Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_05-cv-03758/USCOURTS-cand-3_05-cv-03758-15/pdf.json

Nature of Suit Code: 290
Nature of Suit: Other Real Property Actions
Cause of Action: 28:1332 Diversity-(Citizenship)

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United States District Court

For the Northern District of California

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UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

DARLING INTERNATIONAL, INC.,

Plaintiff,

v.

BAYWOOD PARTNERS, INC., et al.,

Defendants.

__________________________________/

No. C-05-3758 EMC

FINDINGS OF FACT AND

CONCLUSIONS OF LAW

A bench trial was held in this case commencing on May 7, 2007, and ending on May 15,

2007. The Court heard live testimony and testimony by deposition and admitted documentary

evidence. The Court, having considered all the evidence and the post-trial submissions of counsel,

makes the following findings of fact and conclusions of law.

I. FINDINGS OF FACT

A. Parties and Property at Issue

Plaintiff and Counterdefendant Darling International, Inc. (“Darling”) is a Delaware

corporation, formerly known as Darling-Delaware Co., Inc. 

Defendant and Counterclaimant Baywood Partners, Inc. (“Baywood”) is a California

corporation. 

Darling is the owner of certain real property in Petaluma, California (“Property” or “Darling

Property”), consisting of approximately 19 acres and designated as Assessors Parcels Nos. 005-060-

41-3 and 005-060-42-1. See Ex. B26 (Agreement). The Property is landlocked, see Tr. at 392

(testimony of Mr. Whiting), and is subject to claims by the State of California resulting from its

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 Mr. Whiting eventually left Latham in 2004 for Holme, Roberts & Owen, where he continued

to represent Darling. See Tr. at 363-64 (testimony of Mr. Whiting).

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ownership of and jurisdiction over tidelands and public trust property. As of 1990, the Property was

contaminated with hazardous materials. See Ex. B28 (General Report). 

Baywood’s primary purpose when formed was the acquisition and development of the

Darling Property. See Tr. at 118 (testimony of Mr. Wasem).

The officers and board members of Darling changed frequently during the relevant time

period. However, during the relevant time period, there were two corporate officers with primary

responsibility over the Property: Brad Phillips and Bill McMurtry.

Brad Phillips started his employment with Darling in late 1988. See Phillips Depo., vol. I, at

11. Since 1993, he has, in essence, been responsible for overseeing Darling’s real estate holdings. 

See id. at 14-15. Mr. Phillips first became involved with the Property in 1993. See id. at 17. In

1994, Mr. Phillips became treasurer of Darling. See id. at 12. 

Bill McMurtry started his employment with Darling in late 1996. See McMurtry Depo., vol.

I, at 12. He was hired and continues to serve today as vice-president of environmental affairs. See

id.

During the relevant time period, Darling was represented by both in-house counsel and

outside counsel. David Mellina was hired as outside counsel for Darling in 1994. See Mellina

Depo. at 9. He represented Darling with respect to the sale of the Property to Baywood from

approximately 1994 to 1998. See id. at 10. At some point, Latham & Watkins also began to

represent Darling with respect to the sale of the Property to Baywood. Latham attorneys who

worked on the matter included Bob Dahlquist, Jon Demorest, and Ken Whiting.1

 In 1997, Joe

Weaver was hired as general counsel for Darling. See Weaver Depo. at 11.

Baywood is owned by three individuals: Larry Wasem, Borue O’Brien, and Richard

Coombs. See Tr. at 119 (testimony of Mr. Wasem). Mr. O’Brien is the president of Baywood, and

Mr. Wasem a vice-president. See id. at 118. Mr. Wasem is a graduate of Stanford Law School and

Stanford Business School. See id. He is licensed to practice law in Texas but his license is not

active. See id. Mr. Wasem was the Baywood officer primarily responsible for acquisition of the

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Property. See id. at 119. Since 1990, he has been the primary contact person for Darling with

respect to communications relating to the Property. See id.

B. 1990 Agreement of Purchase and Sale

In 1989, the parties entered into negotiations for the purchase and sale of the Property. See

Jt. Undisputed Facts at 2.

On March 16, 1990, the parties executed an Offer to Purchase. See Jt. Undisputed Facts at 2;

see also Ex. B24 (Offer to Purchase, dated 3/16/90). The Offer to Purchase specified that the

purchase price of the Property would be $500,000 and that Baywood would make an initial deposit

of $10,000 toward the purchase price. See id. The Offer to Purchase further specified that

“[Baywood] and [Darling] will execute an Agreement of Purchase and Sale . . . , prepared by

[Baywood’s] counsel, following the agreement of general terms and conditions outlined in this

proposal.” Id. Jim Farrell, a manager at Darling who participated in the negotiations leading up to

the sale of the Property to Baywood, see Tr. at 754 (testimony of Mr. Farrell), signed the Offer to

Purchase on behalf of Darling. Mr. O’Brien signed on behalf of Baywood. See Ex. B24. 

On March 19, 1990, Mr. Wasem sent a letter to Northwestern Title Security Co.

(“Northwestern”), which enclosed (1) the Offer to Purchase and (2) a check in the amount of

$10,000 made payable to Northwestern. See Ex. B510 (letter, dated 3/19/90, from Mr. Wasem to

Northwestern); B263 ($10,000 check, dated 3/16/90, issued by Baywood to Northwestern); see

also Jt. Undisputed Facts at 2. Mr. Farrell was carbon copied on the letter. See Ex. B510. In the

letter, Mr. Wasem noted, inter alia, that, “[p]ursuant to the terms of the Offer to Purchase, a more

complete Agreement of Purchase and Sale will be deposited with you in the near future.” Id.

On April 30, 1990, the parties executed a Purchase and Sale Agreement (“Agreement” or

“1990 Agreement”) for the Property. See Jt. Undisputed Facts at 2; see also Ex. B26 (Agreement). 

Mr. Farrell signed on behalf of Darling, and Mr. Wasem on behalf of Baywood. See id.

Subsequently, Darling signed a Memorandum of Agreement which was recorded against the

Property in the official records of Sonoma County. See Jt. Undisputed Facts at 2; see also Ex. B34

(Memorandum of Agreement).

The relevant terms of the Agreement between Darling and Baywood were as follows.

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1. Document Delivery and Second Deposit

Under the Agreement, by May 10, 1990, Darling was to deliver to Baywood a copy of an

environmental report, dated September 15, 1989, prepared by Ecology & Environment, Inc. (“EEI”)

concerning the underground tanks on the property 

and any and all other toxic and toxicity studies, soils reports,

groundwater reports, heavy metal reports and other studies and reports

concerning the presence of any Hazardous Materials at, on, in under or

about the Subject Property that may be in [Darling’s] possession or

may be otherwise obtainable by [Darling].

Ex. B26 (Agreement ¶ 4.3).

In addition, by May 30, 1990, Darling was to deliver to Baywood “complete and accurate

copies of all reports, studies, and other documentation in [Darling’s] possession or subject to

[Darling’s] control concerning [inter alia] the physical condition of the Subject Property; . . . the

soils condition of the Subject Property; and . . . the presence of Hazardous Materials on the Subject

Property.” Id. (Agreement ¶ 3.4); see also id. (Agreement ¶ 4.2) (defining Hazardous Materials). If,

prior to closing, Darling received or obtained control over other documentation which was not

previously delivered by Baywood, then Darling was to “promptly deliver to [Baywood] complete

and accurate copies of such reports, studies, or other documentation.” Id. (Agreement ¶ 3.4).

Prior to July 6, 1990, Baywood was given the opportunity to inspect the Property. If

Baywood approved of the condition of the Property -- including but not limited to the physical

condition of the property, the condition of and exceptions to Darling’s title to the Property, and “any

and all other aspects of the Subject Property which [Baywood] deems to be material” -- then, by July

6, it would make a second deposit to Northwestern in the amount of $140,000. See id. (Agreement

¶¶ 2.2, 3.1). The Agreement specified that 

[Baywood’s] failure to deliver the Second Deposit with the Escrow

Holder by July 6, 1990 shall be conclusively deemed to constitute

failure of [this] condition precedent . . . . This condition precedent is

for the benefit of [Baywood] only, and may be waived by [Baywood]

only by way of a written and signed waiver. If this condition

precedent is not satisfied or waived . . . , then this transaction shall be

cancelled, and on the day after the failure of condition, the Escrow

Holder shall return to [Baywood] the Initial Deposit, together with all

interest earned thereon.

Id. (Agreement ¶ 3.1).

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2. Tank Report and General Report

Prior to execution of the Agreement, Darling had engaged EEI to prepare an environmental

investigation of the underground tanks on the property and the soils, surface water, and groundwater

in proximity thereto. See id. (Agreement ¶ 4.4.1). The results of the environmental investigation

were known as the “Tank Report.” See id.

Upon execution of the Agreement, Darling and Baywood were to engage a qualified soils

engineering firm to prepare a general “Phase 1” environmental investigation of the Property. The

results of the investigation were known as the “General Report.” See id. (Agreement ¶ 4.4.2). 

Upon completion of the Tank Report and General Report, Darling was to submit the reports 

(or an appropriate written summary, disclosure, work plan or other

notice approved by [Darling] and [Baywood]) to the appropriate

agency of the County of Sonoma and to any and all other local,

regional, state or federal agencies and bodies which may govern,

control, regulate or otherwise possess jurisdiction over the presence of

petroleum products and Hazardous Materials generally . . . which in

the reasonable opinion of counsel for [Darling] and [Baywood] are

required by law to receive notice of the information contained in the

Tank Report and/or the General Report.

Id. (Agreement ¶ 4.4.3). 

3. Remediation

Either prior to or after close of escrow, Darling was required to remediate the Property. 

More specifically, Darling was 

to remove all underground tanks . . . that may be situated on the

Subject Property in the manner required by law and to remove, contain

and/or remediate all Hazardous Materials in the soils, surface water

and groundwater at, on, in, under or about the Subject Property,

including, without limitation, all asbestos and waste products from

underground cisterns.

Id. (Agreement ¶ 4.1); see also id. (Agreement ¶ 4.5). The remediation was to be “supervised by a

qualified soils engineering firm reasonably acceptable to [Darling], [Baywood] and the Public

Agencies (the ‘Supervising Consultant’).” Id.

If the cost of remediation was $200,000 or less, then Darling was to “comply without delay

with all orders and directives of the Public Agencies and to perform without delay the Remediation

Work.” Id. If, however, the remediation cost were to exceed $200,000 or could not be calculated

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with reasonable certainty by July 29, 1990, then Darling could “elect to postpone the Remediation

Work by delivery of written notice to [Baywood].” Id. If Baywood did not receive a postponement

notice within 30 days of determination of the remediation cost in excess of $200,000, then Darling

was “conclusively deemed to have elected to proceed with the Remediation Work at [its] cost and

expense.” Id. If Baywood did receive a postponement notice by that date, then it had the option of

(1) terminating the Agreement and getting back all deposits; (2) paying the remediation cost in

excess of $200,000 and demanding Darling to perform all acts needed for the close of escrow; or (3)

doing nothing, in which case Darling had fifty-nine years from the execution of the Agreement to

complete the remediation work or contract for the completion of the remediation work, and

remediation work would be completed after the close of escrow. See id. (Agreement ¶¶ 4.5.1-4.5.3).

Remediation was deemed to be complete 

after (i) the Remediation Work has been accepted and approved by the

Supervising Consultant and all Public Agencies as having been

completed to a level below action levels for commercial and industrial

use and development or as having been completed in the manner

required by the remediation work plan approved by the Public

Agencies; and (ii) the Supervising Consultant and any and all other

consultants and contractors employed in the Remediation Work have

been paid in full and have executed unconditional final releases of lien

or sixty (6) calendar days have elapsed since the recordation of a

Notice of Completion without filing of a mechanics lien claim,

whichever date occurs latest. . . . Remediation Work shall be deemed

to be complete even if Purchaser must maintain monitoring wells after

the completion and acceptance of the balance of the Remediation

Work.

