Court Opinion

ID: 4681997
Source: CourtListenerOpinion
Date Created: 2021-04-28 23:02:41.766868+00
Date Added: 2024-06-11T08:04:04.542606
License: Public Domain

Filed 4/28/21 O’Connor v. Parille CA2/1
   NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for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 ONE

THOMAS O’CONNOR,                                                B303967

        Appellant,                                              (Los Angeles County
                                                                Super. Ct. No. BP142283)
        v.

KELLI PARILLE,

        Respondent.

     APPEAL from a judgment of the Superior Court of Los
Angeles County, David J. Cowan, Judge. Reversed.
     Law Office of Sohaila Sagheb, Sohaila Sagheb for
Appellant.
     Bryan Cave Leighton Paisner, Edward M. Rosenfeld and
Timothy L. Hayes for Respondent.
            ___________________________________
       Thomas O’Connor and Kelli Parille, the beneficiaries of a
family trust, agreed to divide the proceeds from a transaction
disposing of the trust’s interest in a restaurant business. The
agreement called for them to divide the proceeds equally, up to a
certain amount, with Parille receiving any proceeds exceeding
that amount. Ultimately the business was sold in a transaction
that valued three distinct business assets. The proceeds
exceeded the threshold amount, leading to a dispute over which
of the component assets were included in the parties’ agreement.
The trustee proposed to distribute the proceeds from all three
assets, in effect divesting O’Connor of half of the value of the
third asset. O’Connor objected to the distribution, and Parille
moved to enforce it pursuant to Code of Civil Procedure section
664.6. The trial court granted the motion, and O’Connor appeals.
       We conclude the parties agreed to distribute proceeds only
from two trust assets, not three. We therefore reverse.
                          BACKGROUND
       On June 27, 1990, William and Betty Lou O’Connor created
the O’Connor Family Trust, naming their three children, Thomas
O’Connor, Kelli Parille, and William Kevin (Chip), as residual
beneficiaries. William O’Connor died in 1994 and Chip in 2004.
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The trustee was Jason Rubin.
      The O’Connor Family Trust owned a 56 percent interest in
Calvir Burger, Inc., a Virginia Corporation that owned and
operated two struggling restaurants. The remaining 44 percent
was owned by Dale Town, who is not a party to this appeal. The

     1
       On August 1, 2006, Betty Lou O’Connor created the Betty
Lou O’Connor Trust, with Thomas O’Connor, Parille, and Chip’s
two children the equal residual beneficiaries. Betty Lou
O’Connor died in 2012.

                                 2
trust was also the landlord for the properties on which the
restaurants were located. The restaurants were in arrears on the
rent.
      Town had made several offers to purchase the trust’s
interest in Calvir Burger. The cover letters to two such offers
appear in the record. The first cover letter, dated September 19,
2018, described multiple tabs appended to the letter. Tab I, as
described in the cover letter, “identifies the [trust’s] 56% share of
the business value of CALVIR Burger I, Inc[.] under [one of
                                                                    2
several proposed] lease options at various multiples of EBITDA[ ],
the arrears rent due from each store under that option, and the
offer to purchase the [trust’s] 56% share of CALVIR Burger I,
Inc[.] for $795,746 using a multiple of 5 times EBITDA.” (Bold
and underlining omitted.)
       The second cover letter, dated March 6, 2019, also
described multiple tabs, including Tab L, which “provides [a]
summary of my offer to purchase the [trust’s] 56% share of
CALVIR Burger I, Inc[.] under [one of several proposed lease
options] at a multiple of 5 times EBITDA in the amount of
$555,537 plus the arrears rent due under that option as of
December 31, 2018 of $113,086 [for one restaurant] and $11,231
for [the other restaurant].”
       The record does not contain any tabs or other attachments
to the two cover letters.
       Following the deaths of their parents, O’Connor and Parille
engaged in extensive litigation over the distribution of the assets

      2
       EBITDA is an acronym for “earnings before interest, taxes,
depreciation, and amortization.” (Forty-Niner Truck Plaza, Inc.
v. Union Oil Co. (1997) 58 Cal.App.4th 1261, 1269.)

