revisions to the Lease, then the Lease (and this letter agreement) shall terminate without any liability on either party.

The parties do not dispute that they executed a lease and Side Letter Agreement. Although Defendants move for summary judgment on the grounds that Parkwest was permitted to terminate the lease agreement, Plaintiff argues the Defendants breached an oral contract to form a Joint Venture with ABG. Thus, as a threshold matter, the Court must determine whether a Joint Venture contract existed between the parties.

“Contract formation requires mutual consent, which cannot exist unless the parties agree upon the same thing in the same sense.” (Bustamante v. Intuit, Inc. (2006) 141 Cal.App.4th 199, 208 (Bustamante).) Mutual assent is determined under an objective standard applied to the outward manifestations or expressions of the parties, i.e., the reasonable meaning of their words and acts and not their unexpressed intentions or understandings. (Id at p.208.) It is not enough that the parties agree on some of the terms. (Id.) Nor is it sufficient if the “essential terms [are] only sketched out, with their final form to be agreed upon in the future.” (Id. at p. 213.) Only if the agreed-upon terms “provide a basis for determining the existence of a breach and for giving an appropriate remedy” is there a contract. (Weddington Productions, Inc. v. Flick (1998) 60 Cal.App.4th 793, 811; Bowers v. Raymond J. Lucia Companies, Inc. (2012) 206 Cal.App.4th 724, 734.)

For example, in Bustamante, the plaintiff there alleged that the defendant wrongfully withdrew from a joint venture. (Bustamante v. Intuit, Inc. (2006) 141 Cal.App.4th 199, 207.) The court found there was no meeting of the minds as to the essential structure and operation of the alleged joint venture, even if there was agreement on some of the terms. (Id. at p. 215.) The parties had not determined the amount of money the parties needed to raise and were still discussing material terms by the time the defendant withdrew from the proposed venture. Additionally, there was no expression of mutual consent to create a company without investor financing which could not be obtained without “ironing out the details of the contemplated network of relationships.” (Id. at p. 213.)

On March 12, 2021, Barket sent Mr. Park and Parkwest’s Director, Mark Vasey, a “Term Sheet” which referenced a potential joint venture which was never finalized and never signed. (Vasey Decl., ¶6.) The term sheet set forth preliminary terms and named the proposed parties to the agreement, Silverado and Fortiss, LLC, another entity owned by Park. (Defendants’ Exh. 8.) The Term Sheet lacked a purchase price, initial deposit, closing date, annual lease agreements, terms about which entities would retain title of the leased properties, management fee values, and signatures. (Id.) The only relevant terms set forth in the Term Sheet are as follows:

The terms are incomplete and lack many material terms, including a closing date, rent values, or a purchase price. Moreover, A. Barkett testified that the Term Sheet was a part of the normal course of business when working on a deal. (A. Barkett Depo., 91:21-92:5.) The Term Sheet outlined the joint venture so that the parties could show the proposed terms to a financial institution and secure funding. (Id.) Thus, A. Barkett admitted during deposition that the Term Sheet was only meant to summarize the proposed venture for financial institutions for the sake of obtaining financing. Therefore, the Term Sheet did not represent a complete agreement between Silverado and Fortiss, LLC or Monument.

Park himself circulated other terms regarding interest rates and when Monument would obtain full ownership of the new LLC. The parties continued negotiating through April 2021. A. Barkett emailed a rough overview of confirmed rates for financing, which concerned Parkwest’s Asset Purchase Agreement with the sellers of the Bicycle Casino, not the Joint Venture. (Defendants’ Exh. 14.) On April 22, 2021, Park sent an email to the Barketts and Vasey memorializing additional terms:

Even if the parties agreed to some terms, the terms alone are not sufficient to show the parties reached mutual consent with respect to the entire Joint Venture agreement. Additionally, none of these preliminary terms provide a basis for determining the existence of a breach and for giving an appropriate remedy.

