FACTUAL and PROCEDURAL HISTORY
Miracle Star, owned and operated by Jeffrey and Staretta Moffatt, provides drug and alcohol treatment and rehabilitation services at a location in Lancaster, California. On June 8, 1999, Miracle Star and COLA entered into contract H210224, for the period of April 1, 1999, to June 30, 2000; twice this contract was later amended in writing to extend to June 30, 2001, and then to extend to June 30, 2003. Under the contracts, Miracle Star provided drug and alcohol services to qualified Los Angeles County residents, and billed COLA monthly. COLA then compensated Miracle Star for performing those services. COLA’s maximum obligation for all services provided under the contract was $ 32,098 for April 1 through June 30, 1999; $128,390 from July 1, 1999, through June 30, 2000; and $128,390 from July 1, 2000, through June 30, 2001.

The June 8, 1999, contract stated that “Additional Provisions” was attached to the agreement and that its terms and conditions became part of the agreement. Miracle Star, however, alleged it never agreed to add “Additional Provisions” to the contract, that “Additional Provisions” was not part of the contract, and that “Additional Provisions” was not discussed or presented to Miracle Star until five months after the signing of the contracts.

1. “Additional Provisions” to the Contract: The “Additional Provisions” required Miracle Star to document the delivery of all specific services identified in the contract, by daily and monthly reports of staff activities, records of specific service activities, and other records as specified by COLA’s Alcohol and Drug Program Administration (ADPA). The “Additional Provisions” required Miracle Star to retain this documentation and to allow COLA access to it pursuant to the “Records and Audits” section of the contract. The “Additional Provisions” required Miracle Star to maintain service records for each participant and records of services provided by professional personnel, and to provide these records to COLA for program review and fiscal audit.

With regard to financial records, the “Additional Provisions” required Miracle Star to prepare and maintain a written cost allocation plan, and complete financial records in accordance with generally accepted accounting principles and the COLA Department of Health Services Abuse Program Contract Financial Handbook. These records were to reflect the actual cost of each mode of service provided by Miracle Star for which payment was claimed.

The “Additional Provisions” also required Miracle Star to provide COLA’s Department of Health Services Financial Services with an annual cost report for each mode of service and service delivery site.

COLA also alleged that its “Contract Financial Handbook”–which is not in the record on appeal–required a Miracle Star staff employee who was independent of cashiering, depositing, and bookkeeping functions, to receive and reconcile bank statements.

2. The Contract: The contract required COLA to compensate Miracle Star for its performance of alcohol and drug services, except for fees reimbursed by Medi-Cal, medical insurance, or other third party coverage. The contract required Miracle Star, at the close of each month, to bill COLA monthly in arrears on forms provided by COLA, setting forth information about services provided and for which a claim was being made and any payments due Miracle Star by or on behalf of a participant.

If Miracle Star did not deliver the annual cost report by the date specified, the “Additional Provisions” allowed COLA to withhold payments to Miracle Star until it delivered that report to COLA.

The contract stated that if COLA audited Miracle Star regarding services it provided under the contract, and if that audit found that COLA’s dollar liability for those services was less than COLA’s payments to Miracle Star, the difference would be either repaid by Miracle Star or, at COLA’s option, credited against any amounts due Miracle Star from COLA under the contract. The “Additional Provisions” also authorized COLA to withhold Miracle Star’s claims for payment for delinquent amounts due COLA as determined by a cost report or audit report settlement.

The contract contained the following clause regarding breach of the agreement: “Notwithstanding any other provision of this Paragraph, the failure of Contractor or its officers, employees, agents, or subcontractors, to comply with any of the terms of this Agreement or any written directions by or on behalf of County issued pursuant hereto shall constitute a material breach hereto, and this Agreement may be terminated by County immediately.”

3. Audit: COLA’s Request for Documents: On August 3, 2000, COLA notified Miracle Star that COLA would conduct a fiscal review and provided a list of documents and records that auditors would require Miracle Star to produce. The audit began on August 24, 2000. Claiming that COLA demanded confidential patient files, Miracle Star’s Executive Director Staretta Moffatt refused to allow COLA employees access to review requested records and documents needed to verify costs billed. On September 27, 2000, COLA sent a letter to Miracle Star explaining the cost of ownership principle and the necessity of documents needed to calculate allowable costs. In November 2000, COLA resumed its audit and requested that Miracle Star provide census records of its non-County residential days, i.e., of clients whose services were not funded by the COLA contract. Miracle Star again declined to provide these census reports, citing concerns that doing so would violate patients’ confidentiality. On February 6, 2001, Miracle Star received a letter from Olga L. Lopez, Head of COLA’s Contract Fiscal Compliance Unit, advising Miracle Star that it was required to maintain participant records in accordance with state laws, to maintain reports, studies, statistical surveys, or other information to determine and allocate indirect costs, and to make these records available to COLA representatives for a fiscal audit. The letter requested that Miracle Star provide financial records and census information so that COLA could finalize its audit, and requested that Miracle Star contact the COLA auditor by March 6, 2001. Lopez’s letter stated that if COLA did not hear from Miracle Star by March 6, 2001, it would finalize the audit report without reviewing the requested documents.

