DELLOCA v. THE BANK OF NEW YORK TRUST COMPANY

Filed 1/29/08

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION ONE

Plaintiffs Conrad J. DellOca et al. brought suit against a number of defendants, including the Bank of New York Trust Company (BNY), seeking damages for investment losses. A jury returned a verdict in favor of plaintiffs against BNY on some, but not all, of their claims. The trial court granted a new trial unless plaintiffs consented to a substantial reduction in damages. Plaintiffs appeal from that order. Plaintiffs also appeal from an order denying their motion for partial judgment notwithstanding the verdict (JNOV), directed at the claims rejected by the jury. BNY appeals from an order denying its own motion for JNOV and also from an order awarding costs to plaintiffs. BNY also has filed a protective cross-appeal, raising issues that become relevant only if the order granting a new trial is reversed. We affirm the order granting a new trial and both orders denying the parties respective motions for partial JNOV and JNOV. We reverse the order awarding costs.

Background

The DFS Defendants and the Business Plan

Robert E. Vener was the president, director and controlling shareholder of DynaCorp Financial Strategies, Inc. (DynaCorp), and the president, chief executive officer, chief financial officer and director of DFS Credit Corporation (DFSCC), a wholly owned subsidiary of DynaCorp. Beginning in 1994, these entities operated under a business plan designed to profit from buying and collecting on health care receivables. The business plan, described in private placement memoranda (PPMs), called for the creation of corporate trusts. DFSCC was the grantor and trustee of the trusts, and also their administrator.[1] DynaCorp was the beneficiary of the trusts. (In keeping with the practice of the parties, from time to time, Vener, DynaCorp., DFSCC and Trusts I, II and IV will be referred to collectively as the DFS defendants.)

The trusts were funded by money obtained from investors (sometimes referred to as the noteholders), who received promissory notes on their investments and who were promised a stated return of interest. The PPMs recited the administrator would use trust money to purchase selected eligible healthcare receivables at a discounted price, paying a portion of the purchase price when the trust took possession of a receivable and the remainder when the receivable was collected. One attribute generally required of an eligible receivable was that it be relatively young in that no more than 90 days had elapsed from its billing date. The sums collected above and beyond the purchase price of the receivables were to be used to cover expenses, pay the promised interest to the noteholders and compensate the administrator. The PPMs cautioned potential investors that the notes involved a high degree of risk and should be regarded as a speculative investment.

Ultimately, four trusts were created: Trust I, Trust II, Trust III and Trust IV. Trust III later was dissolved and is not directly involved in this appeal.[2] The trusts continued to operate, and to pay interest to the investors, until June 2000, when it was announced they would be unable to make the scheduled payments. At that time, the trusts, collectively, owed over $50 million to the noteholders. In the end, trust receivables were auctioned off for approximately $4.4 million, which, after expenses were deducted, left $1.5 million, which, presumably, has been distributed.

The Plaintiffs and Their Claims Against the DFS Defendants

Plaintiff Conrad J. DellOca, trustee of the DellOca Family Trust, had purchased notes from Trust IV. Plaintiffs James P. and Karen Brainerd, trustees of the James P. Brainerd and Karen M. Brainerd Revocable Trust, had purchased notes from Trust II. Plaintiffs, on behalf of themselves and other persons who had purchased or otherwise acquired and held notes from the trusts, brought suit against the DFS defendants, and others, to recover damages resulting from the collapse of the trusts and related relief. According to plaintiffs, the DFS defendants had engaged in what was in essence a Ponzi scheme, where later-invested fundsparticularly funds invested in Trust IVwere used to make the interest payments on earlier-invested funds.

Plaintiffs claimed the DFS defendants devised various schemes that allowed them to conceal that investor funds were being used for an improper purpose. As relevant here, plaintiffs claimed the DFS defendants used over $4 million from Trust IV to purchase healthcare receivables from Trusts I and II, violating the requirement that receivables be purchased directly from healthcare providers. Plaintiffs claimed the receivables Trust IV purchased from Trusts I and II were old and uncollectible, effectively ensuring that noteholders investing in Trust IV would recover little, if anything, on their investments. Plaintiffs also claimed the DFS defendants improperly shifted funds between trusts by asserting the transfers of funds were deposit error corrections or repayments of fees. As a result of these actions, the trusts improperly commingled funds, generated fees for the administrator based on unauthorized and improper purchases, and concealed from investors that the trusts were not generating income.

