Judge: Lynne M. Hobbs, Case: 21STCV10662, Date: 2024-06-13 Tentative Ruling

Case Number: 21STCV10662    Hearing Date: June 13, 2024    Dept: 61

MID ATLANTIC CAPITAL ASSOCIATES, A CANADIAN CORPORATION vs BROADSIDE ENTERPRISES, INC., A DELAWARE CORPORATION, et al.

TENTATIVE        

Cross-Defendants Broadside Enterprises, Inc. and Christopher Petzel’s Motion for Summary Judgment on Cross-Complainants Michael Taverna and Cindy Nelson-Mullen’s Cross-Complaint is GRANTED.

Moving parties to provide notice. 

Cross-Complainants Michael Taverna and Cindy Nelson-Mullen offer objections to the evidence submitted by Cross-Defendants in support of the present motion for summary judgment or

adjudication. Of these objections Objection No. 3 and 5 are SUSTAINED on the grounds that the declarant Christopher Petzel offers legal conclusions as to the effect of the failure to deliver physical stock certificates and his contested status as CEO of Broadside. The remaining objections are OVERRULED.

II. SUMMARY JUDGMENT

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. § 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.) A motion for summary adjudication may be made by itself or as an alternative to a motion for summary judgment and shall proceed in all procedural respects as a motion for summary judgment. (Code Civ. Proc. § 437c, subd. (f)(2).)

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; accord Code Civ. Proc. § 437c, subd. (p)(2).)

Once the defendant has met that burden, the burden shifts to the plaintiff to show that a triable issue of one or more material facts exists as to that cause of action or a defense thereto. (Aguilar, supra, 25 Cal.4th at 850.) The plaintiff may not rely upon the mere allegations or denials of its pleadings to show that a triable issue of material fact exists but, instead, shall set forth the specific facts showing that a triable issue of material fact exists as to that cause of action or a defense thereto. (Ibid.) To establish a triable issue of material fact, the party opposing the motion must produce substantial responsive evidence. (Sangster v. Paetkau (1998) 68 Cal.App.4th 151, 166.)

Cross-Complainants and Cross-Defendants Broadside Enterprises, Inc. and Christopher Petzel (Cross-Defendants) seek summary adjudication in their favor on all claims asserted by Cross-Complainants Michael Taverna and Cindy Nelson-Mullen in their Cross-Complaint against Cross-Defendants. The motion has two primary bases. First, although Cross-Complainants allege that Cross-Defendants (and specifically Petzel) impermissibly cancelled the agreement whereby Cross-Complainants obtained their controlling shares of Broadside, Cross-Defendants argue that Petzel was permitted to cancel the agreement through a provision permitting cancellation if the sellers or Broadside were subjected to legal action or judgment by the end of 2021. (Motion at pp. 7–14.) Cross-Defendants also argue that Cross-Complainants have no claim for breach of fiduciary duty on the grounds that their stock certificates were never physically delivered, and therefore no stockholder relationship was created. (Motion at pp. 9–9.)

Cross-Defendants’ primary argument is a matter of contract interpretation.

The rules governing the role of the court in interpreting a written instrument are well established. The interpretation of a contract is a judicial function. In engaging in this function, the trial court gives effect to the mutual intention of the parties as it existed at the time the contract was executed. Ordinarily, the objective intent of the contracting parties is a legal question determined solely by reference to the contract's terms. The court generally may not consider extrinsic evidence of any prior agreement or contemporaneous oral agreement to vary or contradict the clear and unambiguous terms of a written, integrated contract. Extrinsic evidence is admissible, however, to interpret an agreement when a material term is ambiguous. When the meaning of the words used in a contract is disputed, the trial court engages in a three-step process. First, it provisionally receives any proffered extrinsic evidence that is relevant to prove a meaning to which the language of the instrument is reasonably susceptible. If, in light of the extrinsic evidence, the language is reasonably susceptible to the interpretation urged, the extrinsic evidence is then admitted to aid the court in its role in interpreting the contract. When there is no material conflict in the extrinsic evidence, the trial court interprets the contract as a matter of law. This is true even when conflicting inferences may be drawn from the undisputed extrinsic evidence or that extrinsic evidence renders the contract terms susceptible to more than one reasonable interpretation. If, however, there is a conflict in the extrinsic evidence, the factual conflict is to be resolved by the jury.

(Jade Fashion & Co., Inc. v. Harkham Industries, Inc. (2014) 229 Cal.App.4th 635, 651–52, internal quotation marks, alterations, and citations omitted.)

The agreement was executed in December 23, 2020, as a “reverse merger,” in which Broadside, then owned by Petzel, was to obtain all shares in a company (Montecristo) owed by Cross-Complainants, and Cross-Complainants in turn were to obtain controlling shares in Broadside. (Cross-Defendants’ Response to Additional Material Facts (AMF) No. 1.) The agreement, however, contains a clause stating the following:

After the Parties have a Closing under Section l(b), but before December 31, 2021, if the Company' s common stock is no longer trading on any level of OTC Markets (after a 60 day cure period) or if any person brings a legal action or obtains a judgment in a US court against the Company or the Sellers; (in either case, the "Affected Party"), the other Parties may cancel this Agreement upon written notice to the Affected Party. Within thirty days after the Affected Party receives such notice, the Sellers will return the Stock Consideration to the Company and the Company will return the Units to the Sellers. Once the Parties each return the consideration to the other Parties, the Parties will no longer have any rights or obligations to each other under this Agreement.

