Court Opinion

ID: 2799651
Source: CourtListenerOpinion
Date Created: 2015-05-08 20:06:31.414794+00
Date Added: 2024-06-11T12:10:06.549139
License: Public Domain

Filed 5/8/15 Centinela Capital Partners v. CalPERS CA2/2
                  NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication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

                                     SECOND APPELLATE DISTRICT

                                                  DIVISION TWO

CENTINELA CAPITAL PARTNERS,                                          B255256
LLC,
                                                                     (Los Angeles County
         Plaintiff and Appellant,                                    Super. Ct. No. BC504309)

         v.

CALIFORNIA PUBLIC EMPLOYEES'
RETIREMENT SYSTEM,

         Defendant and Respondent.

         APPEAL from a judgment of the Superior Court of Los Angeles County.
Michael L. Stern, Judge. Affirmed in part and reversed in part.
         Carl E. Douglas and Drew Antablin, for Plaintiff and Appellant.
         K&L Gates, Christopher J. Kondon, Matthew B. O’Hanlon, and Saman M. Rejali,
for Defendant and Respondent California Public Employees’ Retirement System.

                                                   *         *         *
       Centinela Capital Partners, LLC (Centinela) sued California Public Employees’
Retirement System (CalPERS) for not honoring an alleged oral promise to award
Centinela a contract to manage a $100 million investment portfolio for CalPERS. The
trial court sustained demurrers to Centinela’s claims for breach of contract and
promissory estoppel. Centinela appeals. We affirm the dismissal of the promissory
estoppel claim, but reverse and remand on the breach of contract claim.
                    FACTS AND PROCEDURAL BACKGROUND
I.     Facts
       These facts are drawn from Centinela’s original and first amended complaints, as
well as from documents subject to judicial notice. (See City of Stockton v. Superior
Court (2007) 42 Cal. 4th 730, 734, fn. 1 [demurrer looks to “complaint and documents
subject to judicial notice”].)
       Centinela is an asset management firm. CalPERS is the state agency charged with
collecting, investing and distributing the pensions of state employees. In 2006 and 2008,
respectively, CalPERS hired Centinela to manage two of its $500 million portfolios—the
Capital Link I and Capital Link II funds. Each of these funds was created by a detailed
written contract: The Capital Link I contract is 95 pages (including 27 pages of
schedules), and the Capital Link II contract is 89 pages (including 24 pages of
              1
schedules).
       In 2009, Centinela and CalPERS started discussing the possibility that Centinela
might manage a third, $100 million portfolio to be called Capital Link III. On May 16,
2011, Centinela and CalPERS orally agreed that CalPERS (1) would bypass any
competitive bidding process and award Centinela the management of the Capital Link III
fund, and (2) would give Centinela a “fair chance” to competitively bid to manage

1       These contracts were filed as exhibits to the First Amendment Complaint filed in
Baez v. California Public Employees’ Retirement System, L.A.S.C. Case No. BC498010.
CalPERS asked the trial court to take judicial notice of the contracts and other matters,
but it declined to do so. After giving the parties notice, we have taken judicial notice of
the contracts. (Evid. Code, §§ 459(a), 452(d) [court records may be judicially noticed].)
        Baez is the subject of a separate appeal. See B252772.

