1 Filed 12/18/13 Ghilotti Brothers v. Monahan Pacific CA1/3 NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION THREE

GHILOTTI BROTHERS, INC., Plaintiff, Cross-defendant and Respondent,

v. MONAHAN PACIFIC CORPORATION, et al., Defendants, Cross-complainants and Appellants. A129562

(Marin County Super. Ct. No. CV060168)

Ghilotti Brothers, Inc. (Gh ilotti) sued defendants Larkspur Capital Partners, LLC (Larkspur Partners) and Monahan Pacifi c Construction Corporation (Monahan Construction), seeking damages for breach of contract relati ng to certain work performed by Ghilotti on the Drake’s Cove pr oject site in the City of Larkspur. Larkspur Partners and Monahan Construction jointly cross-cl aimed against Ghilotti seeking damages for gross negligence, breach of co ntract, negligence, deceit, and contractual indemnification. Monahan Pacific Corporation (Monahan), the managing member of Larkspur Partners, filed a separate cross-action against Ghilo tti seeking damages fo r gross negligence, breach of contract, and contractual indemnifica tion. After a jury rendered a verdict in

favor of Ghilotti on its claim of breach of contract, the court entered an amended judgment on November 12, 2010, awarding Ghilotti the principal sum of $1,065,438.36, and prejudgment interest of $500,234.50. The court entered a separate order on November 12, 2010, dismissing Monaha n’s cross-action against Ghilotti.2 On their appeals Larkspur Partners, Monahan Construction, and Monahan seek

reversal based on the trial cour t’s rulings on two motions in lim ine. We conclude the trial court properly granted Ghilotti’s motion in limine to strike Monahan’s cross-action on the ground Monahan lacked standing to pursue a tort claim of gross negligence against

Ghilotti. We also conclude the trial court di d not err in denying the motion in limine by Larkspur Partners and Monahan Construction seeking to bar parol evidence concerning

the terms of the Ghilotti/Monahan Construction st andard form contract. Accordingly, we

affirm the order of dismis sal of Monahan’s cross-actio n against Ghilotti, and the amended judgment in favor of Ghilotti. 1

FACTUAL AND PROCED URAL BACKGROUND 2 “[S]ince well before 2003,” Monahan, the managing member of Larkspur Partners, a limited liability co mpany, has been engaged in building a residential subdivision on the Drake’s Cove project site that was owned by Larkspur Partners. Monahan entered into an agr eement with Monahan Construc tion, a separate entity and licensed contractor, to develop the project site. Thereafter, in May 2004, Monahan

Construction entered into a s ubcontract with Ghilotti in whic h Ghilotti agreed to perform certain work at the project si te, including grading, paving, and the installation of certain utilities, which agreement was later modified by a written change order No. 3. Ghilotti

entered into a “second tier subcontract” with another contractor to remove trees, stumps, and brush from the project site.

At trial Ghilotti contended Monahan Cons truction breached the parties’ May 2004 contract, as modified by change order No . 3, by failing to pay it for amounts due and owing for work performed on the project si te. Monahan Construc tion contended Ghilotti

1 The amended judgment entered Novemb er 12, 2010, supers eded a judgment entered June 8, 2010, and an order entered August 9, 2010. Accordingly, we dismiss appellants’ separate appeals from the judgme nt entered June 8, 2010, and the order entered August 9, 2010.

2 We set forth only those facts as are nece ssary to resolve the i ssues raised on this appeal.3 breached the parties’ agreements by failing to timely perform the wo rk pursuant to the contract terms and by negligently performing th e work. Larkspur Partners contended that although it was not a party to the Ghilo tti/Monahan Construction agreements, it was entitled to damages as an intended third-party beneficiary. The jury returned a verdict in favor of Ghilotti on its breach of contract claim against Larkspur Partners a nd Monahan Constructi on, and found no mer it to the breach of contract claim by Larkspur Partners and M onahan Construction against Ghilotti. The jury also found Ghilotti was ne gligent but its neglig ence was not a substantial factor in causing harm to Larkspur Partne rs and Monahan Construction.

