DeposiTech v. Bekins A-1 Movers
Filed 6/5/13 DeposiTech v. Bekins A-1 Movers CA4/1
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COURT
OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION
ONE
STATE
OF CALIFORNIA
DEPOSITECH, INC.,
Plaintiff and Appellant,
v.
BEKINS A-1 MOVERS, INC., et
al.,
Defendants and Appellants.
D061729
(Super. Ct.
No.
37-2010-00099414-CU-BC-CTL)
APPEALS
from a judgment and order of the Superior
Court of
County, Frederic L. Link, Judge. Affirmed.
Horvitz
& Levy, Peter Abrahams, Steven S. Fleischman; Higgs, Fletcher & Mack,
Peter S. Doody and Loren G. Freestone for Defendants and Appellants.
Murtaugh
Meyer Nelson & Treglia, Robert T. Lemen, Lawrence
J. DiPinto and Larissa L. Abruscato for Plaintiff and Appellant.
Defendant
Bekins A-1 Movers, Inc. (Bekins) appeals a judgment in the action filed against
it by plaintiff DeposiTech, Inc. (DeposiTech) for breach of contract,
negligence, and fraud arising out of damage to DeposiTech's property that
occurred while Bekins moved it from one to another storage facility. On appeal, Bekins contends: (1) the trial
court erred by allowing DeposiTech to present evidence, and instructing the
jury, on loss of a business opportunity as compensatory
damages for Bekins's fraud; (2) the evidence is insufficient to support the
jury's award of $550,000 in damages for DeposiTech's lost business opportunity;
and (3) because the jury's compensatory damages award must be reduced, its
punitive damages award must likewise be reduced or at least retried.
DeposiTech
cross-appeals, challenging the trial court's order denying its motion for an
award of attorney fees. It contends
that, as the prevailing party, it is entitled to Civil Code
section 1717 attorney fees pursuant to an attorney fees provision in its
storage contract with Bekins.
FACTUAL
AND PROCEDURAL BACKGROUND
DeposiTech
develops and markets plasma-based equipment and technologies. In 1997, it constructed a prototype
(Prototype) of a machine called the "PlasmaPlate" that uses plasma
ions to deposit ultra-fine and precise copper conductor lines on printed
circuit boards. However, because it was
unable to obtain sufficient financing at that time, DeposiTech could not
proceed to the second stage of development, involving refinement of the
Prototype to produce actual printed circuit board samples for customers and the
development of a production model of the PlasmaPlate.
In 1999
DeposiTech contracted with Cole Moving & Storage Co. (Cole) to store the
Prototype in its San Diego
warehouse on Sorrento Valley Road
until DeposiTech could attract new investors.
The Prototype weighed about 6,000 pounds, was about seven feet high and
eight feet long, and consisted of three chambers. Dr. Daryl Doane, DeposiTech's president,
explained to Cole's supervisor that the Prototype was top-heavy and fragile,
and had to be moved with great care.
Cole assured her that the Prototype would be safely stored in its
warehouse until it was ready to be removed.
On October 5, 1999,
she signed a document titled "Non-negotiable Warehouse Receipt and
Contract" (Contract) that listed the items of DeposiTech's property,
including the Prototype, that Cole transported to its warehouse.
In April
2004, Cole sold its storage contracts and assets to Bekins. Bekins sent a letter to Cole's customers,
stating: "Rest assured your possessions will continue to be secured, in a
safe, climate-controlled environment.
Aside from a new remittance payee, this should be a seamless transition
for each of you."
In November
2004, Bekins closed the San Diego
warehouse and moved the property stored there, including the Prototype, to a Poway
facility. During the move, Bekins
damaged the Prototype. However, Bekins
did not give DeposiTech advance notice of the move and did not inform it of the
damage to the Prototype. Instead, Bekins
sent DeposiTech a letter dated November
10, 2004, informing it that "your goods are safely relocated"
to the Poway facility.
It is unclear whether that letter was sent to DeposiTech before or after
Bekins moved and damaged the Prototype.
In May
2006, Bekins moved the property at its Poway facility, including the Prototype,
to a storage facility on World Trade Drive in San Diego, at which the Prototype
was then stored in a trailer. After each
move, Bekins continued to bill DeposiTech for monthly storage fees, which it
paid each month.
In 2008,
Sierra Proto Express (Sierra), a large printed circuit board manufacturing
company, expressed interest in the Prototype.
Robert Tarzwell, its then director of technology, had been searching for
an alternative to the traditional chemical processes and minaturizing copper
conductor lines on printed circuit boards.
Tarzwell was convinced the PlasmaPlate technology was "real." On March 20, 2008, Sierra and DeposiTech
entered into an agreement (Sierra Agreement) providing that Sierra would take
possession of and expend considerable resources in developing the Prototype at
its own expense, but DeposiTech would retain ownership of the Prototype and all
patents and other intellectual property rights related to it. Sierra needed DeposiTech's technology and
DeposiTech needed Sierra's resources and development expertise. The Sierra Agreement provided:
"DeposiTech agrees to ship its [P]rototype
equipment in good shape from its present storage location near San Diego to
[Sierra's] location in Sunnyvale in March 2008, using a carrier recommended by
Sierra. DeposiTech shall own and retain
title to said equipment while at Sierra, but DeposiTech agrees to allow any
reasonable additions and modifications aimed at improving its performance. . . .