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another, unspecified larger portfolio in the future. The parties further agreed that
CalPERS’s performance was contingent upon Centinela severing its ties with Cesar Baez,
one of its three principals, who had some association with persons being investigated by
the Attorney General for peddling influence with CalPERS. In the original complaint,
Centinela alleged that the portions of the oral contract pertaining to the Capital Link III
fund would, unless modified, “be on the same terms and conditions as were contained in
the [Capital] Link II written contract.” In its first amended complaint (FAC), Centinela
(1) alleged that the oral contract would “be on the same material terms and conditions as
were contained in the [Capital] Link I and II written contracts . . . as reflected in
numerous written term sheets regarding [Capital] Link III that had previously been
discussed and agreed to by the parties, unless the parties mutually agreed to modify
certain of those terms,” and (2) enumerated 13 of those material terms. Both complaints
alleged that the Capital Link III portion of the oral contract was to “thereafter be
memorialized in a written agreement.”
       In reliance on this oral agreement, Centinela started to sever its ties with Baez. By
June 2011, Centinela and Baez had “substantial[] agree[ment]” on the terms of Baez’s
separation. In July 2011, Centinela learned that CalPERS would not carry through with
its oral promise to have Centinela manage the Capital Link III fund. Centinela
nevertheless went forward with Baez’s separation and signed a written agreement with
him on August 22, 2011.
II.    Procedural history
       Centinela sued CalPERS for $35 million on theories of (1) breach of contract, and
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(2) promissory estoppel. CalPERS demurred to these claims. The trial court sustained
the demurrer, with leave to amend on the breach of contract claim and without leave to
amend on the promissory estoppel claim because Centinela did not allege a sufficiently
“clear an[d] unambiguous promise” to support an estoppel claim. Centinela filed a FAC

2       Centinela also sued CalPERS and Joseph Dear, CalPERS’s Chief Information
Officer, for racial discrimination, but Centinela has not appealed the trial court’s order
sustaining the demurrer to that claim without leave to amend.

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alleging breach of contract, and the trial court sustained CalPERS’s subsequent demurrer
without leave to amend, finding the alleged oral contract was “an agreement to agree”
and “lacked specificity.”
       Centinela timely appeals.
                                       DISCUSSION
       In reviewing a trial court’s order sustaining a demurrer, our task is to “review the
allegations of the operative complaint for facts sufficient to state a claim for relief.”
(C.A. v. William S. Hart Union High School Dist. (2012) 53 Cal. 4th 861, 866.) In so
doing, we give the complaint a reasonable interpretation (ibid.), construe its allegations
liberally (People v. Biane (2013) 58 Cal. 4th 381, 388), and assume all facts alleged in the
complaint are true (Pineda v. Williams-Sonoma Stores, Inc. (2011) 51 Cal. 4th 524, 528).
Our review is de novo. (Village Northridge Homeowners Assn. v. State Farm Fire &
Casualty Co. (2010) 50 Cal. 4th 913, 921.)
I.     Breach of oral contract
       To state a claim for breach of an oral or written contract, a plaintiff must allege
(1) the existence of contract, (2) its own performance or a valid excuse for not
performing, (3) the defendant’s breach, and (4) resulting damage. (Oasis West Realty,
LLC v. Goldman (2011) 51 Cal. 4th 811, 821 [listing elements]; Stockton Mortgage, Inc.
v. Tope, 233 Cal. App. 4th 437, 453 [“The elements of a breach of oral contract claim are
the same as those for a breach of written contract.”].)
       A contract exists only if the parties have a “‘meeting of the minds on all material
points.’” (Bustamante v. Intuit, Inc. (2006) 141 Cal. App. 4th 199, 215 (Bustamante),
quoting Banner Entertainment, Inc. v. Superior Court (1998) 62 Cal. App. 4th 348, 359;
Fair v. Bakhtiari (2006) 40 Cal. 4th 189, 203.) It is not enough that the parties agree on
“some of the terms.” (Ibid.) Nor is it sufficient if the “essential terms [are] only sketched
out, with their final form to be agreed upon in the future.” (Id. at p. 213.) Only if the
agreed-upon terms “provide a basis for determining the existence of a breach and for
giving an appropriate remedy” is there a contract. (Weddington Productions, Inc. v. Flick