4. Miracle Star’s Response: Miracle Star’s written response to Lopez’s letter stated that Miracle Star contracted with COLA at a non-provisional rate, which meant that test census records of non-County residential days were not relevant to COLA’s audit. Miracle Star’s letter asked Lopez to state whether Miracle Star’s interpretation of the non-provisional rate contract was correct, and if incorrect, Miracle Star would reconsider providing the test census records. COLA conducted a site inspection of Miracle Star for fiscal year 2000-2001 on March 21, 2001.

5. COLA Requests Plan of Corrective Action: On April 19, 2001, COLA’s ADPA sent Miracle Star a draft of the Program Monitoring Summary, which requested a Plan of Corrective Action. COLA’s Program Monitoring Summary Report set forth a series of deficiencies and the actions Miracle Star was required to take to correct the deficiencies. Among the deficiencies were incomplete Form of Business Organization, Fiscal Disclosure, and Real Property Disclosure documents, an expired business license, lack of a sexual harassment and contact policy, unauthorized transportation of patients, and defects in the Miracle Star facility requiring repairs. The Program Monitoring Summary noted that Miracle Star leased the property where program services were delivered from its owners, Jeffrey and Staretta Moffatt. The total square footage of the leased premises was charged to the budget, but Miracle Star provided other services at this location, and the Moffatts lived at the location. This use of space was questionable and there appeared to be a conflict of interest between the landlord and the tenant. COLA stated that the matter would be referred to COLA’s Contract Fiscal Compliance Unit for a determination.

COLA’s auditor’s personnel review found numerous deficiencies in staff records. After learning that Miracle Star stopped accepting CalWORKs (California Work Opportunity and Responsibility to Kids) recipients under the contract after December 2000, the auditor advised Jeffrey and Staretta Moffatt that the contract was reimbursed on actual costs, and not on a fee-for-services rate. The auditor advised Miracle Star that the matter would be referred to COLA’s Contract Fiscal Compliance Unit, and that reimbursements were subject to disallowance.

COLA’s auditor also stated that Miracle Star did not provide adequate records for the audit, which caused the auditor to be unable to determine if Miracle Star had provided all specific services stated in the contract.

Miracle Star also did not provide requested time sheets for Dr. Vail, and Staretta Moffatt’s time sheets did not include a daily breakdown of hours worked under the contract. Miracle Star also refused to make available all program records pertaining to the COLA contract.

6. COLA Again Requests a Plan of Corrective Action: On May 30, 2001, COLA’s Contract Fiscal Compliance Unit sent a draft financial evaluation report to Miracle Star, and gave Miracle Star 30 days to prepare and submit a Plan of Corrective Action. Miracle Star did not provide that Plan of Corrective Action and declined to meet and discuss the audit report findings.

7. COLA’s Financial Report Becomes Final: On July 19, 2001, a deputy of COLA’s Administrative and Financial Services Department notified Miracle Star that the financial report was final and that Miracle Star must submit a check for $160,487.76 to COLA’s financial office. The attached report stated the following deficiencies disclosed by the audit of Miracle Star: (1) bank statements were not reconciled to financial records; (2) the landlord-tenant relationship appeared to be a less-than-arms-length association; (3) Fiscal Year 1999-2000 cost reports were not submitted to the ADPA office; (4) the Executive Director’s time sheets did not allocate hours worked on each program; (5) Miracle Star did not develop a written cost allocation plan allocating shared costs between benefitting programs; (6) Miracle Star made no clear separation of duties among staff for handling different aspects of accounting transactions; (7) Miracle Star did not require a second signature on checks issued for cash disbursements; (8) costs on monthly reimbursement claims were reported based on budget estimates instead of actual costs; (9) billing claim costs were not reconcilable to financial records; (10) Miracle Star failed to provide client census data on non-County clients to determine cost allocation; and (11) monthly reimbursement claims reported unsupported costs totaling $160,487.76.

8. Miracle Star Disputes the Audit: Miracle Star disputed that it failed to prepare a written cost allocation plan to allocate shared costs between beneficiary programs. Miracle Star disputed that it did not reconcile bank statements. Miracle Star did not dispute that it refused to allow COLA access to requested records and documents, but disputed that the requested records and documents were necessary to verify costs billed. Miracle Star did not dispute that it did not maintain client fee determination system forms in each client’s file, but disputed that the contracts required it to do so. Miracle Star disputed that it did not bill COLA based on actual costs, and disputed that it did not submit cost reports to COLA, as required by the contracts. Miracle Star disputed that the contract required the landlord/tenant relationship between Miracle Star and the Moffatts to be an arms-length association. Miracle Star disputed that the contracts required Miracle Star to maintain a clear separation of duties among staff for handling different aspects of accounting transactions. Miracle Star alleged that the contracts did not require it to maintain a written cost allocation plan to allocate costs among different programs. Because Miracle Star alleged that the COLA-Miracle contracts were non-provisional rate contracts, which provided pre-determined rates at which COLA could reimburse Miracle Star, Miracle alleged that the lack of a cost allocation plan was irrelevant to determining COLA’s obligations under its contracts with Miracle Star. Miracle Star alleged that COLA had no authority to unilaterally adjust the predetermined rate in the budgets attached to its contracts with Miracle Star, or to seek overpayment collections against COLA ADPA-contracted service providers. Miracle Star alleged that the COLA contracts did not require it to maintain timesheets allocating time among various programs, to maintain a strict separation of duties among staff handling aspects of accounting transactions, or to reconcile financial records or bank statements, and that COLA suffered no damage from Miracle Star’s failure to do so. Miracle Star alleged that during COLA audits, Miracle Star provided documents and records to which COLA was entitled.