The facts here are close to those in Bustamante, where the parties’ contract negotiations over a joint venture had not sufficiently developed to obtain financing. Here, Park and Vasey were ultimately. not satisfied with any of the financing options Hilltop and the Barketts proposed because they were all short-term loans which would have required refinancing in 3-5 years and which would have required Parkwest to advance millions of dollars. (Vasey Decl., ¶12.) Parkwest terminated the lease agreement and decided to seek alternative financing. (Id., ¶14.) The base annual rent set forth in the lease agreement would not have been enough to cover loan payments that would have to be made for any financing proposed by Hilltop. (Id., ¶9.)

The joint venture at issue here depended heavily on the purchase price of the casino property, the financing Defendants could obtain with Plaintiff’s assistance, and interest rates on the financing. As Plaintiff itself alleges in the TAC, Silverado was obligated to locate and obtain financing for the venture. (TAC ¶13.) Because Hilltop, Silverado, and Barkett could not obtain financing to Defendants’ satisfaction, Defendants chose to pursue other options. Thus, the material terms about the details concerning the financing could not have been finalized at the time Defendants withdrew from negotiations. None of the terms in the proposed Term Sheet or the parties’ subsequent negotiations showed that Defendants agreed to be bound to accept Hilltop’s proposed financing options or to proceed with the joint venture. Therefore, Defendants meet their burden of showing there was no Joint Venture agreement. At most, the parties had agreed to some terms. None of these terms bound Defendants to proceed with the lease agreement with ABG notwithstanding the Side Letter Agreement.

The parties do not dispute that the lease agreement and the Side Letter Agreement were effective at the time Parkwest terminated the lease agreement. The Side Letter Agreement expressly allowed either party to terminate the lease if the terms were unacceptable for any reason. Therefore, Parkwest was permitted to terminate the lease agreement after it determined that the financing proposed by Plaintiff was unacceptable. Defendants meet their burden of showing no triable issue of material fact remains over whether they breached the alleged Joint Venture agreement or the lease agreement.

The burden shifts to Plaintiff. Plaintiff argues that the parties agreed to three terms necessary to form a joint venture. Specifically, Plaintiff alleges that the agreed upon terms, (1) joint control, (2) sharing of the profits, and (3) an ownership interest in the enterprise, were sufficient to form a joint venture in mid-April 2021. Plaintiff fails to cite any authority or additional evidence supporting this argument. To the contrary, the evidence shows that the parties continued negotiating terms through the end of April 2021 until Parkwest decided to pursue other financing options after Hilltop’s proposed financing options were not satisfactory. The evidence shows that the parties had not reached mutual assent regarding the proposed venture.

Plaintiff next argues Defendants’ acts and declarations create a reasonable deduction that a joint venture was formed. Plaintiff cites Nelson v. Abraham (1947) 29 Cal.2d 745, 749–750 and 580 Folsom Assocs. v. Prometheus Dev. Co. (1990) 223 Cal.App.3d 1,16 in support of this argument. These cases state a joint venture may be assumed as a reasonable deduction from the acts and declarations of the parties.

Plaintiff alleges that if Parkwest did not intend to enter a joint venture with Silverado, it would have repudiated the Term Sheet. Instead, Defendants’ counsel, Jeff Van Wagner, sent an edited memo clarifying the entity taking part in the joint venture would be Monument, not Fortiss. (W. Barkett Decl., ¶12, Plaintiff’s Exh. F.) Van Wagner thereafter negotiated additional terms regarding when Monument would obtain ownership of the new LLC. (Plaintiff’s Exh. I.) Additionally, Park formed Monument to participate in the proposed venture and Parkwest executed a formal written lease pursuant to the terms of the proposed venture. (Id.; Barkett Decl., ¶16.)

Plaintiff’s evidence is the same evidence presented by Defendants. Again, although the parties may have agreed to some terms, the terms are incomplete because they are insufficient to show a basis for determining the existence of a breach and for fashioning an appropriate remedy.

With respect to the argument that Defendants formed Monument with the intention of proceeding with the joint venture, Plaintiff does not submit any admissible evidence in this regard. Plaintiff asserts through the Declaration of William Barkett that Monument was formed by Park to be a “venturer in the Joint Venture.” However, Monument provides no evidence for this assertion as to the motives of Park. Moreover, even if true, the this sentence presupposes the existence of a joint venture in the first instance.

