Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Los Angeles County No. BC292011, Aurelio N. Munoz, Judge. Reversed.
Edward J. Horowitz for Cross-defendant and Appellant.
Parcells Law Firm and Dayton B. Parcells III for Cross-complainants and Respondents.
KRIEGLER, J.
Cross-defendant and appellant Kenneth Roberts appeals from a judgment in favor of cross-complainants and respondents Robert Freedman, R.F.F., Inc., and R.F.F. Family Partnership, L.P., in this action for implied contractual indemnity. Roberts contends that the judgment must be reversed, because there is no evidence he was liable to the injured third parties in the underlying action. We agree and reverse.
FACTS AND PROCEDURAL BACKGROUND
Freedman is the President of R.F.F., Inc., which in turn is the general partner of R.F.F. Family Partnership, L.P., a licensed California finance lender (collectively referred to as Freedman). Roberts is a businessman and an investor. Aaron Tonken was a producer of charity fundraising events.
On October 18, 2000, Tonken sent a letter to a management company connected with Roberts. Tonken proposed borrowing $140,000 from Roberts for a few months. He would repay the loan, plus $25,000 in interest. In addition, Tonken would give Roberts two platinum sponsorships at Tonken’s next two events, normally $50,000 each for a table of 10 guests, for free. Tonken offered to provide stock as collateral valued at more than three times the amount of the loan, as well as signing all necessary documents. Once the loan was repaid, Roberts would return the stock.
On October 20, 2000, Roberts borrowed $140,000 from Freedman to give to Tonken. Roberts prepared and executed a promissory note for the loan from Freedman to Roberts and gave Freedman post-dated checks to guarantee repayment of the loan. Freedman believed Tonkin intended to use the money for advance payments to entertainers for appearances at charity events, as well as other event expenses.
Roberts wrote a letter to Tonken setting forth their agreement that when Tonken received the funds, he would give Roberts three post-dated checks of $5,000 each for interest and fees, as well as a check dated January 2, 2000, made payable to Freedman in the amount of $140,000 as full repayment of the principal. Tonken signed and returned the letter with post-dated checks. Roberts sent all of the checks to Freedman, noting that the funds had been borrowed for Tonken. He asked Freedman to return his checks to him after Tonken’s checks cleared. One of Tonken’s checks bounced, but the amount was ultimately paid.
On February 12, 2001, Roberts asked Freedman to lend him $150,000 to give to Tonken for five months. Roberts offered to prepare a promissory note requiring a total repayment of $200,000. It was illegal for Freedman to charge such a high interest rate for the proposed short-term loan. Instead, he agreed to lend Roberts $150,000 at two percent interest for five months, but not Tonken. Roberts stated that he would prepare a promissory note for a loan of $150,000 from Freedman to Roberts which would require payment of $200,000 and Freedman would give $35,000 to Roberts when the loan was repaid. Roberts gave Freedman a check for $150,000 to guarantee payment in the event Tonken did not repay the loan. The following day, Freedman gave Tonken a cashier’s check for $150,000. On February 14, 2001, Tonken deposited $157,500 in an account he controlled for American Spirit Foundation.
On February 22, 2001, Roberts sent Tonken a promissory note for a loan from Roberts to Tonken in the amount of $75,000 at eight percent interest. Roberts gave Tonken a cashier’s check in the amount of $75,000 payable to Nyatt Holdings. He directed Tonken to repay the note by sending a cashier’s check in the amount of $75,000 on March 1, 2001. He noted that Tonken had proposed paying $10,000 to Roberts as a referral fee for the recent loan transactions between Tonken and Freedman with which Roberts had assisted. Roberts suggested that Tonken could pay the referral fee on March 1, 2001. Tonken signed and returned both the letter and the note.
On March 5, 2001, Tonken wrote a check from the American Spirit Foundation account to Roberts in the amount of $75,000 with the notation “repayment of loan” and another check in the amount of $12,500 with the notation that it was payment of referral fees for three loans.