Miracle Star alleged that in September 2001 COLA arbitrarily placed Miracle Star on a “do not refer” list, forbidding any patients from being referred to Miracle Star. Citing declarations of Patrick Ogawa, Lopez, and George Weir, COLA alleged that those individuals never placed Miracle Star under a “freeze” or “do not refer” order.

9. Miracle Star Files a Claim for Damages: On March 15, 2002, Miracle Star filed a claim for damages against COLA based on (1) a mandated reporter violation, (2) a do not refer” status placed on Miracle Star, and (3) illegal audits, fraud, conspiracy, and failure to pay Miracle Star in the current fiscal year. The COLA Board of Supervisors denied Miracle Star’s claim for damages on April 2, 2002.

10. The Complaint: The operative complaint is a third amended complaint filed on June 25, 2004, by plaintiffs Miracle Star, Jeffrey D. Moffatt, and Staretta Moffatt. Miracle Star alleged a cause of action for breach of written contract against COLA; all plaintiffs alleged a cause of action for breach of oral contract against COLA; and all plaintiffs alleged a cause of action for intentional interference with prospective economic advantage against COLA and three individual defendants, COLA employees Patrick Ogawa, Olga Lopez, and George Weir. In this appeal plaintiffs have abandoned their claims against these individual defendants.[ 1 ]

The complaint alleged that on May 11, 1999, Miracle Star and COLA entered into a written “Alcohol and Drug Services Agreement” contract that required Miracle Star to provide in-patient alcohol and drug treatment services to welfare recipients and services to persons who qualified under CalWORKs. COLA agreed to pay specified sums for Miracle Star’s services. The complaint alleged that Miracle Star had performed all conditions required by the contract and its amendment, except for those which defendants prevented Miracle Star from performing. The complaint also alleged that Jeffrey Moffatt and Staretta Moffatt were third party beneficiaries of the contract who, in reliance on the contract and its amendment, leased premises to Miracle Star to the enrichment of defendants. The complaint alleged that on April 1, 2001, COLA breached the contracts by refusing to pay Miracle Star sums due, and that on July 1, 2001, COLA breached the contracts by refusing to refer, and refusing to allow referral of, individuals and families to Miracle Star for treatment.

The breach of oral contract cause of action alleged that COLA referred persons to Miracle Star for in-patient alcohol and drug treatment services to welfare recipients, and at COLA’s request, Miracle Star also provided services to persons qualifying under CalWORKs. The complaint alleged that defendants breached their agreement by failing to pay Miracle Star sums due under the contract, and that COLA’s refusal to refer such persons to Miracle Star for treatment proximately caused plaintiffs to sustain damages.

The cause of action for intentional interference with prospective economic advantage alleged that on July 1, 2001, COLA and the individual defendants put plaintiffs’ facilities under a “do not refer” order, prevented COLA personnel and agencies from referring persons to plaintiffs for treatment, and refused to grant plaintiffs a contract under Proposition 36, with the specific intent of destroying plaintiffs’ business opportunities and for the purpose of preventing plaintiffs from obtaining individuals and families for treatment and receiving compensation.

11. Answer and Cross-Complaint: On July 28, 2004, COLA filed an answer and a cross-complaint against cross-defendant Miracle Star for breach of contract and declaratory relief.

12. COLA’s Motion for Summary Judgment: On December 30, 2005, COLA moved for summary judgment, or in the alternative for summary adjudication.

13. Trial Court’s Grant of Summary Judgment: On March 20, 2006, the trial court granted defendants’ motion for summary judgment. The trial court found that plaintiffs had admitted they failed to prepare a written cost allocation plan to allocate shared costs between beneficiary programs, and failed to reconcile bank statements as required in the contract, and therefore breached the contract. The trial court found that Miracle Star presented no evidence of an oral agreement, and that the parole evidence rule barred any oral agreements which were inconsistent with the integrated written contracts. Regarding the cause of action for interference with prospective economic advantage caused by COLA’s alleged issuance of a “do not refer” order against Miracle Star, the trial court found that Miracle Star had only an ongoing economic relationship with COLA and not with third party clients. Therefore Miracle Star failed to establish that COLA’s conduct was wrongful by some legal measure other than the fact of interference itself. The trial court also found that the “do not refer” order was issued in the exercise of COLA employees’ discretionary authority and that no evidence rebutted the immunities pertinent to such a discretionary act under Government Code section 820.2.

