Judge: John C. Gastelum, Case: 20-01168000, Date: 2022-11-01 Tentative Ruling
Motion for Summary Judgment and/or SAI
Tentative Ruling: Defendants Bush Management Company (“BMC”) and John S. Hagetsad (collectively, the “BMC Parties”) move for summary adjudication of the first, fourth, fifth, and sixth causes of action in the First Amended Complaint of Plaintiff Black Swan Advisors LLC (“Plaintiff” or “BSA”).
Relevant Claims in the FAC: BSA and the BMC Parties entered into an Original Consulting Agreement (with 10 written amendments) in 2013. (FAC, ¶ 31.) BSA claims the parties intended to pursue a joint venture together to acquire and develop two or more gold mines located in Inyo County, California. (FAC, ¶ 19.) In exchange for BSA’s expertise and labor pursuant to the joint venture, Hagestad agreed BSA would receive a percentage of ownership of the joint venture’s gold mines and profits, including a 30 percent interest in both the Keystone and Radcliffe gold mines and a 15 percent carried interest in the Keystone mine. (FAC, ¶ 21.) BSA alleges Hagestad breached his fiduciary duties to BSA by repudiating the joint venture, purporting to terminate BSA’s services, and excluding BSA from continuing efforts to develop the Keystone and Radcliffe gold mines for profit. (FAC, ¶ 30.)
Defendants’ Evidentiary Objections:
Objections to the Declaration of Charles McLaughlin
Nos. 1-25 – overruled.
BSA’s Request for Judicial Notice
BSA requests judicial notice of the following:
1. Exhibit A—a copy of Keystone Mining Company’s Limited Partnership Agreement filed in the Bankruptcy Court for the Eastern District of California;
2. Exhibit B—a copy of Keystone Mine Management, Ltd.’s Limited Partnership Agreement filed in the Bankruptcy Court for the Eastern District of California.
3. Exhibit C—a copy of Keystone Mine Management II, Ltd.’s (KMMII) Limited Partnership Agreement filed in the Bankruptcy Court for the Eastern District of California.
4. Exhibit D—a copy of the KMMII Chapter 7 Trustee’s Separate Statement of Undisputed Material Facts in support of his motion for summary judgment on his quiet title action against Keystone Mining Company, a limited partnership.
5. Exhibit F—a copy of a letter that Hagestad submitted in the KMMII Bankruptcy filed in the Bankruptcy Court for the Eastern District of California in support of a motion to appoint a Chapter 11 Trustee.
6. Exhibit G—a copy of a letter that Hagestad submitted in in the KMMII Bankruptcy filed in the Bankruptcy Court for the Eastern District of California in support of a motion to appoint a Chapter 11 Trustee.
7. Exhibit H—a copy of Hagestad’s June 2012 Verified Complaint filed in this Court.
8. Exhibit I—a Declaration of Meir J. Westreich re Proffer for Debtor’s Intended Opposition to Motion to Appoint Chapter 11 Trustee filed in the Bankruptcy Court for the Eastern District of California.
9. Exhibit N—a copy of BMC’s Amended and Restated Purchase and Sale Settlement Agreement filed in the Bankruptcy Court for the Eastern District of California.
The Request for Judicial Notice is GRANTED. (Evid. Code, § 452(d).)
First COA (Specific Performance)
The executed Original Consulting Agreement states it constitutes an agreement for consulting services “regarding an investment in a gold mine known as Keystone Mining Company (Keystone).” (Defendants’ Compendium of Exhibits (“COE”), Vol. 1, Ex. 2, p. 18.) Under Paragraph 2 entitled Fees for Services, the Original Consulting Agreement provides that BSA “shall be paid, on a contingency basis, an amount determined by the recovery achieved by Client. After the Client has received back all of its invested capital, based upon a schedule to be prepared by the Client and agreed to by the Consultant, the Consultant shall receive a 25% interest in the Client’s interest in Keystone. After the Client has received $1 million, in profits, over and above costs, the Consultant’s share shall be increased to 30% of the Client’s share.” (COE, Ex. 2, p. 19.)
The parties dispute whether these provisions confer onto BSA a portion of the interest held by the BMC Parties in the Keystone and Radcliffe mines. The BMC Parties argue the interest conferred onto BSA is limited to a company called Keystone Mining Company, rather than the Keystone mine itself. The Keystone Mining Company was a company that had previously owned the Keystone mine.