BNY: The Indenture Trustee

BNYs role in all of this was to be the indenture trustee to Trusts I, II and IV, under separate indenture agreements for each trust. (Another entity, Rivkin Radler, had been indenture trustee to Trust III, but as noted earlier, Trust III was dissolved.) An indenture trustee is created to handle debt securities, for the purposes of providing limited protection to investors. (See 15 U.S.C.  77bbb.) In their book, Corporate Trust Administration and Management (5th ed. 1998), Robert I. Landau and John E. Krueger explain the basic form: The trust indenture is a device by which a corporation . . . borrows money from the general public or large institutional investors to issue securities. . . . The indenture provides the terms and conditions on which credit is extended; restricts the activities of the issuing corporation . . . as long as the indenture securities are outstanding; sets forth remedies available to the security holders if there is a default in payment on the debt securities or in the terms of the indenture contract; and otherwise defines the rights, duties, and obligations of the obligor company . . ., the security holders, and the trustee or trustees named in the instrument. If the indenture obligations are to be secured, the indenture creates or pledges the security and explains the terms and conditions for dealing with the security. (Id. at p. 22.) As plaintiffs witness explained, the indenture trustee monitors the provisions of the loan agreements. It authenticates documents, and holds collateral. If there is a default, the indenture trustee takes charge of the assets and takes such steps as are required or allowed by the indenture agreement.

It will be recalled each trust had its own trustee, DFSCC, and each also had an administrator whose obligation was to manage the trust assets in accordance with the trust documents. BNYs responsibilities, obligations and legal liability as indenture trustee are not to be confused with those of the trustee or the administrator. It generally is acknowledged that the indenture does not create a trust relationship in the customary sense. (Landau & Krueger, Corporate Trust Administration and Management, supra, at p. 23.) An indenture trustee is not subject to the ordinary trustees duty of undivided loyalty. Unlike the ordinary trustee, who has historic common-law duties imposed beyond those in the trust agreement, an indenture trustee is more like a stakeholder whose duties and obligations are exclusively defined by the terms of the indenture agreement. (Meckel v. Continental Resources Co. (1985) 758 F.2d 811, 816.)[3]

The indenture agreements involved here are lengthy, detailed and complicated. The agreement for Trust I, for example, is comprised of 13 articles set forth over 84 single-spaced typed pages, plus a 19-page First Supplemental Indenture. The agreement for Trust IV is comprised of 13 articles set forth over 79 single-spaced typed pages. In brief, under the terms of the agreements, BNY held a security interest in the trust assets that enabled it to take possession of those assets in the event of a default. In addition, as plaintiffs put it, BNY held the purse strings, meaning it had control over the funds. The indenture agreements specified how and when BNY could release funds. BNY also had the obligations of authenticating the notes issued to the investors, processing instructions for transfers of money, and serving as a repository for documents. Article 6 sets forth the bulk of BNYs obligations as Indenture Trustee, and also includes a number of provisions designed to limit or eliminate BNYs liability for investment decisions or for the ill-advised or wrongful conduct of the administrator. Among other provisions, Article 6 recites that the Indenture Trustee undertakes to perform such duties and only such duties as are expressly set forth in this Indenture. (Art. 6,  6.1(a)(1).) It allows BNY to conclusively rely on the instructions provided by the Administrator . . . as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Indenture Trustee and substantially conforming to the requirements of this Indenture, but also provides that in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Indenture Trustee, the Indenture Trustee shall be under a duty to examine the same to determine whether or not they conform to the form required by this Indenture. (Art. 6,  6.1(a)(2).)[4]