Judgment in favor of COLA and individual defendants Ogawa, Lopez, and Weir was entered on April 10, 2006. Notice of entry of judgment was served on the same day. Plaintiffs filed a timely notice of appeal.

Plaintiffs claim on appeal that:

1. There are triable issues of fact as to the breach of contract claims with regard to COLA’s disallowance of $160,487.76, COLA’s placement of Miracle Star on “do not refer” status, whether Miracle Star materially breached the written contracts so as to relieve COLA of its contractual obligations, and whether Jeffrey and Staretta Moffatt are third party beneficiaries of the contracts;

2. There are triable issues of fact as to whether COLA intentionally interfered with plaintiffs’ prospective economic advantage.

DISCUSSION
1. The Appeal Is Not From a Final Judgment, But This Court Exercises Our Discretion to Treat the Appeal as a Petition for Writ The existence of COLA’s unadjudicated cross-complaint against Miracle Star means that no final judgment exists in the action as to those parties, even though the judgment is final as to individual plaintiffs Staretta and Jeffrey Moffatt in their complaint against COLA (and against individual defendants Ogawa, Lopez, and Weir, as to whom plaintiffs do not appeal). Thus the judgment is not appealable as to COLA and Miracle Star, because the judgment has not disposed of all causes of action framed by the pleadings. (Morehart v. County of Santa Barbara (1994) 7 Cal.4th 725, 741.) Because the briefs and record before us contain all the elements prescribed by rule 8.490 of the California Rules of Court and extraordinary circumstances justify the exercise of our discretionary power, we treat this appeal as a petition for writ. (Angell v. Superior Court (1999) 73 Cal.App.4th 691, 698.)

2. Standard of Review “A trial court properly grants summary judgment where no triable issue of material fact exists and the moving party is entitled to judgment as a matter of law. (Code Civ. Proc., § 437c, subd. (c).) We review the trial court’s decision de novo, considering all of the evidence the parties offered in connection with the motion (except that which the court properly excluded) and the uncontradicted inferences the evidence reasonably supports. [Citation.] In the trial court, once a moving defendant has `shown that one or more elements of the cause of action, even if not separately pleaded, cannot be established,’ the burden shifts to the plaintiff to show the existence of a triable issue; to meet that burden, the plaintiff `may not rely upon the mere allegations or denials of its pleadings . . . but, instead, shall set forth the specific facts showing that a triable issue of material fact exists as to that cause of action. . . .’ [Citations.]” (Merrill v. Navegar, Inc. (2001) 26 Cal.4th 465, 476-477.)

3. Plaintiffs Have Not Created Triable Issues of Fact as to the Breach of Written Contract Cause of Action Plaintiffs claim that the existence of triable issues of material fact precludes a grant of summary judgment as to the cause of action for breach of contract. We disagree.

a. COLA’s Disallowance of $160,487.76 in Compensation to Miracle Star

Pursuant to the “Records and Audits” section of the “Additional Provisions” to the contract, beginning in August 2000, COLA conducted a financial evaluation of Miracle Star and its performance of the contract. COLA’s financial evaluation noted deficiencies in financial records and billing substantiation. Specifically, the financial evaluation found that: bank statements were not reconciled to financial records; the landlord/tenant relationship appeared to be a less-than-arms-length association; fiscal year 1999-2000 cost reports for the contract were not submitted to the Alcohol and Drug Program Administration office; the Executive Director’s time sheets did not allocate hours worked on each program; Miracle Star did not develop a written cost allocation plan allocating shared costs between benefiting programs; there was no clear separation of duties among staff for handling different aspects of accounting transactions; Miracle Star did not require a second signature on checks issued for agency cash disbursements; on monthly reimbursement claims, Miracle Star reported costs based on budget estimates instead of actual costs; billing claim costs were not reconcilable to financial records; Miracle Star failed to provide client census on non-COLA clients to determine cost allocation; and Miracle Star reported unsupported costs of $160,487.76 on monthly reimbursement claims.

b. The Recitation in the Contract That Miracle Star Received the “Additional Provisions” Is Conclusive, and No Triable Issue of Fact Exists Whether “Additional Provisions” Were Part of the Contract The first issue concerns whether these audit requirements were included in the contract. As we have seen, COLA stated that it conducted its financial audit pursuant to the “records and audits” section of the “Additional Provisions.” The COLA-Miracle Star contract states: “Contractor [Miracle Star] hereby acknowledges receipt of the above referenced documents numbers (1) through (3) attached hereto.” Document No. 3 is “Additional Provisions.”

Elsewhere the contract states: “ADDITIONAL PROVISIONS: Attached hereto and incorporated herein by reference, is a document labeled `Additional Provisions’. The terms and conditions therein contained are part of this Agreement.” The contract also contained an integration clause specifically referencing the “Additional Provisions:” “This Agreement, together with the Additional Provisions, Exhibit(s), Schedule(s), and any Budget(s) and/or Statement of Work forms, attached hereto, fully expresses all understandings of the parties concerning all matters covered and shall constitute the total Agreement. No addition to, or alteration of, the terms of this Agreement, whether by written or verbal understanding of the parties, their officers, agents or employees, shall be valid and effective unless made in the form of a written amendment to this Agreement which is formally approved and executed by the parties in the same manner as this Agreement.” (Italics added.)