On April 17, 2001, Tonken arranged for Freedman to meet with him and Marc Pollick at City National Bank in connection with opening bank accounts for an upcoming fundraiser. Pollick was the president and chief executive officer of the Giving Back Fund (GBF), an organization which provides services for the collection and distribution of contributions. On April 19, 2001, GBF transferred $200,000 to Freedman, which Freedman credited as payment of the February 12, 2001 loan. The Attorney General later made several allegations concerning the $200,000 payment. After receiving repayment, Freedman returned Roberts’s uncashed check and promissory note for the February 12, 2001 loan and gave a cashier’s check in the amount of $35,000 to Roberts. Freedman’s accountant sent a 1099 form to Roberts for the $35,000 payment.
In April 2001, Roberts called Freedman from New York and asked him to give $200,000 to Tonken, which Roberts would borrow or guarantee. He told Freedman to have Tonken personally sign the promissory note and promised that he would give Freedman a check to guarantee payment when he returned from New York. Freedman made the funds payable to Tonken.
On May 24, 2001, Roberts sent a letter to Tonken to confirm that Tonken had proposed giving Roberts a referral fee of $10,000 in connection with the loans that Roberts had helped Tonken receive, including the recent $200,000 loan from Freedman. Tonken signed and returned the letter.
On June 6, 2001, Freedman asked his bank to transfer $60,000 to an account established for an upcoming event of Tonken’s under the name of the Kids Campaign.
On August 10, 2001, Roberts sent a letter with a check written to Freedman from Roberts’s account in the amount of $204,000 “as payment in Full as guarantor of the Principal and Interest for the $200,000[] loan you are making to Aaron Tonken dated today, August 10, 2001. [¶] It is understood that this check can be used in the event that you have not been repaid in full by A. Tonken no later than 9/15/01. It is further understood that you will send this check back to me once you have been repaid by A. Tonken no later than 9/15/01.” The check had the notation, “Payment as guarantor of Principal and Interest re: $200,000. Loan to Aaron Tonken 8/10/01, Returnable if paid by A [T]onken.” When the loan was repaid, Freedman returned Roberts’s letter, check, and promissory note to him.
Cynthia Gershman is the trustee of the Cynthia Gershman Foundation, a charitable trust required to distribute income and principal exclusively for exempt purposes. On September 7, 2001, Gershman made a payment to Freedman of $100,000 that Freedman credited against the August 10, 2001 loan. However, the August 10, 2001 loan was not paid in full on the due date. Roberts asked Freedman to extend the due date in exchange for additional interest, and Freedman agreed.
On October 16, 2001, a check was written from the Kids Campaign account to Freedman in the amount of $60,000, which was deposited into Freedman’s account. Freedman credited the amount against the August 10, 2001 loan. The Attorney General subsequently alleged this check was wrongly paid to Freedman.
Freedman credited several additional payments to the August 10, 2001 loan: payment of $15,000 on November 15, 2001; payment of $25,000 on November 30, 2001; and another payment of $18,500.
On January 11, 2002, the Cynthia Gershman Foundation wrote a check in the amount of $26,000 to a Tonken controlled account in the name of the David L. Singer Memorial Foundation. Tonken endorsed the check directly to Freedman. Freedman’s bank deposited the check, and Freedman credited the amount to the August 10, 2001 loan. The Attorney General subsequently alleged this check was wrongly paid to Freedman. When the August 10, 2001 loan was fully repaid, Freedman returned Roberts’s letter, check, and promissory note to him.
On March 13, 2002, a check drawn on the David L. Singer Memorial Foundation account in the amount of $65,000 was made payable to Kelsho Communications, which is a business owned by Roberts.
On April 30, 2002, Roberts gave Freedman a check in the amount of $196,000 to guarantee payment in the event that Tonken did not repay an April 29, 2002 loan in the amount of $160,000 and an April 30, 2002 loan in the amount of $36,000. Roberts prepared a promissory note for the loan of $196,000 from Freedman to Tonken. The note contained the following waiver provision: “I and anyone else who signs, guarantees or endorses this Note, waive any rights we may have to require the Lender to (a) demand payment of amounts due..., (b) give notice that amounts due have not been paid..., and (c) obtain an official certification of nonpayment....”
