Apex Wholesale v. Fry's Electronics
Filed 6/15/06 Apex Wholesale v. Fry's Electronics CA4/1
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California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or ordered published for purposes of rule 977.
COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
| APEX WHOLESALE, INC., Plaintiff and Appellant, v. FRY'S ELECTRONICS, INC., Defendant and Appellant. | D041383 (Super. Ct. No. GIC734991) |
APPEALS from a judgment and APPEAL from postjudgment orders of the Superior Court of San Diego County, Kevin A. Enright, Judge. Judgment reversed in part and affirmed in part; orders affirmed.
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Apex's claim of prejudicial instructional error primarily centers around a limiting instruction drafted by Fry's entitled "Court's Instruction on Introduction of Evidence" (the limiting instruction). (Capitalization omitted.) During trial, Fry's filed a motion in limine to exclude testimony of Apex's advertising expert Michael Belch about various unfair business practices allegedly committed by Fry's. The court denied the motion but invited Fry's counsel to draft a limiting instruction distinguishing between claims to be decided by the court and claims to be decided by the jury, and explaining the purposes for which the jury was to consider Apex's evidence, including Belch's testimony.
After Fry's counsel submitted a proposed limiting instruction, he moved for a mistrial, arguing the instruction was insufficient to eliminate the prejudice caused by Belch's improper legal-conclusion testimony.[1] Apex submitted proposed changes to Fry's instruction and the court took Fry's motion for mistrial under submission. The court later presented the parties with a modified version of Fry's proposed instruction that incorporated changes proposed by Apex as well as modifications proposed by the court.
Fry's counsel voiced concern about the proposed limiting instruction, reminding the court: "In submitting this instruction, I indicated that it was, in essence, I don't know if the phrase is under protest, but with considerable reluctance." Fry's counsel essentially argued that the jury would not understand the limiting instruction and would improperly construe the instruction as allowing it to consider all of the testimony of Apex's consumer witnesses about their negative experiences with Fry's as evidence of Fry's intent or purpose to injure competitors or competition.[2] Apex's counsel stated that "the jury instruction as proposed by the court is fine."
The court ultimately gave the limiting instruction as follows:
"As I instructed you at the beginning of this case, plaintiff has alleged four causes of action against defendants. The first cause of action is for violations of the Unfair . . . Business Practices Act. The second cause of action is for false advertising. The third cause of action is for unfair competition. And the fourth cause of action is for intentional interference with [pro]spective economic advantage. I will be deciding the second and third causes of action. Thus, I will decide whether Fry's engaged in false advertising and whether Fry's engaged in unfair competition.
"You are the trier of fact on the first and fourth causes of action. Thus, you will decide, for example, whether Fry's sold items below cost with the purpose to destroy competition. At the end of the case, I will instruct you regarding the law regarding the two causes of action[] you are to decide and you will decide the factual disputes between the parties in light of those instructions.
"With regard to first and fourth cause[s] of action[ that] you will decide[, ] I am allowing plaintiff to present testimony regarding Fry's advertising and business practices to you, the jury, for the limited purpose of determining whether defendants are liable to plaintiff under the first and fourth causes of action. For example, you have heard testimony about Fry's advertising from some of its customers and an expert witness called by the plaintiff. You are to consider that testimony and any later evidence that might be offered on these subjects for a limited purpose.
"Regarding the first cause of action, you may consider this evidence, but only to the extent that it may bear on whether, one, Fry's made sales below cost or sold loss leaders, as I will later define those terms, for the purpose of destroying competition in the San Diego electronics retail market generally, or for the purpose of injuring Apex or Abacus[[3]] in particular; or two, Fry's engaged in locality discrimination, as I will later define that term, with the intent to injure Apex or Abacus or to destroy competitors. Regarding the fourth cause of action, you may consider this evidence, but only to the extent that it may bear on Fry's intent to interfere with the relationship between Apex or Abacus and its customers. Do not consider this evidence for any other purpose.
"In instructing you that you may consider this evidence, I am not suggesting that I have made any finding on such evidence. I have made no such finding. I am also not suggesting that such evidence necessarily shows any wrongful purpose or intent on the part of defendants. I am only instructing you that you . . . may consider such evidence for the limited purposes stated." (Italics added.)
The court read the limiting instruction to the jury twice – first, during Apex's case-in-chief and a second time when it instructed the jury before deliberations. The limiting instruction was included in the written instructions the jury took into deliberations.