Plaintiffs Jeffrey Moffatt and Staretta Moffatt stated in their declarations that the “Additional Provisions” were not present at the time the contract was signed, and the County delivered the “Additional Provisions” five months after signing. The recitation in a contract that the plaintiffs received “Additional Provisions,” however, is conclusive. (Evid. Code, § 622; Banco Do Brasil, S.A. v. Latian, Inc. (1991) 234 Cal.App.3d 973, 995, fn 30.)

Therefore no triable issue of fact arises as to whether Miracle Star received the “Additional Provisions.”

c. No Triable Issue Exists as to Whether Breaches of the Contract Were Material

Plaintiffs claim that the contract provision making any failure to comply with any contract terms a material breach is unenforceable. The contract states: “Notwithstanding any other provision of this Paragraph, the failure of Contractor or its officers, employees, agents, or subcontractors, to comply with any of the terms of this Agreement or any written directions by or on behalf of County issued pursuant hereto shall constitute a material breach hereto, and this agreement may be terminated by County immediately.” COLA’s disallowance of $160,487.76 as unsupported costs reported by Miracle Star on monthly reimbursement claims relied on this contract clause, as did the trial court in granting summary judgment for COLA.

i. The Contract Provision Making Non-Compliance With Any Contract Term a Material Breach Is Enforceable Plaintiffs cite authority that whether a breach is sufficiently material as to give the injured party cause to terminate a contract is a question for the trier of fact. (Superior Motels, Inc. v. Rinn Motor Hotels, Inc. (1987) 195 Cal.App.3d 1032, 1051-1052; Gold Min. & Water Co. v. Swinerton (1943) 23 Cal.2d 19, 28; Assoc. Lathing etc. Co. v. Louis C. Dunn, Inc. (1955) 135 Cal.App.2d 40, 49; Whitney Inv. Co. v. Westview Dev. Co. (1969) 273 Cal.App.2d 594, 601; Integrated, Inc. v. Alec Fergusson Electrical Contractor (1967) 250 Cal.App.2d 287, 297; Pacific Allied v. Century Steel Products (1958) 162 Cal.App.2d 70, 77.) However, these cases did not involve contracts with a provision like the one in the COLA-Miracle Star contract, stating that the contractor’s failure to comply with any contract terms constituted a material breach and gave COLA the right to terminate the contract.

The contract provision stating that the contractor’s failure to comply with any contract terms constitutes a material breach is enforceable. (See Galdjie v. Darwish (2003) 113 Cal.App.4th 1331, 1341 [California courts enforce time deadlines in real estate sales contracts, permitting the seller to cancel after the time specified where time is specifically made of the essence, unless there has been a waiver or potential forfeiture].)

Moreover, “[a] contract may contain a valid provision giving one or the other party an option to terminate it on specified conditions.” (Call v. Alcan Pac. Co. (1967) 251 Cal.App.2d 442, 447.) Therefore plaintiffs did not create a triable issue of fact as to the materiality of Miracle Star’s failure to comply with contract terms.

ii. Because Plaintiffs Failed to Create a Triable Issue of Fact as to Their Performance of the Contract, Which Is an Essential Element of Their Breach of Contract Cause of Action, the Grant of Summary Judgment Was Appropriate Plaintiffs admitted that they did not provide all documentation required by COLA’s fiscal review; that Miracle Star failed to keep time sheets for employees to allocate hours worked on each program of the contracts administered by Miracle Star; that Miracle Star refused to allow COLA employees access to review requested records and documents necessary to verify costs billed; that Miracle Star failed to maintain client fee determination system forms in each client’s file; and that Miracle Star made no clear separation of duties among staff for handling different aspects of accounting transactions as required by the contracts. Although plaintiffs disputed that they did not comply with contract terms, they provided no evidence creating a triable issue of fact that they failed to reconcile bank statements as provided by the contracts.[ 2 ] Although Miracle Star disputed that they did not reconcile their billing claim costs to financial records as required by the contracts, they provided no evidence creating a triable issue of fact as to this issue.[ 3 ]

Because of the contract provision stating that Miracle Star’s failure to comply with any term of the contract constituted a material breach, plaintiffs’ admission of numerous breaches prevents plaintiffs from showing that they performed the contract. To prevail on a breach of contract cause of action, plaintiff must prove: (1) the contract; (2) plaintiff’s performance or excuse for nonperformance; (3) defendant’s breach; and (4) resulting damages to plaintiff. (Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1388.)

Thus by showing that an essential element of the breach of contract cause of action cannot be established, COLA met its burden of showing that a cause of action has no merit. (Code Civ. Proc., § 437c, subd. (p)(1).) The burden then shifted to plaintiffs, who failed to create a triable issue of fact as to this essential element of their cause of action. Thus the trial court correctly granted summary judgment as to plaintiff’s breach of contract cause of action.