"Sierra agrees to spend significant effort in
developing this equipment at its own expense.
DeposiTech shall not be liable for any expenses, including operating
expenses, insurance, costs of permits, or taxes while its equipment is at
Sierra's facility. . . .
"If improvements, modifications or engineering
changes are made during the course of this equipment development that are
deemed patentable by both Sierra and DeposiTech, then all rights to such
patents will be assigned to DeposiTech.
DeposiTech will pursue timely legal action to apply for such patents. . . .
"If after March 2009 Sierra is no longer actively
pursuing efforts to develop or use this equipment, DeposiTech shall have the
right to remove the equipment from Sierra's facility with no further obligation
to Sierra. . . ."
DeposiTech also agreed to provide assistance to Sierra in
setting up and developing the Prototype at a rate of $150 per hour. If Sierra decided to use the developed
equipment to process printed circuit boards or similar items, a separate
contract would be executed by Sierra and DeposiTech at that time.
As later
described by Tarzwell at trial, Sierra's strategy was to get the Prototype up
and running, and spend whatever money was necessary to make its own
pre-production machine. He believed the
PlasmaPlate technology was "very, very forward and very sound" and
fit Sierra's needs "very, very well."
Sierra budgeted about $550,000 to develop the Prototype and get it ready
to use on actual customer printed circuit boards. That budget included costs and expenses for
direct labor, new equipment, and other out-of-pocket expenses. Those budgeted costs did not include overhead
or other indirect costs incurred in developing the Prototype. Sierra estimated that it would invest a total
of $1.5 to $1.7 million to develop a production-ready model of the
PlasmaPlate. The likelihood that it
would invest that amount was "very good." Sierra spent about $40,000 to prepare its
facility in anticipation of receiving the Prototype. Tarzwell spent about 400 hours researching
and planning the project. Regardless of
whether the PlasmaPlate would ultimately realize its full potential, Sierra was
committed to putting its money at risk to find out whether it would. However, Sierra never told DeposiTech exactly
how much money it was willing to spend to develop the Prototype.
On March
21, 2008, the day after DeposiTech executed the Sierra Agreement, Drs. Daryl
and John Doane of DeposiTech traveled to San Diego to personally oversee the
removal of the Prototype from storage. A
Bekins warehouse employee led them to the storage trailer, inside which they
found the Prototype disassembled and crushed.
The Prototype had been damaged in the 2004 move. However, pursuant to Bekins's policy, it did
not inform DeposiTech of the damage to the Prototype until DeposiTech took
delivery of it out of storage. Within
one week, DeposiTech submitted a claim to Bekins with two repair estimates, one
for $125,000 and another for $99,300.
Bekins inspected the damage to the Prototype and then offered DeposiTech
$2,400 to settle its claim, based on a provision in the Contract that
purportedly limited its liability to $0.60 per pound. Although the parties were unable to resolve
their dispute regarding the repair costs, Bekins eventually released the
Prototype to DeposiTech in September 2008 and it was then transported to Sierra's
facility in Sunnyvale. On examining the
damaged Prototype, Sierra lost interest in developing it because of its
condition. Sierra therefore cancelled
the Sierra Agreement with DeposiTech.
Thereafter, DeposiTech was unsuccessful in finding another investment or
development partner.
DeposiTech
filed the instant action against Bekins alleging, in its operative second
amended complaint, causes of action for breach of contract, negligence, and
fraud. In its fraud cause of action, it
alleged Bekins intentionally did not disclose the Prototype had been moved and
damaged in the course of that move and falsely represented that the Prototype
had been safely relocated to the Poway storage facility and would continue to
be secured in a safe, climate-controlled environment. Relying on those concealments and
misrepresentations, DeposiTech paid monthly storage fees to Bekins believing
the Prototype was undamaged and would be available for use when a suitable
development partner was found.
DeposiTech allegedly sustained damages because of Bekins's fraud,
including the cost to repair the Prototype and the loss of a business
opportunity to further develop the Prototype.
DeposiTech also sought punitive damages, alleging Bekins "acted
with a [conscious] disregard of [DeposiTech's] rights, acted with malice,
oppression, or fraud, and/or ratified the wrongful and fraudulent conduct
alleged above."
Following
trial, the jury returned a special verdict finding in favor of DeposiTech on
all three causes of action. On the
breach of contract claim, the jury awarded DeposiTech $3,300 for "other
damage" (apparently for storage fees paid after the Prototype was
damaged). On the negligence claim, the
jury awarded it $115,000 for property damage (apparently for the cost of
repairing the Prototype). On the fraud
claim, the jury awarded it $550,000 for loss of business opportunity and $5,000
for "incidental/other" damage.
The total amount of compensatory damages awarded DeposiTech was
$673,300. The jury also found DeposiTech
proved by clear and convincing evidence that Bekins engaged in conduct with
malice, oppression, or fraud. Following
further proceedings on punitive damages, the jury returned a second special
verdict awarding DeposiTech $640,151.60 in punitive damages.