In connection with Apex's fourth cause of action for intentional interference with prospective economic advantage,[4] the court instructed on the privilege of competition with the following modified version of BAJI No. 7.86:
"Ordinarily, a person who engages in business with the primary aim of making profits for himself or herself is not liable for business losses suffered by a competitor. The privilege of competition is an affirmative defense to a claim of interference with prospective economic advantage. [¶] The essential elements of the privilege of competition are[:] [¶] 1. The plaintiff and defendant were engaged in economic competition; [¶] 2. The economic relationship between the plaintiff and its customers concerns a matter involved in the competition between the plaintiff and defendant; [¶] 3. The defendant did not use wrongful means; and [¶] 4. The defendant's purpose was at least in part to advance its interest in competing with the plaintiff."
The court instructed on the definition of "wrongful means" or "wrongful conduct" with the following modified version of BAJI No. 7.86.1:
Thus, to find Fry's liable for intentional interference with prospective economic advantage, the jury was required to find that Fry's not only knowingly interfered with Apex's expectancy, "but engaged in conduct that was wrongful by some legal measure other than the fact of interference itself." (Della Penna v. Toyota Motor Sales, U.S.A., Inc (1995) 11 Cal.4th 376, 393.) Accordingly, the "Special Verdict Re Interference" form directed that if the jury found under "Question No. 4"[5] that Fry's committed intentional acts that were designed to and actually did disrupt the economic relationship between Apex and its customers, it was to answer "Question No. 5," which read:
"Were the acts committed by Fry's that disrupted the relationship between Apex . . . and its customers independently wrongful for one or more of the following reasons?
"a. Fry's advertised merchandise without intending to sell it; or
"b. Fry's used deceptive advertising; or
"c. Fry's sold secondhand merchandise as new."
The jury answered "yes" to question No. 4 and "no" to question No. 5, resulting in judgment in Fry's favor on Apex's fourth cause of action.
Question No. 5 and the limiting instruction both conflict with the modified version of BAJI No. 7.86.1 that the court gave. Under the court's modified BAJI No. 7.86.1, the "independent wrongfulness" requirement for Apex's cause of action for intentional interference with prospective economic advantage was satisfied only if the jury found that Fry's engaged in independently wrongful conduct that, considered by itself, constituted the basis for a claim of unlawful sales below cost, locality discrimination, false advertising, or unfair competition.
The jury was likely confused by the fact that modified BAJI No. 7.86.1 directed it to consider whether Fry's engaged in independently wrongful conduct in the form of false advertising and unfair competition while the limiting instruction directed it not to decide whether Fry's engaged in false advertising or unfair competition because the court was to decide those issues. Adding to the confusion is the fact that Question No. 5 gave the jury only the following three bases for finding the independently wrongful element was satisfied: (1) Fry's advertised merchandise without intending to sell it; (2) Fry's used deceptive advertising; or (3) Fry's sold secondhand merchandise as new. The only one of these bases that the jury could have viewed as included in the court's instruction on independent wrongfulness (modified BAJI No. 7.86.1) is deceptive advertising, a form a false advertising. (Stop Youth Addiction, Inc. v. Lucky Stores, Inc. (1998) 17 Cal.4th 553, 562-563, citing Committee On Children's Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 211 [" '[A]ny advertising scheme involving false, unfair, misleading or deceptive advertising of food products equally violates" ' the Sherman Law, the UCL [Unfair Competition Law] and the false advertising law"].) However, the limiting instruction prohibited the jury from deciding whether Fry's engaged in deceptive or false advertising.
In light of the limiting instruction's directive that the jury not decide whether Fry's engaged in false advertising, the jury was likely confused about the inclusion in question No. 5 of deceptive advertising as a basis for finding that Fry's interference with the relationship between Apex and its customers (found under question No. 4) was independently wrongful. If the jury concluded that, under the limiting instruction, it was not allowed to make a "deceptive advertising" finding because whether Fry's engaged in "false advertising" was for the court to decide, question No. 5 left it only two possible bases for a finding that Fry's interference was independently wrongful: (1) Fry's advertised merchandise without intending to sell it or (2) Fry's sold secondhand merchandise as new. However, the jury was not adequately instructed on either of these bases for a finding of independent wrongfulness. As noted, modified BAJI No. 7.86.1, which specifically addressed the independent wrongfulness element, did not expressly refer to advertising merchandise without intending to sell it or selling secondhand merchandise as new as a basis for finding independent wrongfulness. The instructions on Apex's UPA claims addressed three claims: (1) selling merchandise below cost for the purpose of injuring competitors or destroying competition; (2) selling merchandise as a "loss leader" with the purpose to injure competitors or to destroy competition; and (3) engaging in locality discrimination with the intent to destroy the competition of an established dealer. None of the court's instructions on these UPA claims referred to advertising merchandise without intending to sell it or selling secondhand merchandise as new.