Id. (Agreement ¶ 4.7).

4. Close of Escrow and Conditions Precedent to Closing

Escrow was to close thirty days after the date on which all conditions precedent to closing

may have occurred. See id. (Agreement ¶ 6.1). Among the conditions precedent to closing were the

following:

(1) Baywood must have approved the condition of the property in the manner described in ¶ 3.1

of the Agreement -- i.e., it must have made the second deposit.

(2) Title to the Property was to be subject only to certain permitted conditions of title. 

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(3) Darling had either completed the remediation work or entered into a contract for completion

of the remediation work.

See id. (Agreement ¶ 6.3). 

The above condition precedents either had to be satisfied or waived prior to closing. See id.

If not, then the Agreement would terminate. See id. (Agreement ¶ 6.4).

5. Title and State Lands

Under the Agreement, Baywood was given an opportunity to approve, conditionally approve,

or disapprove of any mortgage, lien, or encumbrance shown on the preliminary title report for the

Property. If Baywood disapproved or only conditionally approved 

any lien or encumbrance which [Darling] is reasonably able to remove

by the closing, [Darling] shall with due diligence attempt to remove

immediately any disapproved or conditionally approved lien or

encumbrance from the Subject Property; provided, however, that

[Darling] shall not be obligated to make any payments of cash to the

holders of any disapproved or conditionally approved liens or

encumbrances or incur substantial costs in connection with the

removal of any encumbrances or lien.

Id. (Agreement ¶ 5.1). 

The Agreement specifically provided that Darling was not “required to remove . . . any

claims of the State of California . . . resulting from its ownership of and jurisdiction over tidelands

and public trust property.” Id. The Agreement further provided that Darling would refrain from

placing any additional lien or encumbrance against the Property. See id. (Agreement ¶ 5.3). Title to

the Property was to be conveyed to Baywood at the close of escrow free and clear of all liens,

encumbrances, restrictions, and rights of way of record, subject to only three specific permitted

conditions of title. See id. (Agreement ¶ 5.2).

6. Environmental Indemnification

Under the Agreement, Darling agreed 

to fully and forever indemnify, protect, defend and hold [Baywood]

free and harmless from and against any and all claims . . . , demands . .

. , actions, causes of action, suits, administrative proceedings . . . ,

expenses, or costs . . . arising out of, whether directly or indirectly, or

in any way connected with the existence of any Hazardous Material, in

any state or form, in excess of legally complying levels for

commercial or industrial use or development, at, on, in, under or about

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the Subject Property . . . which has been caused by Seller or its

Affiliates.

Id. (Agreement ¶ 4.9.1).

7. Miscellany

a. Integration Clause

The Agreement contained an integration which specified as follows: “This Agreement

contains the entire agreement of the parties hereto with respect to the matters covered hereby and

supersedes all prior or contemporaneous written or oral arrangements and understandings between

the parties in regard to the . . . Property . . . .” Id. (Agreement ¶ 18.3).

b. Time-of-the-Essence Clause

The Agreement also contained a clause providing that time was of the essence. More

specifically, the Agreement stated: “Time is of the essence of this Agreement, and each and every

provision thereof.” Id. (Agreement ¶ 18.8).

C. Escrow

A valid escrow was formed for the sale of the Property in 1990 – at the latest by April 30,

1990, when the Agreement was executed. Mr. Farrell admitted that an escrow had been opened, see

Tr. at 754 (testimony of Mr. Farrell), and he was the Darling employee who had primary

responsibility for the sale of the Property at the time that it was sold. Mr. Phillips also admitted that

an escrow had been opened, see Phillips Depo., vol. I, at 18, and he was the Darling employee who

succeeded Mr. Farrell in terms of responsibility for the sale of the Property. Mr. Mellina, one of the

main attorneys who represented Darling with respect to the sale of the Property, likewise made the

same admission as Mr. Farrell and Mr. Phillips. See Mellina Depo. at 19. Moreover, Mr. Mellina’s

attempt on May 1, 1997, to have Baywood make the second deposit was a further admission that a

valid escrow had been created. See Ex. B185 (letter, dated 5/1/97, from Mr. Mellina to Mr. Wasem).

Apart from Darling’s admissions, there is independent evidence that a valid escrow was

formed for the sale of the Property. Baywood’s expert, Charles Hansen testified convincingly (and

Darling in fact agreed) that the key to the creation of an escrow is whether a dual agency has been

established. See Tr. at 296 (testimony of Mr. Hansen); Tr. at 927-28 (Darling’s closing argument). 

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Here, Northwestern did become an agent for both Darling and Baywood. Mr. Wasem sent to

Northwestern the Offer to Purchase – a document signed by both parties – along with a $10,000

check, and Darling was aware of this fact as Mr. Farrell was carbon copied on Mr. Wasem’s letter to

Northwestern transmitting the same. See Ex. B510 (letter, dated 3/19/90, from Mr. Wasem to

Northwestern). The Agreement – again, a document signed by both parties – specifically identified

Northwestern as the escrow holder with respect to the sale of the Property, see Ex. B26 (Agreement

¶ 6.2), and contained sufficient instructions for Northwestern as escrow holder. Northwestern

received a copy of the Agreement. The fact that Northwestern never received formal written

opening instructions separate from the Agreement is not dispositive. Mr. Hansen testified -- and

Darling did not present any evidence to the contrary -- that, during the 1990s, approximately onethird of the escrows opened did not have formal written opening instructions. See Tr. at 346

(testimony of Mr. Hansen). Similarly, Daryl Stigers, the chief title officer of New Century (formerly

Northwestern) indicated that “fairly often, especially with large commercial transactions,” there

were no formal written opening instructions. Tr. at 711-12 (testimony of Mr. Stigers).

The escrow that was opened for the sale of the Property by Darling to Baywood never

terminated, regardless of whether the Agreement between the parties terminated as of May 31, 1997,

or some later date. Both Mr. Hansen and Mr. Stigers credibly testified that Northwestern would

need mutual cancellation instructions from Darling and Baywood in order to terminate the escrow,

even though the Agreement provided that, if no second deposit was timely made, then “the Escrow

Holder shall return to [Baywood] the Initial Deposit, together with all interest earned thereon.” Ex.

B26 (Agreement ¶ 3.1); see also Tr. at 334 (testimony of Mr. Hansen); id. at 706 (testimony of Mr.

Stigers). As Mr. Hansen explained, the escrow holder would not terminate escrow without mutual

instructions in spite of this “command” in the Agreement because, if it did so, it would be “leaving

[itself] open to horrible [potential] liability.” Id. at 334 (testimony of Mr. Hansen). This would, of

course, be especially true where the parties dispute whether the Agreement terminated and whether

legal obligations continued under such legal theories as waiver and estoppel.

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D. Amendments to Agreement

From June 27, 1990, through February 1, 1997, the parties executed fourteen different

amendments to the Property. See Jt. Undisputed Facts at 2. Each of the fourteen amendments

extended (1) the time for Baywood to inspect the Property and make the second deposit and (2) the

time for Darling to deliver a postponement notice. 

Each of the fourteen amendments claimed that the reason for the amendment was Darling’s

failure to have the Tank Report completed. For example, the Second Amendment provided: 

Pursuant to the terms of Paragraph 4.4.1 of the Agreement, [Darling]

is required to authorize EEI to finalize the Tank Report. [Darling] has

authorized EEI to finalize the Report but has discovered that the Tank

Report will take longer than [Darling] anticipated for EEI to generate

the Tank Report. In recognition thereof, [Darling] and [Baywood]

extended the Property Inspection in the Manner described in the First

Amendment. As of the date of execution of this Second Amendment,

the Tank Report is not complete.

In light of the foregoing and in order to afford [Baywood] the

opportunity to inspect the Subject Property in the manner originally

contemplated by the Agreement and the First Amendment and to

preserve otherwise the benefits to [Darling] of the Agreement and the

First Amendment, [Darling] and [Baywood] agree to extend further

the time period for inspection of the Subject Property in the manner

described in Paragraph 3.1 of the Agreement as amended by Paragraph

3 of the First Amendment from September 15, 1990 to November 15,

1990. If [Baywood] should approve of the Subject Property, the date

[Baywood] must make the Second Deposit shall similarly be extended

from September 15, 1990 to November 15, 1990.

See Ex. B502 (Second Amendment).

Under the last amendment entered into by the parties -- i.e., the Fourteenth Amendment --

Baywood had until May 1, 1997, to inspect the Property and make the second deposit; Darling then

had until May 24, 1997, to deliver a postponement notice. See B83 (Fourteenth Amendment).

Although all fourteen of the Amendments referred to an incomplete Tank Report as the

reason for extending time, the Tank Report was completed and Baywood had a copy of the Tank

Report by, at the latest, 1993 (though it was not obtained directly from Darling).

Under the Agreement, the Tank Report was defined as the results of the environmental

investigation of EEI. See B26 (Agreement ¶ 4.4.1). On August 27, 1990, Baywood received from

Darling a copy of an executive summary for the latest tests conducted by EEI. See Ex. B509 (letter,

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2

 By the time of the Eleventh Amendment, it was apparent that it was Baywood who wanted the

extensions of time, in particular, so that it could finalize the title settlement agreement with the

California State Lands Commission. Further, by the time of the Eleventh Amendment, Darling was

resisting prolonged extensions of time. See, e.g., Ex. B76 (Eleventh Amendment) (agreeing to a threemonth extension only instead of a year-long extension); Ex. B78 (Twelfth Amendment) (same); Ex. B81

(Thirteenth Amendment) (same); Ex. B83 (Fourteenth Amendment) (same).

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dated 8/27/90, from Mr. Farrell to Mr. Wasem). Moreover, Baywood and/or its environmental

consultant had a copy of the complete EEI report in their files, as well as a copy of a supplemental

report by EEI, see Ex. 563 (Underground Storage Tank Site Characterization Report, dated 8/14/90,

by EEI); Ex. 552 (letter, dated 8/23/91, from Mr. Morin to Mr. Roshanravan), and Mr. Wasem

confirmed that he had EEI’s output by 1993. See Tr. at 207 (testimony of Mr. Wasem). 

Furthermore, it is clear that Baywood had all the information that it needed regarding the tanks by

May 26, 1993, when it received a copy of the Dames & Moore (its environmental consultant)

feasibility study which cited the Tank Report. See Ex. B289 (letter, dated 5/26/93, from Mr. Clark

to Mr. Wasem); see also Ex. 562 (feasibility study, dated 2/8/93, by Dames & Moore) (referencing

EEI reports in Section 8.0).

Admittedly, the Amendments after August 23, 1991 (the date of EEI’s supplemental report)

and May 26, 1993 (the date Baywood received the Dames & Moore feasibility study) continued to

refer to an incomplete Tank Report. However, the reference to the Tank Report in these

Amendments was an anachronism. Notably, in letters asking for the early Amendments to be

signed, Baywood stated that the extensions of time would give Darling time to finalize its

“environmental studies.” Ex. B505 (letter, dated 1/29/91, from Mr. Wasem to Mr. Farrell); Ex. B47

(letter, dated 3/29/91, from Mr. Wasem to Ms. Rubin). However, by the time of the Sixth

Amendment, Baywood no longer referred to any incomplete environmental studies, see Ex. 55

(letter, dated 10/16/91, from Mr. Wasem to Mr. Mellina), and, in letters asking for the later

Amendments to be signed, Baywood’s concern instead was the unfinalized title settlement

agreement with the California State Lands Commission.2

 See, e.g., Ex. B70 (letter, dated 4/24/95,

from Mr. Wasem to Mr. Mellina); Ex. B284 (letter, dated 4/24/96, from Mr. Wasem to Mr. Mellina);

Ex. B297 (letter, dated 8/13/96, from Mr. Wasem to Mr. Mellina); Ex. B298 (letter, dated 10/23/96,

from Mr. Wasem to Mr. Mellina); Ex. B299 (letter, dated 2/28/97, from Mr. Wasem to Mr. Mellina). 