BSA argues the provisions grant it an interest in the Keystone mine itself, contending that the general public knew the gold mine generally as Keystone Mining Company irrespective of the legal entity that owned and operated it. Before the Original Consulting Agreement was executed, Kirk Dushane, former owner of the Keystone Mining Company, had formed a company called Keystone Mine Management, Ltd. and another called Keystone Mine Management II, Ltd. (“KMMII”). The Keystone mine assets were transferred to KMMII and the KMMII partnership agreement stated that title to the partnership property shall be held in the name of either Keystone Mining Company or the partnership and agreements may be entered into in either name. BSA contends Hagestad knew or should have known when he prepared the Original Consulting Agreement in 2013 that Keystone Mining Company could refer to the Keystone mine itself and indeed, Hagestad must have so intended, because at the time of drafting the BMC Parties no longer had an interest in the Keystone Mining Company, which would render the compensation provision meaningless.
The Court finds there is a triable issue of fact as to whether the Original Consulting Agreement was intended to provide BSA with a 25-30 percent interest in the Keystone Mining Company or the Keystone mine. Though the provision does expressly refer to Keystone Mining Company, it also refers to the investment as “a gold mine,” which renders the interpretation offered by BSA as reasonable.
Next, the BMC Parties argue the 25-30 percent interest was replaced by a subsequent agreement that would provide BSA with a 7.5 percent carried interest in Newco, a new entity that would acquire and develop the Keystone mine. However, there is no executed agreement or amendment of the Original Consulting Agreement unambiguously showing that the parties agreed that the 7.5 percent carried interest would replace the 25-30 percent interest under the Original Consulting Agreement.
The BMC Parties point to a January 28, 2014 letter written by McLaughlin, in which he stated: “The 7.5% figure coupled with the 17.5% I have suggested to you is roughly the 30/70 split currently called for in the Agreement, and is not any new compensation to BSA.” (COE, Ex. 16, p. 123.) This statement on its own is vague and does not conclusively establish that the parties intended to have the 7.5 percent carried interest replace any other compensation.
The First Amendment states Client and Consultant have determined that “the compensation provided for in the Agreement should be augmented as follows: [¶] 1) For additional services rendered in putting together the Offer to Purchase to the Trustee, including many components of a Plan of Reorganization to demonstrate to the court that the creditors and other parties at interest will be fairly treated, Consultant shall receive a 7.5% carried interest in the Plan as proposed by Client, subject to the approval of the court.” (COE, Ex. 3, p. 21.) The language appears to indicate that BSA was to receive the 7.5 percent carried interest as compensation for additional services rendered, which does not support the conclusion that the carried interest would replace BSA’s former interests.
As to the Radcliffe mine, the BMC Parties argue that none of the Amendments provide BSA any ownership interest in the Radcliffe mine. After BMC purchased the Radcliffe mine in 2018, the parties executed the Seventh Amendment to reflect its acquisition. (COE, Ex. 10.) The Seventh Amendment states that a monthly management fee of $15,000 will be paid $10,000 per month plus an accrual of $5,000 per month until changed and BSA shall be paid 33.3 percent of the net amount received from the sale of Radcliffe gold ore stored at the Ballarat facility. (Id., Ex. 10, p. 42.) It states that “[t]he amount paid from the ore sales will not be an additional fee but will be applied to accrued unpaid fees pursuant to the 5th Addendum.” (Ibid.)
Charles McLaughlin, the owner, managing member, and president of Plaintiff BSA, testified that the parties had discussed that Radcliffe would be added to the consulting agreement but when asked whether they discussed whether BSA was getting a 25 percent or 30 percent interest in Radcliffe, he stated that nothing was talked about in specifics. (COE, Ex. 35, pp. 556-557.)
In its Opposition, BSA points to the Original Consulting Agreement language stating that: “This [agreement] will also apply to any adjacent properties owned by Keystone or assets which will be acquired by Keystone, in the future.” BSA also points to the language in the Seventh Amendment itself stating: “Since the adoption of the 5th Amendment in October 2016 (modified in March 2017) Client and Consultant mutually agreed to expand the goals of the Agreement to include an expansion of the number of mines owned.” (COE, Ex. 10, p. 41.)
Whether BSA has an ownership interest in the Radcliffe mine, like the Keystone mine, is a triable issue of fact. The Original Consulting Agreement is open to interpretation as to whether the parties intended BSA to have an interest in the BMC Parties’ interest in the Keystone mine, as discussed above. That Agreement further states that it will apply to any adjacent properties or assets owned or acquired by Keystone in the future, which would include the Radcliffe mine. One interpretation of the Agreement’s provisions could be that the parties intended to have BSA’s interest in the BMC Parties’ interest of any gold mines include any gold mines subsequently acquired.
Given the above, the Motion is DENIED as to the first cause of action.
Fourth COA (Breach of Fiduciary Duty), Fifth COA (Quantum Meruit), and Sixth COA (Dissolution and Accounting)
The BMC Parties argue the fourth, fifth, and sixth causes of action fail because there was no joint venture between them and BSA. They contend the parties clearly intended to create a client/consultant relationship and BSA never had joint management and control.
