BOREN, P.J.
Service industry maven Peter Morton and music industry titan Milton Okun square off for the fourth time in their quarter-century dispute over Okun's investment in the Hard Rock Cafe enterprise created by Morton. Okun is presently demanding $13.8 million from the sale of intellectual property involving the Hard Rock Hotel and Casino. Okun won $5.5 million at trial, and now challenges the sufficiency of that award on appeal. The award is supported by substantial evidence. We affirm.
Respondent Morton began his success with the Hard Rock Cafe in London in 1971. When Morton made plans to open a branch in Los Angeles in 1982, appellant Okun expressed a desire to invest in Hard Rock Cafe (HRC), a California corporation. The parties entered a four-page letter agreement (the 1982 Agreement), giving Morton an 80 percent interest in HRC and Okun a 20 percent interest. Okun provided a $100,000 capital investment. They agreed that "All business opportunities which arise in connection with the business of HRC . . . which utilize[] the name and mark `HARD ROCK CAFE' must be offered to HRC. If HRC does not avail itself of such opportunity, we shall then have the right to exploit such opportunity together in a manner mutually agreeable in the same ratio which we currently hold stock in HRC. If you [Okun] elect not to participate in such opportunity after reasonable notice, I [Morton] shall be free to exploit such opportunity in any manner I choose."
Okun first sued Morton in the 1980's, contending that Morton breached the 1982 Agreement and committed fraud. At issue was the "business opportunity" clause of the 1982 Agreement, which Morton claimed was an unenforceable "`agreement to agree.'" (Okun v. Morton (1988) 203 Cal.App.3d 805, 816 (Okun I).) Rejecting Morton's position, this Court wrote, "the 1982 agreement gave plaintiff Okun the right to participate in all future business opportunities utilizing the Hard Rock name in consideration of his initial investment of $100,000 in HRC. . . . Plaintiff, in turn, was afforded the opportunity to share in all future endeavors to the extent of his 20 percent ownership interest in HRC. That option, however, was made contingent upon HRC's rejection of any such proposed `opportunity.'" (Id. at p. 818.) "The fundamental structure of all such undertakings was to be based on the 20/80 ratio established for the creation of the L.A. Hard Rock. This essential term effectively defined the extent of the parties' capital contributions and their right to participate in all manner of future investment schemes commensurate with their ownership interest in HRC." (Ibid.) It was reasonable to imply that Okun must contribute one-quarter of the expenses needed to exploit the Hard Rock name. (Id. at p. 819.) When structuring future business ventures to exploit the Hard Rock name, Morton was required to act in good faith and Okun was required to fulfill his proportionate financial responsibility. (Id. at p. 820.)
On remand in Okun I, Okun claimed for the first time that he is entitled to a portion of the management fees Morton received for Hard Rock enterprises outside of Los Angeles. The trial court rejected Okun's claim. In an unpublished opinion, this Court denied Okun's request to share in Morton's management fees. (Okun v. Morton (Jul. 5, 1990, B041452) [nonpub. opn.] (Okun II).)
In 1990, Morton began raising funds to establish a Hard Rock Hotel and Casino in Las Vegas. Morton offered Okun an opportunity to invest in the Las Vegas project. Accepting the offer would require Okun to reimburse Morton $1,960,000 in expenses. Okun made a counter-proposal with new conditions, which Morton rejected. Morton's initial efforts to go forward with Harrah's in Las Vegas failed. In 1993, Morton decided to partner with a different casino operator, Harvey's. Okun wanted to participate in the Harvey's project, but Morton rebuffed Okun based on Okun's earlier decision not to participate in the Las Vegas investment opportunity.
Morton and Harvey's entered a Stockholders Agreement. It specifies that if a stockholder transfers shares, "this Agreement shall terminate as to the transferring Stockholder, but shall remain in effect as to the remaining Stockholders, provided there are at least two (2) remaining Stockholders." The Stockholders Agreement required Morton to sublicense the Hard Rock Hotel brand to the venture for 55 years, for $100 per year. By its terms, the 1993 Sublicense of the Hard Rock Hotel brand remained in effect so long as the Stockholders Agreement was in effect.