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 Ultimately, from 1997 to 2004, Wasem asked Darling multiple times to sign a proposed

Fifteenth Amendment, but none was ever executed. See Jt. Undisputed Facts at 2.

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Moreover, it is notable that, in Mr. Wasem’s letters to Mr. Mellina, dated May 1 and 1, 1997, in

which Baywood’s grievances were specifically itemized, an incomplete Tank Report was never

mentioned. Nor did Baywood ask for the Tank Report at any time after 1991.

E. Termination of Agreement on May 31, 1997

On March 11, 1997, Sonoma County’s Department of Health Services sent a letter to Darling

regarding the Property. See Ex. B186 (letter, dated 3/11/97, from Ms. Allen to Mr. McMurtry); see

also Jt. Undisputed Facts at 2. In the letter, the Department stated that, 

[b]ased on the information submitted to this office and the San

Francisco Regional Water Quality Control Board, no further remedial

action will be needed at this site if after two years of semi-annual

monitoring there is no evidence of adverse pollutant migration. At the

end of the two year monitoring period, the site will be evaluated for

closure.

Ex. B186.

Subsequently, on April 22, 1997, Mr. Wasem sent to Mr. Mellina a letter, asking that Darling

sign a proposed Fifteenth Amendment to the Agreement.3 See Ex. B87 (letter, dated 4/22/97, from

Mr. Wasem to Mr. Mellina). This proposed Amendment, like the Amendments that had preceded it,

extended the time for Baywood to inspect the Property and make the second deposit and the time for

Darling to deliver a postponement notice. 

On May 1, 1997, Mr. Mellina sent a letter in response, which enclosed a copy of the letter

from Sonoma County’s Department of Health Services. See Ex. B185 (letter, dated 5/1/97, from Mr.

Mellina to Mr. Wasem); see also Jt. Undisputed Facts at 2. In his letter, Mr. Mellina stated that

Darling had completed its remediation obligations under the Agreement, as evidenced by the

Department’s letter, and therefore it made no sense to give additional extensions of time (as

provided for in the proposed Fifteenth Amendment). However, as an accommodation, Darling

would give Baywood an additional thirty days to inspect the Property and make the second deposit

(i.e., until May 31, 1997). See Ex. B185. Mr. Mellina also stated that Baywood would have to

deliver the remainder of the purchase price at that time and close the transaction. See id.

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Mr. Wasem sent two letters in response, in which he argued that Darling had not satisfied its

remediation obligations and further that there were title objections that needed to be resolved prior

to closing. See Ex. B287 (letter, dated 5/1/97, from Mr. Wasem to Mr. Mellina); Ex. B288 (letter,

dated 5/2/97, from Mr. Wasem to Mr. Mellina); see also Jt. Undisputed Facts at 3.

Baywood did not deliver the second deposit into escrow by May 31, 1997. 

Because Baywood did not deliver a second deposit by May 31, 1997, the Agreement between

Darling and Baywood terminated. See B26 (Agreement ¶ 3.1) (“[Baywood’s] failure to deliver the

Second Deposit with the Escrow Holder . . . shall be conclusively deemed to constitute failure of

[this] condition precedent . . . . This condition precedent is for the benefit of [Baywood] only, and

may be waived by [Baywood] only by way of a written and signed waiver. If this condition

precedent is not satisfied or waived . . . , then this transaction shall be cancelled, and on the day after

the failure of condition, the Escrow Holder shall return to [Baywood] the Initial Deposit, together

with all interest earned thereon.”).

There were no condition precedents that Darling failed to satisfy which would relieve

Baywood of its obligation to make the second deposit on May 31, 1997. 

Document delivery, for example, see B26 (Agreement ¶ 3.4), was not a condition precedent

to the funding of the second deposit. The second deposit was discussed in ¶¶ 2.2 and 3.1 of the

Agreement; neither paragraph expressly linked the second deposit to the delivery of documents. In

fact, under the original terms of the agreement, the second deposit was to be funded only two

months after the date of the Agreement. See id. (Agreement ¶ 3.1) (requiring the second deposit to

be made by July 6, 1990). Even if the delivery of such documents could be implicitly deemed a

condition precedent (or concurrent), it was limited to delivery of documents that Darling had in its

possession or control as of May 30, 1997 (although Darling had a continuing obligation to provide

documents to Baywood).

Furthermore, delivery of the Tank Report was not a condition precedent to Baywood’s

funding of the second deposit, at least not in the initial Agreement. The provisions in the Agreement

that discussed the second deposit did not make any reference to the Tank Report. See id.

(Agreement ¶¶ 2.2, 3.1). Furthermore, the Tank Report was not identified as one of the documents

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that needed to be provided to Baywood by May 30, 2007, under ¶ 3.4 of the Agreement. Based on

the initial Agreement, the only purpose of the Tank Report was to inform the scope of Darling’s

remediation obligation under ¶ 4.1 of the Agreement. This is the reason why the Agreement

required the Tank Report be submitted by Darling to the appropriate governmental agencies. See

B26 (Agreement ¶ 4.4.3). While it appears that the Tank Report may have become a condition

precedent to Baywood’s funding of the second deposit based on the Amendments to the Agreement,

which seemed to link the two (thereby modifying the Agreement), as discussed above, the Tank

Report condition precedent was substantially satisfied by Darling since it was made publicly

available to Baywood -- or if not satisfied, was waived by Baywood -- long before May 31, 1997. 

Baywood had the Tank Report by 1993 and did not thereafter seek it from Darling nor did Baywood

interpose it as a reason for refusing to make the second deposit. Darling had no reason to believe

delivery of the Tank Report was still a condition to the second deposit.

F. Waiver

Although the Agreement terminated because of Baywood’s failure to fund the second deposit

by May 31, 1997, the Court finds that Darling waived its right to claim contract termination based

on the untimely deposit. Darling engaged in conduct that was known to Baywood and which

induced in Baywood a reasonable belief that Darling was waiving its right to claim contract

termination based on untimely delivery of the second deposit.

Conduct by Darling which induced in Baywood a reasonable belief that Darling was waiving

its right to claim contract termination based on untimely delivery of the second deposit includes the

following.

• On February 16, 2000, Baywood delivered the second deposit to the escrow holder, New

Century Title Company (formerly known as Northwestern). Darling was aware of this fact

because Mr. Wasem informed Mr. Phillips and Mr. Demorest of such by e-mail and letter. 

See Ex. B190 (e-mail, dated 2/16/00, from Mr. Wasem to Mr. Phillips). However, neither

Mr. Phillips nor Mr. Demorest, nor any other Darling representative, objected to the delivery

of the second deposit. For example, no Darling representative communicated to Baywood or

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to New Century that the funding of the second deposit was untimely and that the Agreement

had terminated. 

• On April 28, 2000, Mr. Wasem sent an e-mail to Mr. Demorest, noting again that Baywood

had made the second deposit to escrow and that Baywood was ready, willing, and able to

close. See Ex. B194 (e-mail exchange, dated 4/00, involving Mr. Demorest and Mr.

Phillips). Mr. Wasem forwarded that letter to Mr. Phillips, and Mr. Phillips forwarded the

letter to Mr. Weaver, in-house counsel for Darling. See id. However, Baywood did not

receive a response from either Mr. Demorest or Mr. Phillips, or for that matter Mr. Weaver.

• On June 21, 2000, Mr. Wasem sent an e-mail to Mr. Demorest, asking for an update and if

there was “anything we can do to help move the agencies along?” See Ex. B117 (e-mail

exchange, dated 6/00, between Mr. Wasem and Mr. Demorest). In his response, Mr.

Demorest did not state that the Agreement had terminated. Instead, he replied that Mr.

Wasem should review the General Report “to verify whether you agree that, but for this

outstanding soils issue, Darling has completed all of the work required of Darling under the

purchase agreement.” Id. Mr. Demorest also commented that Baywood should finalize the

title settlement agreement with the California State Lands Commission, which was “hung

up” because of Baywood’s reluctance to grant an easement to the State over its own

property. Id. Even after Mr. Wasem responded that Baywood would be granting the

easement because it was no longer concerned that Darling had not confirmed in writing the

status of the Agreement given the fact that Baywood had made the second deposit, Mr.

Demorest never replied that the Agreement had terminated because the second deposit was

not timely made.

• On November 27, 2000, Mr. Wasem sent an e-mail to Mr. Phillips, reminding him again that

Baywood had made the second deposit. See Ex. B196 (e-mail, dated 11/27/00, from Mr.

Wasem to Mr. Phillips). Mr. Wasem also noted that one of his partners “heard a rumor the

other day that Darling Delaware was working with another Texas company on the property. 

Obviously, this would be an extreme breach of our Agreement.” Id. Mr. Phillips did not

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respond to Mr. Wasem, stating, e.g., that the second deposit was untimely and therefore there

could not be a breach of an already terminated contract.

• On November 28, 2000, Mr. Wasem sent an e-mail to Mr. Phillips regarding a conversation

the two had had that day. See Ex. B197 (e-mail, dated 11/28/00, from Mr. Wasem to Mr.

Phillips). Mr. Demorest was carbon copied on the e-mail. In the e-mail, Mr. Wasem stated

that “[y]ou assured me that Darling intends to honor its Agreement of Purchase and Sale with

Baywood Partners and does intend to sell the Property to Baywood Partners pursuant to the

terms of that Agreement.” Id. Neither Mr. Phillips nor Mr. Demorest responded to refute

this statement by Mr. Wasem. This silence is corroborative of Mr. Wasem’s claim.

• On March 12, 2002, Mr. Wasem sent an e-mail to the California State Lands Commission

regarding the title settlement agreement. See Ex. B229 (e-mail exchange, dated 3/02,

involving Mr. Phillips). Mr. Phillips was carbon copied on the e-mail. In the e-mail, Mr.

Wasem stated that “Baywood is in contract with Darling to purchase the land which is the

subject of the Title Settlement Agreement” and, in reliance on that Agreement, was amenable

to granting the State an easement over its own property. Id. Mr. Phillips subsequently

forwarded the Wasem e-mail to Darling’s in-house counsel, Mr. Weaver. Neither Mr.

Phillips nor Mr. Weaver responded to Mr. Wasem or to the State, refuting the statements

made in the e-mail.

• On June 3, 2002, Mr. Phillips sent a letter to Mr. Wasem, on which Mr. McMurtry and Mr.

Weaver were carbon copied, asking Mr. Wasem to provide any comments on a temporary

construction easement across the Property that Darling intended to grant the City of

Petaluma. See Ex. B230 (letter, dated 6/3/02, from Mr. Phillips to Mr. Wasem). The fact

that Darling sought Baywood’s comments on the Property implied to Baywood that Darling

assumed the 1990 Agreement continuing in existence.

• Several times after May 31, 1997, Mr. Wasem informed a Darling representative (e.g., Mr.

Demorest, Mr. Phillips, Mr. Mellina) that Baywood was “ready, willing and able to close the

transaction under [or pursuant to] the terms of the Agreement.” See, e.g., Ex. B200 (letter,

dated 3/17/98, from Mr. Wasem to Mr. Demorest); Ex. B203 (letter, dated 3/30/01, from Mr.

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4

 Baywood was one of the likeliest buyers, if not the most likely, because it owned adjacent

property to the Darling Property which made the Darling Property accessible. Of course, after Darling

entered into the Agreement with Baywood, Darling received offers that were worth significantly more

than what Baywood was paying under the Agreement. See, e.g., Ex. B191 (letter, dated 2/24/00, from

Mr. Lipman to Mr. Phillips) (offering to buy the Property for $1,650,000);.Ex. B210 (letter, dated

3/31/05, from Mr. Heaton to Darling) (offering to purchase the Property for $20,000,000); see also Ex.

B216 (appraisal, dated 10/25/97, by Marshall & Stevens, Inc.) (estimating that the Property was worth

approximately $900,000); Ex. B474 (facsimile, dated 9/27/04, from Mr. Krantz to Mr. Whiting) (noting

that the Property was “worth much more than the value in the 1990 contract”). 