                                  3
            3
in the trust. In September 2019, the parties participated in a
mandatory settlement conference overseen by Judge Cowan, who
also was the trial judge. As part of a larger settlement
agreement, O’Connor and Parille agreed on the record that Rubin
would sell the O’Connor Family Trust’s 56 percent interest in
Calvir Burger to Town for at least $851,000, which Rubin had
represented was the low fair market value. (The fair market
value would increase to $996,800 were certain conditions met.)
       The agreement provided: “[R]ubin, if he can, will negotiate
a transaction with Dale Town providing for the redemption or
sale of [the trust’s] 56 percent interest in Calvir Burger One for
the best available price but not less than $851,000 and thereafter
will distribute the net proceeds of the transaction as follows:
$150,000 will be distributed to each of [Parille] and [O’Connor]
for a total of $300,000. The remaining net proceeds will be
divided . . . equally between [O’Connor] and [Parille] up to
$551,000. All remaining proceeds from the Calvir Burger sales
transaction to [Parille].”
       In other words, the agreement provided that O’Connor and
Parille would share the proceeds of the transaction equally up to
$851,000, with Parille receiving anything over that amount.
       The reason for the specific provision governing distribution
of $300,000 of the $851,000 total was explained by the parties in
a colloquy with the trial court earlier in the day, before the
parties entered the above terms on the record. In that colloquy,
O’Connor’s counsel stated that Calvir Burger had “retained
earnings” in excess of $500,000, of which $300,000 should be

      3
        Chip’s children were also parties to the litigation, but
their claims are not at issue in this appeal.

                                  4
distributed to O’Connor and Parille equally. Parille’s counsel
agreed “there will be a distribution of $300,000” of which his
                                     4
client would receive a one-half share.
       Rubin sold Calvir Burger to Town in a packaged
transaction that included settlement of Calvir Burger’s rent and
cash withholding obligations to the O’Connor Family Trust,
obtaining $1,034,000. In an email, Town explained his
understanding of the breakdown of the purchase price: $594,721
for corporation stock, $139,215 in back rent for the first
restaurant, $14,847 in back rent for the second restaurant, and
$286,051 as a “56% distribution of cash withholdings after lease
arrears.”
       Rubin proposed to distribute the $1,034,000 by giving
$608,500 to Parille and $425,500 (half of $851,000) to O’Connor.
       O’Connor objected to the distribution, contending only
$851,000 had been derived from the sale of Calvir Burger, the
remaining $183,000 constituting proceeds from payment of the
back rent. O’Connor contended that the settlement agreement
did not address distribution of the back rent. Therefore,
O’Connor argued, Parille should receive half of the $851,000 sales
proceeds, or $425,500, as agreed, and half—not all—of the
$183,000 rent settlement proceeds, or $91,500, for a total of only
$517,000, a difference of $91,500.

      4
        On appeal, the parties dispute whether to characterize the
$300,000 as “retained earnings” or “cash on hand.” For purposes
of this appeal only, we refer to the $300,000 as representing a
distribution of Calvir Burger’s cash account. In so doing, we do
not purport to determine how in fact that sum should be
characterized, an issue not relevant to our resolution of this
appeal.