With respect to the argument that Defendants executed a lease to proceed with the proposed venture, the TAC and the Barketts’ testimony all show that the parties executed the lease as a condition of obtaining financing. (TAC ¶24; W. Barkett Depo., 62:11-25; A. Barkett Depo., 62:3-11.) The parties continued to negotiate the Joint Venture agreement as Hilltop proposed financing options. Additionally, Defendants insisted on executing the Side Letter Agreement expressly allowing either party to terminate the lease. This action does not show Defendants intended to bind themselves to the proposed venture through the lease agreement because Defendants were free to terminate the lease agreement if the terms of the lease or the financing were not acceptable. The lease is not sufficient to show that the parties had reached mutual assent as to the operating agreement.

The Barketts themselves testify the parties were in the process of negotiating the operating agreement when Parkwest terminated the lease agreement. W. Barkett testified during his deposition that he never entered into a written joint venture agreement with Park. (W. Barkett Depo., 50:5-10.) W. Barkett was in the process of negotiating a written agreement with Park, but one was never signed. (Id., 50:18-51:11.) W. Barkett also testifies that the deal fell apart before the operating agreement was complete. (Id., 86:23-87:10.) A. Barkett similarly testifies the parties discussed Monument’s membership in ABG and Park’s partial ownership of ABG, but those terms were never finalized and there was never a completed operating agreement containing those terms. (A. Barkett Depo., 103: 2-104:3.)

The evidence shows that the parties were in the midst of negotiating the terms of a proposed Joint Venture agreement does not show that a joint venture was formed. The parties’ declarations and actions do not show that the parties reached mutual assent regarding the joint venture.

Plaintiff finally argues that unlike Bustamante, the parties had no issues obtaining financing. However, as discussed above, at the time negotiations ended, Hilltop and the Barketts were still proposing alternative financing options, all of which were insufficient to cover loan payments and would have required Defendants to advance millions of dollars. The parties were still discussing financing, major terms to the proposed Joint Venture agreement, at the time negotiations ended. Although Plaintiff further cites to the commitment letter from Hilltop, the letter merely states Hilltop would commit to providing financing to purchase the casino. (Plaintiff’s Exh. L.) Moreover, Defendants specifically carved out Comerica, another bank which would offer alternative financing options if Hilltop’s offerings were unacceptable. (Defendants’ Exh. 21.) Thus, the parties were still negotiating financing options and Defendants continued considering third party options at the time negotiations ended. The evidence thus does not show that the parties reached mutual assent regarding the joint venture.

The elements for breach of the implied covenant of good faith and fair dealing are: (1) existence of a contract between plaintiff and defendant; (2) plaintiff performed his contractual obligations or was excused from performing them; (3) the conditions requiring defendant’s performance had occurred; (4) the defendant unfairly interfered with the plaintiff’s right to receive the benefits of the contract; and (5) the plaintiff was harmed by the defendant’s conduct. (Merced Irr. Dist. V. County of Mariposa (E.D. Cal. 2013) 941 F.Supp.2d 1237, 1280 (discussing California law).) Allegations must demonstrate defendant’s conduct for failure or refusal to discharge contractual responsibilities was a conscious and deliberate act, not an honest mistake, bad judgment or negligence. (Id.) “‘[T]he implied covenant of good faith and fair dealing is limited to assuring compliance with the express terms of the contract, and cannot be extended to create obligations not contemplated by the contract.’” (Ragland v. U.S. Bank Nat. Assn. (2012) 209 Cal.App.4th 182, 206 (quoting Pasadena Live v. City of Pasadena (2004) 114 Cal.App.4th 1089, 1094).)

To state a declaratory relief claim, the plaintiff must allege a proper subject of declaratory relief and an actual controversy involving justiciable questions relating to the party’s rights or obligations. (Jolley v. Chase Home Finance, LLC (2013) 213 Cal.App.4th 872, 909.) A claim for declaratory relief is improper if it seeks redress only of past wrongs. (Moore v. Wells Fargo Bank, N.A. (2019) 39 Cal.App.5th 280, 295 [“[T]here is no basis for declaratory relief where only past wrongs are involved.”].)