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Wasem to Mr. Phillips). Even if this did involve some posturing on the part of Mr. Wasem,

Darling failed to respond to Mr. Wasem’s statements.

• From 1997 to 2004, Darling did not make any demand to Baywood that the recorded

Memorandum of Agreement be removed. If the Agreement had in fact terminated, then there

was no reason for the Memorandum of Agreement to remain on record with Sonoma County,

which would be a potential bar to the sale of the Property to any other buyer. Even if

Darling did not want to alienate Baywood because it was the most likely buyer of the

Property,4

 Darling reasonably could have continued negotiations with Baywood and, at the

same time, ask that the recorded Memorandum of Agreement be removed since the

Agreement was no longer in force and effect. 

• From 1997 to at least 2002, Baywood kept Darling apprised of Baywood’s negotiations with

the California State Lands Commission on the title settlement agreement with respect to the

Property. Under the 1990 Agreement, the obligation of removing claims by the State

belonged to Baywood, and not Darling. See Ex. B26 (Agreement ¶ 5.1). There was little

reason for Baywood to shoulder this responsibility if the 1990 Agreement was no longer in

effect. Yet Darling did not discourage Baywood from continuing its negotiations nor did

Darling ever inform Baywood that the work it was doing was for naught because the

Agreement had terminated. Even if Baywood was the most likely buyer of the Property,

Darling reasonably could have cautioned Baywood that any expenditures of resources on the

title settlement agreement was at its own risk since the Agreement had terminated.

Contrary to what Darling argues, it did not give Baywood sufficient notice that the

Agreement had terminated as of May 31, 1997. Admittedly, in his letter of May 1, 1997, Mr.

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Mellina set a deadline of May 31, 1997, for delivery of the second deposit, see Ex. B185 (letter,

dated 5/1/97, from Mr. Mellina to Mr. Wasem), which did subject Baywood to the risk that Darling

would claim contract termination if Baywood failed to fund by that date. However, nowhere in the

May 1 letter did Mr. Mellina plainly and expressly state that failure to make the second deposit

would in fact terminate the Agreement. Notably, Mr. Mellina did not make such a statement even

after Mr. Wasem sent responsive letters on May 1 and 2, 1997. See Ex. B287 (letter, dated 5/1/97,

from Mr. Wasem to Mr. Mellina); B288 (letter, dated 5/2/97, from Mr. Wasem to Mr. Mellina). 

Darling’s conduct was at best ambiguous.

Similarly, in a subsequent letter, dated February 4, 1998, Mr. Mellina again did not plainly

state the contract had terminated. See Ex. B198 (letter, dated 2/4/98, from Mr. Mellina to Mr.

Wasem). Mr. Mellina chose not to state in his letter that the Agreement was no longer in force and

effect, although he easily could have as demonstrated by his initial draft of the February 4 letter

which used that precise language. See Ex. B199 (draft letter, undated, from Darling to Mr. Wasem). 

Instead, Mr. Mellina simply stated that Darling’s provision of environmental reports regarding the

Property was a courtesy only and “shall not imply any acknowledgment of continuing obligations on

the part of Darling under that certain Agreement of Purchase and Sale dated April 30, 1990, between

Darling and Baywood Partners, Inc.” Id. At most, this statement gave notice to Baywood that

Darling was reserving its right to contend contract termination; it was not a statement, unequivocal

or otherwise, that the Agreement had in fact terminated.

Finally, at the site visit on March 3, 1998, neither Mr. Phillips nor Mr. Demorest expressly

stated to Mr. Wasem that the Agreement regarding the Property had terminated. See, e.g., Demorest

Depo., vol. I, at 14. Although there was discussion among the three about structuring a different

environmental indemnity provision, this was not enough to convey to Baywood that the Agreement

had in fact terminated. While such a discussion could be interpreted as seeking a new contract, it

equally implied that the parties were negotiating an amendment to the existing 1990 Agreement. 

Neither Mr. Phillips nor Mr. Demorest clearly asserted the Agreement had terminated. Neither Mr.

Phillips nor Mr. Demorest testified that either expressly stated such at the meeting. 

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That Darling never explicitly told Baywood that the Agreement had terminated is

corroborated by Darling’s contention that it did not want to take any action to antagonize Baywood,

the most likely buyer of the Property. It is also consistent with the fact that as time went on the

value of the property increased, a fact which the Court finds informed Darling’s decision finally to

assert contract termination in 2004. See n.4, supra, and Ex. B206 (letter, dated 10/1/04, from Mr.

Whiting to Mr. Wasem) (stating that “Darling considers the 1990 Agreement to be terminated” and

asking Mr. Wasem to provide any comments on an enclosed proposed agreement for purchase and

sale if Baywood remained interested in purchasing the Property -- the purchase price in the proposed

agreement was left blank).

Furthermore, contrary to what Darling argues, Baywood’s belief that Darling had waived its

right to contract termination was still reasonable even though Darling did not sign any of the

proposed Fifteenth Amendments, see Jt. Undisputed Facts at 2; and did not affirm the Agreement in

response to Mr. Wasem’s pleas. See, e.g., Ex. B290 (facsimile, dated 7/7/97, from Mr. Wasem to

Mr. Mellina) (“I am not really pressing the issue of bringing the contract back in line. However, it

has been awhile and I would really like to get back to an understanding.”); Ex. B291 (letter, dated

2/9/98, from Mr. Wasem to Mr. Phillips) (“Brad, I think it only fair and proper that Darling

acknowledge its obligations and formally extend the Agreement. While I am confident that, based

on my conversations with you, Darling intends in every way to honor the Agreement and that

Darling’s failure to previously execute the [Fifteenth] Amendment was not meant to imply that

Darling did not recognize its contractual obligations, it is appropriate to bring the Agreement back

up to date.”) (emphasis in original); Ex. B221 (e-mail exchange, dated 5/98, between Mr. Wasem

and Mr. Phillips) (“I just want everyone to acknowledge that the contract is alive and well and I

want some assurances that Darling Delaware’s delays are not being used to establish some type of

case against me.”). Darling’s failure to sign the proposed Amendments and affirm the Agreement

should have caused -- and did cause -- Baywood to be concerned about the possibility that Darling

might claim contract termination. But Darling never so stated to Baywood. Contract termination

was a mere possibility, not a probability, much less a certainty. More importantly, Baywood’s

concerns were greatest prior to the time that Baywood funded the second deposit. Once Baywood

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delivered the second deposit on February 16, 2000, Darling’s failure to disabuse Baywood of

Baywood’s belief that Darling accepted the deposit and considered the contract valid substantially

diminished any concern Baywood may have had about the continued existence of the Agreement.

Admittedly, in 2003, Darling did refuse to sign the proposed grant of easement from

Baywood to the State -- which contained the statement that the Agreement between Darling and

Baywood with respect to the Property “continues in full force and effect,” Ex. B238 (proposed grant

of easement). Again, however, Darling never plainly and expressly stated that it refused to sign the

proposed grant because it believed the Agreement had terminated back on May 31, 1997. Mr.

Weaver simply testified: “I explained to [Mr. Wasem] that we didn’t like the contract, that we found

it confusing and convoluted, ambiguous, and we didn’t like it. And we weren’t going to ratify it. 

And I think I said that he didn’t need that contract to do what he wanted to do or what was being

asked of him, which was the easement over [Baywood’s] property.” Weaver Depo. at 41. Mr.

Weaver’s handwritten notes on his conversation with Mr. Wasem stated only that “[w]e wouldn’t

send and sign his easement doc affirming the sale contract” and “[t]old him contract spoke for

itself.” Id. at 43. Contrary to Darling’s argument at trial, this did not send up a “red flag” for

Baywood.

Darling’s conduct with respect to parties other than Baywood (even if not communicated to

Baywood) corroborates the finding that Darling believed the 1990 Agreement not to be terminated,

i.e., to be in full force and effect, and behaved accordingly. That conduct as to third parties included

the following:

• In the fall of 1999, a credit agreement between Darling (as borrower) and BankBoston (as

lender) was being amended and restated. See Sims Depo. at 11. In connection with the

amendment and restatement, Mr. Phillips provided a copy of the Agreement to BankBoston’s

counsel, Laura Sims of Jenkens & Gilchrist -- apparently because the Property was one of

Darling’s properties that served as security for the loan by BankBoston. See Ex. B400

(letter, dated 8/2/99, from Mr. Phillips to Ms. Sims). Neither Mr. Phillips nor any other

representative informed BankBoston or its counsel that the Agreement had terminated back

in 1997. In fact, when Ms. Sims sent an e-mail to Janet Follstaedt of Winstead, counsel who

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represented Darling with respect to the amendment and restatement, stating that “I just can’t

believe that the Agreement is still in effect 9 years later, but I’d like to know more,” Ms.

Winstead responded: “Believe it, I will confirm with Brad, but Brad has told me that the

person who negotiated the contract was fired and fired b/c of that contract.” Ex. B B433 (email exchange, dated 9/99, between Ms. Sims and Ms. Follstaedt). Furthermore, Darling

notably made the decision not to tell Baywood about the additional lien being placed on the

Property by virtue of the amended and restated credit agreement with BankBoston. See Ex.

B370 (e-mail exchange, dated 10/99, involving Ms. Follstaedt); see also Ex. B435 (Ms.

Sim’s memo to file, dated 12/31/99). If Darling had informed Baywood of this fact, then

Baywood would no doubt have argued breach of the Agreement, see Ex. B26 (Agreement ¶

5.3) (providing that Darling would refrain from placing any additional lien or encumbrance

against the Property), in which case Darling would have been compelled to either admit that

it was in breach because the Agreement was still in effect or clearly state there was no breach

because the Agreement had terminated.

• Shortly after Baywood funded the second deposit, Mr. McMurtry asked Baywood’s

environmental consultant to provide him with environmental reports. See B276 (facsimile,

dated 2/23/00, from Mr. Clark to Mr. McMurtry). If the Agreement had terminated, then

there was little reason for Mr. McMurtry to engage with Baywood’s consultant about

remediation.

• Darling provided its independent auditor KPMG with a copy of the Agreement in 2001,

which KPMG then used to verify that the terms of the Agreement were consistent with the

“assets held for sale” designation on Darling’s financial statements. See Exs. B408-09

(KPMG documents). (“Asset held for sale” is an accounting term applied to certain assets

that meet the criteria set forth in Financial Accounting Standards Nos. 121 and 144. See Ex.

523, at 3 (expert report of Mr. Essig).) There was little reason for Darling to give KPMG a

copy of the Agreement if the Agreement had actually terminated.

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5

 Based on the evidence presented, it is not entirely clear who authored the excess real estate

status report containing the above information. However, given Mr. Phillips’s responsibility over

Darling’s real estate holdings and his specific responsibility for sale of the Property, it is a reasonable

inference and the Court thus finds that (1) he authored the report, (2) he reviewed the report, or (3) he

provided the information regarding the Property to the author of the report.

6

 As above, it is not entirely clear who authored the assets sales updates, but given Mr. Phillips’s

responsibility over Darling’s real estate holdings and his specific responsibility for sale of the Property,

it is a reasonable inference that (1) he authored the updates, (2) he reviewed the updates, or (3) he

provided the information regarding the Property to the author of the updates. The Court so finds.

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• In or about October 2000, Mr. McMurtry told Darling’s environmental consultant, Chris

White of MFG, Inc., that Darling was in contract to sell the Property to Baywood. See Tr. at

406 (testimony of Mr. White); B327 (notes of Mr. White, dated 10/11/00).

Likewise, Darling’s internal communications indicate that Darling believed the 1990

Agreement had not in fact terminated. Again, this corroborates Baywood’s evidence that Darling’s

conduct led Baywood to believe the 1990 Agreement remained in effect.