Morton bought out Harvey's interest in the Las Vegas Hotel and Casino in 1997. To finance the buyout, Morton obtained bank loans and sold a small amount of stock (about 8 percent) to friends. In connection with this transaction, Morton issued a second sublicense for the Las Vegas Hard Rock Hotel and Casino names (the 1997 Sublicense). The 1997 Sublicense would expire when the Las Vegas Hotel repaid its debt to the banks financing the Harvey's buyout.
In 1993, Okun sued Morton again, for breach of fiduciary duty and declaratory relief (Okun III). Okun claimed that Morton breached his duties by setting the annual sublicense fee for the Hard Rock Hotel name at $100. Okun sought a percentage of the personal management fees charged by Morton, and the right to participate in Morton's project in Las Vegas. A 21-day trial was conducted that involved 1,513 exhibits and 24 witnesses. The trial court reaffirmed that Okun is not entitled to management fees, and deemed all of Okun's claims to be frivolous, made in bad faith, and sanctionable. With respect to Las Vegas, the court found that Morton "owes no duty to Okun with regard to the Hard Rock Hotel & Casino."
In an amendment to the original judgment, the trial court set out the procedures for offering Okun the opportunity to invest in all future Hard Rock ventures and the manner in which he could accept such offers. If Okun fails to respond to an offer within 14 days, he waives "all of his participation rights and exploitation rights with respect to said opportunity and Morton shall be free to pursue said opportunity without any further obligation to Okun and without any participation of Okun." Selling, conveying or licensing the right to exploit the Hard Rock name to any person or entity in a geographic area constitutes a business opportunity, and Okun has the right to receive 20 percent of the consideration paid for the right to use the Hard Rock name.
In 1996, Morton sold to Rank America, Inc., assets used in the business of the Hard Rock Cafe and its associated intellectual property (IP), for $380 million. In connection with the sale, Morton entered a Trademark License and Cooperation Agreement that allowed his continuing use of the Hard Rock Hotel and Casino trademarks in the United States (for the most part, west of the Mississippi River), Australia, Brazil, Israel, Venezuela, and Vancouver. In a letter signed by Morton on June 8, 1996, Okun was informed of the Rank transaction, and advised that under the 1982 Agreement and the court judgments "you are entitled to participate in 20% of the economic benefits arising out of opportunities exploited by Peter Morton in connection with [the 1996 Trademark License Agreement]." Morton transmitted a check to Okun for $41,556,000, along with an explanation that Okun's total take from the transaction would be $48 million. In subsequent letters, Morton attempted to explain that he was cashing Okun out, and Okun would retain no further interest in the Hard Rock trademarks.
Morton decided to sell his remaining Hard Rock assets: (1) the Hard Rock Hotel and Casino in Las Vegas; (2) land in Las Vegas; and (3) IP rights that he retained in the 1996 Trademark License and Cooperation Agreement, in which Morton had an exclusive license to use the "Hard Rock Hotel" and "Hard Rock Casino" trademarks. Potential buyers were informed that the purchaser of the assets "would enter into a new sublicense [for the Hard Rock Hotel and Casino names] in connection with this transaction."
An auction was conducted, and the winning bid was $770 million for the three bundled assets, from a company called Morgans. When the deal closed in February 2007, Morgans became the sole stockholder in the Las Vegas Hard Rock Hotel and Casino, and the debt that Morton incurred in buying out Harveys in 1997 was repaid. As a result, the 1993 Sublicense for the trademarks expired (because there was only one stockholder) and the 1997 Sublicense for the trademarks expired (because the bank debt was repaid).
The Morgans transaction included an "Assignment and Assumption Agreement" in which Morton transferred his IP interest in the 1996 trademark license to Morgans. The 1996 trademark license covered all of Morton's territory; i.e., the western United States, including Las Vegas. The 2007 Assignment lists the consideration for the IP as $68,999,980. A separate merger agreement transferring the Las Vegas Hotel and Casino to Morgans lists consideration of $421 million. For the fiscal year ending December 31, 2007, Morgans submitted to the Securities and Exchange Commission (SEC) a Form 10-K, listing the price it paid for each asset. In its SEC filing Morgans valued the IP it purchased from Morton at $69 million.