Plaintiffs Theories Against BNY

Plaintiffs case was based in large part on Article 1, section 1.2 of the indenture agreements. Article 1 sets forth provisions of general application. Section 1.2 provides, Upon any application or request by Issuer to the Indenture Trustee to take any action under any provision of this Indenture, Issuer shall furnish to the Indenture Trustee at its corporate office an Officers Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been satisfied and an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent, if any, have been satisfied, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished.[5] Plaintiffs contended section 1.2 prohibited BNY from releasing funds for any reason whatsoever unless the request for funds was accompanied by a satisfactory officers certificate and opinion of counsel, and that BNY breached the indenture agreements by releasing funds without first receiving the required certificates and opinions. Plaintiffs also argued that had BNY properly performed its obligations as indenture trustee, it would have recognized the DFS defendants were taking actions inconsistent with the PPMs, would have concluded a default had occurred, and should and would have shut down trust operations. They took the position that, had BNY performed its contractual duties, the whole investment scheme would have collapsed on March 7, 1997, when $747,333.89 was transferred from Trust II to Trust I, purportedly to correct a deposit error, or, at the latest, on June 23, 1998, when Trust IV purchased receivables from Trust II. Finally, in posttrial proceedings, plaintiffs claimed the improper transfers out of Trust IV were an event of default. As BNY was prohibited from allowing any sales of notes, or closures after the occurrence of an event of default, plaintiffs argued BNY also breached by allowing closures after March 1997 or June 1998.

The Litigation

Ultimately, all defendants except BNY settled for $8.75 million. Plaintiffs had stated four causes of action against BNY: breach of the indenture contract, negligence, gross negligence, and aiding and abetting the DFS defendants breach of fiduciary duties owed to the investors. After the parties presented their cases, but before jury deliberations began, the court granted a directed verdict to BNY on the aiding and abetting cause of action. The court also granted plaintiffs a partial directed verdict on their breach of contract cause of action, ruling plaintiffs were entitled to sue as third party beneficiaries on the indenture agreements between the DFS defendants and BNY. Plaintiffs dismissed their causes of action for negligence and gross negligence. All that remained was plaintiffs cause of action for breach of the indenture agreements for Trusts I, II and IV.

Plaintiffs theory, again, was that but for BNYs breach, no investor would have put money into the trusts after March 1997 or June 1998, depending on which date was determined to be the date the investment scheme should have collapsed. Plaintiffs therefore made no attempt to prove any act or omission by BNY caused the trusts to collapse. They also made no attempt to show that any act or omission by BNY reduced the value of their investments. They did not seek a return of the funds BNY allegedly allowed the DFS defendants to misappropriate. Instead, they argued BNYs act or omissions prevented the trusts from collapsing, and sought damages representing the sums invested after those dates. In addition, plaintiffs contended that had investors learned at an early date that the business plan was failing, they would have withdrawn their funds before they were lost. Plaintiffs therefore also sought the amount representing the sum plaintiffs believed existing investments would have returned had the trusts been liquidated in a timely fashion after March 1997 or June 1998. Plaintiffs expert, Thomas Randlett, testified that approximately $41.4 million had been invested after March 7, 1997. Mr. Randlett also stated his belief that, assuming the trusts had been liquidated in an orderly basis after March 7, 1997, investors would have received 36 cents on the dollar, or $3.6 million, on investments of $10 million. In his opinion, that investors were not aware of the failing business plan as of March 7, 1997, therefore caused them to lose the sum of those figures, which he calculated to be $45,083,022. Mr. Radlett stated that if damages were calculated using June 23, 1998, as the operative date, the plaintiffs damages were between $35 and $36 million, representing $30,730,500 that had been invested after June 23, 1998, plus a return of 25 percent on existing investments (as of June 23, 1998) of $20 million.

The jury returned a verdict finding BNY had not breached the indenture agreements as to either Trust I or Trust II, responding no to questions on a special verdict form asking if BNY had done something the indenture agreements for either trust prohibited it from doing or had failed to do something the indenture agreements required it to do. The jury found BNY had breached Trust IVs indenture agreement, also finding the breach involved gross negligence and had harmed plaintiffs. The jury assessed plaintiffs damages at $15,788,750. The court later awarded plaintiffs prejudgment interest in the amount of $6,198,707.

Plaintiffs filed a motion for partial JNOV, which the court denied. The court also denied BNYs motion for JNOV. It granted BNYs motion for a new trial subject to the condition the motion would be denied if plaintiffs agreed to a reduction in damages from $15,788,750 to $3,051,552.70, plus prejudgment interest. The court, reasoning plaintiffs were the prevailing parties, also awarded them their costs. Plaintiffs did not agree to the reduction in damages, choosing instead to file this appeal.