• Soon after the alleged contract termination date, materials provided to Darling’s board of

directors for a meeting in June 1997 stated that the status of the Property was “[s]ale for

$500,000 pending environmental agency approval.”5

 Ex. B388 (excess real estate status

report, dated 6/23/27).

• Asset sales updates provided to the Darling board of directors in March and May 2000 (i.e.,

after Baywood delivered the second deposit) stated that the Property was “[u]nder contract

for sale since April 1990 for $500,000.” Ex. B391 (board materials, dated 3/29/00); Ex.

B392 (board materials, dated 5/17/00). In addition, the May 2000 update specified that

“[c]urrently cleaning some debris from property and obtaining cost estimates for remaining

work required under 1990 contract.”6 Id.

• In a document titled “Estimate on Property Reserves,” dated August 2002, the Property was

characterized as “[c]urrently under contract for sale dated 1990.” Ex. B264 (estimated on

property reserves, dated 8/02). The document also noted that “[s]ale agreement requires that

certain obligations be met with respect to the removal of all hazardous materials from the

site” and that “UST [underground storage tank] closure, Asbestos and lead paint removal,

debris removal, slude clean out, etc. (per current sale agreement) will cost $150,000.” Id.

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7

 The accounting documents were prepared by Darling’s controller, which was, during the

relevant period, initially Tim Gentry and later Brenda Snell. Mr. Gentry relied on Mr. Phillips and Mr.

McMurtry for information regarding the Property. See Gentry Depo. at 71, 74; see also id. at 49-51. 

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Mr. McMurtry, the author of the document, did not credibly explain away why he described

the Property as currently under contract for sale, simply claiming that his choice of words

“might be a poor label.” McMurtry Depo., vol. II, at 8.

• Darling’s internal accounting documents -- in which the Property was characterized as an

“asset held for sale” from December 2001 through June 2005, see Jt. Undisputed Facts at 3 --

specified that the Property was “Under Contract” and “Sold.”7

 See, e.g., Exs. B440-42

(accounting documents). See, e.g., Exs. B358, 396 (assets held for sale). As late as July

2004, internal accounting documents reflected that Mr. Weaver, in-house counsel, was

working on an amended sales agreement rather than a new agreement. See B358 (accounting

documents). 

To be sure, there were some internal communications within Darling which did suggest that

Darling no longer believed the Agreement to be in full force and effect. See, e.g., Ex. B214 (memo,

dated 1/26/04, from Mr. Phillips to Mr. Weaver) (noting that Mr. Wasem “was checking in on the

status of our old contract” and that “Larry reminded me that about a year ago, he and I had talked

about possibly Darling ginning up a draft of an amended contract that Darling would be amenable to

signing to replace the old 1990 sales contract”); Exs. Ex. B208-09 (draft letters, dated 2/18/04, from

Mr. Whiting to Mr. Wasem) (stating that the Agreement between the parties “has come to an end”

and that “the Agreement came to an end long ago”). However, these internal communications did

not come about until 2004, i.e., a very late stage in the dealings between Darling and Baywood. 

Furthermore, even these internal communications were ambiguous as to Darling’s intent regarding

the Agreement. For example, in Mr. Phillips’s memo to Mr. Weaver, dated January 26, 2004, Mr.

Phillips characterized the 1990 Agreement as an “old contract” but at the same time talked about

amending the contract rather than negotiating a new one. See Ex. B214. In the draft letters

composed by Mr. Whiting, Mr. Whiting asserted that the Agreement had terminated but ultimately

the decision was made not to send either letter. See Exs. B208-09. Mr. Whiting did not send a letter

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explicitly stating that the Agreement had terminated until many months later on October 1, 2004. 

See Ex. B206 (letter, dated 10/1/04, from Mr. Whiting to Mr. Wasem).

In sum, the Court finds that Darling waived its right to claim contract termination because its

conduct induced Baywood to reasonably believe that Darling had waived this right. Darling’s

conduct vis-a-vis third parties and Darling’s internal communications corroborate the fact that

Darling believed, at least until late 2004, the Agreement remained in effect after May 31, 1997, and

behaved accordingly.

G. Estoppel

In addition to waiver, the Court finds that Darling is equitably estopped from claiming

contract termination based on Baywood’s untimely funding of the second deposit. 

First, Darling was apprised of the relevant facts regarding the Property and its position vis-avis Baywood. It was, of course, aware of Mr. Mellina’s letter of May 1, 1997, which demanded that

Baywood make the second deposit by May 31, 1997, and the fact that Baywood did not make the

deposit. As discussed above, Darling was aware of its communications with Baywood including

those which occurred after the second deposit was made. It was aware of Baywood’s assertions in

its communications with Darling and of the conduct in which Baywood was engaged, including the

work on the state Lands Commission matters, indicating Baywood’s belief the Agreement remained

in effect.

Second, as discussed above with respect to waiver, Darling’s conduct vis-a-vis Baywood did

not convey that the Agreement had terminated on May 31, 1997. Rather, Darling acted in such a

way as to induce Baywood to reasonably believe that the Agreement continued to be in effect

beyond this date until 2004.

Third, Baywood was ignorant of the true state of facts -- i.e., it was not aware of Darling’s

position that the Agreement had terminated on May 31, 1997. Darling never took definitive action

or took a clear position. That omission is particularly probative because a reasonable actor,

believing the contract had terminated, would expectedly have taken more definitive action. As

noted above, Darling engaged in some ambiguous conduct such as refusing to sign the proposed

Amendments and affirm the Agreement, but the import of that conduct was at best ambiguous and

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did not negate its other conduct which implied it believed the Agreement remained in effect. 

Moreover, once Baywood delivered the second deposit on February 16, 2000, Darling’s conduct

strongly implied it was treating the Agreement as valid.

Finally, Baywood relied upon Darling’s conduct to Baywood’s injury. Most notably,

Baywood devoted significant resources to negotiating a title settlement agreement with the

California State Lands Commission. In addition, Baywood incurred expenses in having its

environmental consultant, ph7 Environmental (formerly Real Environmental Assessments), prepare

environmental reports on the Property and in hiring architects and civil engineers to prepare

development plans for the Property. See, e.g., Tr. at 186 (testimony of Mr. Wasem); Ex. B513

(development plans, dated 4/18/00); Ex. B514 (development plans, dated 7/14/00). Baywood

expended additional resources working with the City of Petaluma on both the City’s draft

enhancement plan for the Petaluma River Marsh and its general plan amendment in order to avoid

negative impacts to the Property. See, e.g., Tr. at 186 (testimony of Mr. Wasem); Ex. 511 (letter,

dated 6/5/91, from Mr. Wasem to Ms. Rubin) (discussing draft enhancement plan); 529 (letter, dated

6/11/91, from Mr. Wasem to Ms. Rubin) (same); Ex. 528 (letter, dated 7/20/92, from Mr. Wasem to

Planning Commission) (same); Ex. B160 (letter, dated 4/21/04, from Mr. O’Brien to Ms. Tuft)

(addressing general plan for City of Petaluma); B516 (letter, dated 6/16/04, from Mr. Wasem to Ms.

Tuft) (same). That Baywood’s work on the title settlement agreement, the draft enhancement plan,

and the general plan amendment also benefitted its own property, and not just the Darling Property,

see Tr. at 225 (testimony of Mr. Wasem) is not dispositive. There is no evidence that Baywood

would have undertaken the amount of work that it did on these matters, particularly with respect to

the title settlement agreement, in the absence of the 1990 Agreement. The work on the title

settlement agreement primarily benefitted the Darling Property and, though the work was not done

at the specific behest of Darling (the Agreement placed the burden of clearing these title issues on

Baywood, see B26 (Agreement ¶ 5.1), the work was done with the knowledge and consent of

Darling.

///

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II. CONCLUSIONS OF LAW

A. Darling’s Claims for Cancellation of Instrument and Declaratory Relief

In its complaint, Darling asserts two causes of action: (1) cancellation of instrument, see Cal.

Civ. Code § 3412, and (2) declaratory relief. Darling asks that the Court cancel the Agreement and

Memorandum of Agreement and issue a declaration that Baywood no longer has an interest in the

Agreement or the Property. According to Darling, the above relief is justified because the

Agreement automatically terminated on May 31, 1997 (i.e., per Mr. Mellina’s letter of May 1,

1997).

1. Contract Termination

Based on the findings of fact above, the Court concludes that the Agreement between

Darling and Baywood for the purchase and sale of the Darling Property did terminate on May 31,

2007, because Baywood failed to fund the second deposit on that date.

2. Waiver

However, based on the findings of fact above, Darling waived the right to assert contract

termination based on Baywood’s failure to make the second deposit in 1997. “[W]aiver is the

intentional relinquishment of a known right after knowledge of the facts.” Waller v. Truck Ins.

Exch., 11 Cal. 4th 1, 31 (1995) (internal quotation marks omitted). “The burden . . . is on the party

claiming a waiver of a right to prove it by clear and convincing evidence that does not leave the

matter to speculation, and ‘doubtful cases will be decided against a waiver.’” City of Ukiah v.

Fones, 64 Cal. 2d 104, 107-08 (1966). Baywood has established waiver by clear and convincing

evidence.

“[A] waiver may be either express, based on the words of the waiving party, or implied,

based on conduct indicating an intent to relinquish the right.” Waller, 11 Cal. 4th at 31. There is a

waiver when a “party’s acts are so inconsistent with an intent to enforce the right as to induce a

reasonable belief that such right has been relinquished.” Id. at 33-34. Reasonable belief refers to

the belief of the party asserting waiver. See, e.g., id. at 34 (“Accordingly, plaintiffs have not shown

that T.I.E.’s denial of a defense induced a reasonable belief in plaintiffs that T.I.E. intended to waive

additional policy defenses.”) (emphasis added); Brookview Condominium Owners’ Ass’n v. Heltzer

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8 See also State Farm Fire & Casualty Co. v. Carter, No. C-90-2823-DLJ, 1991 U.S. Dist.

LEXIS 18168, at *21 (N.D. Cal. Dec. 16, 1991) (“In order for waiver to come into effect, State Farm

must have been aware of its rights and acted in such a manner as to induce a reasonable belief on the

part of Carter that they were relinquishing their right to assert grounds for noncoverage under the other

policies.”) (emphasis added); cf. Medico-Dental Building Co. v. Los Angeles v. Horton & Converse, 21

Cal. 2d 411, 432 (1942) (noting danger that lessee could have waived lessor’s breach of contract if

lessee paid rent to lessor)

9

 In its closing argument, Baywood conceded that waiver must involve some communication

to the other side. See Tr. at 1000. 

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Enters., 218 Cal. App. 3d 502, 514 (1990) (“There was substantial evidence upon which the trial

court could have found that appellant was not misled, and did not hold any honest belief that Heltzer

Enterprises intended to waive its right to assert the untimeliness of service.”) (emphasis added).8

Although the party asserting waiver must have a reasonable belief in order for there to be a waiver,

waiver does not require reliance by that party. See, e.g., Waller, 11 Cal. 4th at 33 (“[I]n the

insurance context the terms ‘waiver’ and ‘estoppel’ are sometimes used interchangeably, even

though estoppel requires proof of the insured’s detrimental reliance.”); Brookview, 218 Cal. App. 3d

at 512 (“Waiver refers to the act, or the consequences of the act, of one side only, while estoppel is

applicable where the conduct of one side has induced the other to take such a position that it would

be injured if the first should be permitted to repudiate its acts.”). 

It is not clear from the case law whether there can be an implied waiver if a party’s conduct

with respect to a third party establishes intentional relinquishment of a known right but that conduct

is unbeknownst to (i.e., not communicated to) the opposing party. See Sabo v. Fasano, 154 Cal.

