Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-4_04-cv-05049/USCOURTS-cand-4_04-cv-05049-4/pdf.json

Parties Involved:
CFA Northern California, Inc.
Plaintiff
CRT Partners, LLP
Defendant
Robert Campbell
Defendant
Claire Thomas
Defendant

Document Text:

United States District Court

For the Northern District of California

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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

CFA NORTHERN CALIFORNIA, INC.,

Plaintiff,

v.

CRT PARTNERS, LLP; CLAIRE THOMAS; and

ROBERT CAMPBELL,

Defendants.

 /

No. C 04-5049 CW

ORDER ON CROSSMOTIONS FOR

SUMMARY JUDGMENT

Plaintiff CFA Northern California, Inc. (CFANC) moves for

partial summary judgment on its first claim for breach of contract. 

Defendants CRT Partners, LLP (CRT) and Claire Thomas oppose the

motion and cross-move for summary judgment. Plaintiff opposes

their cross-motion. The matters were heard on April 21, 2006. 

Having considered the parties' papers, the evidence cited therein

and oral arguments, the Court denies Plaintiff's motion and grants

Defendants' motion.

BACKGROUND

Defendant CRT entered into the written contract at issue with

an entity identified in the contract as Corporate Finance

Associates (CFA). Paul Jeffrey Johnson signed for CFA, identifying

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1

In the original complaint, first amended complaint and second

amended complaint, CFA Northern California, Inc. is identified as

the plaintiff. At Mr. Johnson's deposition, he stated that there

is no such entity as CFA Northern California, Inc. and that

Plaintiff should be identified as CFAW Northern California, Inc. 

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himself as its Senior Partner. However, Plaintiff CFANC1 brings

this lawsuit for breach of the contract between CFA and CRT. 

Plaintiff CFANC is a California corporation having its principal

place of business in California. Mr. Johnson is the President of

Plaintiff CFANC. He states that CFA is a fictitious business name

consistently used by Plaintiff CFANC, and is registered as such

with the Clerk of Contra Costa County. But, as explained below,

CFA is also the name of an entirely different, international

business entity.

Plaintiff CFANC is an intermediary that introduces potential

purchasers of companies and businesses to potential sellers. It

was founded in 1997 and, at the time in question, it had one

office, no assets and no insurance; its sole stockholders were Mr.

Johnson and his wife. Defendant CRT is an Arizona limited

liability partnership having its principal place of business in

Arizona. It owns and operates eighteen Jack-in-the-Box restaurant

franchises in Arizona. 

In 2002, Mr. Johnson contacted Defendant Thomas on behalf of a

client who was interested in purchasing Defendant CRT's Jack-inthe-Box franchises. Defendant Thomas, one of the partners in

Defendant CRT, was interested in selling because she wanted to

retire. After a few months of talks and trading information, the

deal fell through; Mr. Johnson's client did not purchase the

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franchises. Mr. Johnson and Defendant Thomas then began discussing

whether Mr. Johnson could find another purchaser for the Jack-inthe-Box franchises. 

In April, 2003, Defendant Thomas came to California and met

with Mr. Johnson. They further discussed Mr. Johnson representing

Defendant CRT to find a buyer for the Jack-in-the-Box franchises. 

During this meeting, Mr. Johnson provided Defendant Thomas with

written materials regarding an international entity identified as

CFA. The front page of a CFA marketing document stated that it was

prepared for Defendant CRT and Defendant Thomas, and included a

seal highlighting "45 years of excellence." The document listed

"CFA Benefits," which included sixty-five seasoned professionals;

thirty-five offices (plus nine in Europe); and the fact that it was

founded in 1956. Page 12 emphasized CFA's "Proven Track Record"

and featured a photo of a conference table covered with closing

documents. Mr. Johnson's biography, provided with the marketing

document, stated that he "is a Senior Partner of Corporate Finance

Associates responsible for Northern California." Also provided

with the materials was an article entitled, "Five Biggest Mistakes

Sellers Make When Choosing A Buyer." The article described CFA as

an international organization with offices in cities

across the United States and Canada and affiliates in 10

countries overseas. . . . The professionals who represent

CFA work with privately held companies in mergers,

acquisitions, divestitures and corporate finance. 

Typically our clients have sales in the 3-100 million

dollar range . . . . With a 45-year history in the field,

CFA has more offices with more combined experience than

any other organization of intermediaries in the U.S. Our

Associates have completed several thousand transactions

for middle market business owners since 1956.

