Apex Wholesale v. Fry's Electronics

Filed 6/15/06 Apex Wholesale v. Fry's Electronics CA4/1

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

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COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

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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Cel-Tech noted that the drafters of the Model Penal Code defined "four distinct culpable mental states. None of the definitions uses the ambiguous word 'intent.' The code's two highest mental states are to act 'purposely' and to act 'knowingly.' [Citation.] Persons act 'purposely' with respect to a result if it is their 'conscious object' to cause that result. [Citation.] Persons act 'knowingly' with respect to a result if they are 'practically certain' their conduct will cause that result. [Citation.] The comment to the code explains the difference between purpose and knowledge. 'In defining the kinds of culpability, the Code draws a narrow distinction between acting purposely and knowingly, one of the elements of ambiguity in legal usage of the term "intent."'""' (Cel-Tech, supra, 20 Cal.4th at p. 173, fn. omitted, italics added by Cel-Tech.) " 'The essence of the narrow distinction between these two culpability levels is the presence or absence of a positive desire to cause the result; purpose requires a culpability beyond the knowledge of a result's near certainty.' [Citation.]" (Ibid., original italics.)

Cel-Tech noted that the first Restatement of Torts also drew a distinction between purpose and knowledge, as reflected in its explanation that the "intentional act" element of battery is satisfied if the act in question is " 'done for the purpose of causing the contact or apprehension or with knowledge on the part of the actor that such contact or apprehension is substantially certain to be produced.' [Citation.]" (Cel-Tech, supra, 20 Cal.4th at p. 174, italics added by Cel-Tech.) Cel-Tech observed that "[a]lthough the Restatement defines intent broadly as including both purpose and knowledge, it recognizes the narrow meaning of the word 'purpose.' " (Ibid.) Cel-Tech concluded: "We do not doubt that an actor who knows but does not desire that an act will cause a result might be deemed to intend that result, or that this intent or knowledge might be sufficient for some forms of tort liability. But these circumstances do not change the meaning of the word 'purpose.' We are interpreting a statute. Section 17043 uses the word 'purpose,' not 'intent,' not 'knowledge.' We therefore conclude that to violate section 17043, a company must act with the purpose, i.e., the desire, of injuring competitors or destroying competition." (Id. at pp. 174-175, italics added.)

Thus, Cel-Tech supports defining "purpose" within the meaning of sections 17043 and 17044 as a "desire," "conscious object," or "positive desire." Adding the adjective "conscious" to "positive desire" is inconsequential, as a "positive" desire is necessarily a "conscious" desire. Accordingly, defining "purpose" under sections 17043 and 17044 as a "conscious and positive desire" accords with Cel-Tech's construction of those statutes.

Defining "purpose" as a "conscious and positive desire" also accords with the plain meaning of the term "purpose." The relevant definition of "purpose" is "something set up as an object or end to be attained." (Webster's Collegiate Dict. (11th ed. 1989) p. 957.) "Setting up something as an object or end to be attained" is not substantially different in meaning than "having a conscious and positive desire to attain an object or end." Accordingly, it is not reasonably probable the jury would have returned a different verdict had the court not defined "purpose" as a "conscious and positive desire." The court's definition of "purpose" does not constitute prejudicial error.

C. The Court's Statement of Decision Is Not Prejudicially Defective

Apex contends the court's statement of decision on Apex's second cause of action for false advertising under section 17500 and third cause of action for unfair competition under section 17200 is prejudicially defective in three respects: (1) it fails to address two of the three means of establishing competitor unfairness under Cel-Tech; (2) it fails to disclose the court's factual and legal reasoning in concluding there was no "incipient violation" of law; and (3) it fails to address principal controverted issues alleged in the third cause of action of Apex's second amended complaint as to which Apex presented substantial evidence.

Under Code of Civil Procedure section 632, "[u]pon the timely request of one of the parties in a nonjury trial, a trial court is required to render a statement of decision addressing the factual and legal bases for its decision as to each of the principal controverted issues of the case. [Citation.] A statement of decision need not address all the legal and factual issues raised by the parties. Instead, it need do no more than state the grounds upon which the judgment rests, without necessarily specifying the particular evidence considered by the trial court in reaching its decision. [Citations.] '[A] trial court rendering a statement of decision under . . . [Code of Civil Procedure] section 632 is required to state only ultimate rather than evidentiary facts because findings of ultimate facts necessarily include findings on all intermediate evidentiary facts necessary to sustain them. [Citation.]' [Citations.]" (Muzquiz v. City of Emeryville (2000) 79 Cal.App.4th 1106, 1124-1125.)