App. 3d 502, 508 & n.2 (1984) (not deciding if a waiver must be communicated to the other

contracting party to be effective; noting that rare case in which offeror’s waiver not communicated

to offeree); First Nat’l Mortg. Co. v. Federal Realty Investment Trust, No. C-03-02013 RMW, 2006

U.S. Dist. LEXIS 57113, at *48 (N.D. Cal. Aug. 3, 2006) (concluding that a waiver must be

communicated to the other contracting party in order to be valid). However, the Court need not

resolve this precise legal question9

 because, in the instant case, Darling’s conduct, not

communicated to Baywood, is nonetheless considered by the Court as corroborative evidence that

Darling engaged in conduct which induced in Baywood a reasonable belief that Darling had waived

its right to contract termination. Cf. Oakland Raiders v. Oakland-Alameda County Coliseum, 144

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Cal. App. 4th 1175, 1191 (2006) (giving no weight to the plaintiff’s undisclosed subjective intent to

preserve (i.e., not waive) its fraud claim because the plaintiff’s claimed subjective intent was clearly

at odds with its conduct); Utility Audit Co., Inc. v. City of Los Angeles, 112 Cal. App. 4th 950, 959-

60 (2003) (discussing internal city communications as proof that the city did not intend to waive

because the city’s internal mindset was not inconsistent with its actions). As noted above, Darling’s

conduct which was not communicated to Baywood -- either because communicated solely to a third

party or because communicated internally -- corroborates that Darling believed and conveyed to

Baywood its belief that the 1990 Agreement had not terminated. Also, to the extent waiver requires

a subjective intent to relinquish a known right, this evidence together with the conduct discussed

above establishes this fact.

In concluding that Darling’s conduct above was sufficient to induce in Baywood a

reasonable belief that Darling was waiving its right to claim contract termination based on untimely

delivery of the second deposit, the Court is mindful that a party’s silence does not automatically

establish a waiver. See, e.g., Greshko v. County of Los Angeles, 194 Cal. App. 3d 822, 829-30

(1987) (refusing to “infer from respondents’ silence that they waived or intentionally relinquished

their right to a judicial determination of good faith of their respective settlements, because the statute

does not set out any mandatory time limits within which a motion must be made”). In the instant

case, however, Darling engaged in a consistent pattern of silence and acquiescence that extended

over a period of seven years, even in the face of affirmative statements and action by Baywood. 

Compare Kay v. Kay, 188 Cal. App. 2d 214, 218 (1961) (acknowledging that there was “a long lapse

of time between the first default and the declaration of default and demand for possession, but mere

lapse of time does not amount to a waiver”). Darling has not offered an adequate excuse for this

lengthy course of conduct especially when, as noted above, a reasonable actor believing the contract

had terminated, would have made its position clear. Especially compelling is Darling’s silence and

acquiescence in the face of Baywood’s second deposit.

///

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3. Estoppel

In addition to waiver, the Court concludes that Darling is equitably estopped from asserting

contract termination based on the untimely second deposit. Under California law, the elements of

equitable estoppel are:

(1) the party to be estopped must be apprised of the facts; (2) [the

party to be estopped] must intend that his conduct shall be relied upon,

or must so act that the party asserting the estoppel had a right to

believe it was so intended; (3) the [party asserting estoppel] must be

ignorant of the true state of facts; and (4) [the party asserting estoppel]

must rely upon the conduct to his injury.

Granite States Ins. Co. v. Smart Modular Techs., 76 F.3d 1023, 1028 (9th Cir. 1996). The parties

have agreed that the burden of proof with respect to estoppel is a preponderance of the evidence. 

As the facts found above establish, Baywood has satisfied its burden in proving all four

elements of equitable estoppel. In concluding that Darling acted in such a way that Baywood had a

right to believe the Agreement did not terminate on May 31, 1997, the Court notes that an estoppel

may arise from silence. See Spray, Gould & Bowers v. Associated Internat’l Ins. Co., 71 Cal. App.

4th 1260, 1268 (1999).

It is not necessary that the duty to speak should arise out of any

agreement, or rest upon any legal obligation in the ordinary sense. 

Courts of equity apply in such cases the principles of natural justice,

and whenever these require disclosure they raise the duty and bind the

conscience and base upon the omission an equitable forfeiture to the

extent necessary to the protection of the innocent party.

Id. (internal quotation marks omitted). Again, the Court finds particularly compelling Darling’s

silence and acquiescence after Baywood made the second deposit.

4. Implied-in-Fact Contract and Laches

Baywood contends that Darling cannot claim contract termination not only because of

waiver and equitable estoppel but also because of the existence of an implied contract between the

parties. See Cal. Civ. Code § 1621 (“An implied contract is one, the existence and terms of which

are manifested by conduct.”). The Court need not decide whether there was, as Baywood contends,

an implied contract between the parties for the sale of the Property because it has already concluded

that Darling waived its right to claim contract termination and is equitably estopped from asserting

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10 The Court notes that laches does not likely apply inasmuch as Darling currently has possession

and that the instant case is essentially a dispute over title and thus akin to a quiet title action.

11 Baywood actually pled separate claims for breach of contract and specific performance. But,

as the Court noted in its order denying the parties’ cross-motions for summary judgment, specific

performance is actually “a remedy for breach of contract, a cause of action which requires proof the

contract was breached.” Golden West Baseball Co. v. City of Anaheim, 25 Cal. App. 4th 11, 49 (1994)

(emphasis in original).

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such termination. For the same reason, the Court need not decide whether, as Baywood asserts,

laches bars the relief sought by Darling.10

B. Baywood’s Claims for Breach of Contract/Specific Performance and Declaratory Relief

In its counterclaims, Baywood asserts two causes of action: (1) breach of contract/specific

performance11 and (2) declaratory relief. Baywood asks that the Court order Darling to comply with

the terms of the Agreement (e.g., convey title to the Property to Baywood) and issue a declaration

that Darling is obligated to proceed with the terms of the Agreement (e.g., transfer title to the

Property to Baywood) and that Darling waived the claim or is estopped from claiming that the

contract is not enforceable.

Darling does not attempt to rebut Baywood’s contention that specific performance is the

proper remedy in the instant case because real property is involved. See Cal. Civ. Code § 3387 (“It

is to be presumed that the breach of an agreement to transfer real property cannot be adequately

relieved by pecuniary compensation.”). Instead, Darling challenges the specific performance claim -

- and the declaratory relief claim -- by arguing that the statute of limitations is a bar, that Baywood

failed to tender the full purchase price, that the terms of the Agreement are too uncertain, and that

enforcement of the Agreement would require protracted supervision by the Court.

1. Statute of Limitations

According to Darling, Baywood’s claim for specific performance is barred by the statute of

limitations. As noted above, see note 11, supra, specific performance is a remedy for breach of

contract. Under state law, there is a four-year statute of limitations for breach of contract. See Cal.

Code Civ. Proc. § 337 (imposing a four-year statute of limitations on actions “upon any contract”). 

“The general rule is that a cause of action for breach of contract accrues at the time of breach.” 

Whorton v. Dillingham, 202 Cal. App. 3d 447, 456 (1988); see also 3 Witkin Cal. Proc. Actions §

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459 (“The cause of action ordinarily accrues when, under the substantive law, the wrongful act is

done and the obligation or liability arises, i.e., when a suit may be brought.”) (emphasis in original).

According to Baywood, Darling breached the Agreement by refusing to sell the Property to

Baywood in accordance with the Agreement. Based on this breach, Darling contends that the statute

of limitations began to run as of May 1, 1997, i.e., the day that Mr. Mellina informed Mr. Wasem by

letter that Darling had performed its remediation obligations under the Purchase Agreement and

would not further extend the time for the property inspection. In response, Baywood contends that

its claim for breach of contract did not accrue until October 1, 2004, when Mr. Whiting sent his

letter to Mr. Wasem, which stated that “Darling considers the 1990 [Purchase] Agreement to be

terminated.” Ex. B206 (letter, dated 10/1/04, from Mr. Whiting to Mr. Wasem).

The Court agrees with Baywood that the claim for breach of contract did not accrue until

October 1, 2004. This was the first time that Darling plainly, expressly, and unequivocably stated

that the Agreement had terminated. As found above, there was no clear repudiation of the

Agreement prior to this date; Darling’s behavior was at best ambiguous and induced Baywood

reasonably to believe that Darling considered the Agreement in effect until the Whiting letter of

October 1, 2004. This action was therefore timely filed.

2. Tender

Darling further argues that Baywood cannot demand specific performance because it has

never actually tendered the full purchase price. But, as Baywood argues, tender was excused once

Darling repudiated the Agreement on October 1, 2004. See Cal. Civ. Code § 1440 (“If a party to an

obligation give notice to another, before the latter is in default, that he will not perform the same

upon his part, and does not retract such notice before the time at which performance upon his part is

due, such other party is entitled to enforce the obligation without previously performing or offering

to perform any conditions upon his part in favor of the former party.”); Beverage v. Canton Placer

Min. Co., 43 Cal. 2d 769, 777 (1955) (“[W]here a vendor repudiates a contract and indicates that he

is not bound thereby, a tender is unnecessary. . . . [A] formal tender of performance is excused by

the refusal in advance of the party to accept the performance owing.”).

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That being said, the Court acknowledges that specific performance by Darling should not be

ordered unless Baywood ultimately pays the full purchase price under the Agreement. In other

words, Baywood is entitled to at most a conditional decree of specific performance. See Cal. Civ.

Code § 3386(b) (noting that specific performance may be compelled if the agreed

counterperformance has been substantially performed or its concurrent or future performance is

assured or, if the court deems necessary, can be secured to the satisfaction of the court); id., 1969

law revision comment (noting that “the assurance or security that the defendant will receive the

agreed counterperformance may be provided by the plaintiff’s past conduct, by his economic interest

in performing, or by granting a conditional decree or requiring the plaintiff to give security for his

performance”); see also Behniwal v. Mix, 133 Cal. App. 4th 1027, 1045 (2005) (noting that “the

ability-to-perform problem is ultimately self-correcting” because, “[i]f the trial court orders specific

performance, it is hardly going to hold the Mixes, as sellers, in contempt for not selling to the

Behniwals if the Behniwals ultimately can’t come up with the money”).

A conditional decree of specific performance can resolve not only the matter of Baywood’s

tender of the full purchase price but also any other issues regarding performance by Baywood under

the terms of the Agreement (i.e., performance by Baywood prior to or concurrent with the actual

transfer of the Property to Baywood).

3. Certainty and Court Supervision

Darling also argues that specific performance is not warranted or, if awarded, should be

limited to transfer of title to the Property “as is” because the terms of the Agreement are not

sufficiently certain, see Cal. Civ. Code § 3390(5) (providing that the following cannot be

specifically enforced: “[a]n agreement, the terms of which are not sufficiently certain to make the

precise act which is to be done clearly ascertainable”), and because the Court would otherwise be

required to engage in protracted supervision of the parties’ performance of the Agreement. Neither

argument is persuasive.

a. Certainty

“In order for a court of equity to decree that an obligation is specifically enforceable the

terms of the contract must be complete and certain in all particulars essential to its enforcement. 

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12 See 13 Witkin Sum. Cal. Law Equity § 42 (noting that “[c]ourts sometimes say that more

certainty is required in a suit for specific performance than in an action for damages” but that “this rule

is of doubtful practical significance, for in the large majority of California cases in which the rule is

invoked, the contract was also too uncertain to support an action for damages”). 

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The agreement must not only contain all the material terms but also express each in a reasonably

definite manner.” Lawrence v. Shutt, 269 Cal. App. 2d 749, 761 (1969). In the instant case, Darling

asserts that the terms of the Agreement dealing with remediation (which undisputedly are material

terms) are not sufficiently certain. The sole basis of Darling’s contention is that the parties dispute

the scope of Darling’s remediation obligations. However, a party cannot prevent specific

performance of a contract merely by pointing to a dispute over contract interpretation.12 Cf. Okun v.

Morton, 203 Cal. App. 3d 805, 817 (1988) (“At bottom, [if] the parties have concluded a transaction

in which it appears that they intend to make a contract, the court should not frustrate their intention

if it is possible to reach a fair and just result, even though this requires a choice among conflicting

meanings and the filling of some gaps that the parties have left.”) (internal quotation marks omitted). 