Morton commissioned a valuation by the accounting firm Ernst & Young, to allocate the $770 million among the assets that were sold. The purpose of the accounting was to enable Morton to pay off the minority shareholders who helped him finance his buyout of Harvey's in 1997. (Okun is not one of the minority shareholders.) Different scenarios were floated, and Morton ultimately decided that for purposes of paying off the minority shareholders, the value of the Las Vegas hotel was $381 million at the time it was sold. Ernst & Young did not place a separate value on the IP.
Morton testified that the $69 million he received from Morgans was for IP rights "inside and outside [of] Las Vegas. It was for all the rights." Morton had difficulty estimating the value of the IP outside of Las Vegas. In a deposition, which was read at trial, he suggested that it was "25 to 30, 30 million, and I don't know if that's being too high or if it's being too low" because there were too many intangibles. Morton called two valuation experts to address the value of the assets in the Morgans transaction. Expert Christian Tregillis found a range of zero to $13.2 million for the value of the IP outside of Las Vegas. Using a "relief from royalty" method, Tregillis calculated a valuation of between $12.9 and $13.2 million. He noted that it is difficult to enter the Indian gaming business in Morton's territory. Expert Scott Phillips testified that "the value of the rights outside of Las Vegas were so speculative and remote in nature that it was not possible to reliably conclude a fair market value," although he hazarded $11.8 million as a value.
Okun filed the current lawsuit against Morton in 2007. He asserts claims for breach of contract, conversion, and breach of fiduciary duty. The trial court dismissed Okun's tort claims on demurrer, leaving only the contract claim. Okun's surviving claim is that Morton breached his duties under the 1982 Agreement and the various subsequent court judgments by failing to pay Okun $13.8 million, i.e., 20 percent of the $69 million that Morton received for IP in the Morgans transaction.
By stipulation and court order, the dispute was tried by a referee, retired Justice Richard Neal, in January 2010. The issue at trial was whether Morton breached the 1982 Agreement by failing to pay Okun $13,799,796 from the sale of the trademark license. The referee issued his decision in July 2010.
The referee began by noting that the parties have "amassed substantial wealth" and that the amount in dispute is "of little consequence to either of these men. The fight is thus driven by motives other than fiscal necessity." He identified the crucial underpinning of the 1982 Agreement as the paragraph giving Okun rights to participate in all business opportunities utilizing the name and mark "Hard Rock Cafe." It is "essentially irrelevant" that the parties never discussed expanding out of the restaurant business and into hotels and casinos. The strength of the restaurant business "provided the platform to launch the brand in the hotel and casino business."
Morton acknowledged Okun's continuing interest in the enterprise when he disbursed $48 million as Okun's share of the 1996 Rank transaction. In a letter dated June 8, 1996, Morton explicitly affirmed that Okun is entitled to participate in 20 percent of Morton's 1996 Trademark License agreement. In addition, Morton offered Okun the opportunity to participate in a riverboat casino project, showing that Morton knew Okun is entitled to participate in the post-1996 Trademark License opportunities. In light of the litigation history and Morton's conduct, the referee concluded that Okun is entitled to a share of the 2007 Morgans transaction.
The referee moved to the question of what, exactly, Okun is entitled to share. Okun claims a 20 percent share of the $69 million price Morgans paid for the IP, which he claims is entirely for IP rights outside Las Vegas. Morton counters that the lion's share of the $69 million was for Las Vegas rights, in which Okun has no interest. The referee concluded that the evidence supports Morton: the Morgans documents "point strongly to the conclusion that the parties intended all of the IP to be transferred" under the 2007 Assignment Agreement, which "explicitly transfers all Morton's rights in the Hard Rock marks . . . . It does not say it transfers only non Las Vegas rights . . . ." Conversely, the merger agreement transferring the hotel to Morgans "did not include a transfer of the intellectual property, though it required consummation of the [trademark] Assignment transaction as a condition of the Merger." The Morgans transaction documents "supply reliable quantification" of the value of the components of the $770 million sale: the Assignment Agreement associated with the transaction shows consideration of $69 million for the trademarks. The 1993 Sublicense expired when Morgans acquired all of the hotel's shares, at the same time that the 1993 Stockholders Agreement was extinguished.