                                5
       Parille filed a motion to enforce the settlement agreement
in such a manner as to confirm Rubin’s proposed distribution.
       At the hearing on the motion, the court, Judge Cowan
again presiding, found that O’Connor’s contention that the back
rent was not part of the proceeds covered by the settlement
“would not seem credible to me [in] that it appeared to have been
a total package, that Mr. Town[’s] earlier offers to buy the
business appeared to be inclusive of the [unpaid] rent . . . .
Valuation of the amount that [Town] was willing to pay would
seem to include what he was now going to have to pay of [rent]
that had not previously been paid.”
       The court found that Rubin “include[ed] as part of the
[sales] package that there be releases in connection with past
amounts due,” but acknowledged “there’s nothing in the
settlement agreement specifically on this issue other than the
general terms.” The court nevertheless found in its written order
that “[b]ased on the plain meaning rule and the parties’
unambiguous on the record agreement,” the parties agreed that
“ ‘the net proceeds of the transaction’ ” would be divided equally
up to $851,000, “after which ‘all remaining proceeds from the
Calvir Burger sales transaction’ would go ‘to [Parille].’ ” The
court found this meant that the trustee would “distribute the
proceeds of the transaction with Dale Town over and above
$851,000 to [Parille],” including proceeds from settling the rent
arrearage. The court therefore granted Parille’s motion.
       O’Connor appeals.
                            DISCUSSION
       O’Connor contends the trial court erred by finding the
parties’ agreement extended to the rent settlement. We agree.

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       Code of Civil Procedure section 664.6 (section 664.6)
provides: “If parties to pending litigation stipulate, in a writing
signed by the parties outside the presence of the court or orally
before the court, for settlement of the case, or part thereof, the
court, upon motion, may enter judgment pursuant to the terms of
the settlement.”
       There is a strong public policy in favor of the voluntary
settlement of litigation. (Osumi v. Sutton (2007) 151 Cal.App.4th
1355, 1359.) Accordingly, in reviewing a court’s approval of a
settlement, “[c]onsistent with the venerable substantial evidence
standard of review, and with our policy favoring settlements, we
resolve all evidentiary conflicts and draw all reasonable
inferences to support the trial court’s finding that the[ ] parties
entered into an enforceable settlement agreement . . . .” (Id. at p.
1360.) However, when the facts are undisputed and the only
question is a matter of law, our review is de novo. (County of
Yolo v. Los Rios Community College Dist. (1992) 5 Cal.App.4th
1242, 1248.)
       The only issue in this appeal is one of contract
interpretation: Whether the parties agreed that the proceeds of
this transaction would be distributed as Rubin proposed, that is,
that the proceeds would include the back rent.
       “The fundamental goal of contractual interpretation is to
give effect to the mutual intention of the parties. (Civ. Code,
§ 1636.) If contractual language is clear and explicit, it governs.
(Civ. Code, § 1638.) On the other hand, ‘[i]f the terms of a
promise are in any respect ambiguous or uncertain, it must be
interpreted in the sense in which the promisor believed, at the
time of making it, that the promisee understood it.’ ” (Bank of the
West v. Superior Court (1992) 2 Cal.4th 1254, 1264-1265.) A

                                 7
court faced with an argument that contract language is
ambiguous must interpret the language in context. (Id. at p.
1265.) “This is because ‘language in a contract must be construed
in the context of that instrument as a whole, and in the
circumstances of that case, and cannot be found to be ambiguous
in the abstract.’ ” (Ibid.)
       A judgment that does not properly reflect material terms of
a settlement defeats the purposes of the settlement and violates
section 664.6, and must be reversed. (Machado v. Myers (2019)
39 Cal.App.5th 779, 794.)
       Here, the parties agreed that Rubin would negotiate “a
transaction” with Town “for the redemption or sale” of Calvir
Burger, and would distribute the net proceeds of “the
transaction” equally to Parille and O’Connor up to $851,000, with
remaining proceeds from the “sales transaction” going to Parille.
       On its face, “sales transaction” arguably would seem to
refer only to a sale, i.e., the sale by which the trust’s interest in
Calvir Burger would be conveyed to Town.
       Sales of businesses, however, can be complex and involve
multiple transactions, not all of which necessarily involve the
transfer of ownership of the business itself. The sales transaction
contemplated by the settlement agreement is no exception. As
discussed, the parties agreed at settlement that $300,000 of the
“sale” price was not for the conveyance of Calvir Burger itself, but
was a distribution of the corporation’s cash withholdings to the
trust. In that context, the phrase “sales transaction” means not
the transaction by which Calvir will be conveyed to Town but in
which it will be conveyed, along with something else, namely
settlement of the corporation’s cash account. In context,
therefore, the sale of Calvir Burger to Town occurred as part of a

