Opinion
A148538
06-21-2018
2B1 MULTIMEDIA, INC., Plaintiff and Appellant, v. JASON CRUZ, Defendant and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (San Francisco County Super. Ct. No. CGC-14-541059)
INTRODUCTION
Plaintiff 2B1 Multimedia, Inc. (2B1) appeals a judgment in its favor against defendant Jason Cruz, dba International Container Services (Cruz), challenging the sufficiency of a $15,000 contractual damages award. After a two-day bench trial, the court found Cruz had breached an implied agreement to store four shipping containers that had been loaded with plaintiff's inventory of music DVDs and CDs when water entered one of the containers, damaging the CDs and DVDs stored inside. The trial court awarded 2B1 its net costs of purchasing the container, storing it, plus estimated reasonable lost profits from the sales of the inventory. 2B1 asserts the court erred by not awarding it $221,714.96, its costs to manufacture and produce the CDs and DVDs. We shall affirm the judgment.
BACKGROUND
The trial court bifurcated determination of liability and damages. Two witnesses testified at trial: 2B1 CEO Boot Hughston and defendant Cruz. Because liability is not an issue on appeal and the damages issue does not involve the actual calculation of damages, but rather whether the court used the wrong measure of damages, our discussion of evidence is abbreviated.
2B1 asserts the morning session of the second day of trial was not transcribed because there was a problem with the court reporter's stenograph. We have a record of Wednesday, March 9, 2016 proceedings beginning at 10:57 in which the court states it has been discussing documents off the record before the court reporter arrived. That afternoon, the court refers to testimony that apparently occurred either in the morning or earlier that afternoon, but was not reported. The parties did not seek a settled statement. (Cal. Rules of Court, rules 8.130, subd. (h), 8.137.) The record provided is adequate for our review.
Liability
Hughston testified 2B1 has been in the business of concert promotion and the manufacturing, distribution and sales of music CDs and DVDs. In 2011, 2B1 purchased four 20-foot long storage containers from Cruz in order to move its stored inventory. Cruz delivered the empty containers to 2B1 and a third party transported the loaded containers to the storage yard of ATSi. When the containers were returned to 2B1 in 2013, it was discovered that the CDs and DVDs stored in one container had been completely ruined by water damage and mold, most probably due to a hole that had been punched in the fiberglass roof.
ATSi was named as a defendant in the complaint, but was later dismissed.
2B1 asserts in its opening brief that before purchasing the containers, Hughston met with Cruz and told him the nature of 2B1's business, that the containers would contain 2B1's inventory of CDs and DVD's, and that it was necessary to keep the contents sealed. For his part, Cruz testified that the 2B1 representative with whom he communicated about the container purchase told him before the damages claim was made that the contents were "a bunch of junk inventory that they couldn't sell . . . ." This was the only conversation Cruz had about the contents until the claim was made. Nevertheless, Cruz understood that the contents needed to be kept dry. Cruz repurchased the containers from 2B1 for resale at the end of their use, minus a fee, as he often did after clients had ceased to use them.
This testimony does not appear in the record of proceedings, but was recounted in 2B1's counsel's closing argument.
Damages
Hughston testified the CDs and DVDs were in pristine condition. His record label had back stock from all types of artists that continually sell over the years, and it was always good to have back stock "on hand" for all the artists. The damaged inventory included CDs and DVDs of seven recording artists.
2B1 presented evidence on the cost of producing and manufacturing the damaged inventory. A spread sheet prepared for trial identified 52,510 units alleged to have been destroyed, with physical manufacturing costs of $110,537.50 and production costs (including the amount paid for right to release, recording and audio costs, album design or video costs) totaling $111,177.46. Based on this, 2B1 sought damages for the replacement cost for each unit of the damaged inventory, totaling $221,714.96. But the trial court was not persuaded by this approach.
Trial Court Decision
After hearing evidence on liability, the court orally issued a tentative decision that there was a contract between 2B1 and Cruz to store the contents of the containers and that Cruz breached the contract by virtue of the hole that opened up in the ceiling of one of the containers while it was in storage.