In addition to being inconsistent with modified BAJI No. 7.86.1 and question No. 5, the limiting instruction is problematic with respect to the fourth cause of action because it effectively precluded the jury from considering the testimony of Apex's lay consumer witnesses and expert witness Belch on the element of independent wrongfulness. The limiting instruction directed the jury that, regarding the fourth cause of action, it could "consider this evidence, but only to the extent that it may bear on Fry's intent to interfere with the relationship between Apex or Abacus and its customers. Do not consider this evidence for any other purpose." (Italics added.) The plain meaning of this language is that the jury could consider the testimony of Apex's witnesses on the element addressed by question No. 4 – i.e., whether Fry's committed "intentional acts that were designed to disrupt, and that did actually disrupt, the [economic] relationship between Apex . . . and its customers" – but the jury could not consider Apex's witness testimony on the independent wrongfulness element addressed by question No. 5 – i.e., whether Fry's conduct that disrupted the relationship between Apex and its customers was independently wrongful. The limiting instruction effectively compelled a verdict in Fry's favor on the fourth cause of action by precluding the jury from considering any of Apex's testimonial evidence on the issue of independent wrongfulness. Significantly, the jury found in favor of Apex on Question No. 4, but answered "no" to Question No. 5, which defeated Apex's fourth cause of action for intentional interference with prospective economic advantage.[6]
A judgment in a civil case may be reversed for instructional error when the reviewing court, after examination of the entire cause, including the evidence, concludes that the error resulted in a miscarriage of justice. (Soule v. General Motors Corp. (1994) 8 Cal.4th 548, 580 (citing Cal. Const. art. VI, § 13); Huffman v. Interstate Brands Companies (2004) 121 Cal.App.4th 679, 703.) Instructional "[e]rror is considered prejudicial when it appears probable that an improper instruction misled the jury and affected its verdict. [Citation.] As [the California Supreme Court has] observed, 'Whether a jury has been misled by an erroneous instruction or by the overall charge must be determined by an examination of all the circumstances of the case including a review of all of the evidence as well as the instructions as a whole.' [Citation.]" (Krouse v. Graham (1977) 19 Cal.3d 59, 72, italics added; Soule v. General Motors, supra, 8 Cal.4th at pp. 580-581 [In deciding whether instructional error was prejudicial the court must "evaluate (1) the state of the evidence, (2) the effect of other instructions, (3) the effect of counsel's arguments, and (4) any indications by the jury itself that it was misled" (fn. omitted)].)
"It is well settled that the giving of conflicting or contradictory instructions on a material point is error. [Citations.] The giving of an erroneous instruction is not cured by the giving of other correct instructions where the effect is simply to produce a clear conflict in the instructions and it is not possible to know which instruction was followed by the jury in arriving at a verdict. [Citations.]" (Lewis v. Franklin (1958) 161 Cal.App.2d 177, 185.) "Since the obvious purposes of instructions is to clarify the law for the jury, the giving of contradictory instructions resulting in a confused and misleading picture[] can hardly be other than prejudicial error. In such a situation, respondent's assertion that '[t]he charge to the jury must be read as a whole,' is not a sufficient answer." (Belletich v. Pollock (1946) 75 Cal.App.2d 142, 147.)
Fry's contends Apex is barred by the doctrine of invited error from objecting to the limiting instruction on appeal because Apex did not object to the instruction below and proposed modifications to the instruction that the court incorporated into the final version it read to the jury. Fry's cites Smith v. Americania Motor Lodge (1974) 39 Cal.App.3d 1, 7 for the rule that "[u]nder the doctrine of invited error, 'if instructions are given by the court at the request of the opposing party, or on its own motion, the complaining party cannot attack them if he himself proposed similar instructions.' [Citations.]" (Original italics.) This rule is inapplicable here because Apex did not propose the limiting instruction or a similar instruction. Apex's participation in the creation of the instruction was merely to propose certain nonsubstantive modifications to the instruction, which was invited by the court and "proposed" (i.e., drafted) by Fry's.
Fry's also cites People ex rel. Dept. of Transportation v. Salami (1991) 2 Cal.App.4th 37 (Salami) for the proposition that, in Fry's words, "[a] party shall be deemed to have waived any objection that an instruction is misleading or incomplete if the party fails to propose additional or qualifying language addressing the purported deficiencies." (Id. at p. 42, fn. 2, citing Agarwal v. Johnson (1979) 25 Cal.3d 932, 948-949 (Agarwal), overruled on another point in White v. Ultramar (1999) 21 Cal.4th 563, 575, fn. 4.) The rule Fry's is referring to concerns instructions that are objected to as being too general or incomplete; it does not apply to instructions that are claimed to be misleading. As stated in Agarwal, the rule is that "a party may not complain on appeal that an instruction correct in law is too general or incomplete unless he had requested an additional or qualifying instruction. [Citations.]" (Agarwal, supra, 25 Cal.3d at p. 948.) This rule is inapplicable because Apex is not objecting to the limiting instruction on the ground it is too general or incomplete.