That a dispute over contract interpretation exists does not necessarily imply the contract is not

“reasonably definite.”

The question is whether the material terms are expressed in a reasonably definite manner. In

the instant case, the parties defined remediation obligations and completion of remediation in the

Agreement. Compare Lindsay v. Lewandowski, 139 Cal. App. 4th 1618, 1623 (2006) (noting that

parties had signed a stipulation for settlement providing that a dispute as to the terms of the

settlement would be resolved through “binding mediation”; stating that “[w]e cannot tell what the

parties meant when they provided for ‘binding mediation’”). The parties provided specific and

detailed definitions, and their dispute over remediation pertains only to scope. That scope issue is

fairly easily resolved. See Part II.B.4, infra (addressing remediation obligations and completion of

remediation). The uncertainty regarding remediation is minimal. 

b. Court Supervision

“An archaic doctrine denies specific performance of contracts that call for a series of acts

requiring continuous supervision, such as agreements for construction and repair.” 13 Witkin Sum.

Cal. Law Equity § 45; see also Okun, 203 Cal. App. 3d at 821 (1988) (noting that the application of

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the doctrine “generally is limited to building construction contracts and distribution or sales agency

agreements”). While “[t]he earlier California cases followed this rule . . . [,] application of the

doctrine was not always consistent.” 13 Witkin Sum. Cal. Law Equity § 45. Furthermore, “[t]he

better modern cases and other authorities reject this doctrine and give specific performance

whenever it is practically feasible.” Id. See, e.g., Ellison v. Ventura Port Dist., 80 Cal. App. 3d 574,

581 (1978) (concluding that a contract provision for periodic dredging of a channel was specifically

enforceable; specifically stating that “the doctrine is an archaic one and should not be unduly

extended”); Okun, 203 Cal. App. 3d at 821 (rejecting argument that enforcement of the contract

would require “inordinate [court] supervision” because the future venture did not involve day-to-day

management activities).

Here, ordering remediation by Darling will not require protracted supervision by the Court. 

For the reasons discussed below, remediation by Darling is largely complete. “Compared to the

complexity of the acts required in contracts for development or operation of railroads, mines, oil

fields, or even citrus groves, the [limited remediation in the instant case] pales to insignificance and

should place no great burden on the [C]ourt to supervise.” Ellison, 80 Cal. App. 3d at 581. In

addition, in contrast to exclusive distribution or sales agency contracts, little cooperation between

the parties is required to fulfill Darling’s obligation to remediate. See id.

4. Remediation

Having rejected Darling’s challenges to the specific performance claim, the Court now turns

to the issue of what Darling must specifically perform. As noted above, ultimately Darling must

transfer the Property to Baywood in accordance with the Agreement, subject to Baywood’s

counterperformance required by the Agreement (e.g., tender of the full purchase price). However,

Darling also has the obligation to remediate the Property, either prior to or after closing as provided

for by the Agreement. See Ex. B26 (Agreement ¶ 4.1).

a. Darling’s Remediation Obligations

The Court rejects Baywood’s contention that Darling’s remediation obligations are defined

per se by the General Report. Under the Agreement, the General Report is simply the results of the

Phase 1 and Phase 2, if any, environmental investigation. See id. (Agreement ¶ 4.4.2). The

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Agreement does not require Darling remediate everything identified in the General Report. Rather,

the Agreement provides that Darling submit the General Report (or a written summary, disclosure,

work plan, or other notice) to the appropriate governmental agencies. See id. (Agreement ¶ 4.4.3). 

Darling’s remediation obligation turns on what the agencies require in response thereto and is

further limited by the terms of the Agreement. As discussed below, Darling’s obligations are limited

to Hazardous Materials in the soil or below the surface. See id. (Agreement ¶¶ 4.1, 4.5). Moreover,

Darling’s obligations to remediate are deemed complete when the applicable governmental agencies

have approved of the remediation work or when Darling completes the remediation work plan

approved by the agencies as discussed below. See id. (Agreement ¶ 4.7). Hence, Darling’s

obligations are defined by the public agencies in response to the General Report, not the General

Report itself.

The Court also rejects Darling’s contention that the Agreement is ambiguous as to the scope

of Darling’s remediation obligations. Darling is correct that both ¶ 4.1 and ¶ 4.5 of the Agreement

address remediation work to be done by Darling. Paragraph 4.1 of the Agreement, titled “Seller’s

Remediation Obligation,” provides that it is Darling’s obligation 

to remove all underground tanks (the “Tanks”) that may be situated on

the Subject Property in the manner required by law and to remove,

contain and/or remediation all Hazardous Materials in the soils,

surface water and groundwater at, on, in, under or about the Subject

Property, including, without limitation, all asbestos and waste products

from underground cisterns.

Id. (Agreement ¶ 4.1).

Paragraph 4.5 of the Agreement, titled “Remediation Work,” provides that it is Darling’s

obligation

to take all actions to remediate, contain, treat or remove all Hazardous

Materials from the soils, surface water and ground water located at,

on, in, under or about the Subject Property in strict compliance with

governmental permits, approvals, orders and directions and in

accordance with applicable law (the “Remediation Work”).

Id. (Agreement ¶ 4.5).

Darling is also correct that ¶ 4.1 explicitly refers to removal of asbestos and waste products

from underground cisterns, while ¶ 4.5 does not. But, contrary to what Darling asserts, this

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difference does not create an inconsistency. Paragraph 4.1 simply clarifies that the remediation of

the soils, surface water, and ground water -- also required under ¶ 4.5 -- includes remediation of

asbestos and waste products from underground cisterns. 

Darling is not required, as suggested by Baywood, to remediate any asbestos above ground. 

Although asbestos is defined as a hazardous material in ¶ 4.2 of the Agreement, Darling’s

remediation obligations are defined by ¶¶ 4.1 and 4.5, not ¶ 4.2. Paragraph 4.1 plainly provides that

only asbestos in the soils is to be remediated, not asbestos in the structures above ground. See id.

(Agreement ¶ 4.1) (providing for “remediation all Hazardous Materials in the soils, surface water

and groundwater at, on, in, under or about the Subject Property, including, without limitation, all

asbestos and waste products from underground cisterns”).

As to what constitutes an underground cistern, an issue disputed at trial, Darling contends

that the term applies only to the underground enclosed storage tanks which have not yet been

evaluated (i.e., those tanks that cannot be accessed until the Property is demolished). In contrast,

Baywood asserts that the term also applies to the clarifiers (i.e., the open pits in the ground used in

the clarification process). The Court agrees with Baywood. Dwight R. Hoenig, Baywood’s expert

testified that, though the term “cistern” is “out of use these days,” it “is typically or often considered

being open containment for holding water.” Tr. at 450 (testimony of Mr. Hoenig). Darling did not

present any evidence to the contrary. It has not, for instance, presented any accepted definitions of

“cistern” which requires the tank be enclosed. See e.g. http://www.m-w.com/dictionary/cistern (last

visited on 7/9/07) (defining “cistern” as an artificial reservoir (as an underground tank) for storing

liquids and especially water (as rainwater)”); American Heritage Dictionary (3d ed. 1992) (defining

“cistern” as “[a] receptable for holding water or other liquid, especially for tank for catching and

storing rainwater”).

b. Completion of Remediation

The Court now turns to the issue of whether or not Darling has completed its remediation

obligations. As Darling notes, there are two paragraphs that discuss completion. Paragraph 4.7 of

the Agreement, titled “Definition of Completion,” provides that,

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[f]or purposes of this Agreement, the Remediation Work shall be

deemed complete only after (i) the Remediation Work has been

accepted and approved by the Supervising Consultant and all Public

Agencies as having been completed to a level below action levels for

commercial and industrial use and development or as having been

completed in the manner required by the remediation work plan

approved by the Public Agencies; and (ii) the Supervising Consultant

and any and all other consultants and contractors employed in the

Remediation Work have been paid in full and have executed

unconditional final releases of lien or sixty (60) calendar days have

elapsed since the recordation of a Notice of Completion without filing

of a mechanics lien claim, whichever date occurs latest. For purposes

of this Paragraph 4.7, the Remediation Work shall be deemed to be

complete even if Purchaser must maintain monitoring wells after the

completion and acceptance of the balance of the Remediation Work.

Id. (Agreement ¶ 4.7) (emphasis added).

Paragraph 4.1 of the Agreement is titled “Seller’s Remediation Obligation” and specifies that 

Seller shall be deemed to have removed, contained and/or remediated

Hazardous Materials situated at, on, in, under or about the Subject

Property if the levels of Hazardous Materials in the soil, surface water

and ground water comply with all regulations, guidelines, standard and

other criteria for commercial and industrial use and development of

the Subject Property as established by applicable local, regional, state

or federal agencies asserting jurisdiction over the Subject Property, or

any part thereof, as of the later of the Closing Date or the Date that

Seller completes the work in the manner described in Paragraph 4.8

below.

Id. (Agreement ¶ 4.1).

As Darling points out, while ¶ 4.1 discusses completion only in terms of cleanup to industrial

use levels, ¶ 4.7 allows cleanup to such levels or pursuant to an approved remediation work plan. 

This difference does not, however, does not create an inconsistency. Paragraph 4.1 simply states

that Darling may be deemed to be remediated if cleanup is to commercial and industrial use levels. 

It does not preclude completion of remediation under another standard (i.e., the other standard

provided for in ¶ 4.7). Paragraph 4.7 is more specific and is not preempted or obviated by ¶ 4.1. 

Therefore, Darling will have completed its remediation obligations if it achieves cleanup to

commercial and industrial use levels or in the manner required by an approved remediation work

plan pursuant to ¶ 4.7.

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c. Outstanding Remediation

The Court finds that Darling’s remediation obligations were completed within the terms of ¶

4.7 as of March 11, 1997, when Sonoma County’s Department of Health Services sent the letter to

Darling which stated that, 

[b]ased on the information submitted to this office and the San

Francisco Regional Water Quality Control Board, no further remedial

action will be needed at this site if after two years of semi-annual

monitoring there is no evidence of adverse pollutant migration. At the

end of the two year monitoring period, the site will be evaluated for

closure.

Ex. B186 (letter, dated 3/11/97, from Ms. Allen to Mr. McMurtry); see also Jt. Undisputed Facts at

2. Under ¶ 4.7 of the Agreement, Darling had remediated the Property pursuant to an approved

remediation work plan by the relevant public agencies. 

Baywood does not dispute that the relevant public agencies are the Sonoma County

Department of Health Services and the Regional Water Quality Control Board, see, e.g., Tr. at 429-

31 (testimony of Mr. Hoenig); id. at 784 (testimony of Mr. Clark), nor does it contend that approval

of a work plan by any other public agency was pending. Rather, it challenges the letter from the

Department of Health Services as not constituting the requisite approval on two grounds. 

First, Baywood asserts that the letter addressed only groundwater and not soils. This

argument is not convincing as Baywood’s own remediation witnesses testified to the contrary. See,

e.g., id. at 431 (testimony of Mr. Hoenig); id. at 883-85, 892-97 (testimony of Mr. Clark). The

evidence at trial established that it is highly unlikely that these agencies would not have intended to

address both; that would have been contrary to their usual practice. See, e.g., id. at 896-97

(testimony of Mr. Clark). 

Second, Baywood argues that there was no completion of remediation since the letter

required that there be monitoring of the Property. However, ¶ 4.7 of the Agreement specifically

provides that “the Remediation Work shall be deemed to be complete even if Purchaser must

maintain monitoring wells after the completion and acceptance of the balance of the Remediation

Work.” B26 (Agreement ¶ 4.7) (emphasis added). Even Mr. Wasem admitted this fact in his letter

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13 Although Baywood now claims that there were other conditions to close of escrow which had

not been satisfied by Darling, such as those relating to the exceptions, Baywood did not pursue these

issues after the March 11, 1997, Department of Health Services letter and expressed little interest in

getting Darling to resolve these collateral issues.