Code of Civil Procedure section 634 provides: "When a statement of decision does not resolve a controverted issue, or if the statement is ambiguous and the record shows that the omission or ambiguity was brought to the attention of the trial court . . . prior to entry of judgment . . . , it shall not be inferred on appeal . . . that the trial court decided in favor of the prevailing party as to those facts or on that issue." However, this section " 'does not require that a finding be made as to every minute matter on which evidence is received at the trial . . . .' " (Davis v. Kahn (1970) 7 Cal.App.3d 868, 880, quoting Coleman Engineering Co. v. North American Aviation, Inc. (1966) 65 Cal.2d 396, 410.)

1. The statement of decision adequately applies the Cel-Tech test for competitor unfairness

Cel-Tech required "that any finding of unfairness to competitors under section 17200 be tethered to some legislatively declared policy or proof of some actual or threatened impact on competition." (Cel-Tech, supra, 20 Cal.4th at pp. 186-187.) Accordingly, Cel-Tech adopted the following test: "When a plaintiff who claims to have suffered injury from a direct competitor's 'unfair' act or practice invokes section 17200, the word 'unfair' in that section means conduct that threatens an incipient violation of an antitrust law, or violates the policy or spirit of one of those laws because its effects are comparable to or the same as a violation of the law, or otherwise significantly threatens or harms competition." (Id. at p. 187, fn. omitted.)

We conclude the court's statement of decision adequately applies Cel-Tech to Apex's competitor unfair competition claims and includes sufficient ultimate fact findings as to those claims. In reaching that conclusion, we are mindful that Apex sought injunctive and restitutionary relief under its second and third cause of action – the only available remedies under the relevant statutes.

The statement of decision quotes Cel-Tech's test for unfair conduct in a direct competitor claim under section 17200. After listing the controverted issues raised by Apex's second and third causes of action, the court found Apex met its burden of proof on its claim that Fry's violated section 17504. Regarding the remaining controverted issues under the second and third causes of action, the statement of decision states: "[T]he Court has considered the evidence and testimony of the consumer witnesses and expert witnesses called by [Apex] and evidence and testimony, presented by Fry's personnel and expert witnesses called by the Defendants, and finds that the evidence presented by the Defendants preponderates and overcomes the presumptions against the Defendants. Those presumptions are contained within Sections 17071 and 17071.5 of the Business and Professions Code relating to below cost sales and locality discrimination in the former and below cost sales in the latter."

The court noted that as to each type of wrongful conduct shown by Apex, Fry's presented opposing evidence. The court stated: "Such opposing evidence consisted occasionally of, not a refutation that the act had occurred, but an explanation for it. Other opposing evidence persuaded the Court that the act, if unexplained, was aberrational. The opposing evidence also consisted of policies and procedures the Defendants have implemented, some even since the filing of the subject case, to prevent violations of Sections 17200 and 17500. While [Apex] has shown that some of the acts . . . took place after the dissemination of those policies and procedures, those policies and procedures nevertheless indicate the desire of corporate management to not run afoul of the false advertising and unfair competition laws." The court found Apex had not met its burden of proving that such isolated and inadvertent incidents amounted to a violation of false advertising and unfair competition law.

Accordingly, the court found that except for the violation of section 17504, Apex "did not prove, by a preponderance of the evidence, that Defendants disseminated advertising (i) as part of a plan or scheme the intent of which was not to sell goods as advertised; or (ii) that contained statements that were untrue or misleading and which the defendant knew, or in the exercise of reasonable care should have known, are untrue or misleading." The court summarized: "Other than as to Section 17504, with respect to Section 17200, . . . the Court finds [Apex] has failed to meet its burden of proof that Defendants engaged in 'unlawful' acts or practices; the Court also finds that [Apex] failed to carry its burden of proof that Defendants engaged in 'unfair' practices with respect to [Apex's] claims as a competitor, as that term is defined in Cel-Tech, in that there was no incipient violation of the law . . . ."