Bekins
filed motions for new trial and judgment notwithstanding the verdict. DeposiTech filed a motion for attorney fees
as the prevailing party. The trial court
denied the motions. The court entered
judgment for DeposiTech in accordance with the jury's special verdicts and
awarded it a total of $1,313,451.60 in compensatory and punitive damages and
$20,166.40 in costs. Bekins timely filed
a notice of appeal challenging the judgment and order denying its motion for
judgment notwithstanding the verdict.
DeposiTech timely filed a notice of cross-appeal challenging the order
denying its motion for attorney fees.
DISCUSSION
I
Business Opportunity
Bekins
contends the trial court erred by allowing DeposiTech to present evidence, and
instructing the jury, on the loss of a business opportunity as compensatory
damages for Bekins's fraud in the circumstances of this case. Bekins argues the only business opportunity
that DeposiTech lost was the opportunity to earn net profits from a completed
PlasmaPlate machine, and DeposiTech did not produce evidence of any lost net
profits.
A
"Parties
have the 'right to have the jury instructed as to the law applicable to all
their theories of the case . . . supported by the pleadings and the
evidence, whether or not that evidence was considered persuasive by the trial
court.' [Citation.] 'A reviewing court must review the evidence
most favorable to the contention that the requested instruction is applicable
since the parties are entitled to an instruction thereon if the evidence so
viewed could establish the elements of the theory presented. [Citation.]' " (Maxwell
v. Powers (1994) 22 Cal.App.4th 1596, 1607.)
Regarding
the appropriate measure of damages and instructions, "[t]he trial court's
choice among several legally permissible measures of damages, under the
specific circumstances of the case, is a matter of discretion. [Citation.]
However, whether a certain measure of damages is permissible given the
legal right the defendant has [breached] is a
West Charter Middle School v. Los Angeles Unified School Dist. (2010) 187
Cal.App.4th 831, 843 (New West).) Section 3333 provides the general standard
for damages in tort cases:
"For the breach of an obligation not arising from
contract, the measure of damages, except where otherwise expressly provided by
this code, is the amount which will compensate
for all the detriment proximately caused thereby, whether it could have
been anticipated or not." (Italics
added.)
"Tort damages are awarded to fully compensate the
victim for all the injury suffered.
[Citation.] There is no fixed
rule for the measure of tort damages under . . . section 3333. The measure that most appropriately
compensates the injured party for the loss sustained should be adopted." (Santa
Barbara Pistachio Ranch v. Chowchilla Water Dist. (2001) 88 Cal.App.4th
439, 446-447 (SBPR).) In the context of fraud claims, section 1709
provides: "One who willfully deceives another with intent to induce him to
alter his position to his injury or [risk] is liable for any damage which he
thereby suffers." Section 3523
provides: "For every wrong there is a remedy." Importantly for this case, section 1431.2,
subdivision (b)(1), defines "economic damages" for purposes of
personal injury and property damage cases (e.g., § 1709 fraud cases) as "objectively
verifiable monetary losses including . . . loss of earnings, . . .
costs of repair or replacement, . . .
and loss of business . . .
B
Bekins
filed a motion in limine to exclude all evidence on and references to
speculative damage claims. Bekins argued
that because DeposiTech's plasma technology for depositing material on printed
circuit boards was not established or shown to be commercially viable, any
claims by DeposiTech that it lost future profits or business opportunities were
purely speculative and too uncertain to support compensation for any fraud
Bekins committed. It requested the trial
court exclude any evidence offered by DeposiTech on lost business opportunities
or lost profits.
DeposiTech
opposed that motion, arguing that because of Bekins's wrongful actions it "lost
a golden opportunity it had secured with" Sierra to develop the Prototype
and sought recovery not only for damage to the Prototype but also consequential
damages for the loss of the business opportunity with Sierra.
The trial
court implicitly granted the motion in part and denied it in part, stating:
"[DeposiTech] cannot argue that well, if this
machine were working we could have set this business up and we could be making $20,000,000
a year. You can't argue that. However, [DeposiTech] will be allowed to
argue the fact that [it] had a business deal set up with this other company
[i.e., Sierra] that [it was] going to provide X amount of dollars. [Sierra was] going to work it up. And the fact that [Bekins] damaged it,
[DeposiTech] lost that agreement, and that is admissible as to what [it]
lost. But as far as money that you would
have made 10 years from now because this thing was so great, it saved the
world, you can't argue that, okay."
The court summarized DeposiTech's theory of lost business
opportunity damages, stating: "[DeposiTech] had a deal, [Bekins] broke the
machine, and Sierra said adios."
Regarding DeposiTech's proffered evidence on its lost business opportunity,
the court stated: "Sierra is going to come in here and say here is the
deal we have with [DeposiTech], here is what we were willing to do, here is
what we were willing to invest. Did you
do it? No, because the machine was
broken, we didn't do it, we walked.
[DeposiTech is] entitled to put that before the jury, because . . .
[¶] . . . [¶] . . . [Bekins] lost that deal for [it]." The court ruled that theory of lost business
opportunity damages was not speculative.
The court denied Bekins's motion to exclude DeposiTech's evidence on the
loss of the business opportunity with Sierra.