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of May 1, 1997, in which he responded to Mr. Mellina’s claim that remediation had been completed. 

See Ex. B287 (letter, dated 5/1/97, from Mr. Wasem to Mr. Mellina). 

Baywood further argues that Darling could have not completed its remediation obligations

until, in accordance with ¶ 4.7, the Supervising Consultant gave its approval. See Ex. B26

(Agreement ¶ 4.7) (“[T]he Remediation Work shall be deemed complete only after (i) the

Remediation Work has been accepted and approved by the Supervising Consultant and the Public

Agencies . . . as having been completed in the manner required by the remediation work plan

approved by the Public Agencies.”). No Supervising Consultant was ever clearly designated by the

parties. Baywood, however, waived its right to enforce this provision of the Agreement. Notably, in

response to Mr. Mellina’s May 1, 1997, letter, Mr. Wasem never contested that remediation was not

complete because of a lack of approval by the Supervising Consultant. Both Darling and Baywood

had a role in appointing the Consultant under ¶ 4.4.2. Yet Baywood, obviously knowledgeable of

this provision in the Agreement, took no steps to facilitate, encourage, or demand the appointment. 

Rather, despite the active involvement of Mr. Wasem in seeking and negotiating Darling’s

performance of the Agreement, Mr. Wasem never said a word about the failure to appoint a

Supervising Consultant. Darling was not informed that this mattered to Baywood. The Court finds

that Baywood waived its right to insist that such a Consultant be appointed and thus waived the

requirement that the remediation work be approved by such Consultant.

Accordingly, the Court concludes that Darling’s remediation obligations were complete as of

March 11, 1997, under ¶ 4.7 of the Agreement. The parties could have proceeded to close escrow

pending satisfaction of other conditions unrelated to remediation. However, the transaction did not

proceed to close of escrow for reasons discussed herein, in large part due to Baywood’s posture and

actions.13

After the March 11, 1997, letter from the Sonoma County Department of Health Services,

the Department determined that additional remediation was required. In a letter dated April 20,

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14 Darling admits that it has this remediation obligation. See Tr. at 941 (closing argument).

15 As discussed below, these remediation obligations may well fall within the indemnification

provisions of the Agreement even if closure were obtained from agencies under ¶ 4.7 prior to close of

escrow. However, with the exception of these two remediation obligations which Darling must

undertake, the Court, for equitable reasons discussed below, refuses to enforce the indemnification

clause.

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2000, the Department informed Darling that it was requesting “further discussion and evaluation on

this site due to potential fire hazard and possible construction worker exposure to Benzene.” Ex.

B193 (letter, dated 4/20/00, from J. Tracy to S. Rao). Because of this letter and with escrow still

open, Darling’s remediation obligation could no longer be deemed completed under ¶ 4.7: The

remediation work could no longer be deemed “as having been completed in the manner required by

the remediation work plan approved by the Public Agencies.” In fact, Darling then undertook to

perform substantial remediation work over the course of the lengthy escrow. 

Closure of the remediation work has now been obtained under ¶ 4.7. See Ex. 187 (letter,

dated 7/24/02, from Mr. Radford to Mr. Jang) (stating that “it does not appear that further

monitoring, investigation or remedial actions are necessary at this site to protect the beneficial uses

of the waters of the State of California”); Ex. 189 (letter, dated 7/30/04, from Mr. Krug to Mr.

McMurtry) (stating that the site investigation and corrective action carried out at Darling’s

underground storage tank(s) site was in compliance with the law and “no further action related to the

petroleum release(s) at the site is required”). Nonetheless, Darling has agreed to assume the

remediation of the underground, enclosed storage tanks that have not yet been evaluated.14 As to

the clarifiers (i.e., the open pits in the ground used in the clarification process) Darling’s only

objection to remediating those is Darling’s assertion the clarifiers are not “cisterns” within the

meaning of ¶ 4.1. But as the Court finds herein, these clarifiers are “cisterns,” and thus Darling must

remediate those as well.15

5. Environmental Indemnification

Baywood has asked for enforcement of all terms of the Agreement including Darling’s

environmental indemnification obligation. See Iverson v. Goodbub, 128 Cal. App. 538, 540

(1933) (“It is the policy of equity that it once having acquired jurisdiction it will settle all the

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controversies between the parties that it can reasonably do, so as to avoid unnecessary litigation.”). 

However, as noted by one state court, a court of equity is not “required to enforce [a] contract

completely, or not at all.” Ellison, 80 Cal. App. 3d at 583. Rather, “[w]here it is possible to bring

about substantial justice by adjusting the equities between the parties, a court of equity can grant

relief.” Id.; see also Hershey v. Los Angeles Pacific Co., 171 Cal. 353, 355(1915) (noting that “the

granting or withholding of specific performance is within the discretion of a chancellor and that

specific performance will be decreed only under equitable circumstances, quite regardless of the

express terms of a contract”); Bank of America Nat’l Trust & Sav. Ass’n v. Moore, 18 Cal. App. 2d

522, 529 (1937) (“It may be . . . that the nature of the repairs required in this case will lead the trial

court to the conclusion that a court should not undertake the task of ordering them done . . . or that

for other reasons the equitable relief sought should not be furnished.”); Rest. (2d) Contracts § 358

(“An order of specific performance or an injunction will be so drawn as best to effectuate the

purposes for which the contract was made and on such terms as justice requires. It need not be

absolute in form and the performance that it requires need not be identical with that due under the

contract.”). 

The Court concludes Baywood is not entitled to the equitable remedy of specific

performance of the environmental indemnification provision. See Ex. B26 (Agreement ¶ 4.9). 

There are strong equitable reasons why the indemnification provision should not be enforced against

Darling. Although Darling’s conduct with respect to Baywood has been less than exemplary --

having engaged in conduct that constitutes waiver and estoppel -- Baywood’s conduct with respect

to Darling has also been less than exemplary.

First, throughout their dealings, Baywood repeatedly insisted that Darling had remediation

obligations beyond that which were required by the Agreement and demanded that Darling perform

up to those standards even though not supported by the Agreement. For example, as early as May

1990 (i.e., soon after the Agreement was executed), Baywood claimed that “any asbestos located on

the Property must be removed and is considered to be part of the Remediation Work,” Ex. B256

(letter, dated 5/15/90, from Mr. Wasem to Mr. Farrell) (emphasis added), but, as the Court has found

above, the Agreement only requires remediation of asbestos at or below ground. See Ex. B26

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(Agreement ¶ 4.1). Only a month later, Baywood claimed that “the recommendations of the General

Report are a part of the Remediation Work,” Ex. B500 (letter, dated 6/13/90, from Mr. Wasem to

Mr. Farrell), even though, as discussed above, the Agreement only provides that the General Report

(or a written summary, disclosure, work plan, or other notice) be provided to the appropriate

governmental agencies, and the scope of remediation is determined by the agencies. See Ex. B26

(Agreement ¶¶ 4.4.3 and 4.7). Baywood continued to assert these claims throughout its dealings

with Darling, see, e.g., Ex. B260 (letter, dated 8/22/05, from Mr. Frassetto to Mr. Whiting) (claiming

that the General Report defined the remediation work to be done by Darling), and persisted in

making these claims within the instant litigation.

Second, Baywood continually insisted that the remediation was not complete until there was

formal closure by the public agencies. This assertion flies in the face of clear language of ¶ 4.7 of

the Agreement. See, e.g., Ex. B287 (letter, dated 5/1/97, from Mr. Wasem to Mr. Mellina) (“While I

agree that the Agreement is clear that the mere existence and maintenance of the monitoring wells

does not effect the definition of ‘completion,’ I believe it was contemplated that formal closure

would occur prior to Closing.”). Baywood never abandoned this assertion in its dealings with

Darling, even through the instant litigation.

Baywood’s conduct in insisting on performance not required by the contract verged on

breach of the Agreement. Cf. 23 Williston on Contracts §§ 63:47-63:48 (noting that a party

“commits an anticipatory breach by making an express demand for a performance to which he or she

is not entitled, as by, for example, a statement that the party will not perform except on conditions

that go beyond the contract, or on terms different from the original contract”; also stating that “it is

an anticipatory breach to . . . insist that [a contract’s] meaning or legal effect are different in a

material particular from the true meaning or effect, coupled with the assertion, express or implied in

fact, that performance will be made only according to the erroneous interpretation”). 

Furthermore, until it made the second deposit in February, 2000, Baywood had insisted that

Darling complete its remedial obligations as a condition to Baywood’s second deposit. The

Agreement did not so provide. As discussed above, the second deposit under ¶ 2.2 of the Agreement

was not conditioned on completion of the remediation work under ¶¶ 4.1 or 4.5. Moreover, as

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16 To be sure, had the escrow closed in 1997 and subsequent remediation was then ordered by

the authorities after close of escrow, Darling may have been responsible under the indemnification

clause of the Agreement to attain commercial level remediation. But in this case Baywood is obtaining

the benefit of certainty as to remediation prior to close of escrow. That certainty prior to close of escrow

is a benefit since it removes any uncertainty as to the applicability and scope of the indemnification (see,

e.g., ¶ 4.9.4, burden of proving causation is on purchaser) and the timing of the remediation (under ¶

4.5.3 had a postponement notice been given where purchaser does not assume the costs over $200,000,

seller to have up to 59 years to complete remediation and under ¶ 4.9.5 seller is relieved of

indemnification if purchaser requests remediation clause under ¶ 4.8.5 which implements ¶ 4.5.3).

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discussed above, Darling had in fact completed the requisite remediation work pursuant to ¶ 4.7 as

of the Sonoma County Department of Health Services letter of March 11, 1997. Baywood’s refusal

to make the second deposit and defer steps to complete closing were motivated in party by its desire

to obtain resolution of the State Land Commission title dispute even though Darling was not

required to remove such claims on title under ¶ 5.1 of the Agreement. 

Baywood benefitted from this delay in making the second deposit and in tendering

performance to close escrow. It was able to minimize significant environmental and title risks prior

to making the second deposit and close of escrow. As a result of the further action required by the

County (after the March 11, 1997, letter) which ensued after Baywood’s delay, Darling incurred

substantial expenditures in completing additional remediation work. Indeed, Darling remediated the

site to residential standards, exceeding the commercial standards set forth in the Agreement. See Tr.

at 408 (testimony of Mr. White) (stating that the Property was cleaned up “to a residential cleanup

standard”); Ex. 140 (soil remediation report, dated 10/31/02); see also Tr. at 440 (testimony of Mr.

Hoenig).16 As ordered herein, the Court is also requiring Darling to remediate the storage tanks and

clarifiers. Baywood has thus obtained greater assurance regarding remediation than it was entitled

to under the Agreement prior to risking the second deposit and prior to tendering its performance to

close escrow. Furthermore, the delay enabled Baywood to minimize its title risk by obtaining an

agreement in principle with the State Lands Commission prior to close of escrow. 

Moreover, Baywood retained the use of the second deposit and purchase money during the

several year delay. Given the length of the delay, the difference in time value of money is

significant. Darling, on the other hand, suffered the correlative costs and losses resulting from the

delay. As found above, Baywood, though not entirely responsible, contributed substantially to the

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delay by refusing timely to make the second deposit and insisting on limiting its risk on remediation

and title before moving forward towards close of escrow.

Accordingly, the Court concludes in the exercise of equity that while Baywood is entitled to

specific performance mandating inter alia that title to the Property be transferred upon tender of full

consideration, Baywood is not entitled to specific performance of the indemnification provision. 

C. Summary

Based on the foregoing, the Court finds against Darling on its claims for cancellation and

declaratory relief and in favor of Baywood on its claims for specific performance and declaratory

relief. Baywood is entitled to a conditional decree of specific performance of the Agreement, except

for the environmental indemnification provision.

IT IS SO ORDERED.

Dated: July 13, 2007 _______________________________

EDWARD M. CHEN

United States Magistrate Judge

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