Another provision of the note stated the responsible parties: “If more than one person signs this Note, each of us is fully and personally obligated to pay the full amount owed and keep all of the promises made in this Note. Any guarantor, surety, or endorser of this Note is also obligated to do these things. The Lender may enforce its rights under this Note against each of us individually or against all of us together. This means that we are jointly and severally liable for the full amount owed and that any of us may be required to pay all of the amounts owed under this Note.” These waiver and responsible party provisions became standard provisions in the promissory notes that Roberts prepared. Tonken executed the note.
Multiple similar transactions were conducted in which Freedman, Roberts, and others made loans to Tonken or Gershman.
On June 18, 2002, Roberts gave Freedman a check in the amount of $137,000 to guarantee payment of a loan made that day to Tonken that would be due on June 28, 2002. Freedman was to return the check when Tonken repaid the loan.
On July 8, 2002, Roberts asked Freedman to give Tonken $115,000. Roberts provided his usual documentation and guarantee. On July 9, 2002, Freedman wrote a check to Tonken in the amount of $115,000, which Tonken deposited in the Performing Arts Foundation account.
On July 23, 2002, the Joseph K & Inez Eichenbaum Foundation wrote a check in the amount of $110,000 to Tonken’s business—the Performing Arts Foundation. Tonken endorsed the check directly to Freedman. Freedman deposited the check and credited the amount against the July 9, 2002 loan of $115,000. The Attorney General subsequently alleged the check was wrongly paid to Freedman.
In March 2003, the Attorney General, who is charged with the general supervision of all charitable organizations, filed an action against several defendants, including Freedman. The causes of action alleged against Freedman were wrongful retention of property, unjust enrichment, fraud and deceit, conspiracy to commit fraud and deceit, conversion, and unfair competition in connection with the $60,000 payment from the Kids Campaign, the $26,000 payment from Gershman to the David L. Singer Memorial Foundation which Tonken endorsed to Freedman, and the Eichenbaum Foundation donation of $110,000 to the Performing Arts Foundation which Tonken endorsed to Freedman. The Attorney General alleged Freedman was aware that Tonken directed the payments to Freedman to repay loans unrelated to fundraising expenses in breach of Tonken’s fiduciary duty. For example, the Attorney General alleged that prior to the meeting at City National Bank, Tonken and Freedman falsely told Pollick that $200,000 had to be transferred to Freedman to secure the presence of former South African President Nelson Mandela for an event. At the April 17, 2001 meeting, Tonken falsely told Pollick in Freedman’s presence, that $200,000 must be paid immediately to Freedman to secure Mandela’s appearance. The event was never held. The complaint made similar allegations about other payments to Freedman. The complaint sought to preserve and recover charitable assets that had been diverted for unrelated purposes, including $196,000 that Tonken paid to Freedman, to satisfy loans. The Isabelle and Leonard Goldenson Association, Inc., filed a related action against Freedman seeking to recover a payment of $200,000.
On August 27, 2004, Freedman filed a cross-complaint against several individuals and entities, including Roberts. The sole cause of action against Roberts was for equitable indemnity based on the following allegations. In the event that Freedman had to pay money back, he asked if Roberts would repay him. Roberts refused. As a result of the actions of all of the cross-defendants, the Attorney General named Freedman as a defendant in the underlying action. If Freedman were found liable, his liability would be the result of his transactions with Roberts and Roberts’s personal guarantee of the loans extended to Tonken. Therefore, Roberts must indemnify Freedman for any loss or damages as a result of the action brought by the Attorney General.