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During their discussions, Defendant Thomas explained to Mr.

Johnson that she had originally wanted to sell her interest in the

business to Laura Olguin, but that she could not obtain approval

from the Jack-in-the-Box corporation to do so. At that time, the

Jack-in-the-Box corporation required new franchise owners to be

individuals, not corporations, living within a one-hour drive of

the restaurant, who were not engaged in any business activity other

than operating a Jack-in-the-Box restaurant. A new franchise owner

also had to have substantial capital resources. Ms. Olguin did not

have the required capital resources.

After Defendant Thomas met with Mr. Johnson, the parties began

negotiating an agreement. The Sidney Kohn Law Firm represented

Defendants in the negotiations and the parties exchanged

correspondence regarding modifications to the agreement. One

modification was to add "not including real estate" after the

phrase describing the restaurant franchises for sale, to clarify

that only the restaurant franchises were for sale, not the

underlying property. Another modification was to add the language

quoted below defining "Interested Parties"; this modification

limited Defendant CRT's obligation to pay a success fee after the

agreement between the parties was terminated.

On May 19, 2003, an entity identified as CFA and Defendant CRT

entered into the contract at issue, entitled Seller's Authorization

and Exclusive Fee Agreement, for the sale of "EIGHTEEN JACK IN THE

BOX RESTAURANTS (not including real estate) LOCATED IN TUCSON, AZ." 

Mr. Johnson, identifying himself as a senior partner, signed on

behalf of CFA, called the Consultant. Defendant Thomas and her

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partner Robert Campbell signed on behalf of Defendant CRT, called

the Client. The Agreement provides, in part, that:

The party signing below as (Client) engages the

undersigned (Consultant) to assist Client and/or its

shareholders, principals, subsidiaries and partnerships

(Affiliates) to accomplish a sale, merger, exchange,

capital investment, loan, joint venture or other such

transaction (Transaction) involving all or part of the

business interest of Client, including, but not limited

to, stock and assets owned directly or indirectly by

Client or Affiliates described general [sic] as follows:

EIGHTEEN JACK IN THE BOX RESTAURANTS (not including real

estate) LOCATED IN TUCSON, AZ AND LISTED ON PAGE 4. 

Client engages Consultant on a exclusive basis and agrees

to forward to Consultant all inquiries from any party

during the term of this Agreement. Client's obligations

to Consultant shall arise regardless of any specific

involvement of Consultant. . . . The Agreement shall

remain in effect for twelve (12) months from this date

unless terminated by either party upon 30 days prior

written notice. . . . Client's fee obligation to

Consultant shall survive this Agreement for Transactions

with Interested Parties that close within one (1) year

after the termination of this Agreement. Interested

Parties shall mean those parties that during the term of

this Agreement have gone through all of the following

process and protocol to be conducted by the Consultant:

(1) Party responding to the knowledge that the business

opportunity was for sale, (2) Consultant, thereafter,

obtains a signed Confidentiality Agreement from the

party, (3) Consultant reviews the party's Dunn &

Bradstreet ("D&B") profile, (4) Consultant speaks to the

party and inquires as to the party's wherewithal and

motivation to acquire the business, (5) Consultant speaks

to the Client's representative, Claire Thomas, and

informs her of the response of the party, Consultant's

knowledge of the party and the Consultant's

recommendation whether to send the offering document

(Descriptive Report prepared by Consultant) to the party;

and (6) Claire Thomas authorizes the Consultant to send

the Descriptive Report to the party.

The Agreement uses the CFA logo, the same logo used on the written

materials Defendants received regarding the international CFA

entity. 

Mr. Johnson states that, on occasion, Plaintiff CFANC will

agree in writing to accept a reduced success fee for alreadyCase 4:04-cv-05049-CW Document 57 Filed 07/06/06 Page 5 of 15
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identified suitors, but that Defendants did not request any such

provision, or make any reservation, condition or restriction,

addressing the possibility that Ms. Olguin would become qualified

to become a franchise owner. 

After the Agreement was signed, Plaintiff CFANC prepared a

twenty-nine page descriptive report, explaining that a chain of

eighteen Jack-in-the-Box restaurant franchises was being offered

for sale. The report clarified that only the restaurant operations

were for sale and that, because the owner/franchisee was a

partnership, an asset sale was anticipated. The report further

explained that "CRT owns the real estate of 14 of the 18

restaurants. The leases for the four leased units will be assigned

to the new owner. CRT will lease the remaining 14 at graduated and

reasonable lease rates (further discussed in the Facilities

section), to assist the new owner in getting started for the first

few years."