Discussion

Plaintiffs Appeal

I.

Jurisdiction to Rule on Motion for New Trial

On June 16, 2005, after the parties had filed their posttrial motions, the trial judge, Judge OMalley Taylor, held a hearing for the purpose of scheduling the time for filing opposing documents and also for scheduling argument. The parties and Judge OMalley Taylor understood the courts jurisdiction to rule on the motions would expire on July 19, 2005,[6] which, while ordinarily posing no difficulties, was a problem because both plaintiffs attorney and Judge OMalley Taylor were about take out-of-state vacations. Plaintiffs attorney was to return on July 12, but Judge OMalley Taylor apparently would still be on vacation on the 19th. Ultimately, the parties and Judge OMalley Taylor worked out a procedure that would allow the parties to present their arguments to the judge and have her determine the merits of their motions. They agreed the parties would have all opposing and reply papers in the judges hands early in the week of June 27. The judge would issue a tentative ruling on July 11, and the parties would then conduct a telephonic hearing on July 13. The parties and Judge OMalley Taylor followed the agreed-upon procedure. Judge OMalley Taylor then prepared an order and transmitted it, electronically, to the Marin County Superior Court in California. The presiding judge of the superior courts civil division, noting Judge OMalley Taylors absence from California rendered her unable to act, appointed Judge Vernon Smith to act in her stead. Judge Smith signed the order on Judge OMalley Taylors behalf, and the order was entered on July 15, 2005.

There is no suggestion plaintiffs or their attorney had any objection to the proceedings leading up to the entry of the order. To the contrary, plaintiffs attorney specifically and expressly agreed to have Judge OMalley Taylor hear argument on the motion telephonically. The record also is devoid of any suggestion plaintiffs sought relief in the trial court for what they now contend was an order improperly signed by Judge Smith. On appeal, however, plaintiffs contend neither Judge OMalley Taylor nor Judge Smith had authority to order a new trial.

Plaintiffs cite Code of Civil Procedure section 661, which provides, as relevant: The motion for a new trial shall be heard and determined by the judge who presided at the trial; provided, however, that in case of the inability of such judge or if at the time noticed for hearing thereon he is absent from the county where the trial was had, the same shall be heard and determined by any other judge of the same court. Plaintiffs also cite Government Code section 69741.1: A motion for new trial . . . may, with the written consent of all parties concerned, be heard at any place in the state of California by the judge who presided at the trial. Finally, they cite Code of Civil Procedure section 166, subdivision (b):[7] A judge may, out of court, anywhere in the state, exercise all the powers and perform all the functions and duties conferred upon a judge as contradistinguished from the court, or that a judge may exercise or perform in chambers. In plaintiffs view, read together, these statutes allowed Judge OMalley Taylor to hear and determine the motion for a new trial only if she was physically present in Marin County, or if she was physically present in another county in California and the parties by written consent agreed the motion might be heard at that location. Plaintiffs contend that because Judge OMalley Taylor was not physically present in California when she heard and decided the motions, she lacked jurisdiction to rule on the motions. Plaintiffs concede that Judge Smith, who was in Marin County, had the power to hear and decide the motion in Judge OMalley Taylors absence, but contend that by simply signing Judge OMalley Taylors order, Judge Smith failed to exercise that power so that the order signed by him is a nullity.

Plaintiffs do not dispute they agreed Judge OMalley Taylor could hear argument on the motions when she was out of state. They contend, however, they did not thereby waive the right to argue the order is ineffective or void. Plaintiffs maintain the territorial limits of sections 166 and 661 are mandatory and jurisdictional, pointing out that parties cannot by private agreement confer jurisdiction on a court to hear a new trial motion. (See Hagan Engineering, Inc. v. Mills (2003) 115 Cal.App.4th 1004, 1008 [subject matter jurisdiction cannot be conferred by consent, waiver or estoppel].) Plaintiffs also point out they did not participate in the decision to have Judge Smith sign the order.