The court
instructed with a modified version of CACI No. 3900, stating: "If you
decide that [DeposiTech] has proved [its] claim against [Bekins], you also must
decide how much money will reasonably compensate [DeposiTech] for the
harm. This compensation is called 'damages.' The amount of damages must include an award
for each item of harm that was caused by [Bekins's] wrongful conduct, even if
the particular harm could not have been anticipated. [DeposiTech] does not have to prove the exact
amount of damages that will provide reasonable compensation for the harm. However, you must not speculate or guess in
awarding damages." In addition to
instructing the jury generally on tort damages with CACI No. 3900, the trial
court specifically instructed on the lost business opportunity theory of
damages, stating:
"If you find any of the defendants liable to
plaintiff DeposiTech, you may award DeposiTech the value of any lost business
opportunity you find it suffered because of that defendant's wrongful conduct."
The jury awarded DeposiTech $550,000 in damages for its lost
business opportunity that resulted from Bekins's fraud.
C
The crux of
Bekins's contention appears to be that under applicable law DeposiTech could
recover damages caused by Bekins's fraud only to the extent it proved it lost
net profits and not based on any
alleged lost business opportunity. In
support of its argument, Bekins cites Electronic
Funds Solutions, LLC v. Murphy (2005) 134 Cal.App.4th 1161 (
entered for the plaintiffs in the amount of $24,040,272 as a sanction for the
defendants' discovery violations. (
held that because the complaint sought damages "in an amount in excess of
$50,000," Code of Civil Procedure section 580 limited the plaintiffs'
recoverable compensatory damages in a default judgment to only $50,000. (EFS,
at pp. 1173-1174.)
by awarding the plaintiffs $8,040,272.19 in compensatory damages based on the
plaintiffs' expert witness's estimation of the market value of the defendants'
unestablished business, rather than the lost profits the plaintiffs
suffered. (Id. at pp. 1179-1180.) In
that context, EFS generally stated: "Damage
awards in injury to business cases are based on net profits. (See, e.g., Kuffel v. Seaside Oil Co. (1970) 11 Cal.App.3d 354, 366 . . .
['It is fundamental that in awarding damages for the loss of profits, net
profits, not gross profits, are the proper measure of recovery'].)" (EFS,
at p. 1180.) The court reversed the
default judgment and remanded the matter for a new damages hearing to determine
the amount of the plaintiffs' lost profits, if any, limited to $50,000 (and the
amount of any punitive damages) or
for the plaintiffs to amend their complaint to allege an increased amount of
compensatory damages (which amendment would reopen the defendants'
default). (Id. at p. 1185.)
We conclude
EFS does not provide support for Bekins's assertion that a business
plaintiff in a fraud or other tort case can recover only lost net profits and
no other forms of compensatory damages (e.g., lost business
opportunities). First,
on damages must be limited to the default judgment circumstances in that
case. Second, the case
compensatory damages limitation for businesses (i.e., Kuffel v. Seaside Oil Co., supra,
11 Cal.App.3d 354) is inapposite to EFS
and its quoted language does not support its broadly stated "rule." In EFS,
the court quoted the following language from Kuffel: "It is fundamental that in awarding damages for the
loss of profits, net profits, not gross profits, are the proper measure of
recovery [citations]." (
language merely states the unremarkable proposition that when a plaintiff seeks
lost profits, it can recover only lost net
profits and not lost gross
profits. It does not provide any support
for EFS's broad assertion that "[d]amage
awards in injury to business cases are based on net profits." (EFS,
supra, 134 Cal.App.4th at p.
1180.) We believe what the
that when a business plaintiff seeks damages based on lost earnings, it is the
loss of its net profits and not its gross profits that generally is the
appropriate measure of damages. The
language Bekins quotes from EFS does
not support its broad assertion that a business plaintiff like DeposiTech can
only recover compensatory damages in the form of lost net profits and not in
any other form (e.g., lost business opportunities). To the extent the EFS court intended to make such a broad general statement on
compensatory damages, we disagree with that statement and are not persuaded to
adopt it and apply it in this case.
As stated
above, the general standard for tort damages is the "amount which will
proximately caused" by the tortious conduct. (§ 3333, italics added.) Furthermore, "[t]ort damages are awarded
to fully compensate the victim for
all the injury suffered.
[Citation.] There is
damages under . . . section 3333.
The measure that most appropriately compensates the injured party for
the loss sustained should be adopted."
(SBPR, supra, 88 Cal.App.4th at pp. 446-447, italics added.) Section 1431.2, subdivision (b)(1), defines "economic
damages" for fraud and other tort cases as those "objectively
verifiable monetary losses including . . . loss of business . . . opportunities."
(Italics added.) We believe these
statutory and case authorities support a broader range of measures of damages
for business plaintiffs than asserted by Bekins. Whether a particular measure of damages is
permissible in a fraud case is a matter of law, which we decide de novo. (New
West, supra, 187 Cal.App.4th at
p. 843.) Because we do not comprehend
any legitimate, much less persuasive, reason to limit a business plaintiff's
damages in a fraud case to only lost net profits, we conclude, as a matter of
law, that a plaintiff, such as DeposiTech, is not precluded from seeking
compensatory damages other than lost net profits. There is no fixed rule for fraud or other
tort damages under section 3333. (
Tort
damages generally should be awarded in an amount that will compensate the
plaintiff for all detriment
proximately caused by the defendant's fraud or other tortious conduct. (§ 3333.) Economic damages (e.g., compensatory damages)
include the loss of a business
opportunity. (§ 1431.2, subd.