The trial court granted Roberts’s motion for a separate trial on Freedman’s cross-complaint. On January 9, 2006, the trial court entered a judgment stipulated to by the Attorney General, Tonken, and Tonken’s company, in which Tonken agreed to pay $650,000 to the state. In January 2006, Freedman settled the Attorney General’s claims by agreeing to return $195,000. Freedman did not admit any liability, but settled the case to avoid the expense, uncertainty, and inconvenience of litigation. The funds were repaid in installments and the interest on the amount paid totaled $26,166. Freedman incurred reasonable legal fees of $198,000 to successfully defend the claims brought by the Isabelle and Leonard Goldenson Association, Inc.
On May 7, 2007, Roberts filed a motion for summary judgment. In the opposition to the motion, Freedman clarified that the equitable indemnity cause of action was specifically for implied contractual indemnity.
A bench trial was held on June 11, 12, and 16, 2008, on Freedman’s equitable indemnity cause of action against Roberts. Freedman’s attorney confirmed during his opening statement that the sole remaining cause of action was for implied contractual indemnity. On August 6, 2008, the trial court entered its statement of decision finding that Roberts either borrowed from Freedman directly or guaranteed the payment of Freedman’s loans to Tonken and expressly agreed to ensure the repayment of the loans. In addition to the referral fees described above, Roberts received $100,000 from a loan made for Tonken’s benefit. After Tonken had repaid the loans, Freedman returned the promissory notes, letter guarantees, and checks to Roberts. Tonken’s payments subjected Freedman to litigation. As a result of these actions, Freedman suffered damages of $420,166. Based on the agreements of the parties and equitable considerations implicated by the facts, Roberts must indemnify Freedman for the losses, in addition to reasonable attorney’s fees and costs incurred to enforce their rights. The trial court entered judgment that day against Roberts and awarded damages to Freedman of $420,166, plus interest, costs, and attorney fees. Roberts filed a timely notice of appeal.
DISCUSSION
Standard of Review
“When considering a claim of insufficient evidence on appeal, we do not reweigh the evidence, but rather determine whether, after resolving all conflicts favorably to the prevailing party, and according the prevailing party the benefit of all reasonable inferences, there is substantial evidence to support the judgment.” (Scott v. Pacific Gas & Electric Co. (1995) 11 Cal.4th 454, 465, disapproved on another ground in Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317, 352, fn. 17.)
Implied Contractual Indemnity
Roberts contends there is no evidence that he was liable to the injured third parties in the underlying action, and therefore, he cannot be liable for implied contractual indemnity. We agree.
“In general, indemnity refers to ‘the obligation resting on one party to make good a loss or damage another party has incurred.’ [Citation.]” (Prince v. Pacific Gas & Electric Co. (2009) 45 Cal.4th 1151, 1157 (Prince).) There are two types of indemnity: express indemnity and equitable indemnity. (Ibid.) Implied contractual indemnity is a form of equitable indemnity. (Ibid.)
“Express indemnity refers to an obligation that arises ‘“by virtue of express contractual language establishing a duty in one party to save another harmless upon the occurrence of specified circumstances.”’ [Citation.] Express indemnity generally is not subject to equitable considerations or a joint legal obligation to the injured party; rather, it is enforced in accordance with the terms of the contracting parties’ agreement. [Citation.]” (Prince, supra, 45 Cal.4th at p. 1158.) Express indemnity is not at issue in this case.
“Unlike express indemnity, traditional equitable indemnity requires no contractual relationship between an indemnitor and an indemnitee. Such indemnity ‘is premised on a joint legal obligation to another for damages,’ but it ‘does not invariably follow fault.’ (Western Steamship Lines, Inc. v. San Pedro Peninsula Hospital (1994) 8 Cal.4th 100, 114 (Western Steamship).)” (Prince, supra, 45 Cal.4th at p. 1158.) In the context of equitable indemnity, “[joint and several liability] extends beyond the term ‘joint tortfeasor’ and may ‘apply to acts that are concurrent or successive, joint or several, as long as they create a detriment caused by several actors.’ [Citation.]” (Id. at p. 1158, fn. 3.) “Although traditional equitable indemnity once operated to shift the entire loss upon the one bound to indemnify, the doctrine is now subject to allocation of fault principles and comparative equitable apportionment of loss. (Bay Development, [Ltd. v. Superior Court (1990) 50 Cal.3d 1012,] 1029-1030, fn. 10 [(Bay Development);] American Motorcycle Assn. v. Superior Court (1978) 20 Cal.3d 578, 591-598 (American Motorcycle).)” (Prince, supra, 45 Cal.4th at p. 1158.)