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(1998) 60 Cal. App. 4th 793, 811; Bowers v. Raymond J. Lucia Companies, Inc. (2012)
206 Cal. App. 4th 724, 734 [same].)
       The oral contract Centinela alleges as a single contract is, in reality, two
agreements. It is appropriate to evaluate the enforceability of the agreements separately
because their subject matter is distinct and their terms not intertwined. Although no
published case has addressed whether courts should evaluate unenforceability due to
vagueness on an agreement-by-agreement basis within a single contract, courts take this
approach when evaluating unenforceability due to illegality (Civ. Code, § 1599 [“Where
a contract has several distinct objects, of which one at least is lawful, and one at least is
unlawful, in whole or in part, the contract is void to the latter and valid as to the rest”]),
and unenforceability due to unconscionability (Civ. Code, § 1670.5, subd. (a) [“If the
court as a matter of law finds . . . any clause of [a] contract to have been unconscionable
at the time it was made the court . . . may enforce the remainder of the contract without
the unconscionable clause . . .”]). What is more, these courts have used this approach in
evaluating demurrers on grounds of unenforceability. (See Kyablue v. Watkins (2012)
210 Cal. App. 4th 1288, 1295-1296 [in ruling on a demurrer, a court evaluating a contract
with enforceable and unenforceable provisions must allow the claim to go forward as to
the enforceable provisions].)
       The first alleged agreement is CalPERS’s promise to grant Centinela a “fair
chance” to bid on an unnamed, future portfolio management contract. However, the FAC
nowhere specifies which future contract is at issue and nowhere defines what constitutes
a “fair chance” to bid. Tellingly, Centinela does not defend this oral agreement in its
briefs and conceded it was “vague” at oral argument. This agreement is consequently not
an enforceable contract.
       The second alleged agreement is CalPERS’s promise to have Centinela manage
the Capital Link III fund. Centinela sets forth 13 of the material terms of that promise in
the FAC and, more importantly, alleges that the management of the Capital Link III fund
is to be governed by the same terms and conditions set forth in the very detailed written
contracts applicable to the Capital Link I and Capital Link II funds. Centinela’s

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incorporation of the prior written contracts, coupled with its allegation that their terms
will apply with equal force to the Capital Link III agreement, provides a basis for
evaluating a breach of contract and for fixing damages.
        CalPERS raises four arguments in response. First, CalPERS argues that “an oral
promise cannot be enforced against a government agency, like CalPERS.” (Orthopedic
Specialists of Southern California v. PERS (2014) 228 Cal. App. 4th 644, 649 (Orthopedic
Specialists).) However, this principle applies when a party is “‘su[ing] a public entity on
an implied-in-law or quasi-contract theory, because such a theory is based on quantum
meruit or restitution considerations which are outweighed by the need to protect and limit
a public entity’s contractual obligations.’” (Janis v. California State Lottery Com. (1998)
68 Cal. App. 4th 824, 830; Orthopedic Specialists, at pp. 649-650.) Centinela is suing for
breach of an express oral contract, so this policy-based limitation is not implicated.
(Accord, Gov. Code, § 814 [“Nothing in this part affects liability based on contract . .
.”].)
        Second, CalPERS argues that the terms of the oral Capital Link III agreement are
too uncertain to form a contract because (1) those terms are subject to modification, and
(2) Centinela has inconsistently alleged what those terms are. As to the first point, the
reference to possible mutual modification of the agreement just restates the power to
modify set forth in statutory law (Civ. Code, § 1697), and thus does not render the
agreement uncertain. As to the second, CalPERS asserts that (1) the FAC refers to
“numerous written term sheets,” while the original complaint did not; and (2) the FAC
incorporates the terms of the Capital Link I and Capital Link II contracts, while the
original complaint incorporated the terms of only the Capital Link II contract. Although
a plaintiff cannot sidestep a demurrer by alleging facts inconsistent with its prior filings
(Cantu v. Resolution Trust Corp. (1992) 4 Cal. App. 4th 857, 877), neither of the asserted
inconsistencies is, in fact, inconsistent. The FAC specifies that the “numerous written
term sheets” simply “reflect[ed]” the “material terms and conditions” of the Capital Link
I and Capital Link II contracts; the term sheets were not inconsistent with them. And
although the FAC additionally incorporates the terms of the Capital Link I contract, there