(b)(1).) A business plaintiff in a fraud
case, such as DeposiTech, may seek damages for a lost business opportunity as
part of the compensatory damages it allegedly suffered. Furthermore, assuming DeposiTech provided
substantial evidence of a lost business opportunity, we conclude the trial
court properly allowed DeposiTech to present evidence, and instructed, on the
loss of a business opportunity as damages for Bekins's fraud. Bekins has not carried its burden on appeal
to show the trial court abused its discretion by allowing DeposiTech to seek
compensatory damages based on that particular measure of damages. (New
West, supra, 187 Cal.App.4th at
p. 843.) We address below Bekins's argument
that DeposiTech sought damages consisting only of Sierra's "overhead costs"
rather than the value of its (DeposiTech's) lost business opportunity. None of the cases cited by Bekins are apposite
to this case or otherwise persuade us to reach a contrary conclusion.
II
Opportunity Damages
Bekins
contends the evidence is insufficient to support the jury's award to DeposiTech
of $550,000 in damages for its loss of the business opportunity with Sierra.
A
On appeal,
when the appellant contends there is insufficient evidence to support the jury's
verdict, we apply the substantial evidence standard of review. (Wilson
v. County of Orange (2009) 169 Cal.App.4th 1185, 1188.) The substantial evidence standard of review
involves two steps. "First, one
must resolve all explicit conflicts in the evidence in favor of the respondent
and presume in favor of the judgment all reasonable
inferences. [Citation.] Second, one must determine whether the
evidence thus marshaled is substantial.
While it is commonly stated that our 'power' begins and ends with a
determination that there is substantial evidence [citation], this does not mean
we must blindly seize any evidence in support of the respondent in order to
affirm the judgment. . . . [Citation.]
'[I]f the word "substantial" [is to mean] anything at all, it
clearly implies that such evidence must be of ponderable legal
significance. Obviously the word cannot
be deemed synonymous with "any" evidence. It must be reasonable . . . ,
credible, and of solid value . . . .' [Citation.]
The ultimate determination is whether a reasonable trier of fact could have found for the respondent based
on the whole record." (Kuhn
v. Department of General Services (1994) 22 Cal.App.4th 1627, 1632-1633,
fns. omitted.) "[T]he power of an
appellate court begins and
whether, on the entire record, there
is substantial evidence, contradicted or uncontradicted, which will support the
determination, and when two or more inferences can reasonably be deduced from
the facts, a reviewing court is without power to substitute its deductions for
those of the trial court.
of no consequence that the trial court believing other evidence, or drawing
other reasonable inferences, might have reached a contrary conclusion." (Bowers
v. Bernards (1984) 150 Cal.App.3d 870, 873-874.)
B
Bekins
asserts the evidence is insufficient to support the jury's finding that
DeposiTech suffered $550,000 in damages for the lost business opportunity with
Sierra. It argues there was no evidence
Sierra was going to pay that amount to DeposiTech. However, Bekins does not persuade us the loss
of a business opportunity can only be the direct loss of money and not, as in
this case, the monetary value of some other benefit of a contract or other
business opportunity. In this case,
DeposiTech presented evidence that under the Sierra Agreement it would receive
the benefit of a completed and/or further developed Prototype. Sierra agreed to "spend significant
effort in developing [the Prototype] at its own expense." Although Sierra did not inform DeposiTech
exactly how much it intended to spend on developing the Prototype, Tarzwell
testified that Sierra budgeted about $550,000 to develop the Prototype and prepare
it to use on actual customer printed circuit boards. That budget included costs and expenses for
direct labor, new equipment, and other out-of-pocket expenses. Those budgeted costs did not include overhead
or other indirect costs incurred in developing the Prototype. Based on that evidence, we conclude the jury
could reasonably infer that when Bekins's fraud caused DeposiTech to lose the
business opportunity under the Sierra Agreement, it lost the opportunity to
obtain a completed and/or further developed Prototype at Sierra's, and not its, cost.
Because Sierra had budgeted $550,000 in actual out-of-pocket costs
(i.e., not overhead costs) to develop the Prototype, the jury could reasonably
infer the monetary value of the improvements made by Sierra to the Prototype
was $550,000. There is substantial
evidence to support the jury's finding that the loss of DeposiTech's business
opportunity to obtain an improved Prototype at no cost to itself was equal to a
loss of $550,000 caused by Bekins's fraud.
To the
extent Bekins argues Sierra never told DeposiTech it would spend that amount
and the Sierra Agreement did not commit Sierra to take specific actions to
develop the Prototype, Bekins misconstrues and/or misapplies the substantial
evidence standard of review. It is not the
function of an appellate court to reweigh the evidence and/or make inferences
different from those made by the jury.
Likewise, to the extent Bekins argues Sierra's budget of $550,000 to develop
the Prototype included only "overhead costs" and not actual
out-of-pocket costs of development, it again misconstrues and/or misapplies the
substantial evidence standard of review.
The record shows Sierra's $550,000 budget included costs and expenses
for direct labor, new equipment, and other out-of-pocket expenses. Furthermore, Tarzwell testified those
budgeted costs did not include
incurred in developing the Prototype. Applying
the substantial evidence standard of review, we conclude there is substantial
evidence to support the jury's implied finding that the $550,000 amount Sierra
planned to spend on developing the Prototype did not include any overhead costs.