A joint venture exists when there is an agreement between the parties under which they have a community of interest, i.e., a joint interest in a common business undertaking, an understanding as to the sharing of profits and losses and a right of joint control. (Bank of California v. Connolly (1973) 36 Cal.App.3d 350, 364.) An essential element of a joint venture is the right of joint participation in the management and control of the business. (Kaljian v. Menezes (1995) 36 Cal.App.4th 573, 586.) Absent such a right, the mere fact that one party is to receive benefits in consideration of services rendered or for capital contribution does not, as a matter of law, make him a partner or joint venturer. (Id., at p. 586.) The relationship between the parties is not to be determined by the label which the pleader gives to an agreement; it is to be determined by the ultimate facts pleaded. (Epstein v. Stahl (1959) 176 Cal.App.2d 53, 57.) Whether a joint venture exists is a question of fact to be determined by the jury where evidence is in dispute. (Simmons v. Ware (2013) 213 Cal.App.4th 1035, 1052.)
McLaughlin testified that he never discussed with Hagestad entering into a joint venture or partnership regarding the Keystone or Radcliffe mines. (COE, Ex. 35, pp. 569-570.) He also testified that BSA was not a partner with BMC with respect to Keystone and that Hagestad was the decision maker regarding the mines, capital raising, and “everything” and McLaughlin followed whatever he decided. (Id., Ex. 36, pp. 616-617, Ex. 38, p. 729.) Hagestad determined the scope of BSA and McLaughlin’s services in connection with the mines. (Id., Ex. 38, p. 785.) Hagestad was the ultimate decision-maker with respect to acquiring the mines. (Id., Ex. 38, p. 791.) Further, marketing materials sent to potential investors by McLaughlin/BSA indicate that BMC has no partners. (See, e.g., COE, Ex. 23, p. 344, Ex. 28, p. 446.)
On the other hand, Hagestad referred to McLaughlin as his partner in “the gold mine venture” or “this venture” in emails with third parties. (Declaration of Nathan Carle, Exs. C-D.) McLaughlin states that he and Hagestad explored the viability of acquiring additional gold mines after acquiring Keystone and BSA conducted the necessary due diligence for potential targets. (Declaration of Charles McLaughlin, ¶ 43.) BSA and Hagestad agreed that BMC would take title to the mines because it was a clean shell company with no liabilities, which was required by investors and lenders. (Id., ¶ 53.) Hagestad had no expertise in gold mining and BSA dictated the scope of services required to return the mines acquired to production. (Id., ¶ 60.) In this way, McLaughlin contends that BSA served as the “operating partner” while Hagestad served as the capital partner. (Ibid.) McLaughlin made several visits to the Keystone mine, met with geologists and BLM and Inyo County officials regarding permits and zoning, and reviewed gold ore samples. (Id., ¶ 20.) BSA also negotiated BMC’s acquisition of the Keystone mine. (Id., ¶¶ 29-37.)
The disputed evidence is sufficient to raise a triable issue of fact as to whether a joint venture existed here. Though the evidence suggests that perhaps the BMC Parties had more control over the acquisition of the mines and certain areas of management, contributions between joint venturers need not be equal or of the same character. (Epstein, 176 Cal.App.2d at p. 57.) The contribution of knowledge, skill, and services, such as those provided by BSA, can be made to a joint enterprise. (Ibid.) The McLaughlin Declaration demonstrates that BSA played a critical role in the BMC Parties’ acquisition of the two disputed mines, as well as in the management thereof to bring the mines to profitability.
Thus, the Motion is DENIED as to the fourth, and sixth causes of action.
Fifth COA (Quantum Meruit)
The BMC Parties argue that the fifth cause of action for Quantum Meruit fails for the separate reason that recovery in quantum meruit is barred where the parties have a contract covering compensation.
“[T]here is no equitable basis for an implied-in-law promise to pay reasonable value when the parties have an actual agreement covering compensation.” (Hedging Concepts Inc. v. First Alliance Mortgage Co. (1996) 41 Cal.App.4th 1410, 1419.) Because a quantum meruit theory “rests upon the equitable theory that a contract to pay for services rendered is implied by law for reasons of justice[,]” and it is undisputed that the Original Consulting Agreement and subsequent amendments provide for BSA’s compensation here, the Quantum Meruit cause of action does not lie. (Ibid.)
Given the above, the Court finds BSA’s cause of action for Quantum Meruit fails as a matter of law. Compensation for BSA’s services rendered is covered by the Original Consulting Agreement and its amendments. Thus, the Motion is GRANTED to the fifth cause of action.
The BMC Parties to give notice.