Plaintiffs argument confuses territorial jurisdiction and/or subject matter jurisdiction, in the sense of fundamental jurisdiction over a cause, with a courts jurisdiction to take a particular action. It also confuses territorial jurisdiction with the courts power to hear and determine. The Marin County Superior Court had territorial jurisdiction over the posttrial motions irrespective of Judge OMalley Taylors location. Similarly, Judge OMalley Taylors presence in or absence from California had no effect on the Marin County Superior Courts subject matter jurisdiction over the cause. This is not a case, for example, such as Ehrler v. Ehrler (1981) 126 Cal.App.3d 147, 153, which plaintiffs cite,where the order was entered after the expiration of the time during which the order could be entered, and the court therefore lost jurisdiction. (And see also In re Marriage of Liu (1987) 197 Cal.App.3d 143, 149-152 [trial court lacked jurisdiction to decide motion for new trial when hearing held more than 60 days after filing of notice of intention to move for new trialbut leaving open the possibility an exception from the mandatory time limits might exist where the delay was caused by circumstances beyond the moving partys control).]

Judge OMalley Taylors absence from California may have rendered her physically unable to sign and file an order in the Marin County Superior Court, but it did not deprive her of the power to hear and determine the merits of the posttrial motions. A party, for example, would have no cause to complain if a court takes the moving or responding papers to some other state, and reads and contemplates them there before returning to California to issue an order. Indeed, at least at the appellate level, a justice is entitled to participate in a decision and even sign it while out of state, transmitting his or her signature by facsimile to the clerk for purposes of filing. (See People v. Billa (2003) 31 Cal.4th 1064, 1073, at fn. 6 (Billa).) Similarly, despite the language of section 661, there is no reason to complain that the court hears, rather than reads, the parties arguments from some remote location. The parties certainly could waive their right to a hearing and, that being true, there can be no cause for complaint that the court, while allowing the parties to argue their positions orally, heard those arguments while out of state.

It is not significant that section 661 does not specifically contemplate the situation where the trial judge hears and determines a new trial motion but another judge signs the order. As discussed previously, the Marin County Superior Court had subject matter jurisdiction over the motions at the time the order was signed and entered, and the legally effective judicial act of filing the order took place in California. It has been held that [t]he power of the trial court to grant a new trial may be exercised only by following the statutory procedure (Sanchez-Corea v. Bank of America (1985) 38 Cal.3d 892, 899), and also that the requirements of section 661 are mandatory (Francis v. Superior Court (1935) 3 Cal.2d 19, 29 (Francis)). Nonetheless, even were we to read section 661 as limiting the class of persons entitled to sign an order granting a new trial, a departure from the statutory procedure is not fatal. For example, section 661 requires the clerk to provide notice by mail of the time designated for oral argument, but the failure to provide written notice was not fatal when the date for argument was set in open court and was chosen to accommodate the responding partys attorney who, therefore, received actual notice of the date. (McGarvey v. Southern Pacific Milling Co. (1935) 5 Cal.App.2d 604, 606.) Section 661 also provides that where the motion is heard by a judge other than the trial judge, it shall be argued orally or shall be submitted without oral argument, as the judge may direct, not later than ten (10) days before the expiration of the time within which the court has power to pass on the same. But that the motion is submitted late does not deprive the court of the power to rule on it when the ruling takes place within the 60-day jurisdictional time period. (Pappadatos v. Superior Court (1930) 209 Cal. 334-336.)

Francis, supra, 3 Cal.2d 19, cited by plaintiffs in support of their claim that the provisions of section 661 are mandatory, was an appeal from a judgmentfinding three attorneys in contempt of court for their actions in connection with a motion for new trial. The trial judge, Judge Wilson, had been present and available to hear and decide the motion, but the parties attorneys went to a different department and submitted the posttrial motion to a different judge, who granted it. (Id. at pp. 21-23.) The Supreme Court affirmed the judgment of contempt. It held, To have the motion for a new trial heard by a judge familiar with the facts and law of the case, rather than by one totally unfamiliar with such facts and who has made no special study of the law applicable to those facts, was the very essence of section 661 of the Code of Civil Procedure. Its requirements were therefore mandatory . . . . To leave it optional with litigants to observe or disregard its provisions would defeat the very purpose and object of its enactment. . . . It was, therefore, the duty of petitioners in making said motion for a new trial, after judgment had been rendered by Judge Wilson, to present the same to Judge Wilson. (Id.at p. 29.) Here, of course, the motion was heard by the judge who had heard and decided the case, even though the order was signed by a different judge. In any event, we do not read section 661 as limiting the jurisdiction of the trial courts to act, and we do not read Francis, or any other case, as limiting the power of the court and the parties to depart from the provisions of section 661 by agreement when the effect of an agreed-upon procedure preserves the essence of the statute.