DISCUSSION

I. Trial Court’s Grant of Ghilotti’s Mo tion in Limine to Dismiss Monahan’s Cross-Action for Gross Negligence A. Relevant Facts

Before trial Ghilotti filed a motion in lim ine seeking to strike Monahan’s crossaction for lack of standing to sue on the grou nd that Monahan’s alleged injuries “flow[ed] to the limited liability company [Larkspur Partners], as owner/developer, and not to its managing member.” Monahan opposed the mo tion, arguing it had standing to seek to recover for its own losses caused by Ghilotti’ s alleged “negligence, grossly intentional

conduct.” The trial court granted the motion in limin e to strike Monahan’s cross-action. In so ruling, the court explained: “This isn’t a slander action. This is, more or less, a

contract action. I don’t think Monahan Paci fic Corporation does have standing to pursue any claims in this lawsuit. [¶] Its only alle gations are that it’s the managing member of Larkspur Capital Partners. Larkspur Capital Pa rtners, certainly, has standing to prosecute this lawsuit . . . . [¶] As an LLC, Monaha n Pacific Corporation does not own Larkspur Capital’s assets. It lacks standing to sue in its own behalf for claims belonging to Larkspur Capital Partners.”4 B. Analysis

Monahan seeks reinstatement of its cause of action for gross negligence, arguing it has standing to assert that claim on its ow n behalf against Ghilotti and its claim was not a derivative one that belonged on ly to Larkspur Partners. We disagree, and conclude the trial court properly dismissed Monahan’s cross-action for lack of standing to sue Ghilotti. “In 1994, the Legislature enacted Cor porations Code sections 17000-17655 governing limited liability companies. Th e law incorporates provisions of the Corporations Code. [¶] ‘A limited liability company is a hybrid business entity formed under the Corporations Code an d consisting of at least two ‘members’ [citation] who own membership interests [citation]. The compan y has a legal existence separate from its members. Its form provides me mbers with limited liability to the same extent enjoyed by corporate shareholders [citati on], but permits the members to actively participate in the management and control of the company [citation.]’ ” ( PacLink Communications Internat., Inc. v. Superior Court (2001) 90 Cal.App.4th 958, 963 ( PacLink ).) Also, “[l]ike corporate shareholders, members of a limited liability comp any hold no direct ownership interest in the company’s assets.” ( Denevi v. LGCC, LLC (2004) 121 Cal.App.4th 1211, 1214, fn. 1 ( Denevi ); see Corp. Code, § 17300 3 .) “Because members of the [limited liability comp any] hold no direct ownership interest in the company’s assets (Corp. Code, § 17300), the members cannot be directly injured” when the company’s property is injured. ( PacLink, supra , at p. 964, fn. omitted.) Pertinent to our discussion, the courts ha ve applied the law of corporations to a limited liability company with regard to a member’s right to sue third persons. “In determining whether an individual action as opposed to a derivative action lies [against third persons], a court looks at ‘the gravamen of the wrong alleged in the pleadings.’ ” ( PacLink, supra , 90 Cal.App.4th at p. 965, quoting from Nelson v. Anderson (1999) 72

3 Corporation Code section 1 7300, reads: “A membership interest and an economic interest in a limited liability company constitute personal property of the member or assignee. A member or assignee has no interest in the specific limit ed liability company property .” (Italics added.)5 Cal.App.4th 111, 124 ( Nelson ).) Where “the gravamen of th e complaint is injury to the whole body of [the LLC’s members], it [is] for the [LLC] to ins titute and maintain a remedial action.” ( Nelson, supra , at pp. 125-126; see Sole Energy Co. v. Petrominerals Corp. (2005) 128 Cal.App.4th 212, 232, fn. 6 [“[t ]he principle that a shareholder may not recover individually for injury to the corporation applies e qually to claims against third persons”].) Turning to Monahan’s appellate asserti ons, we initially reject its reliance on the general rule that a member of a limited liabi lity company may pursue both derivative and individual claims. (See Denevi, supra , 121 Cal.App.4th at p. 1221.) While this is a correct statement of the general rule, it is not applicable in this case. Monahan’s gross negligence claim against Ghilotti is not “based on contract to which [Monahan] is a party, or on a right belonging severally to [M onahan], or on a fraud affecting [Monahan] directly . . . ,” or on defamation. ( Sutter v. General Petroleum Corp . (1946) 28 Cal.2d 525, 530.) Rather, the allegations of gro ss negligence are base d solely on Ghilotti’s performance or nonperformance of its work at the project site. 4 Ghilotti’s “obligations