The referee cited Morgans' 2007 Form 10-K, filed with the SEC, "which explicitly affirmed that the $69 million payment was for both Las Vegas and non Las Vegas IP." This evidence is powerful proof of Morgans' intentions and state of mind, and is particularly credible because Morgans has no stake in the dispute between Morton and Okun. The referee rejected Okun's claim that the right to use the trademarks for the Las Vegas Hotel was included in the price of the merger, making $69 million the value of the non-Las Vegas rights. Okun is foreclosed from claiming a 20 percent share of the value of the IP developed in connection with the Las Vegas hotel and casino.
The valuations point to a conclusion that the Las Vegas IP rights were worth $42 million. The referee credited Morton's testimony that the non-Las Vegas IP rights were worth $25 to $30 million. The referee noted that Morton is in the best position to evaluate the worth of the empire he built. Taking the mid-point of Morton's estimate ($27.5 million) and adding it to the $42 million for Las Vegas supported by one valuation, one arrives at $69 million, the amount that Morgans paid for the IP. This is logical: Las Vegas is the premiere national gaming venue, so the Las Vegas IP is worth more than IP for non-Las Vegas locations, for a hotel/casino operation.
The referee awarded Okun 20 percent of the $27.5 million price Morton obtained for the non-Las Vegas IP rights sold to Morgans, or $5.5 million. Okun's request for prejudgment interest was denied because there was no sum certain or capable of being calculated. Indeed, that is why a lengthy trial was conducted, to determine the valuation issues in this case. The referee also denied a discretionary award of interest.
The trial court entered judgment on the referee's decision on August 5, 2010. Both sides requested a new trial. The referee denied Okun's request, which claimed inadequate damages. The referee granted Morton's request and reduced the judgment by $48,800 (to reflect Okun's share of the costs associated with the Morgans transaction), and declared that Okun is the prevailing party in the litigation, for purposes of awarding attorney fees.
Appeal is taken from the judgment. (Code Civ. Proc., § 904.1, subd. (a)(1).) Findings of fact following a trial are generally reviewed to determine whether they are supported by substantial evidence, based on the whole record. (Hill v. National Collegiate Athletic Assn. (1994) 7 Cal.4th 1, 51.) Okun argues for de novo review of the 2007 Morgans merger transaction documents. Interpreting a written instrument is a judicial function. However, when conflicting extrinsic evidence is admitted to determine the contracting parties' intentions, we determine whether the trier of fact's conclusions are supported by substantial evidence. (In re Marriage of Fonstein (1976) 17 Cal.3d 738, 746-747; Morey v. Vannucci (1998) 64 Cal.App.4th 904, 912-913.)
Morton has not appealed from the referee's determination that Okun is entitled to share in the proceeds of the 2007 transaction with Morgans. Thus, the only issue presented is whether the referee correctly calculated Okun's share of the IP sale. On appeal, Okun continues to argue that he is entitled to $13.8 million. In other words, he wants 20 percent of the entire amount ($69 million) that Morgans paid for the Hard Rock Hotel and Casino IP.
Okun III determined that Morton owes no duty to Okun with respect to the Hard Rock Hotel & Casino in Las Vegas. Okun waived his right to participate in the Las Vegas venture. In fact, Okun III states, "Okun's claims in this action with respect to business opportunities relating to the Las Vegas Hard Rock Cafe were commenced and maintained in bad faith and were frivolous." The findings in Okun III are res judicata. Okun contends that Okun III relates only to the Las Vegas Hotel and Casino itself, and not to the Hard Rock name in Las Vegas. He concedes that he has no claim to the roughly $400 million that Morgans paid for the Hotel. Nevertheless, Okun cites paragraph 18 of the judgment in Okun III, arguing that it supports his right to the Las Vegas IP.
There is no ambiguity in the Okun III finding that Morton "owes no duty to Okun with regard to the Hard Rock Hotel & Casino." Morton, not Okun, took all the risk of venturing into gaming in Las Vegas. Morton could have failed and lost millions. Instead, he succeeded. After declining to participate in the risk of developing a business in Las Vegas, Okun cannot now claim that he is entitled to benefit the exploitation in Las Vegas of the brand name "Hard Rock Hotel & Casino," as he had nothing to do with Morton's success in Las Vegas.