The court concluded that "one or two, or even a few instances of [Fry's] alleged misconduct" were insufficient "to warrant either injunctive relief to prevent the practice from occurring in the future or restitution to the victims to make them whole[.]" Elaborating on that point, the court stated: "[Apex] has failed to meet its burden of proof by the preponderance of the evidence to obtain the relief sought. The Court is not persuaded that the past acts result in a reasonable probability that such acts will continue in the future. The Court is convinced that such is the standard to obtain injunctive relief, even in unfair competition cases. As to some of the specific instances of alleged misconduct, opposing evidence was presented persuading the Court that the acts or practices have been discontinued. [¶] Thus, even if there were found to be separate, isolated acts that allegedly violate Sections 17200 or 17500, [Apex] cannot receive the relief for which it has prayed. The Court has very carefully weighed all of the evidence, including percipient and expert witnesses, and matters subject to judicial notice, and finds that [Apex] has not proven its case other than a violation of . . . Section 17504."

As noted, Apex argues the court committed reversible error in its statement of decision by failing to address two of the three means of establishing competitor unfairness under Cel-Tech and defectively addressing the third means. Specifically, Apex complains that the statement of decision does not (1) address whether Fry's loss leader sales, sales below cost, and locality discrimination had the same or similar effect as a violation of law; (2) address whether that conduct significantly threatened or harmed competition; or (3) disclose the court's factual and legal reasoning in concluding there was no "incipient violation" of law.

We reiterate that a statement of decision need only state ultimate facts "because findings of ultimate facts necessarily include findings on all intermediate evidentiary facts necessary to sustain them. [Citation.]' [Citations.]" (Muzquiz v. City of Emeryville, supra, 79 Cal.App.4th at p. 1125.) Here, the statement of decision includes the ultimate finding that Fry's had not engaged in conduct falling within any part of the test articulated in Cel-Tech for determining whether a direct competitor's business conduct is "unfair" within the meaning of section 17200. The statement of decision set forth Cel-Tech's entire three-part definition of competitor unfairness and stated that Apex "failed to carry its burden of proof that Defendants engaged in 'unfair' practices with respect to [Apex's] claims as a competitor, as that term is defined in Cel-Tech, in that there was no incipient violation of the law . . . ." (Italics added.) The court's reference to Cel-Tech's definition of "unfair," which the court set forth earlier in the statement of decision, constitutes an adequate ultimate factfinding that Fry's did not engage in unfair conduct under any part of the definition.

The court's explanatory finding that "there was no incipient violation of the law" further supports our conclusion that the statement of decision sufficiently addressed Cel-Tech's test for unfair conduct by a direct competitor. "Incipient" means "beginning to come into being or to become apparent." (Webster's Collegiate Dict. (11th ed. 1989) p. 609.) Accordingly, we construe Cel-Tech's reference to "conduct that threatens an incipient violation of an antitrust law" (Cel-Tech, supra, 20 Cal.4th at p. 187) to mean a business act or practice that does not actually violate antitrust law, but potentially could lead to a violation of antitrust law if allowed to continue or expand. (See State of California ex rel. Van de Kamp v. Texaco, Inc. (1988) 46 Cal.3d 1147, 1167, 1168 [distinguishing between mergers that actually threaten or restrain competition and those that pose merely incipient threats to competition]; F. T. C. v. Lancaster Colony Corp., Inc. (D.C.N.Y. 1977) 434 F.Supp. 1088, 1097 [federal statute giving the Federal Trade Commission (FTC) the right to seek injunction against an entity about to violate any law enforced by the FTC "reflects a continuing congressional concern with the means of halting incipient violations of [statute concerning unlawful corporate mergers] before they occur," italics added].)

The court's finding that Fry's conduct did not even threaten the inception of an antitrust violation implies the finding that Fry's conduct did not violate "the policy or spirit of [an antitrust law] because its effects are comparable to or the same as a violation of the law." (Cel-Tech, supra, 20 Cal.4th at p. 187, italics added.) Likewise, the court's express finding that "one or two, or even a few instances of alleged misconduct [were insufficient] to warrant either injunctive relief to prevent the practice from occurring in the future or restitution to the victims to make them whole" implies the finding that Fry's conduct shown by the evidence did not significantly threaten or harm competition. The court's statement of decision adequately applied Cel-Tech's test for competitor unfairness under section 17200.