We further
note that Bekins did not present below, and has not presented on appeal, any
expert testimony or case authority showing Sierra's $550,000 budget must be
considered "overhead costs" as a matter of law and therefore cannot
provide support for a jury's determination of a plaintiff's damages for a lost
business opportunity.
Cal.App.3d 131, 148-149, cited by Bekins, is inapposite to this case and does
not persuade us to reach a contrary result.
Furthermore,
to the extent Bekins argues there is insufficient evidence to support $550,000
in damages for DeposiTech's lost business opportunity because it did not present
evidence that it lost any net profits, Bekins conflates the net profits measure
of damages with the lost business opportunity measure of damages. DeposiTech's failure to present evidence of
lost net profits did not preclude it from presenting evidence of damages based
on its lost business opportunity to obtain an improved Prototype at no cost to
itself (i.e., at Sierra's cost). We are
not persuaded by Bekins's argument that the opportunity to obtain an improved
Prototype could have no value to DeposiTech except for any future net profits
it would have earned from a completed Prototype.
Finally,
Bekins again misconstrues and/or misapplies the substantial evidence standard
of review when it argues that the jury's $115,000 award for the cost of
repairing the Prototype was sufficient to make DeposiTech whole. Rather, the jury could reasonably infer that
mere repair of the Prototype would not make DeposiTech whole because it also
lost the business opportunity to have Sierra give it an improved and completed Prototype
at no cost to itself. Accordingly,
Bekins has not carried its burden on appeal to show there is insufficient
evidence to support the jury's award of $550,000 in damages for DeposiTech's
lost business opportunity. Because we
conclude DeposiTech properly presented evidence on, and substantial evidence
supports the jury's award of, damages for its lost business opportunity, we do
not address Bekins's alternative argument that there also was insufficient
evidence to support the $550,000 award based on a lost asset value theory.
III
Bekins
contends that because the jury's compensatory damages award must be reduced,
its punitive damages award must likewise be reduced or at least retried. However, that argument is conditioned on a
determination that the jury's compensatory damages award must be reduced. Because that prerequisite has not been met,
we do not address the merits of Bekins's challenge to the jury's award of
punitive damages.
IV
DeposiTech
cross-appeals, challenging the trial court's order denying its motion for an
award of attorney fees under section 1717 as the prevailing party in this
action.
A
After the
jury returned its special verdicts in DeposiTech's favor, DeposiTech filed a
motion for an award of attorney fees as the prevailing party. It argued that pursuant to an attorney fees
provision in the Contract, it should be awarded attorney fees as the prevailing
party under section 1717. DeposiTech
cited the following provision of the Contract (Provision 1) as support for its
motion:
"1.
to the Company [i.e., Bekins, as successor to Cole] that the Depositor has the
lawful possession of and legal right and authority to store all of the property
herein described, in accordance with the provisions, limitations, terms and
conditions herein set forth; and if there be any litigation concerning the
property, the Depositor agrees to pay all attorney's fees, which this Company
may reasonably incur or become liable to pay in connection therewith. This Company shall have a lien on said
property for all storage and other Charges and for such costs and expenses."
DeposiTech
argued its action against Bekins was an action "on a contract" within
the meaning of section 1717. It further
argued its attorney fees should not be apportioned between its contract and
noncontract causes of action because its causes of action all arose out of a
common set of facts.
Bekins
opposed the motion for attorney fees, contending there was no contractual
provision that supported an award of attorney fees under section 1717. It argued the attorney fee provision in the
Contract DeposiTech cited in support of its motion was a unilateral
indemnification provision and not a
section 1717 provision for attorney fees awards to a party that prevails in an
action on the contract.
Following
arguments of counsel, the trial court concluded Provision 1 of the Contract was
an indemnification provision and therefore did not support a section 1717
attorney fee award. Reading the entire
provision as a whole, the court concluded "this is an indemnification
clause." It stated: "[Provision
1] does not, in any way, suggest litigation between the parties. It suggests litigation concerning the
ownership of the property." Citing
Cal.App.4th 1328 (Campbell), the
court concluded the indemnification clause set forth in Provision 1 did not
provide for an award of attorney fees in the circumstances of this case.
B
"[A]ttorney
fees are not available to a prevailing party unless provided for by statute or
contract." (Otis Elevator Co. v. Toda Construction (1994) 27 Cal.App.4th 559,
564.) Section 1717 provides:
"(a) In any
action on a contract, where the contract
specifically provides that attorney's fees and costs, which are incurred to
enforce that contract, shall be awarded either to one of the parties or to
the prevailing party, then the party who is determined to be the party
prevailing on the contract, whether he or she is the party specified in the
contract or not, shall be entitled to reasonable attorney's fees in addition to
other costs." (Italics added.)
"Where a contract provides for attorney fees in an
action to enforce the contract, the attorney fees provision is made applicable
to the entire contract by operation of . . . section 1717." (Myers
Building Industries, Ltd. v. Interface Technology, Inc. (1993) 13
Cal.App.4th 949, 968 (Myers).) However, "[a] provision including
attorney fees as an item of loss in an indemnity clause is not a provision for
attorney fees in an action to enforce the contract." (Id.
at p. 971.) "Under California law, an
'[i]ndemnity is a contract by which one engages to save another from a legal
consequence of the conduct of one of the parties or of some other person.' [Citation.]