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is only inconsistency if those terms are inconsistent with the terms of the Capital Link II
contract. Those two contracts are of slightly different page lengths, but CalPERS has not
argued that their terms and conditions are different in any material respect and, at oral
argument, admitted that the two contracts were “virtually identical.”
       Third, CalPERS argues that the alleged agreement is just an “agreement to agree.”
“‘Preliminary negotiations or [agreements] for future negotiations are not the functional
equivalent of a valid, subsisting agreement.’” (Bustamante, supra, 141 Cal.App.4th at
pp. 213-214.) At the same time, an oral agreement that contemplates execution of a more
formal written contract is a contract if it contains “all the essential terms and conditions.”
(Thompson v. Schurman (1944) 65 Cal. App. 2d 432, 440-441.) For the reasons explained
above, Centinela has sufficiently alleged that it had an agreement with CalPERS
regarding the Capital Link III fund. At this stage, we are not permitted to inquire further
because “[w]hether the parties intended their communications to be a binding . . .
agreement or an agreement to further negotiate after a formal draft was prepared is a
factual question not properly the subject of a demurrer.” (Harris v. Rudin, Richman &
Appel (1999) 74 Cal. App. 4th 299, 308.) Similar concerns preclude us from affirming the
dismissal on the ground that Centinala may have a difficult time proving, as a factual
matter, that CalPERS agreed to award a $100 million contract with an oral agreement
even less formal than something scribbled on the back of a cocktail napkin. (See Birke v.
Oakwood Worldwide (2009) 169 Cal. App. 4th 1540, 1544 [whether “claims can survive a
properly supported summary judgment, let alone prevail follow a trial” is irrelevant in
ruling on a demurrer].)
       Lastly, CalPERS raises several procedural defects. It argues that the FAC does
not comply with Code of Civil Procedure section 430.10, subdivision (g). That provision
requires that the nature of a contract—written, oral or implied by conduct—be
“ascertain[able]” from the complaint. (Civ. Proc. Code, § 430.10, subd. (g).) Here, it is.
Citing Otworth v. Southern Pacific Transportation Co. (1985) 166 Cal. App. 3d 452, 458-
459, CalPERS also states that the FAC is deficient for not setting forth the terms of the
agreement verbatim or for attaching a copy of the Capital Link I and Capital Link II

                                              7
written contracts. However, Otworth’s rule applies to “action[s] based on an alleged
breach of a written contract” (ibid.), not an oral one.
II.    Promissory estoppel
       To state a claim for promissory estoppel, a plaintiff must allege (1) a promise that
is “clear and unambiguous” in its terms, (2) its actual reliance on that promise, (3) its
reliance was reasonable and foreseeable, and (4) injury caused by that reliance. (Jones v.
Wachovia Bank (2014) 230 Cal. App. 4th 935, 945.) What is more, the plaintiff must
“‘specifically plead all facts relied on to establish its elements. [Citations.]’” (Moncada
v. West Coast Quartz Corp. (2013) 221 Cal. App. 4th 768, 802.)
       The trial court’s order sustaining the demurrer was correct because the alleged oral
promises in this case are not clear and unambiguous. This standard requires greater
specificity than is necessary to support a breach of contract claim. (Garcia v. World
Savings Bank, FSB (2010) 183 Cal. App. 4th 1031, 1044.) Critically, this standard is not
met when the alleged promise relies on extrinsic evidence because a promise is
“obviously” not clear and unambiguous “if extrinsic evidence is needed to interpret” it
(ibid.; accord, Lange v. TIG Ins. Co. (1998) 68 Cal. App. 4th 1179, 1186). The oral
promises Centinela alleges lack the requisite clarity: The promise of a “fair chance” to
bid on a future, unnamed contract lacks the certainty necessary to support a breach of
contract claim for the reasons noted above, and the Capital Link III portion of the
agreement relies on incorporation of extrinsic evidence (namely, the Capital Link Fund I
and Capital Link Fund II written contracts).

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                                     DISPOSITION
       The judgment is affirmed as to the dismissal of the promissory estoppel claim, but
reversed as to the dismissal of the breach of contract claim with instructions to Centinela
to proceed solely on the basis of the Capital Link Fund III award. (Elder v. Pacific Bell
Tel. Co. (2012) 205 Cal. App. 4th 841, 856, fn. 14 [“if any part of a cause of action is
properly pleaded, the demurrer will be overruled”].) Each party is to bear its own costs
on appeal.
       NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS.