4 In its second amended cross-complaint, Monahan set forth in 39 numbered paragraphs its version of the events that resu lted in this litigation, repeatedly alleging it was acting as the managing member of Larks pur Partners both befo re, during, and after the time that Ghilotti performed work at the Drake’s Cove pr oject site. In a separate paragraph number 40, Monahan se t forth the following “special allegations”: “As a result of [Ghilotti’s] grossly negligen t acts, [Monahan] was cause to itself directly suffer injury and legally compensable damages as se t forth herein. [Monahan] has been directly damaged by loss to its business reputation on account of [Ghilotti’s] acts in destroying over 100 trees on and about Drake’s Cove and by [Ghilotti] c onducting unpermitted grading on the site. [Monahan] itself was named in the largest newspaper in circulation in Marin County in a story appearing on th e front page, describi ng a public outrage against [Monahan] as being responsible for the unpermitte d destruction of heritage and non-heritage trees in the Drak e’s Cove project. [Monahan] itself was reviled in the press and in public hearings before duly constituted City of Lark spur boards and agencies, for [Ghilotti’s] unlawful tree destru ction and for [Ghilotti’s] grad ing on the site at Drake’s Cove without a permit. [Gh ilotti] performed all of the ac ts which were incorrectly attributed to [Monahan]. The damage to [Monahan] was not incidental to that of Larkspur Partners but was directly incurred by [Monahan], as a resu lt of [Monahan] itself being publicly singled out, whereas Larkspur Partners was not itself identified in the6 [if] violated were duties” owed to the owne r of the project site Larkspur Partners, not Monahan. ( Nelson, supra , 72 Cal.App.4th at p. 125.) Monahan’s purported injuries only arose after Larkspur Partners suffered in jury from Ghilotti’s alleged misconduct, starting with its September 2003 conduct of allegedl y unpermitted grading and removal of trees on the project site. Consequently, Monahan’s individual claim of gross negligence is not “temporally distinct” from the similar claim unsuccessfully pu rsued by Larkspur Partners at trial in this litigation. ( Denevi, supra , 121 Cal.App.4th at p. 1222.) Monahan also argues it may pursue an i ndividual claim for gross negligence against Ghilotti based on a May 27, 2003, Lette r of Intent, drafted by Ghilotti, regarding the work it proposed to perform at the projec t site. According to Monahan, the letter describes a “partnering agreement,” “sugge sting a fiduciary relationship” between Monahan and Ghilotti, which is much earlier and different from Ghilotti’s purely contractual relationship with Larkspur Pa rtners. However, before Ghilotti “can be charged with a fiduciary obliga tion, [it] must either knowin gly undertake to act on behalf and for the benefit of another, or must en ter into a relationship which imposes that undertaking as a matter of law.” ( Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 221.) Neither s ituation exists in this case. The May 27, 2003, letter was not an agreement betw een “Ghilotti and Monahan, alone;” it was signed by a representative of Ghilotti and a representative of Monahan, as the managing member of Larkspur Partners , and not as a separate entity to which Ghilotti owed any duties, fiduciary or otherwise. Nor do we see any merit to Monahan’s ar gument that it may pursue an individual claim for gross negligence ag ainst Ghilotti because “[e]ven when aspects of Ghilotti’s

articles. [Monahan] wa s likewise harmed in its relations with the City of Larkspur and with all Marin governmental agencies, and it was prevented from conducting its regular business of development due to the public out rage arising from [Gh ilotti’s] acts alleged herein.” In paragraph numbe r 47, Monahan also alleged it had suffered damages “to its business reputation and has been curtailed in its ability to develop other properties in Larkspur and in Marin County, suffered loss of community esteem, and loss of business goodwill, all in an amount exp ected to exceed $5,000,000.”7 misconduct caused injury to all thre e appellants, [Ghilotti] caused different injury to Monahan because of its unique business.” “The test is not whether [Monahan’s] damages were unique, as [its] argum ent suggests. . . .” ( Nelson, supra , 72 Cal.App.4th at p. 124.) A “cause of action is individual, not derivativ e, only ‘ “where it app ears that the injury resulted from the violation of some special duty owned to [the member of the liability company] by [a third person] and having its or igin in circumstances independent of [the member’s] status.” ’ ” ( Ibid. ) Here, Monahan’s cross-action consists only of allegations