'An indemnity against claims, or demands, or liability, expressly, or in
other equivalent terms, embraces the costs of defense against such claims,
demands, or liability incurred in good faith, and in the exercise of a
reasonable discretion . . . .'
[Citation.] . . . [¶]
An indemnity agreement is to be interpreted according to the language
and contents of the contract as well as the intention of the parties as
indicated by the contract.
[Citation.] The extent of the
duty to indemnify is determined from the contract. [Citation.] . . . [¶] . . . Indemnification agreements
ordinarily relate to third party claims."
(Id. at pp. 968-969.)
" ' " 'An
order granting or denying an award of attorney fees is generally reviewed under
an abuse of discretion standard of review; however, the "determination of
whether the criteria for an award of attorney fees and costs have been met is a
question of law." [Citation.] An issue of law concerning entitlement to
attorney fees is reviewed de novo.' " ' " (Carpenter
& Zuckerman, LLP v. Cohen (2011)
195 Cal.App.4th 373, 378.) Likewise, we
apply de novo review and exercise our independent judgment in interpreting a
contract if there is no disputed extrinsic evidence on its interpretation. (Campbell,
supra, 78 Cal.App.4th at p. 1336.)
C
DeposiTech
asserts the trial court erred by denying its motion for an award of attorney
fees because Provision 1 of the Contract provides for an award of attorney fees
in an action to enforce the Contract and is not, as the trial court found,
merely an indemnification provision.
However, reading Provision 1 and the other provisions of the Contract as
a whole and in context and considering the ordinary meaning of the words used,
we conclude Provision 1 is, as the trial court found, an indemnification
provision. Furthermore, we conclude
Provision 1 does not "specifically provide[]" for an award of
attorney fees "incurred to enforce that contract [i.e., the Contract].
(§ 1717, subd. (a).)
Therefore, the trial court correctly denied DeposiTech's motion for
attorney fees.
We begin
our analysis by reviewing pertinent rules for interpretation of contracts. "When a contract is reduced to writing,
the intention of the parties is to be ascertained from the writing alone, if
possible; subject, however, to the other provisions of this Title." (§ 1639.) "The language of a contract is to govern
its interpretation, if the language is clear and explicit, and does not involve
an absurdity." (§ 1638.) "The whole of a contract is to be taken
together, so as to give effect to every part, if reasonably practicable, each
clause helping to interpret the other."
(§ 1641.) "If the terms
of a promise are in any respect ambiguous or uncertain, it must be interpreted
in the sense in which the promisor believed, at the time of making it, that the
promissee understood it."
(§ 1649.) A contractual
provision "is ambiguous if it is capable of more than one reasonable
construction. [Citation.] However, we will not strain the [contract]
language to create an ambiguity.
[Citation.] Moreover, we will not
label a provision ambiguous simply upon isolating phrases and considering them
in the abstract. Rather, we must
construe the provision in relation to the whole of the instrument, with each
clause giving meaning to the other."
(Continental Ins. Co. v. Superior
Court (1995) 37 Cal.App.4th 69, 82.) Finally, if after applying all other rules of
interpretation a contract's language is determined to be ambiguous, then "the
language of a contract should be interpreted most strongly against the party
who caused the uncertainty to exist."
(§ 1654.)
On close
examination of the language of Provision 1 and its context in the entire
Contract, we conclude, as a matter of law, that Provision 1 is an
indemnification provision. The title of
Provision 1 is "OWNERSHIP OF GOODS," indicating that its subject
matter is the ownership of the stored property.
Provision 1 consists of one compound sentence. The main purpose of Provision 1 is set forth
at the outset of that sentence with DeposiTech representing to Bekins that it
has "the lawful possession of and legal right and authority to store"
the Prototype and other property listed in the Contract. Given the context of the Contract, that
representation is made as of the time the Contract is executed and/or when the
property is initially transferred to and stored at Bekins's facility (e.g., on
or about October 5, 1999). Related to
that representation, DeposiTech agrees to pay all attorney fees that Bekins may
reasonably incur in connection with "any litigation regarding the
property." Reading Provision 1 as a
whole and in the context of the Contract, the reasonable construction of "any
litigation regarding the property" is any litigation regarding the
property (e.g., the Prototype) against Bekins challenging DeposiTech's
possession of and right to store that property as of October 5, 1999, when
DeposiTech made the representation to Bekins and initially stored the property
at its facility. To the extent a third
party would thereafter file an action against Bekins challenging DeposiTech's
possession of or right to store that property as of October 5, 1999, Provision
1 provided, in effect, that DeposiTech agreed to indemnify Bekins for all
reasonable attorney fees incurred in defending that action. Likewise, to the extent Provision 1 could
reasonably be construed as a "continuing" representation (i.e., that
DeposiTech represented it had possession of and the right to store the
Prototype and other listed property during the entire term of the Contract),
Provision 1 provided that DeposiTech would indemnify Bekins for attorney fees
incurred in third party actions against it challenging DeposiTech's right to
the property. Provision 1 is, as Bekins
argues and the trial court found, an indemnification provision.