“A key restrictive feature of traditional equitable indemnity is that, on matters of substantive law, the doctrine is ‘wholly derivative and subject to whatever immunities or other limitations on liability would otherwise be available’ against the injured party. (Western Steamship, supra, 8 Cal.4th at p. 115[;] Children’s Hospital v. Sedgwick (1996) 45 Cal.App.4th 1780, 1787, fn. omitted (Children’s Hospital) [‘As against the indemnitee, the indemnitor may invoke any substantive defense to liability that is available against the injured party.’].) This rule ‘is often expressed in the shorthand phrase “... there can be no indemnity without liability.”’ (Children’s Hospital, supra, 45 Cal.App.4th at p. 1787.)” (Prince, supra, 45 Cal.4th at pp. 1158-1159.)
When two parties to a contract are both responsible for injuring a third party, recovery is available under implied contractual indemnity on the theory that the contract implied an obligation to perform in a proper manner and to discharge foreseeable damages resulting from improper performance. (Prince, supra, 45 Cal.4th at p. 1159, citing Great Western Furniture Co. v. Porter Corp. (1965) 238 Cal.App.2d 502, 517.) “‘[A] claim for implied contractual indemnity is a form of equitable indemnity subject to the rules governing equitable indemnity claims’ [citation].” (Prince, supra, at p. 1165.) Implied contractual indemnity is not available in the absence of a joint legal obligation to the injured party. (Id. at pp. 1160-1161.) “[I]mplied contractual indemnity has always been subject to the rule that ‘“there can be no indemnity without liability.”’ [Citation.]” (Id. at p. 1165.) In addition, “implied contractual indemnity, like traditional equitable indemnity, is subject to comparative equitable apportionment of loss. [Citation.]” (Id. at p. 1159.) “In particular, we recognized that an implied contractual indemnity claim, like a traditional equitable indemnity claim, is subject to the American Motorcycle rule that a party’s liability for equitable indemnity is based on its proportional share of responsibility for the damages to the injured party. (Bay Development, supra, 50 Cal.3d at p. 1031.)” (Prince, supra, 45 Cal.4th at p. 1165.)
“[I]mplied contractual indemnity is and always has been restitutionary in nature, meaning it is intended to address the situation where ‘“one person is unjustly enriched at the expense of another when the other discharges liability that it should be his responsibility to pay.”’ (Western Steamship, supra, 8 Cal.4th at p. 108.) Indeed, our recognition that ‘a claim for implied contractual indemnity is a form of equitable indemnity subject to the rules governing equitable indemnity claims’ (Bay Development, supra, 50 Cal.3d at p. 1033, fn. omitted) corrects any misimpression that joint liability is not a component of such claims.” (Prince, supra, 45 Cal.4th at p. 1166.) “Allowing a claim for implied contractual indemnity to proceed in the absence of any independent liability on the part of the indemnitor to the injured party would essentially subject the indemnitor to liability for the injured party’s damages in connection with an alleged breach of contract. Our reiteration that indemnity is restitutionary in nature and our recognition of a shared liability requirement will avoid transforming a breach of contract claim into a vehicle for the recovery of tort damages.” (Id. p. 1166, fn. 10.)
There was no evidence that Roberts was jointly liable to the Attorney General or the injured charities. Freedman did not make the required showing that Roberts bears some legal responsibility for the charities’ injuries. Instead, Freedman argued that such liability was unnecessary for recovery and the trial court erroneously agreed. In the cross-complaint and at trial, Freedman did not make a breach of contract claim or pursue liability based on an agency theory. The judgment must be reversed.
DISPOSITION
The judgment is reversed. Appellant Kenneth Roberts is awarded his costs on appeal.
We concur: TURNER, P. J., MOSK, J.