The applicable rule to Apex's objection to the limiting instruction is the rule set forth in Code of Civil Procedure section 647, which provides that "the following are deemed excepted to: . . . giving an instruction, refusing to give an instruction, or modifying an instruction requested . . . ." Agarwal noted the distinction between the two rules: " ' "To hold that it is the duty of a party to correct the errors of his adversary's instructions . . . would be in contravention of section 647, Code of Civil Procedure, which gives a party an exception to instructions that are given . . . . While the exception will be of no avail where an instruction states the law correctly but is 'deficient merely by reason of generality,' in other cases he will not be foreclosed from claiming error and prejudice." ' " (Agarwal, supra, 25 Cal.3d at p. 949, quoting Rivera v. Parma (1960) 54 Cal.2d 313, 316.)
Although a party may not be relieved of the invited error rule by Code of Civil Procedure section 647 if the party has requested or agreed to an instruction (Pugh v. See's Candies, Inc. (1988) 203 Cal.App.3d 743, 759), the record here does not show that Apex requested or agreed to the limiting instruction, which the court invited and Fry's counsel drafted. Although Apex's counsel proposed minor changes and did not expressly object to Fry's proposed instruction, he essentially objected to the instruction's limitation of the jury's consideration of the testimony of customer and expert witnesses called by Apex to the element of Fry's intent to interfere with the relationship between Apex its customers, stating: "If Fry's was out there and just competing fairly, then that is not an interference – that is a defense to intentional interference with economic advantage. But if they are cheating, if they are engaging in false advertising, in below cost sales and loss leaders, then they are using improper [i.e., independently wrongful] means to compete. And that is one of the elements I have to show in my fourth cause of action. . . . [¶] . . . [Fry's advertising is] misleading. It's deceptive. It's false. . . . That is the means, improper means of unfairly competing." (Italics added.) When the court pointed out that unfair competition was to be decided by the court, Apex's counsel responded: "Yes, Your Honor, but I wasn't meaning for the cause of action of unfairly competing, I was meaning the improper means of interfering with economic advantage . . . . [¶] . . . We have to show that their intent is to destroy the competition and that they are doing it by unlawful means, or unfair means." (Italics added.) As noted, the limiting instruction precluded the jury from considering the testimony of Apex's witnesses on the "independent wrongfulness" element of the fourth cause of action.
It was only after the court made clear its intent to give the limiting instruction and informed the parties of its proposed modifications to the instruction that Apex's counsel stated, "[T]he jury instruction proposed by the court is fine." We do not view this as acquiescence by Apex in the giving of the limiting instruction per se, but merely as acquiescence in the court's proposed modifications to the instruction proposed by Fry's. Apex's acquiescence in the court's modifications did not constitute a waiver of the right to challenge the limiting instruction on appeal. We deem the limiting instruction excepted to by Apex under Code of Civil Procedure section 647.
In any event, even if Apex's participation and acquiescence in the drafting and giving of the limiting instruction amounted to a waiver of objection to that instruction, the instructional error as to the fourth cause of action goes beyond the wording of the limiting instruction; it includes the conflict between that instruction and the modified version of BAJI No.7.86.1 given to the jury and between the modified version of BAJI No. 7.86.1 and the special verdict. Apex did not waive the right to argue on appeal that the court committed prejudicial instructional error with respect to the fourth cause of action for intentional interference with prospective economic advantage.
We conclude prejudicial instructional error occurred with respect to the fourth cause of action, as it appears probable that the inconsistencies between the limiting instruction, the modified version of BAJI No. 7.86.1 given by the court, and question No. 5 misled the jury and affected its verdict on the fourth cause of action. The limiting instruction conflicted with modified BAJI No. 7.86.1 on the material point of whether the jury could consider unfair competition and false advertising as bases for finding independently wrongful conduct under the fourth cause of action, and modified BAJI No. 7.86.1 conflicted with question No. 5 on the material point of the allowable bases for a finding of independently wrongful conduct. These inconsistencies, along with the limiting instruction's preclusion of the jury's consideration of the testimony of Apex's witnesses on the element of independent wrongfulness, constitute prejudicial instructional error.[7]
B. The Court Did Not Commit Prejudicial Instructional Error with Respect to Apex's First Cause of Action for Violations of the Unfair Practices Act (UPA)
Apex contends the court committed prejudicial error with respect to the loss leader and sales below cost claims in Apex's first cause of action for violations of the UPA by instructing the jury that "purpose . . . to injure competitors or destroy competition" means having a "conscious and positive desire" to do so and using the phrase "conscious and positive desire" in special verdict questions regarding the loss leader and sales below cost claims.