At least two further issues, however, remain to be tried in COLA’s cross-complaint for breach of contract.

iii. Plaintiffs’ Failure to Timely Raise the Defense of Unconscionability Forfeits This Claim in This Appeal, But This Forfeiture Is Not a Ruling on the Merits and Does Not Bar Plaintiffs From Raising This Defense to COLA’s Cross-Complaint In their reply brief, plaintiffs asserted for the first time that the contract with COLA was a contract of adhesion which should not be enforced against Miracle Star.

The “courts will not enforce provisions in adhesion contracts which limit the duties or liability of the stronger party unless such provisions are `conspicuous, plain and clear’ . . . and will not operate to defeat the reasonable expectations of the parties[.]” (Madden v. Kaiser Foundation Hospitals (1976) 17 Cal.3d 699, 710.)

Characteristically, in adhesion contracts the stronger party drafts the contract and the weaker party has no opportunity to negotiate its terms; the weaker party lacks any realistic opportunity to look elsewhere for a more favorable contract, and must choose either to adhere to the standardized contract or forego the needed service; and adhesion contracts contain “weighted contractual provisions which served to limit the obligations or liability of the stronger party.” (Id. at p. 711.) The determination that a contract is one of adhesion does not make that contract invalid or unenforceable; after a finding of adhesion, the question becomes “whether a particular provision within the contract should be denied enforcement on grounds that it defeats the expectations of the weaker party or it is unduly oppressive or unconscionable.” (Intershop Communications AG v. Superior Court (2002) 104 Cal.App.4th 191, 201.)

Plaintiffs’ opposition to the summary judgment motion did not argue that the contract provision stating that the contractor’s failure to comply with any contract terms constituted a material breach was unenforceable as a contract of adhesion that defeated the weaker party’s expectations or was unduly oppressive or unconscionable. A party may not raise an argument that was not factually presented or fully developed in the trial court for the first time on appeal. (Wilson v. Blue Cross of So. California (1990) 222 Cal.App.3d 660, 673, fn 7; Kilroy v. State of California (2004) 119 Cal.App.4th 140, 149.) Moreover, by raising this argument for the first time in their reply brief, plaintiff forfeited this claim on appeal. (Locke v. Warner Bros., Inc. (1997) 57 Cal.App.4th 354, 368.)

We hasten to add, however, that the forfeiture of this claim applies only to this appeal, and is not a ruling on the merits of the defense. We do not regard the forfeiture of this claim in this appeal as something that stops or prohibits plaintiffs from timely arguing, as a defense to COLA’s cross-complaint for breach of contract, that the contract provision stating that the contractor’s failure to comply with any contract terms constituted a material breach was unenforceable as a contract of adhesion that defeated the weaker party’s expectations or was unduly oppressive or unconscionable. We express no opinion as to the resolution of this issue.

iv. COLA Must Prove Its Damages in the Proceeding on Its Cross-Complaint for Breach of Contract
An additional point will have to be addressed in the trial of COLA’s cross-complaint. COLA’s cross-complaint alleges the same breaches of contract terms as have been found to constitute material breaches of the contract in this summary judgment proceeding, and alleges audit disallowances of $160,487.76. There has not yet been any adjudication of whether COLA’s determination of the value of these breaches of contract was correct, and what, if any, damages COLA sustained as a result. In the trial of its cross-complaint, COLA will have to provide evidence linking those material breaches of contract terms to specific monetary damages. COLA has not yet made this showing. Instead it has simply asserted that for Miracle Star’s breaches of contract terms, $160,487.76 was due COLA for audit disallowances, of which $74,662.00 remains owing by Miracle Star. COLA must prove a causal connection between the breach and the damages sought: “For the breach of an obligation arising from contract, the measure of damages . . . is the amount which will compensate the party aggrieved for all the detriment proximately caused thereby, or which, in the ordinary course of things, would be likely to result therefrom.”

(Civ. Code, § 3300.) The nonbreaching party is entitled to recover only those damages “proximately caused” by the specific breach. (Postal Instant Press, Inc. v. Sealy (1996) 43 Cal.App.4th 1704, 1709.) To put it another way, “the breaching party is only responsible to give the nonbreaching party the benefit of the bargain to the extent the specific breach deprived that party of its bargain.” (Ibid.) Damages must also be certain: “No damages can be recovered for a breach of contract which are not clearly ascertainable in both their nature and origin.”

(Civ. Code, § 3301.) These issues remain to be tried in the proceeding on COLA’s cross-complaint.

d. Jeffrey Moffatt and Staretta Moffatt Have Not Proved That They Can Enforce the COLA-Miracle Star Contract as Third Party Beneficiaries Although the cause of action for breach of written contract was brought by plaintiff Miracle Star only, that cause of action alleged that plaintiffs Jeffrey Moffatt and Staretta Moffatt were third party beneficiaries of the Miracle Star-COLA contract, and based on that contract the Moffatts leased premises to Miracle Star to the enrichment of the defendants. COLA’s summary judgment motion argued that Jeffrey and Staretta Moffatt could not establish their status as third party beneficiaries to the contract, because they could not provide evidence that the Miracle Star-COLA contract intended to confer a direct benefit on the Moffatts.