that at all relevant times in its relations w ith Ghilotti, Monahan was ac ting in its status as the managing member of Larkspur Partners, and not as separate entity to which Ghilotti owed any duties, special or otherwise. Accordingly, we reject Monahan’s request to reinstate its cause of action against Ghilotti for gross negligence as M onahan lacked standing to pu rsue that claim, which was in every “sense derivative of [its] status as [the managing member] of” Larkspur Partners. ( Denevi, supra , 121 Cal.App.4th at p. 1222.) Therefore, the order of dismissal of Monahan’s cross-action against Ghilotti must be affirmed.

II. Trial Court’s Denial of Motion in Limine to Exclude Parol Evidence

A. Relevant Facts Before trial, Larkspur Part ners and Monahan Construction (hereafter referred to as appellants) filed a joint motion in limine seek ing a preliminary fact hearing to bar parol evidence on the meaning of the Ghilotti/Monahan Construction standard form contract. According to appellants, the contract terms were so specific that Ghilotti should not be allowed to introduce parol evid ence that would either expressly or impliedly contradict the terms. Ghilotti opposed th e motion, arguing that the ev idence produced in discovery mandated that parol evidence be admitted to re solve the parties’ contract dispute. At the pretrial hearing on the matter, th e trial court initially announced its tentative ruling on appellants’ motion: “Next, ‘Exclu sion of parol evidence or [Evidence Code section] 402 hearing regarding admissibility of parol evidence.’ . . . I don’t need a 402 hearing in order to rule on this one. [¶] The defense statement, ‘To exclude parol evidence will shorten the trial,’ is clearly true . . . . But I really have no choice but to8 deny this motion. [¶] It’s evid ent that the parties’ written c ontracts can only be construed in view of their interpretation at the time of their conduct, city officials’ conduct, other people’s conduct, other documentary evidence , and the parties’ ad missions. [¶] . . . [¶] We all know [Code of Civil Procedure] Section 1856 [the general parol evidence statute] contains numerous exceptions. I find that Subsections (b), (c), (e) and (f) may apply here. Moreover, [Ghilotti] is entitled to offer evidence of defe ndant’s conduct in connection with [its] es toppel defense.” Appellants disagreed with the court’s te ntative ruling, arguing that parol evidence

should be barred “because the wo rds of the contract are so cl ear.” In opposition, Ghilotti argued appellants had “cherry-picked” phrases out of the contract without “any factual background at all,” and that paro l evidence should be allowed as to the parties’ intent and interpretation of any contract te rms, and what the parties actu ally did to comply with the contract terms. In reply, appellants conced ed they had no objectio n to Ghilotti presenting evidence as to what the parties did or what ha ppened in the case. Rather, appellants were only asking that the court preclude Ghilotti fro m arguing to the jury that appellants had certain obligations that were c ontrary to the express terms of the standard form contract. The court replied that its ruling was limited to allowing in “par ol evidence. That doesn’t mean the piece of parol evidence is going to come in. It’s arguable, this isn’t really a proper motion in limine at all. . . . [¶] . . . [¶] In th is case, in my opinion, having read all these briefs, it’s just not that simple. . . . So request for ruling excluding all parol

evidence about this contract is denied for the reasons I’ve now stated.” B. Analysis Code of Civil Procedure section 1856, the general parol evidence statute, provides, in pertinent part, that: “(a) Terms set forth in a writing inte nded by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement. [¶] (b) The terms set forth in a writing described in subdivision (a) may be explained or supplemented by evidence of co nsistent additional terms unless the writing is intended also as a complete and exclusive statement of the terms of the agreement. [¶]9 (c) The terms set forth in a writing describe d in subdivision (a) may be explained or supplemented by course of dealing or usage of trade or by course of performance. [¶] . . . [¶] (e) Where a mistake or imperfection of th e writing is put in issue by the pleadings,

this section does not exclude evidence relevant to that issue. [¶] (f) Where the validity of the agreement is the fact in dis pute, this section does not excl ude evidence relevant to that issue. [¶] (g) This section do es not exclude other evidence of the circumstances under which the agreement was made or to which it relates, as defined in Section 1860, or to explain an extrinsic ambiguity or otherwise in terpret the terms of the agreement, or to establish illegality or fraud.” 5 Appellants argue the trial court’s in limin e ruling was erroneous as a matter of law