It is immaterial that Morton compensated Okun when Morton entered the 1996 agreement with Rank America. The Las Vegas Hard Rock Cafe (not the hotel and casino) was one of many cafes involved in the Rank deal, and Okun was entitled to 20 percent from the sale of the non-Las Vegas cafes. If Morton elected not to conduct a valuation of the extensive Rank transaction, so that he could deduct from Okun's share the small portion attributable to the Las Vegas Cafe brand, his actions did not constitute a waiver of his right in the future to deny Okun a share of the Las Vegas hotel and casino trademark. In his June 8, 1996 letter to Okun, Morton acknowledged Okun's right to participate in future economic benefits generated by the trademark license: Morton did not expressly acknowledge that Okun could participate in income attributable to the Las Vegas venture that Okun had years earlier decided to forego.
We agree with the finding of retired Justice Neal that when Okun passed up the opportunity to participate in Las Vegas, "The opportunity forgone by Okun was not merely the chance to participate in a hotel or casino in Las Vegas—the Acme Casino. It was the opportunity to participate in and benefit from exploitation of the value of the trademark used to develop a Hard Rock Hotel and Casino." When Okun waived the right to participate in the Las Vegas hotel and casino, that waiver encompassed both the material buildings and the intangible intellectual property arising from the Las Vegas venture. As a result, Okun is not entitled to 20 percent of Morgans' payment for the Las Vegas IP.
A primary issue at trial concerned the estimated value of the IP at the time of the Morgans transaction in 2007. Valuation expert Tregillis testified that the value of the IP outside of Las Vegas is zero to $13 million, and expert Phillips hazarded that it was worth $11.8 million. In deposition testimony, Morton testified that the value might be $25 to $30 million. As the creator of the Hard Rock enterprise and the person who ran it since 1971, Morton is in an excellent position to know the value of the Hard Rock assets, a fact emphasized by the referee. The referee could reasonably find that the value of the non-Las Vegas IP was $27.5 million, the midpoint in the value suggested by Morton. Certainly, the referee gave Okun the benefit of the doubt by disregarding the testimony of the two experts, who believed that the IP was worth as little as zero and as much as $13 million, far less than Morton's estimate.
Despite the expert testimony and Morton's testimony about the value of the non-Las Vegas IP, Okun contends that the entire $69 million in the Morgans transaction is attributable to non-Las Vegas IP. He argues that the Morton-Morgans Merger Agreement included the value of the Las Vegas IP, and that the accompanying Assignment Agreement for $69 million covered only non-Las Vegas IP. Okun did not present a valuation expert to testify that the non-Las Vegas IP is worth $69 million.
The Merger Agreement does not identify the Las Vegas IP as part of the consideration paid to Morton for the Hotel and Casino. Schedule 3.1(q)(i) to the Merger Agreement lists the IP being transferred: it encompasses trademarks for a number of Morton businesses inside the hotel (Pink Taco, The Joint, Rock Spa, Lucky Dog), but does not list the Hard Rock Hotel and Casino marks. By contrast, the Assignment and Assumption Agreement lists a consideration of just under $69 million, and expressly states that Morton "assigns, conveys and transfers to [Morgan] all of [Morton's] rights, title, interest, duties and obligations in" the Hard Rock Hotel and Casino marks. (Italics added.) The Merger Agreement requires that Morton execute the License and Assumption Agreement, transferring the Hard Rock Hotel and Casino trademarks, before the closing date for the Merger Agreement.
Effectively, Okun's argument ignores the existence of the Assignment and Assumption Agreement, and the $69 million separate consideration stated therein for the Hard Rock Hotel and Casino trademarks. Okun wants us to believe that when the Assignment and Assumption Agreement transfers "all" of Morton's rights in the Hard Rock Hotel and Casino trademarks, the word "all" means "some." Given that the Assignment and Assumption Agreement had to be executed before the Merger Agreement could be finalized, the only reasonable interpretation is that "all" means "all," and Morgans would not have closed the merger deal without the previously transferred rights enumerated in the Assignment and Assumption Agreement.