Plaintiff CFANC states that it marketed the franchises to

almost 800 pre-qualified potential buyers, and introduced

Defendants to numerous potential acquirers of the franchises. 

According to Defendants, however, after preparing the descriptive

report and a market valuation, Plaintiff CFANC did nothing that was

designed to locate an individual who would qualify as a buyer. 

Instead, it solicited unqualified buyers, such as private equity

groups, existing restaurant operators and out-of-state individuals. 

Defendant Thomas states that she explained to Mr. Johnson that the

Jack-in-the-Box corporation would not approve of the buyers

Plaintiff CFANC was soliciting. 

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According to Plaintiff CFANC, in November, 2003, Defendant

Thomas advised it that Ms. Olguin now qualified as a

owner/operator, that it should not deal with Ms. Olguin and that it

would not be paid its success fee. Defendant Thomas, however,

testified that by November, 2003, she concluded that Plaintiff

CFANC would not be successful in selling the franchises and orally

terminated the contract. Soon thereafter, the Jack-in-the-Box

corporation relaxed the restrictions for an owner/operator, which

would allow Ms. Olguin, who had a ten percent interest in Defendant

CRT, to increase her interest. Defendant Thomas testified that Mr.

Johnson continued to send correspondence indicating that he was

still doing work on Defendant CRT's behalf, even after she

terminated Plaintiff CFANC's services. 

On December 31, 2003, Plaintiff CFANC sent Defendants a

current market report identifying Defendant CRT itself as a

potential buyer. Defendant Thomas states that, because Plaintiff

CFANC continued to contact her regarding its representation, even

after she verbally terminated the contract, she asked Defendant

CRT's lawyer to send a written notice of termination. On January

13, 2004, Defendant CRT, through its lawyer, gave written notice of

the termination of the Agreement.

In May, 2004, Defendant CRT acquired Defendant Thomas'

interest in Defendant CRT for $3,160,000. The transaction closed

in August, 2004, less than twelve months after Defendant CRT

terminated the Agreement. 

Plaintiff CFANC claims that, under the Agreement, Defendants

owe it a $246,400 success fee. Defendants disagree.

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LEGAL STANDARD 

Summary judgment is properly granted when no genuine and

disputed issues of material fact remain, and when, viewing the

evidence most favorably to the non-moving party, the movant is

clearly entitled to prevail as a matter of law. Fed. R. Civ. 

P. 56; Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986);

Eisenberg v. Ins. Co. of N. Am., 815 F.2d 1285, 1288-89 (9th Cir.

1987).

The moving party bears the burden of showing that there is no

material factual dispute. Therefore, the court must regard as true

the opposing party's evidence, if supported by affidavits or other

evidentiary material. Celotex, 477 U.S. at 324; Eisenberg, 815

F.2d at 1289. The court must draw all reasonable inferences in

favor of the party against whom summary judgment is sought. 

Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574,

587 (1986); Intel Corp. v. Hartford Accident & Indem. Co., 952 F.2d

1551, 1558 (9th Cir. 1991). 

Material facts which would preclude entry of summary judgment

are those which, under applicable substantive law, may affect the

outcome of the case. The substantive law will identify which facts

are material. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248

(1986).

Where the moving party does not bear the burden of proof on an

issue at trial, the moving party may discharge its burden of

production by either of two methods. Nissan Fire & Marine Ins.

Co., Ltd., v. Fritz Cos., Inc., 210 F.3d 1099, 1106 (9th Cir.

2000). 

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The moving party may produce evidence negating an

essential element of the nonmoving party’s case, or,

after suitable discovery, the moving party may show that

the nonmoving party does not have enough evidence of an

essential element of its claim or defense to carry its

ultimate burden of persuasion at trial. 

Id. 

If the moving party discharges its burden by showing an

absence of evidence to support an essential element of a claim or

defense, it is not required to produce evidence showing the absence

of a material fact on such issues, or to support its motion with

evidence negating the non-moving party's claim. Id.; see also

Lujan v. Nat’l Wildlife Fed’n, 497 U.S. 871, 885 (1990); Bhan v.

NME Hosps., Inc., 929 F.2d 1404, 1409 (9th Cir. 1991). If the

moving party shows an absence of evidence to support the non-moving

party's case, the burden then shifts to the non-moving party to

produce "specific evidence, through affidavits or admissible

discovery material, to show that the dispute exists." Bhan, 929

F.2d at 1409. 