2. The statement of decision adequately addresses the principal controverted issues under the third cause of action

Apex contends the statement of decision is prejudicially defective because it fails to address principal controverted issues under Apex's third cause of action. Apex argues the statement of decision should have addressed the elements of each of the statutory violations alleged in the second amended complaint as to which Apex presented evidence at trial, instead of disposing of the third cause of action with the "general omnibus finding" that Apex failed to meet its burden of proving that Fry's engaged in unlawful acts or practices.

As Fry's points out, Apex's request for statement of decision was 109 pages long and sought hundreds of detailed, evidentiary findings. Addressing a similarly burdensome request for statement of decision, the Court of Appeal in Casa Blanca stated: "Such a requirement cannot be made of the court. [Citation.] [The requesting party] seeks an inquisition, a rehearing of the evidence. The trial court was not required to provide specific answers so long as the findings in the statement of decision fairly disclose the court's determination of all material issues. [Citation.]" (Casa Blanca, supra, 159 Cal.App.3d at p. 525, disapproved on another point in Cel-Tech, supra, 20 Cal.4th at pp. 184-187.)

"[W]hen matters covered by the findings defeat a plaintiff's right of recovery the trial court is not required to make additional findings upon other issues." (Aguirre v. Fish and Game Commission (1957) 151 Cal.App.2d 469, 473.) Specific findings are not required if they are necessarily implied by a general finding, and a " 'finding on a particular issue is an implied negation of all contradictory propositions.' " (St. Julian v. Financial Indem. Co. (1969) 273 Cal.App.2d 185, 194.) The court's ultimate finding that Fry's did not engage in conduct warranting injunctive relief or restitution – the only relief available under the second and third causes of action – obviated the need for the myriad evidentiary findings Apex requested under those causes of action.

Apex relies on Schaefer v. Berinstein (1960) 180 Cal.App.2d 107, 123 (disapproved on another point in Jefferson v. J.E. French Co. (1960) 54 Cal.2d 717, 719) for the proposition that a "general omnibus finding" is insufficient because it is uncertain and it cannot be determined what averments were deemed material by the trial court. Schaefer is inapposite, as the trial court in that case issued a decision containing adequate specific findings but closing with the statement: " 'All material allegations of the third amended complaint and the answers thereto which are in conflict with the facts herein found to be true are not true.' " (Schaefer, supra, 180 Cal.App.2d at p. 123.) Here, the court did not simply state that all material allegations under Apex's third cause of action that conflicted with the findings in the statement of decision were untrue. The court found, as an ultimate fact, that Fry's did not engage in the unlawful acts or practices alleged by Apex and committed only isolated acts of misconduct that did not warrant injunctive relief because they were not likely to continue.

Apex also cites Bellerue v. Business Files Institute, Inc. (1963) 215 Cal.App.2d 383, in which the appellate court viewed the trial court's finding that two parties were the "alter ego" of the corporate defendant as "[a] mere statement of the ultimate legal issue to be determined in 'figurative terminology' [and therefore] not an appropriate finding of fact." (Id. at p. 395.) Bellerue rejected this legal conclusion stated in the form of a finding because the trial court made no findings to support it and, more important, there was no evidence to support any such findings. (Id. at pp. 395-399.)

In contrast, the court's ultimate finding that Fry's did not engage in the unlawful acts or practices alleged in Apex's third cause of action is supported by other findings and references to evidence in the statement of decision. The court referred to "the evidence and testimony of the consumer witnesses and expert witnesses called by [Apex] and evidence and testimony, presented by Fry's personnel and expert witnesses" and found the evidence overcame the statutory presumptions of below cost sales and locality discrimination. The court further found noted that Fry's evidence showed that the wrongful conduct claimed by Apex either did not occur, could be explained, or, with the exception of the violation of section 17504, consisted of "isolated and inadvertent incidents" that did not amount to a violation of false advertising and unfair competition law warranting injunctive relief or restitution. Accordingly, the court found that Apex "did not prove, by a preponderance of the evidence, that Defendants disseminated advertising (i) as part of a plan or scheme the intent of which was not to sell the goods as advertised; or (ii) that contained statements that were untrue or misleading and which the defendant knew, or in the exercise of reasonable care should have known, were untrue or misleading." The court did not make improper "general omnibus findings" or arrive at unsupported legal conclusions in the guise of making ultimate fact findings.