Provision 1
cannot reasonably be construed as providing for attorney fees in actions
between Bekins and DeposiTech regarding DeposiTech's possession of or legal
right to the stored property. By
focusing only on selected language in Provision 1 (i.e., "all litigation
regarding the property"), it could be argued such litigation could include
future litigation not only between Bekins and third parties, but also
litigation between Bekins and DeposiTech regarding the property. However, when that selected language is
considered as a whole with all of Provision 1 and the other provisions of the
Contract, we conclude such an interpretation is unreasonable. Provision 1 cannot be reasonably interpreted
as applying to litigation between Bekins and DeposiTech (e.g., if DeposiTech
were to file an action challenging Bekins's right to enforce its warehouseman's
lien on the property for nonpayment of storage fees pursuant to Provision 11 of
the Contract). Furthermore, as discussed
above, Provision 1 sets forth DeposiTech's representation regarding its lawful
possession of and legal right to store the property as of October 5, 1999. There presumably could not be any litigation
between Bekins and DeposiTech regarding DeposiTech's lawful possession and
right to store the property as of that initial storage date. It is inconceivable that Bekins would file
any action against DeposiTech regarding its possession of and right to store
the property as of that date unless a third party claimed a legal right to that
property.
We further
note the Contract does not contain any express provision for awards of attorney
fees to either party in actions on the Contract. Provision 12 of the Contract provides for
arbitration of "[a]ny dispute or claim arising out of or for the breach of
this agreement or in connection with the property stored hereunder, whether
founded in tort or contract."
name="_ftnref2" title="">[2] That provision expressly provides for the
equal sharing by the parties of the cost of arbitration. However, it does not include any provision
regarding the award or sharing of attorney fees incurred by one or both parties
in arbitration (or in litigation to obtain a court order enforcing an
arbitration award or otherwise). The
absence of any express provision awarding attorney fees to a party that
prevails in any arbitration (or court action) to enforce the Contract, or
otherwise arising out of or relating to the Contract, supports our conclusion
that the parties did not intend to award attorney fees to a prevailing party in
a dispute between them. Provision 12
supports our conclusion that the only reasonable construction of Provision 1 is
that its attorney fee language constitutes an indemnification provision (i.e.,
DeposiTech indemnifies Bekins for attorney fees incurred in any litigation
against it filed by third parties regarding the property). Because there is only one reasonable
construction of that provision, it is not ambiguous and therefore the default
rule for construction against its drafter (i.e., § 1654) does not apply.
"A
provision including attorney fees as an item of loss in an indemnity clause is not
a provision for attorney fees in an action to enforce the contract." (Myers,
supra, 13 Cal.App.4th at p.
971.) Alternatively stated, "the
inclusion of attorney fees as an item of loss in a third party claim-indemnity
provision does not constitute a provision for the award of attorney fees in an
action on the contract which is required to trigger section 1717." (Carr
Business Enterprises, Inc. v. City of Chowchilla (2008) 166 Cal.App.4th 14,
20.) Because Provision 1 of the Contract
does not "specifically provide[] that attorney's fees and costs, which are
incurred to enforce that contract, shall
be awarded either to one of the parties or to the prevailing party" as
required for application of section 1717, there is no statutory or contractual
basis on which to award DeposiTech attorney fees incurred in the instant
action. (§ 1717, subd. (a); cf.
Campbell, supra, 78 Cal.App.4th at pp. 1335-1338; Building Maintenance Service Co. v. AIL Systems, Inc. (1997) 55 Cal.App.4th
1014, 1029-1032; Otis Elevator Co. v.
Toda Construction, supra, 27
Cal.App.4th at pp. 564-566; Myers, at
pp. 973-975.) Baldwin Builders v. Coast Plastering Corp. (2005) 125 Cal.App.4th
1339, cited by DeposiTech, is factually inapposite to this case and does not
persuade us to reach a contrary conclusion.
In that case, the indemnity provision expressly provided the indemnitor " 'shall
pay all costs, including attorney's fees, incurred in enforcing this indemnity
agreement [i.e., in an action to enforce the contract].' " (Id.
at p. 1342.) The trial court
correctly denied DeposiTech's section 1717 motion for an award of attorney fees
incurred in this action. In resolving
this contention on this ground, we need not address the merits of the parties'
alternative arguments regarding the attorney fees issue.
DISPOSITION
The
judgment and order denying the motion for attorney fees are affirmed. Each party shall bear its own costs on
appeal.
McDONALD,
J.
WE CONCUR:
NARES,
Acting P. J.
McINTYRE, J.
name="_ftn1" title="">[1]
All statutory references are
to the Civil Code except as otherwise specified.
name="_ftn2" title="">[2]
Provision 12 of the Contract
provides: "TIME FOR FILING CLAIMS-ARBITRATION: . . . [¶]
(b) Any dispute or claim arising out of
or for the breach of this agreement or in connection with the property stored
hereunder, whether founded in tort or contract, shall be settled by arbitration
under the Arbitration Law of this state and under the rules of the American
Arbitration Association, provided, however, that upon any such arbitration, the
arbitrator may not vary, modify or disregard the provisions contained herein,
including those respecting the declared or agreed valuation of the goods and
the limitation of liability of the Company.
The award may be entered as a judgment of a court of record in the
county where the award is made. The
Depositor and the Company shall share equally the cost of arbitration. Court costs shall be borne by the losing party."