If the moving party discharges its burden by negating an

essential element of the non-moving party’s claim or defense, it

must produce affirmative evidence of such negation. Nissan, 210

F.3d at 1105. If the moving party produces such evidence, the

burden then shifts to the non-moving party to produce specific

evidence to show that a dispute of material fact exists. Id.

If the moving party does not meet its initial burden of

production by either method, the non-moving party is under no

obligation to offer any evidence in support of its opposition. Id.

This is true even though the non-moving party bears the ultimate

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burden of persuasion at trial. Id. at 1107. 

Where the moving party bears the burden of proof on an issue

at trial, it must, in order to discharge its burden of showing that

no genuine issue of material fact remains, make a prima facie

showing in support of its position on that issue. UA Local 343 v.

Nor-Cal Plumbing, Inc., 48 F.3d 1465, 1471 (9th Cir. 1994). That

is, the moving party must present evidence that, if uncontroverted

at trial, would entitle it to prevail on that issue. Id.; see also

Int’l Shortstop, Inc. v. Rally's, Inc., 939 F.2d 1257, 1264-65 (5th

Cir. 1991). Once it has done so, the non-moving party must set

forth specific facts controverting the moving party's prima facie

case. UA Local 343, 48 F.3d at 1471. The non-moving party's

"burden of contradicting [the moving party's] evidence is not

negligible." Id. This standard does not change merely because

resolution of the relevant issue is "highly fact specific." Id.

DISCUSSION 

I. Defendants' Motion for Summary Judgment

Defendants argue that they are entitled to summary judgment

based on their affirmative defense that the Agreement is voidable.

They entered into the Agreement based on their misunderstanding,

fostered by Mr. Johnson, that they were contracting with an entity

called CFA, which was an established, experienced international

company, not with Plaintiff CFANC, a one-man corporate entity that

had completed only six sales of businesses located in California,

and had no insurance and no assets. They would not have entered

into the Agreement if Mr. Johnson had not misled them to believe

that they were contracting with the international CFA entity. 

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Defendants contend that they cannot be held liable in contract to

an entity with which they never intended to contract. 

 Arizona law provides that a transaction induced by the

material misrepresentation of a party is voidable against that

party. Lehnhardt v. City of Phoenix, 105 Ariz. 142, 144 (1969)

("It appears to be well-established law that a claim for

rescission, as opposed to a claim for damages, may be granted when

'innocent' as well as fraudulent misrepresentations are made, and

that accordingly, proof of each of the nine elements of actionable

fraud is not essential in a rescission action."). A claim for

rescission is established by showing: a representation made by the

contracting party; the representation's falsity; its materiality;

and the fact that it was an inducing cause for the party entering

into the contract. Hubbs v. Costello, 22 Ariz. App. 498, 501

(Ariz. App. 1974). Quoting the Restatement of Contracts § 470(2),

Arizona courts have found that a "misrepresentation is material

where it 'would be likely to affect the conduct of a reasonable man

with reference to . . . .' the transaction in question." See,

e.g., id. A "misrepresentation" is the "concealment of what is

true as well as the assertion of what is false." State v.

Carrasco, 201 Ariz. 220, 224 (Ariz. App. 2001) (quoting State v.

Coddington, 135 Ariz. 480, 481 (Ariz. App. 1983)).

Furthermore, before a binding contract is formed, the parties

must mutually consent to all material terms. Hill-Shafer P'ship v.

Chilson Family Trust, 165 Ariz. 469, 473 (1990). The Arizona

Supreme Court has explained:

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If one party thinks he is buying one thing and the other

party thinks he is selling another thing, no meeting of

the minds occurs, and no contract is formed. The most

famous statement of this point of law arose in the case of

Raffles v. Wichelhaus, 2 Hurl. 906, 159 Eng.Rep. 375

(1864). In Raffles, the parties agreed on a sale of goods

which was to be delivered from Bombay by the ship

"Peerless." In fact, two ships named "Peerless" were

sailing from Bombay at different times, and each party had

a different ship in mind. The arrival time of the

merchandise was of the essence to the contract. Because

the understandings of the parties were different as to a

material term, no binding contract was formed.

Id. at 473-74 (citations omitted).