Defining "purpose" under sections 17043 and 17044 as a "conscious and positive desire" accords with Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163 (Cel-Tech). Cel-Tech considered the meaning of the word "purpose" in sections 17403 and 17044. Section 17043 provides: "It is unlawful for any person engaged in business within this State to sell any article or product at less that the cost thereof to such vendor, or to give away any article or product, for the purpose of injuring competitors or destroying competition." (Italics added.)[8] The plaintiffs in Cel-Tech argued that the word "purpose" under the statute should be given the same meaning as "intent" under tort law – i.e. that the "purpose" requirement is satisfied if " 'the defendant believed or knew that harm was substantially certain to result, or that the manifest probability of harm was very great.' " (Cel-Tech, supra, at p. 172.)
Noting "that ' "intent," in the law of torts, denotes not only those results the actor desires, but also those consequences which he knows are substantially certain to result from his conduct[]' [citation]," Cel-Tech(, supra, 20 Cal.4th at p. 172) concluded: "If section 17043 used the word 'intent' to describe the necessary mental state, plaintiffs' position might have merit. Section 17043, however, does not say 'intent'; it says 'purpose.' 'Intent' might be ambiguous; 'purpose' is not. [¶] 'Purpose' has a precise meaning." (Cel-Tech, supra, 20 Cal.4th at pp. 172-173.)
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[1] The court did not expressly rule on Fry's motion for mistrial.
[2] The court suggested that Fry's could "remedy" this concern by arguing that the Apex's customer-complaint evidence showed no more than bad customer relations on the part of Fry's and did not prove Fry's intent or purpose to injure competition. The court also suggested that Fry's could successfully object on the ground of relevance to customer-complaint testimony that did not evidence such purpose or intent.
[3] Apex's second amended complaint states that Apex "is . . . the assignee of the rights and claims held by Abacus America, Inc., a California corporation." The second amended complaint explains that references to "Plaintiff" in the pleading are to Apex and "its assignor" collectively.
[4] The court instructed the jury on the elements of intentional interference with prospective economic advantage with a modified version of BAJI No. 7.82 as follows: "The plaintiff Apex and its assignor Abacus also seek to recover damages based upon a claim of intentional interference with prospective economic advantage. [¶] The essential elements of such a claim are: [¶] 1. An economic relationship existed between the plaintiff and their [sic] customers containing a probable future economic benefit or advantage to plaintiff; [¶] 2. The defendant knew of the existence of the relationship; [¶] 3. The defendant intentionally engaged in wrongful acts or conduct designed to interfere with or disrupt this relationship; [¶] 4. The economic relationship was actually interfered with or disrupted; and [¶] 5. The wrongful conduct of the defendant which was designed to interfere with or disrupt this relationship caused damage to the plaintiff."
[5] All subsequent references to question Nos. are to questions on the "Special Verdict Re Interference" form.
[6] During its deliberations, the jury sent the court a note asking: "Re: Special Verdict Interference, question # 4, does 'intentional acts' mean 'intentional wrongful act.'?" This note suggests the jury was confused regarding the element of independent wrongfulness. The court's directed the jury to consider its question "in light of the other questions posed in the Special Verdict re: Interference and, more particularly, question # 5 which references 'wrongful.' "
[7] Because we reverse the judgment as to the fourth cause of action based on the instructional error discussed above, we need not consider Apex's contentions that the court committed cumulatively prejudicial error by refusing Apex's "clarifying" instruction No. 125, refusing its requested BAJI No. 2.04 regarding Fry's failure to deny or explain instances of wrongful conduct, giving Fry's instruction No. 71 directing the jury to disregard Belch's "statement[s] or interpretation of the law," and refusing to give Apex's requested instructions regarding "bait and switch" and "used goods."
[8] Section 17044 provides: "It is unlawful for any person engaged in business within this State to sell or use any article or product as a 'loss leader' as defined in Section 17030 of this chapter." Cel-Tech held that section 17044 requires the same mental state as section 17043 – i.e., acting with the purpose of injuring competitors or destroying competition. (Cel-Tech, supra, 20 Cal.4th at pp. 175-178.)