                                            _______________________, J.
                                                    HOFFSTADT

I concur:

_______________________, J.
       CHAVEZ

                                             9
ASHMANN-GERST, J., Dissenting in part.

       I agree with the majority that the promissory estoppel cause of action should be
dismissed; however, I also believe that the breach of contract cause of action should be
dismissed. In that regard, I respectfully dissent.
       As a procedural matter, it seems to me that the majority has rewritten the first
amended complaint (FAC). The majority characterizes the alleged oral contract as “in
reality, two agreements.” (Maj. Opn., at p. 5) I cannot agree. The FAC alleges one
single contract, and breach of just one single contract (par. 20 [“The terms of this oral
contract would thereafter be memorialized in a written agreement”]; par. 22 [“to induce it
to enter into the oral contract”]; par. 26 [“The contract which is the subject of this
action”]; par. 27 [the parties “entered into an express oral contract”]; pars. 28-29
[referring repeatedly to the “parties’ oral contract”]; par. 30 [alleging breach of “the
parties’ agreement”]; par. 31 [seeking damages for “breach of the parties’ oral
contract”]). In fact, by recognizing that the operative pleading “sets forth the material
terms of the contract,” Centinela’s appellate briefs are consistent with that theory.
Notably, Centinela did not ask for leave to amend to allege two distinct agreements,
either in the trial court or on appeal. We are bound by the pleading and Centinela’s
stance in its briefs, and not free to modify the pleading.
       Kyablue v. Watkins (2012) 210 Cal. App. 4th 1288, 1295–1296, cited by the
majority, is readily distinguishable. In that case, the Court of Appeal was considering an
alleged contract that contained both legal and illegal provisions. Under those limited
circumstances, the Court of Appeal held that “[c]ontracts that involve both unlawful and
lawful provisions may be enforced if the illegal portion is severable from the legal.”
(Id. at p. 1295.) In contrast, here we have been presented with a complaint that alleges
one legal contract with various obligations on both parties’ sides.
       Because the FAC alleges breach of one contract, and that one contract is vague
and uncertain, I would affirm the trial court’s order sustaining the demurrer to this cause
of action. Moreover, because Centinela did not request leave to amend, there was no
error in denying Centinela leave to amend. It follows that I would affirm the trial court’s
order dismissing the action.
       Setting aside this procedural flaw, the alleged contract is too uncertain to form an
                        1
enforceable agreement. According to the FAC, “[t]he terms of this oral contract would
thereafter be memorialized in a written agreement, and would be on the same material
terms and conditions as were contained in the Link I and II written contracts between the
parties, as reflected in numerous written terms sheets regarding Link III that had
previously been discussed and agreed to by the parties, unless the parties mutually agreed
to modify certain of those terms.” It is unclear whether the terms of this oral contract
mirror those in Capital Link I and II contracts or whether the terms are set forth in
unspecified terms sheets (that may or may not reflect the terms in Capital Link I and/or II
contracts). While arguably this vagueness could have been cleared up in an amended
pleading, Centinela never asked for leave to amend.
       As for the allegation that the terms were subject to modification, I disagree with
the majority’s extrapolation that Centinela was merely referring to Civil Code section
1697. Nothing in the FAC suggests that Centinela was basically restating the parties’
power to modify. (Maj. Opn., at p. 6) Indeed, the FAC does not cite the statute or use
language from the statute, including, for example, that any modification would have to be
in writing. Rather, in my opinion, the fact that Centinela admits that the parties could
modify their oral agreement compels the conclusion that they had no certain agreement in
the first place.

1       The majority so recognizes, at least as to the “‘fair chance’ to bid” aspect of this
claim. (See Maj. Opn., at p. 5 [“Centinela does not defend this oral agreement in its
briefs and conceded it was ‘vague’ at oral argument”].)

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       For these reasons, I would affirm the trial court’s order sustaining the demurrer
without leave to amend in its entirety.

                                   ______________________________, Acting P. J.
                                          ASHMANN-GERST

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