Plaintiffs position, therefore, can be reduced to the complaint that Judge Smith, who signed the order, was not the judge who had heard and determined the motion. The simple response to this position is that appointing Judge Smith to sign for Judge OMalley Taylor in her absence was a proper exercise of the presiding judges authority. (Cal. Rules of Court, rule 10.603(c)(1)(E).[8]) If, for example, Judge OMalley had heard the motion and had written the order but had become incapacitated before signing it, there is little question but that it properly might have been signed by some other judge.[9]

For all of the above reasons, we conclude the order conditionally granting a new trial is not subject to attack on the grounds of lack of jurisdiction.

II.

New Trial Order

Plaintiffs sought damages representing (1) the sums invested after the date plaintiffs believed the investment scheme would have collapsed but for BNYs breach of the indenture agreements, and (2) the return investors would have received on existing investments if the trusts had been liquidated in a timely fashion after that date. The jury awarded plaintiffs $15,788,750. In granting the motion for a new trial, the court explained, After weighing the evidence and from the entire record, including reasonable inferences therefrom, the Court concludes that the jury clearly should have reached a different verdict. . . . It is too speculative for the trier of fact to conclude that no one would have invested in Trust IV if they had known that Trusts I and II were having financial difficulties. The court expressed the belief that a reasonable measure of damages would be the difference between the price Trust IV paid to purchase receivables from Trusts I and II and the fair market value of those receivables, which it found to be $3,051,552.70. The court therefore made its grant of the motion for new trial conditional, ruling it would be denied if plaintiffs consented to a reduction in damages from $15,788,750 to $3,051,552.70. Plaintiffs claim error.

As a general rule, when a motion for new trial is granted on the ground of excessive damages, or where the trial court requires a reduction in the amount of damages as a condition of denying the motion, the order will not be reversed unless it plainly appears the court has abused its discretion,  and the cases teach that when there is a material conflict of evidence regarding the extent of damage the imputation of such abuse is repelled, the same as if the ground of the order were insufficiency of the evidence to justify the verdict. [Citations.] The reason for this is that the trial court, in ruling on the motion, sits not in an appellate capacity but as an independent trier of fact. Thus, . . . section 662.5 of the Code of Civil Procedure, dealing with orders for a new trial conditioned on additur or remittitur, indicates that such orders shall be made unless the affected party consents to the addition or reduction of so much [of the verdict] as the court in its independent judgment determines from the evidence to be fair and reasonable.  (Neal v. Farmers Ins. Exchange (1978) 21 Cal.3d 910, 933, italics added by the court.) While the reviewing court must consider only those reasons for granting the motion stated by the trial court in its order, within those confines the question on appeal from an order conditionally granting a new trial on the basis of excessiveness of damages is simply whether a verdict for an amount considerably less than that awarded [by the jury] would have had reasonable and substantial support in the evidence. [Citation.] (Horsford v. Board of Trustees of CaliforniaStateUniversity(2005) 132 Cal.App.4th 359, 379.)

It is of no matter that the court, in granting the motion for new trial unless plaintiffs consented to a reduction in the damages award, employed a theory for measuring damages that had not been asserted at trial.[10] Plaintiffs did not accept the remittitur, effectively rendering moot any complaint about the courts reasoning.[11]