As noted above, Mr. Johnson gave Defendant Thomas written

materials describing CFA as an international organization with

offices throughout the world and a proven track record, spanning

almost half a century, in completing business sales, mergers and

acquisitions. Mr. Johnson now claims that Plaintiff CFANC was the

contracting party but he never told Defendants that the

international CFA entity was not the contracting party. The

Agreement describes only CFA; Mr. Johnson signed the Agreement as

CFA's "senior partner," which is how he was described in the

written materials describing CFA. Plaintiff CFANC, however, is a

different entity; Mr. Johnson stated at his deposition that he is

the president of CFANC, not its senior partner. Nor did Mr.

Johnson inform Defendants that CFA is a fictitious name, under

which Plaintiff CFANC is licensed to do business, or that there is

more than one organization using the name CFA. 

Mr. Johnson claimed at his deposition that he explained to

Defendant Thomas that "CFA" was a network of independently owned

and operated offices. But when asked if he did anything at any

time to explain to Defendant Thomas that she would not be entering

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into a contract with the international CFA entity described in the

written materials, Mr. Johnson responded, "No." When asked if it

would be reasonable for Defendant Thomas to assume that the CFA he

was associated with is the same CFA that has offices across North

America and Western Europe, Mr. Johnson responded, "Yes." When

asked how anyone looking at the Agreement would know whether they

had contracted with Plaintiff CFANC or the international CFA

entity, Mr. Johnson responded, "They wouldn't." He conceded that

no document or notice was provided to Defendants disclosing that he

was acting as the president of Plaintiff CFANC, and not as a senior

partner of the international CFA entity.

According to Defendants, it was not until Mr. Johnson's

deposition on January 23, 2006, that they discovered that they had

not entered into an Agreement with the company described, in the

written materials they were given, as having "completed several

thousand transactions for middle market business owners since

1956." Instead of contracting with a company with "45 years of

excellence," they learned that they had entered into a contract

with a young company that had completed only six sales, of

businesses located in California, not several thousand

transactions. On the second day of Mr. Johnson's deposition,

Defendants learned that Plaintiff had no insurance and no assets. 

Defendants state that they never would have entered into the

Agreement with a one-man corporate entity with few resources and

little experience in providing the services they sought.

Plaintiff responds that Defendants rely upon dicta in the

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2

Plaintiff also contends that, although couched in terms of

misrepresentation, Defendants' argument is actually a claim of

fraud in the inducement. Because Defendants did not plead fraud in

their answer, Plaintiff asserts that Defendants are barred from

asserting this defense. Defendants filed a motion for leave to

amend their answer contemporaneously with their reply. Having

considered the motion and Plaintiff's opposition, the Court GRANTS

Defendants' Motion for Leave to File Defendants' Amended Answer to

Second Amended Complaint (Docket No. 53).

14

cases they cite.2 Plaintiff is incorrect. Plaintiff's attempt to

distinguish this case from Lehnardt is also unpersuasive. The fact

that there was no mention of an integration clause in the contract

at issue in Lehnardt is immaterial. Plaintiff contends that,

because Defendants were represented by counsel and the integration

clause in the Agreement provides that the Agreement "supercedes all

prior agreements, representations, and understandings of the

parties," the contract cannot be voidable based on any

misrepresentation. But Plaintiff cites no authority to support

that contention. Nor does Plaintiff dispute that Defendants

intended to enter into an Agreement with an established

international organization. 

In sum, there is no dispute that Defendants did not intend to

enter into a contract with Plaintiff CFANC. Nor is there a dispute

that Plaintiff CFANC misrepresented itself to Defendants, leading

Defendants to believe that they were contracting with a company

boasting of forty-five years of excellence and a proven track

record of thousands of successful sales. Thus, the contract is

voidable as a matter of law and summary judgment for Defendants on

this ground is granted. The Court need not address Defendants'

remaining grounds for summary judgment.

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II. Plaintiff's Motion for Summary Judgment

Because Defendants' motion for summary judgment is granted,

Plaintiff's motion is moot and will not be addressed. 

CONCLUSION

For the foregoing reasons, Defendants' Cross-Motion for

Summary Judgment (Docket No. 48) is GRANTED. The contract is

voidable as a matter of law. The Court DENIES as moot Plaintiff's

Motion for Partial Summary Judgment (Docket No. 47). Judgment 

shall enter accordingly. Defendants shall recover their costs from

Plaintiff.

IT IS SO ORDERED.

Dated: 7/6/06 

CLAUDIA WILKEN

United States District Judge

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