Okun points to the valuation performed by Ernst & Young regarding the Hotel and Casino. Scenario 1 of the accounting firm's document lists a value of $381 million for the Hotel and Casino. However, that figure assumes that Morton was not selling the Hard Rock brand. With a new owner (Morgans), Ernst & Young calculated the value of the Hotel and Casino with the Hard Rock trademark as being $487 million; but without the trademark, the value was $445 million, in Scenario 2. The Ernst & Young valuation does not support Okun's contention that the value of the Hotel and Casino was $381 million, with Morgans as the new owner. Rather, Morgans paid $420 million for the Hotel and Casino, plus another $69 million for the brand owned by Morton.
The referee denied Okun's request for prejudgment interest. An award of prejudgment interest is mandatory if damages are "certain, or capable of being made certain by calculation . . . ." (Civ. Code, § 3287, subd. (a).) The test for recovering prejudgment interest is whether the defendant (1) actually knows the amount of damages owed to the plaintiff, or (2) could have computed the damages owing from reasonably available information. (KGM Harvesting Co. v. Fresh Network (1995) 36 Cal.App.4th 376, 391.) Though Okun requests independent review on appeal, de novo review requires undisputed facts. (Id. at pp. 390-391.) Undisputed facts are lacking in this case.
This Court has held that prejudgment interest cannot be awarded when the amount of damage "`"depends upon a judicial determination based upon conflicting evidence and is not ascertainable from truthful data supplied by the claimant to his debtor."'" (Employers Mutual Casualty Co. v. Philadelphia Indemnity Ins. Co. (2008) 169 Cal.App.4th 340, 354-355.) In this instance, no one could agree on the amount of damage. The estimated value of the IP underlying Okun's recovery ranged from $69 million (Okun), to $25-30 million (Morton), to $11.8 million (Phillips), down to zero (Tregillis). This is clearly not a case in which the parties "essentially do not dispute the computation of damages, if any." (Id. at p. 354.) In fact, Okun is here on appeal, still disputing the extent of Morton's duty and the computation of damages. Damage awards determined by a trier of fact faced with conflicting evidence of value do not support an award of prejudgment interest. (County of Los Angeles v. Southern Cal. Edison Co. (2003) 112 Cal.App.4th 1108, 1123.)
The referee has discretion to award prejudgment interest in contract actions when the claim is unliquidated. (Civ. Code, § 3287, subd. (b).) The referee exercised his discretion against Okun. He wrote, "While the referee is vindicating Mr. Okun's legal right, one can ponder the wisdom or necessity of pursuing this fourth chapter in a 25 year legal battle when Mr. Okun already had benefited so extraordinarily from his ancient and relatively trivial investment in an enterprise whose subsequent startling success resulted entirely from someone else's toil." Okun contends that this reasoning constitutes an abuse of discretion.
Generally, interest is not allowed for an unliquidated debt, but may be awarded as an element of damages in order to award the plaintiff "fair compensation" or to make a party "whole in respect to what it lost." (Continental Oil Co. v. United States (9th Cir. 1950) 184 F.2d 802, 822-823.) The court does not abuse its discretion by denying prejudgment interest when "there was a bona fide dispute of a complicated nature." (Moreno v. Jessup Buena Vista Dairy (1975) 50 Cal.App.3d 438, 448.) Here, the referee was convinced that Okun had received fair compensation, and did not need prejudgment interest to be made whole. In addition, this was a bona fide dispute of a complicated nature, which was further complicated by Okun's failure to assert his claim early during Morton's negotiations with Morgans, so that a contemporaneous valuation could be made of the non-Las Vegas IP. The referee did not abuse his discretion by denying prejudgment interest to Okun.
Under the 1995 modified judgment, when there is any dispute between Morton and Okun regarding the 1982 Agreement, or the 1995 judgment, the prevailing party is entitled to recover attorney fees and costs incurred in connection with the proceeding. For purposes of awarding attorney fees, Morton is the prevailing party in this appeal. Morton may bring a motion before the referee or the trial court to recover his attorney fees and costs on appeal.
The judgment is affirmed.
DOI TODD, J. CHAVEZ, J., concurs.