Plaintiffs contend, however, that the ordinary standard of review for orders on a motion for new trial does not apply. According to them, although the order was styled an order for a new trial, its true nature was that of a partial JNOV, so that in reviewing the order this court   must resolve any conflict in the evidence and draw all reasonable inferences therefrom in favor of the jurys verdict. [Citation.] [Citation.] (Hansen v. Sunnyside Products, Inc. (1997) 55 Cal.App.4th 1497, 1510.) An appellate court has the power to look at the substance of a new trial ruling, and where the effect of the ruling is closer to a directed verdict or a JNOV, the ruling may be deemed to have been based on a conclusion of law so that de novo review is appropriate. (In re Coordinated Latex Glove Litigation (2002) 99 Cal.App.4th 594, 614; Fountain Valley Chateau Blanc Homeowners Assn. v. Department of Veterans Affairs (1998) 67 Cal.App.4th 743, 752-753 (Fountain Valley).) The order at issue here was not in the nature of a directed verdict or a JNOV. The distinction is that one kind of rulingsuch as nonsuit, directed verdict or JNOVdisposes of the litigation. In granting the motion the court essentially rules the plaintiff never can prevail, even if the matter were to be retried. (Id.at p. 751.) It follows, in part, that a court should make such rulings only when, disregarding conflicting evidence, giving to the plaintiffs evidence all the value to which it is legally entitled and indulging in every legitimate inference which may be drawn from that evidence, the result is a determination there is no evidence of sufficient substantiality to support a verdict in favor of the plaintiff. (Hansen v. Sunnyside Products, Inc., supra, at p. 1510.) On the other hand, a grant of a new trial on the grounds of insufficiency of evidence does not entail a victory for one side or the other. It simply means the reenactment of a process which may eventually yield a winner. (Fountain Valley, supra, at p. 751.) The motion is granted not because the judge has concluded that the plaintiff must lose, but only because the evidence in the trial that actually took place did not justify the verdict. Evidence might exist to justify the verdict, but for some reason did not get admitted; perhaps because the plaintiffs attorney neglected to call a crucial witness or ask the right questions. There is still the real possibility that the plaintiff has a meritorious case. (Id. at p. 752, fn. omitted.)[12]

Story continues as Part II

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[1] DFSCC apparently assigned its administrative duties to DynaCorp, but nonetheless continued to perform those duties itself.

[2] The assets from Trust III apparently were deposited into Trust IV.

[3] Landau and Krueger provide the following explanation of the contractual nature of an indenture:

Even though it is similar to other legal relationships, the trust indenture is mainly a contract, and the courts have been in almost unanimous agreement in applying contractual principles to this relationship.

The parties to the contract, or the indenture, are the obligor company . . . and the trustee, and only these parties execute the instrument. However, the participation of another party, or class of partiesthe indenture security holdersis essential to make the contract operative. Three separate sets of contractual rights and obligations are created by each indenture: those between the obligor and the trustee, those between the obligor and the indenture security holders, and those between the trustee and the indenture security holders.

. . . The indenture provisions that define the trustees principal rights, duties, and obligations and its relationship with the obligor relate primarily to the security for the obligations issued or to be issued. . . .

The obligations issued under the indenture are directly those of the security holders and not of the trustee and are looked to primarily to define the relationship between the obligor and the security holders.

 . . . .

[Difficulties in finding all the essential elements of a true contractual relationship between the trustee and the security holders] have led many courts not only to construe indenture provisions as being strictly against the obligor but also to try to find some other legal theory or precedent with which to protect the interests of the security holders. Such decisions have contributed to much of the confusion in the law, particularly as it relates to the third set of contractual relationshipsthose between the [indenture] trustee and the security holders. The existence of a trust is necessary to create and define the [indenture] trustees interest in and relation to the security and the contract, but its relationship to the security and to the security holders is essentially contractual rather than fiduciary. The trusts principal function is to administer the contract in accordance with its terms. It has only the authority and powers granted by the indenture and is subject to all its restrictions and limitations. Except to the limited extent specified, the trustee has no right or authority to represent or act for the security holders or to substitute its judgment for theirs. The trustee should be held accountable for failing to carry out its duties properly, but there is no basis for holding, as some courts have tried to do, that the trustee owes to each holder duties or obligations not specifically spelled out in the contract or required of it by statute or regulation. (Landau & Krueger, Corporate Trust Administration and Management, supra, at pp. 27-30, fn. omitted.)

[4] Article 6, section 6.1 of the indenture agreements, entitled, Certain Duties and Responsibilities, provides, in subdivision (a):

Except during the continuance of an Event of Default:

(1) the Indenture Trustee undertakes to perform such duties and only such duties as are expressly set forth in this Indenture, and no implied covenants or obligations whatsoever shall be read into this Indenture against the Indenture Trustee; and

(2) the Indenture Trustee may, whether an Event of Default shall exist hereunder, conclusively rely on the instructions provided by the Administrator . . . as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Indenture Trustee and substantially conforming to the requirements of this Indenture; but in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Indenture Trustee, the Indenture Trustee shall be under a duty to examine the same to determine whether or not they conform to the form required by this Indenture.