A third party beneficiary may enforce a contract made expressly for his benefit. (Civ. Code, § 1559.) The putative third party’s contract rights, however, are predicated on the contracting parties’ intent to benefit that third party. (Garcia v. Truck Ins. Exchange (1984) 36 Cal.3d 426, 436.) “`The circumstance that a literal contract interpretation would result in a benefit to the third party is not enough to entitle that party to demand enforcement.'” (Hess v. Ford Motor Co. (2002) 27 Cal.4th 516, 524.) “The party claiming to be a third party beneficiary bears the burden of proving that the contracting parties actually promised the performance which the third party beneficiary seeks.” (Sessions Payroll Management, Inc. v. Noble Construction Co. (2000) 84 Cal.App.4th 671, 680.) “Ascertaining this intent is a question of ordinary contract interpretation. [Citation.] `[T]he circumstance that a literal contract interpretation would result in a benefit to the third party is not enough to entitle that party to demand enforcement.'” (Hess v. Ford Motor Co., supra, at p. 524.)

We see nothing in the contract that the parties promised the performance plaintiffs seek. Plaintiffs’ opposition to the summary judgment motion argued only that COLA knew Staretta and Jeffrey Moffatt were owners and directors of Miracle Star and that money in the budget specifically paid Staretta Moffatt’s salary and rent to the Moffatts for leased premises. The sole evidence cited for this assertion was Jeffrey Moffatt’s declaration, which stated:

“At the time of contracting, the County was aware that Star Moffatt would be paid a salary and Star Moffatt and I would [be] paid the rent under the Contract.” Plaintiffs’ separate statement of disputed material facts contains no reference to this evidence. The contracts do not name Jeffrey Moffatt, although he signed the June 20, 2000, amendment and the June 19th, 2001, contract as CEO on behalf of Miracle Star. The contract names Star Moffatt as Executive Director in giving the address to which notices to Miracle Star are to be sent. Staretta Moffatt also
signed the initial June 8, 1999, contract as Executive and Program Director on behalf of Miracle Star. None of these contracts, however, contains any statement that Staretta Moffatt would be paid a salary and that the Moffatts would be paid rent under the contract. Thus the contract was not made expressly for the benefit of Staretta Moffatt or Jeffrey Moffatt, and does not show that COLA and Miracle Star actually promised the performance the Moffatts seek. The Moffatts have not proven that they are third party beneficiaries of the COLA-Miracle Star contract. The Moffatts are at best remotely benefited, and as incidental beneficiaries cannot enforce the contract. (Martinez v. Socoma Companies, Inc. (1974) 11 Cal.3d 394, 406-407.)

4. Plaintiffs Have Not Created a Triable Issue of Fact as to the Breach of Oral Contract Cause of Action
Plaintiffs claim on appeal that triable issues of fact require reversal of summary judgment as to the breach of oral contract cause of action.

a. Allegations of the Breach of Oral Contract Cause of Action

The breach of oral contract cause of action alleged that COLA referred individuals and families to plaintiffs for the purpose of providing in-patient alcohol and drug treatment services to welfare recipients. At COLA’s request, plaintiffs also provided services to men and women qualifying under the CalWORKs program. COLA agreed, orally and in writing, to pay plaintiffs specified sums for these services. The complaint alleged that Jeffrey and Staretta Moffatt were third party beneficiaries of this oral contract, and based on that oral contract and Miracle Star’s anticipated income from prospective referrals by COLA, leased certain premises to Miracle Star and to the enrichment of COLA.

b. Plaintiffs’ Opposition to the Summary Judgment Motion Produced No Evidence Creating a Triable Issue of Fact as to the Breach of Oral Contract Cause of Action Defendants’ summary judgment motion argued that plaintiffs could not carry their burden of demonstrating the existence of any oral agreement between plaintiffs and COLA, and could not carry their burden of demonstrating that Staretta and Jeffrey Moffat were third party beneficiaries of such an oral contract. Plaintiffs’ separate statement in opposition to the summary judgment motion contained no evidence showing that plaintiffs and COLA made an oral contract.

Plaintiffs cannot create a triable issue of fact by the allegations in the complaint. (Lyons v. Security Pacific Nat. Bank (1995) 40 Cal.App.4th 1001, 1014.) The opponent of summary judgment cannot rely on pleadings, but must make an independent showing of sufficient proof of matters alleged to raise a triable issue of fact. (Tressemer v. Barke (178) 86 Cal.App.3d 656,668.) Without a separate statement of undisputed facts with references to supporting evidence in the form of affidavits or declarations, it is impossible for the plaintiff to demonstrate the existence of disputed facts. (Lewis v. County of Sacramento, supra, 93 Cal.App.4th at p. 116.) We therefore conclude that the trial court correctly granted summary judgment as to the cause of action for breach of oral contract.