(Petzel Decl. Exh. 3.) Cross-Defendants argue that under this provision, they were entitled to rescind the agreement before December 31, 2021, if any lawsuits were filed against Cross-Complainants or Broadside. Accordingly, they note that Broadside was served with a notice of arbitration in August 23, 2021, and was sued in the present action, which was initiated against

Petzel and Broadside on March 18, 2021. (Petzel Decl. ¶ 11.) Cross-Defendants also note the following cases against Cross-Complainant Taverna:

· A case filed against Taverna on March 4, 2021, by Bank of America, N.A., LASC Case No. 21CHLC07807, with judgment entered against Taverna on May 31, 2021;

· A judgment entered against Taverna on March 18, 2021, in LASC Case No. 20CHLC26940;

· A judgment against Taverna in favor of Velocity Investments, LLC, in LASC Case No. 20CHLC30824.

(Cross-Complainants’ Response to Undisputed Material Facts (UMF) No. 12.) Cross-Defendants accordingly notified Cross-Complainants of their intent to cancel the agreement on September 10, 2021. (Petzel Decl. Exh. 11.)

Cross-Complainants argue that Cross-Defendants’ reliance upon this provision was pretextual, as they had already indicated to Broadside’s stock agent in a letter of September 3, 2021, indicating that the transaction had been cancelled by virtue of the failure to physically deliver Cross-Complainants’ stock certificates. (Opposition at pp. 7–8.) Cross-Complainants also argue that the contractual provision upon which Cross-Defendants rely references legal actions and judgments against “Sellers” in the plural sense, and that no legal action or judgment has been taken or entered against both Cross-Complainants. (Opposition at pp. 12–13.) Cross-Complainants further argue that any cancellation of the agreement after any such legal action must be taken collectively by the “other parties” to the agreement, not unilaterally by one. (Opposition at pp. 12–13.)

Cross-Complainants’ contractual interpretation is unreasonable. The provision’s reference to legal actions or judgments entered “against the Company or the Sellers” does not purport to require that the action or judgment be against all Sellers collectively, but rather assumes the singularity of the “Affected Party.” (Petzel Decl. Exh. 3.) Indeed, contrary to Cross-Complainants’ proposed interpretation — which would require legal action against both Cross-Complaints — the agreement defines “Sellers” to refer to Cross-Complainants and Petzel as well. (Petzel Decl. Exh. 3.) Thus, under Cross-Complainants’ proposed interpretation, no legal action would qualify unless it was against the individuals on both sides of the transaction, and could only then be cancelled in that case by written notice from the company they controlled. Cross-Complainants do not explain the utility of this formulation. Indeed, such an interpretation goes against the situation envisioned by the contract, in which the party “affected” by the litigation receives notice from “other,” — presumably unaffected — parties of their cancellation of the agreement. 

Cross-Complainants similarly argue that the provision’s reference to “other Parties” in the plural sense indicates that cancellation is a decision that could only be taken by the other parties’ in concert. But this argument too is unpersuasive, as the provision makes no reference to any required agreement of the parties, but describes only a unilateral act — the cancellation of the agreement “upon written notice to the affected party.” If the contract required the parties to

“each” give notice, then the proper language could have been used, as in the last sentence of the operative paragraph, directing that the other parties will no longer have any rights or obligations under the agreement after cancellation “[o[nce the Parties each return the consideration.” (Petzel Decl. Exh. 3.)

This interpretation defeats the other claims contained in cross-complaint. Their claim for declaratory relief rests upon the contention that the agreement has not been cancelled and they remain in control of Broadside (XC ¶ 23), a contention refuted by Cross-Defendants’ cancellation per the terms of the agreement. Their claim for breach of fiduciary duty rests upon Cross-Defendants’ allegedly improper cancellation of the agreement as well. (XC ¶ 27.) Cross-Complainants’ conversion claim rests upon the conversion of their shares pursuant to the cancellation. (XC ¶ 32.) The fraud claim alleges that Cross-Defendants fraudulently represented his intent to effectuate the terms of the agreement, and that their shares had been delivered through an instant messaging service, with the intent to later claim that such delivery was ineffectual. (XC ¶¶ 36–41.) But per the above analysis, events qualifying for cancellation of the agreement occurred after its execution, and such cancellation did not depend upon the validity of the delivery of the shares to Cross-Complainants. The fifth cause of action alleges once more that the cancellation of the agreement was a breach. (XC ¶¶ 44–46.) The unjust enrichment claim fails, as Cross-Complainants “received the benefit of the bargain.” (Peterson v. Cellco Partnership (2008) 164 Cal.App.4th 1583, 1593.) The claim for breach of the implied covenant of good faith and fair dealing likewise rests upon Cross-Defendants’ attempts to “unwind the Transaction without any viable basis therefor” (XC ¶ 58), when, as explained above, a viable basis existed under the express terms of the agreement. Cross-Complainants’ claim for promissory estoppel fails in light of undisputed evidence that they “gave actual consideration” for the promises at issue as part of a formal contract. (Newport Harbor Ventures, LLC v. Morris Cerullo World Evangelism (2016) 6 Cal.App.5th 1207, 1224.) Finally, Cross-Defendants’ derivative claim under Business & Professions Code § 17200 fails with the above.

The motion for summary judgment is therefore GRANTED.