[5] Section 1.2 of the indenture agreements, entitled Compliance Certificates and Opinions, provides in full:

Upon any application or request by Issuer to the Indenture Trustee to take any action under any provision of this Indenture, Issuer shall furnish to the Indenture Trustee at its corporate office an Officers Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been satisfied and an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent, if any, have been satisfied, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished.

Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include:

(1) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto;

(2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion [are] based;

(3) a statement that, in the opinion of each such individual, he or she has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and

(4) a statement as to whether, in the opinion of each such individual, such condition or covenant has been satisfied.

[6] Code of Civil Procedure section 660 provides that the power of the court to rule on a motion for new trial shall expire 60 days from and after the mailing of notice of entry of judgment by the clerk of the court or 60 days from and after service on the moving party by any party of written notice of entry of judgment, whichever is earlier, or if such notice has not been given, 60 days after the filing of the first notice of intention to move for a new trial.

[7] Further statutory references are to the Code of Civil Procedure.

[8] California Rules of Court, rule 10.603(c) sets forth the duties of the presiding judge, which include the duty to [d]esignate a judge to act if by law or the rules of court a matter is required to be presented to or heard by a particular judge and that judge is absent, deceased, or unable to act. (Cal. Rules of Court, rule 10.603(c)(1)(E).)

[9] A somewhat similar situation occurred in Theriot v. Superior Court (1963) 221 Cal.App.2d 174. The trial court judge in that case issued an order conditionally granting a new trial, and then left the state to go on vacation. The parties discovered they disagreed on the meaning of the order and went to the presiding judge. The presiding judge spoke with the trial judge, who was still out of state, and then, with the trial judges agreement, corrected the new trial order, nunc pro tunc. (Id. at p. 178.) The reviewing court rejected an argument that the order was void because it was issued by a judge who was outside of California, finding the order was in fact made by the presiding judge, who was in California. (Id.at p. 180; and see Billa, supra, 31 Cal.4th at 1073, fn. 6 [So long as the clerk is authorized by the court to file the opinion or order, and the filing occurs in California, the legally effective judicial act is performed in California].)

[10] As the court explained, Although plaintiffs expert . . . did not testify as to the fair market value of the specific receivables wrongfully purchased from Trusts I and II by Trust IV, he did testify as to the liquidation value (sales value of the receivables if the business were liquidated) as of 3/07/97 and 6/23/98. He testified that the liquidation value of the trusts as of 6/23/98 was approximately 25%. This estimate is supported by sufficient details about the methodology of his calculations, both in his deposition and his trial testimony, and so there was no surprise or irregularity in the trial testimony on this issue. Based on this evidence, the Court determines, in its independent judgment, that the fair and reasonable amount of damages is $3,051,552.70 ($4,068,736.93 [the amount Trust IV paid for the receivables it purchased from Trusts I and II] x 75%).

[11] It also is true that by appealing the new trial order, plaintiffs may not now avoid a new trial by accepting the remittitur. (See Swett v. Gray (1903) 141 Cal. 63, 70 [by appealing, a plaintiff effectively refuses to remit any portion of the judgment and should not be permitted to take the benefits of the conditional new trial order if the appellate court rejects its appellate arguments].)

[12] In Fountain Valley, for example, where the appellate court reasoned that an order granting a new trial was in substance a JNOV, the trial court explained that it believed the defendants actions had been totally reasonable, stating on the record that the plaintiff never could prevail given the reasonableness of the defendants position. (Fountain Valley, supra, 67 Cal.App.4th at pp. 749, 752-753.) The trial court also pointed to no problem in the process of the trial that warranted a retrial. (Id. at p. 753.) The appellate court reviewed the trial courts ruling as a JNOV in substance, if not in form, finding, [t]he bottom line is that the judge might as well have said the association acted reasonably as a matter of law and given judgment for the defendant there and then. (Ibid.)