because the Ghilotti/Monahan Constr uction standard form contract terms were so specific as to preclude parol evidence regarding any oral agreement that would contradict the contract terms. We disagree. Ghilotti’s theories at trial were that it had either (1) complied with the contract te rms, or (2) the contract te rms were modified by either waiver or estoppel after th e execution of the contract a nd before any dispute arose regarding the contract terms. As to both theories, pa rol evidence of the parties’ course of

conduct was admissible to resolve “what the parties understood and intended” the contractual terms to mean. ( City of Hope National Medical Center v. Genentech, Inc. (2008) 43 Cal.4th 375, 393.) Despite the fact that the parties’ contract excluded modifications except by a signed writing, th at provision did not preclude Ghilotti from proffering parol evidence of waiver or estopp el by the parties’ conduct inconsistent with the contract terms. (See Civ. Code § 1698 6 ; Diamond Woodworks, Inc. v. Argonaut Inc.

5 On August 13, 2 013, the Legislature amended Evidence Code section 1856 to make nonsubstantial changes in the language of certain subdivisions, and to include trust instruments in the definition of the term “a greement.” (Stats. 2013, ch. 81, § 1 [2013- 2014 Reg. Sess.].) The ame ndment will become effective Ja nuary 1, 2014. (Gov. Code, § 9600.)

6 Civil Code section 1698 reads: “(a) A contract in writing may be modified by a contract in writing. [¶] (b) A contract in writi ng may be modified by an oral agreement to the extent that the oral agreemen t is executed by the parties. [¶ ] . . . [¶] (d) No thing in this section precludes in an appropriate case th e application of rules of law concerning10 Co. (2003) 109 Cal.App.4th 10 20, 1037-1038 [modification by waiver], disapproved on other grounds in Simon v. San Paolo U.S. Holding Co. Inc. (2005) 35 Cal.4th 1159, 1182- 1183; Conley v. Matthes (1997) 56 Cal.App.4th 1453, 14 66 [modification by estoppel]; Frank T. Hickey, Inc. v. Los A ngeles Jewish Community Council (1954) 128 Cal.App.2d 676, 682-683 [modification by waiver].) Becau se we see no error in the trial court’s in limine ruling, we must affirm the am ended judgment in favor of Ghilotti. 7

DISPOSITION The appeals from the June 8, 2010 judgment and the Au gust 9, 2010 order are dismissed. The November 12, 2010 amende d judgment and the N ovember 12, 2010

estoppel, oral novation and su bstitution of a new agreemen t, rescission of a written contract by an oral agreemen t, waiver of a provision of a written contract, or oral independent collateral contracts.”

7 Appellants also argue that because Ghilotti was contractually oblig ated to obey the law, the standard form contract could not be constr ued otherwise, “[e]ven if the contract could be construed to relieve Ghilotti of its ob ligation to obey the la w, whether by parol evidence or otherwise . . . .” In support of its argument a ppellants rely on Civil Code section 3513, which reads: “Any one may wa ive the advantage of a law intended solely for his benefit. But a law established for a public reason cannot be contravened by a private agreement.” However, we are not here concerned w ith a private agreement that contravened the law. At issue here is “ ‘[t]he general princi ple[, which] remains unaltered that “there is no public policy which ‘ “opposes private, voluntary transactions in which one party, for a consideration, agr ees to shoulder a risk which the law would otherwise have placed upon the other pa rty . . . .” ’ [Citations.]” ’ ” ( Benedek v. PLC Santa Monica (2002) 104 Cal.App.4th 1351, 1359.) Azteca Construction, Inc. v. ADR Consulting, Inc. (2004) 121 Cal.App.4th 1156, whic h concerned the disqualification of arbitrators, is factually distinguishable from this case, and does not support appellants’ argument that “even if the meaning of the cont ract were in any doubt, settled law bars the construction advocated by Ghilotti.”11 order dismissing the cross-acti on of Monahan Pacific Corpora tion are affirmed. Ghilotti Brothers, Inc. is awarded costs on appeal.

_ ____________ ____________ Jenkins, J.

We concur:

_____________ ____________ Pollak, Acting P. J.

_____________ ____________ Siggins, J.