Fry's argues Apex should not be heard to complain about the court's failure to make specific findings because Apex did not draft proposed findings for the court to consider. Fry's relies on Moreno v. Jessup Buena Vista Dairy (1975) 50 Cal.App.3d 438 (Moreno) in which the Court of Appeal concluded the trial court properly refused to make special findings requested by the appellant because "appellant did not propose in specific language any finding for the court to approve or to disapprove." (Id. at p. 447.)

Apex contends this analysis from Moreno is not the law because Moreno was decided before the 1981 amendment of Code of Civil Procedure section 634. Apex asserts that under current law it was not required to propose a competing statement of decision; it was sufficient that it "propounded specific objections to the statement of decision that was drafted by Fry's and blessed by the [trial] court." Apex does not explain how the 1981 amendment of the statute affects Moreno's analysis. When Moreno was decided, Code of Civil Procedure section 634 stated: "When written findings and conclusions are required, and the court has not made findings as to all facts necessary to support the judgment or a finding on a material issue of fact is ambiguous or conflicting, and the record shows that such omission, ambiguity or conflict was brought to the attention of the trial court either prior to entry of judgment or in conjunction with a motion under [Code of Civil Procedure] Section 657 or 663, it shall not be inferred on appeal or upon a motion under [Code of Civil Procedure] Section 657 or 663 that the trial court found in favor of the prevailing party as to such facts or on such issue."

Although the 1981 amendment rewrote Code of Civil Procedure section 634 to be more concise and refer to a "statement of decision" instead of "written findings and conclusions," it did not substantively change the effect of the statute. Neither version of the statute addresses whether a party requesting specific findings in a statement of decision must draft the requested findings for the court to approve or disapprove. Casa Blanca, supra, 159 Cal.App.3d 509, which was decided in 1984 after the 1981 amendment of Code of Civil Procedure section 634 became effective, cited with approval McAdams v. McElroy (1976) 62 Cal.App.3d 985 (McAdams), in which the Court of Appeal followed the rule articulated in Moreno.[1]

Casa Blanca and other cases approving the practice of providing the court with proposed drafts of requested special findings have not been disapproved or superseded by statute. The court adequately addressed the principal controverted issues under the third cause of action through findings of ultimate fact, and Apex did not submit proposed specific findings for the court to approve or to disapprove. We find no error in the statement of decision as to the third cause of action.

D. The Judgment on the Equitable Causes of Action Is Supported by Substantial Evidence

Apex contends that the judgment as it relates to Apex's claims for competitor unfairness and consumer claims brought on behalf of the general public is not supported by the evidence. This section of Apex's opening brief is largely a continuation of Apex's argument that the statement of decision is defective because it did not include certain specific findings Apex asked the court to make. As we discussed above, we conclude the statement of decision adequately applies Cel-Tech to Apex's competitor unfair competition claims and includes sufficient ultimate fact findings as to those claims.

Regarding its consumer claims brought on behalf of the general public, Apex complains that the statement of decision did not specifically address its claim that the term "sale" as used in Fry's advertising was untrue and that there is insufficient evidence to support the court's finding that this deceptive advertising practice is not likely to continue. Apex also contends it met its burden of proof on its claim that Fry's advertises used goods for sale as new in violation of Business and Professions Code section 17531 and Civil Code section 1770, subdivision (a)(6), and there is insufficient evidence to support the court's finding that Fry's has discontinued this offending conduct. We reject these contentions because substantial evidence supports the court's discretionary decision that neither the injunctive nor restitutionary relief available under the statutory claims in question was warranted.

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[1] Casa Blanca stated "In [McAdams] it was said: '" The established practice presupposes that counsel desiring such special findings will draft and propose them in the usual form [citation]. The action of the court in approving or disapproving them will constitute the ruling. Appellants here sought to conduct a general inquisition and neither drafted nor submitted any proposals for such consideration."' [Citation.] [¶] [McAdams] went on to say submission of a request without resolution is improper because: 'That practice unfairly burdens the trial judge in that he must not only speculate which questions embrace ultimate as distinguished from evidentiary facts, but also search his recollection of the record without the assistance of a suggestion from counsel. Particularly if there is evidence which would tend to give a multiple choice in answering the interrogatory, the court should have guidance from the requesting party.' [Citation.]" (Casa Blanca, supra, 159 Cal.App.3d at pp. 525-526.)