                                  8
package deal, the proceeds of which would be distributed to
Parille and O’Connor equally.
        The issue is whether the parties’ agreement contemplated
that an additional trust asset, Calvir Burger’s obligation for
overdue rent, would be made part of the Calvir Burger “sales
transaction.” No evidence of which we have been apprized
supports such an addition. Nothing in the language of the
settlement agreement refers to the overdue rent, and in fact the
trial court expressly found that although Rubin had made release
of past rents “part of the [sales] package,” there was “nothing in
the settlement agreement specifically on this issue.”
        The settlement agreement’s silence on the issue of back
rent is particularly notable given that the agreement expressly
addressed a component of the transaction other than the sale
itself, namely the distribution of the corporation’s cash account.
The fact that the parties’ agreement expressly contemplated and
addressed this additional component strongly suggests the
parties did not intend the term “proceeds” as a catch-all for all
monies exchanged in the transaction, and instead intended to
provide for the distribution of each component separately.
Having expressly provided for distribution of the cash account,
while remaining silent on the issue of back rent, we must
conclude the parties did not intend the settlement agreement to
cover distribution of the back rent.
        In reaching the opposite conclusion, the trial court relied on
Town’s “earlier offers to buy the business,” which to the court
“appeared to be inclusive of the [unpaid] rent.” As we have noted,
that evidence was limited to cover letters briefly summarizing
offer terms, with none of the supporting documentation fleshing
out the specifics of those offers. There is no indication that those

                                  9
offers addressed or included distribution of Calvir Burger’s cash
account, an issue central to the settlement agreement at issue in
this case. This limited evidence provided an insufficient basis to
draw conclusions about the structure of the parties’ earlier
dealings and how they might compare to the transaction
contemplated by the settlement agreement.
       We acknowledge that when, as here, “the same judge
presides over both the settlement and the section 664.6 hearing,
he may avail himself of the benefit of his own recollection” to
determine whether the parties have validly settled an issue.
(Kohn v. Jaymar-Ruby, Inc. (1994) 23 Cal.App.4th 1530, 1533.)
In the instant case, however, the trial judge did not indicate that
he was relying on his own recollection when ruling on the
enforcement motion, so this principle does not apply.
       The trial court therefore erred in finding that the
settlement agreement encompassed distribution of proceeds
derived from any trust asset other than the 56 percent interest in
Calvir Burger itself and the additional $300,000 expressly
earmarked by the parties. We do not hold that the parties
excluded rent arrearages from the Calvir Burger transaction,
only that the settlement agreement said nothing about
distributing proceeds derived from resolving the arrearages. We
express no opinion as to what portion of the money the trust
received for the transaction constituted payment for the
arrearages.
       Parille argues that O’Connor made a “judicial admission” in
his opposition to her settlement enforcement motion to the effect
that he approved of the Calvir Burger sale including settlement
of the corporation’s rent obligation, which estops him from now
arguing against distribution of the transaction proceeds. We

                                10
disagree. Aside from it being impossible to make a judicial
admission in an unsuccessful opposition to a motion, even had
O’Connor approved the transaction, no evidence indicated he
approved distribution of the proceeds pursuant to the settlement
agreement.
       Parille raises several other arguments having to do with
classification of Calvir Burger’s cash reserves, the corporation’s
fair market value, Rubin’s neutrality, the merits of the Calvir
Burger transaction, and O’Connor’s failure to “address” or “come
to grips” with several tangential factors. Given our conclusion as
discussed above, we need not address these immaterial matters.
                           DISPOSITION
       The judgment is reversed. Respondent’s motion for
sanctions is denied. Appellant is to receive costs on appeal.
       NOT TO BE PUBLISHED

                                                 CHANEY, J.

We concur:

             BENDIX, Acting P. J.

             FEDERMAN, J.*

      *
       Judge of the San Luis Obispo County Superior Court,
assigned by the Chief Justice pursuant to article VI, section 6 of
the California Constitution.

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