5. Plaintiffs Have Not Created a Triable Issue of Fact as to Their Cause of Action for Intentional Interference with Prospective Economic Advantage Plaintiffs claim that the trial court erroneously granted summary judgment as to their cause of action for intentional interference with prospective economic advantage.

a. Allegations of the Complaint

The cause of action for intentional interference with prospective advantage alleged that COLA and its employees Ogawa, Lopez, and Weir, acting within the scope of their employment, interfered with plaintiffs’ business opportunities, prospective clients, and prospective contracts, with the purpose and specific intent of harming plaintiffs’ business.

The complaint alleged that plaintiffs operated alcohol and drug treatment facilities for the State of California Department of Alcohol and Drug Program since 1998, and provided similar services to persons and families referred by COLA. The complaint alleged that a shortage of facilities of the type plaintiffs operate existed and continued to exist, and that there was a substantial number of eligible persons who qualified for and would ordinarily be referred to plaintiffs for care and treatment. The complaint alleged, however, that on July 1, 2001, COLA put plaintiffs’ alcohol and drug treatment facilities under a “do not refer” order, prevented COLA personnel and agencies from referring any persons to plaintiffs for treatment, and refused to grant plaintiffs a contract under the provisions of Proposition 36, with the specific intent of destroying plaintiffs’ business opportunities.

b. Plaintiffs Have Not Alleged or Proved the Necessary Elements of This Cause of Action, and Their Failure to Present a Claim Against the County of Los Angeles Bars Them from Filing a Lawsuit Against COLA The cause of action for intentional interference with prospective economic advantage requires that plaintiff plead and prove: (1) an economic relationship between the plaintiff and a third party, with the probability of future economic benefit to the plaintiff; (2) the defendant’s knowledge of the relationship; (3) intentional acts by the defendant designed to disrupt the relationship; (4) defendant’s conduct which was wrongful by some legal measure other than the fact of interference itself; (5) actual disruption of the relationship; and (6) defendant’s acts which proximately caused economic harm to the plaintiff. (Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1153.)

A defendant’s summary judgment motion necessarily includes a test of the legal sufficiency of the complaint. In this context, the court applies the rule applicable to demurrers, accepts the allegations of the complaint as true, and treats the summary judgment as a motion for judgment on the pleadings. (American Airlines, Inc. v. County of San Mateo (1996) 12 Cal.4th 1110, 1117-1118.) Here the complaint failed to plead an economic relationship between plaintiffs and a third party. No relationship between plaintiffs and future COLA-referred patients yet existed. Moreover, that relationship was not an economic relationship, because COLA, not the patients themselves, paid plaintiffs for treatment of those patients. The relationship must exist at the time of defendant’s allegedly tortious acts, “lest liability be imposed for actually and intentionally disrupting a relationship which has yet to arise.” (Westside Center Associates v. Safeway Stores 23, Inc. (1996) 42 Cal.App.4th 507, 526.) No such relationship existed between plaintiffs and those persons not yet referred to Miracle Star by COLA and not yet known by plaintiffs.

On appeal, plaintiffs change the allegations of the complaint to instead allege their economic relationship with the federal government. In a summary judgment motion, however, the issues which are material are limited to the allegations of the complaint. (Lewinter v. Genmar Industries, Inc. (1994) 26 Cal.App.4th 1214, 1223.) Summary judgment cannot be granted on a ground not raised by the pleadings. (Bostrom v. County of San Bernardino (1995) 35 Cal.App.4th 1654, 1663.) Neither can it be reversed on appeal on a ground not raised by the pleadings or on a triable issue of fact which has not been shown by evidence placed before the trial court. This court’s review of summary judgment is limited to facts presented in documents submitted to the trial court. (Monteleone v. Allstate Ins. Co. (1996) 51 Cal.App.4th 509, 514-515.) Nothing in plaintiff’s separate statement in opposition provides evidence of plaintiffs’ existing economic relationship with the federal government. We additionally find no evidentiary showing in plaintiffs’ separate statement in opposition of any evidence of defendant’s conduct which was wrongful by some legal measure other than the fact of interference itself.

In addition, plaintiffs’ claim for damages, dated March 15, 2002 with the COLA Board of Supervisors contains no claim for intentional interference with prospective economic advantage. Government Code section 945.4 states, in relevant part: “no suit for money or damages may be brought against a public entity . . . until a written claim therefor has been presented to the public entity and has been acted upon by the board, or has been deemed to have been rejected by the board[.]” Failure to present a claim for money or damages to a public entity bars a plaintiff from filing a lawsuit against that entity. (Sofranek v. County of Merced (2007) 146 Cal.App.4th 1238, 1246.) This constitutes a separate ground for the grant of summary judgment as to this cause of action.

We conclude that plaintiffs have not shown error in the grant of summary judgment as to this cause of action.

About the Author

Attorney Steven Peck has been practicing law since 1981. A former successful business owner, Mr. Peck initially focused his legal career on business law. Within the first three years, after some colleagues and friend’s parents endured nursing home neglect and elder abuse, he continued his education to begin practicing elder law and nursing home abuse law.