The court found $3,420 was a reasonable award for the damage to the fiberglass container and for the storage fee paid by 2B1, and that such loss was reasonably foreseeable by Cruz. The court then turned to the damages for the lost inventory, noting that it was "reasonably expectable by Mr. Cruz that someone is not going to store something unless it is worth more than what it cost him to store it." The court called the parties' attention to the limitations on the measure of damages in Civil Code sections 3358 and 3359, stating it had been asking Hughston questions aimed at determining the market value for the inventory that had been destroyed.
All statutory references are to the Civil Code, unless otherwise indicated.
Section 3358 provides: "Except as expressly provided by statute, no person can recover a greater amount in damages for the breach of an obligation, than he could have gained by the full performance thereof on both sides." Section 3359 provides: "Damages must, in all cases, be reasonable, and where an obligation of any kind appears to create a right to unconscionable and grossly oppressive damages, contrary to substantial justice, no more than reasonable damages can be recovered."
As to the seven artists whose CDs were in the damaged inventory, 2B1 had no inventory other than that which had been destroyed for three of the artists, and had sold out its inventory of a fourth artist before trial. Hughston testified that he would have realized roughly $1,000 to $2,000 in sales on each of those artist's CDs. As to losses for future sales, Hughston agreed with the court that it would be hard to say how well an artist was going to do in the future. "It is almost like a gamble, the business, in a lot of ways." The court summarized that in the three years preceding the trial, Hughston had lost approximately $6,000 from sales for titles Hughston no longer had in inventory. The court expressed its view that the cost of the destroyed inventory was not allowable as damages, given that the amount of the plaintiff's loss had to be within the reasonable expectation of Cruz at the time he incurred the risk, and Cruz had testified he was not aware of the nature of the contents of the container. The court concluded that $6,000 was a reasonable value for plaintiffs' loss of sales from 2013 to March 2016. It also stated it was willing to give some allowance for future loss, even though it was somewhat "speculative." The court observed that if it awarded $6,000 for future losses, i.e. post-trial, the total damages award would be $15,420—"about five times what [Cruz] got paid in storage costs." At the end of trial, the court awarded total damages of $15,000, concluding such award was within the range of what was reasonably foreseeable by Cruz and would provide "substantially more than [2B1 would] get over the next few years on this."
In an oral statement of decision, immediately following its tentative decision on damages, the court found for 2B1 solely on its breach of contract cause of action, but not on any other cause of action, including bailment. The court found reasonable damages to be $3,420 (refund of the net purchase and storage costs for the damaged container), plus $6,000 to compensate for present losses of sales of the DVDs and CDs, and $5,580 for future losses.
Judgment was entered and this timely appeal followed.
DISCUSSION
The only issue presented on appeal is whether the court erred in its damage award. 2B1 argues that damages were inadequate as a matter of law because the court "erred in its selection and application of the remedy utilized to calculate damages in this case. Specifically, the trial court erred when it found the damages to be special damages rather than general damages." 2B1 further argues that the court erred in awarding it lost profits (which it characterizes as special damages) instead of its costs to manufacture and produce the disks (which it identifies as its general damages). Finally, 2B1 contends the court "erred when it concluded these special damages were not foreseeable by Cruz and therefore not compensable to 2B1." (We note the court did not use the terms general or special damages.)
" 'Whether a plaintiff "is entitled to a particular measure of damages is a question of law subject to de novo review. [Citations.] The amount of damages, on the other hand, is a fact question . . . [and] an award of damages will not be disturbed if it is supported by substantial evidence." ' (Rony v. Costa (2012) 210 Cal.App.4th 746, 753.)" (Bermudez v. Ciolek (2015) 237 Cal.App.4th 1311, 1324.) Whether contract damages are foreseeable is a question of fact, also subject to substantial evidence review. (E.g., Ash v. North American Title Co. (2014) 223 Cal.App.4th 1258, 1268.) "[O]ur duty is to uphold the findings if it is possible to do so upon any sound theory." (Crystal Pier Amusement Co. v. Cannan (1933) 219 Cal. 184, 192.)
"Under Civil Code section 3300, a party may recover for a breach of contract a sum that will compensate it 'for all the detriment proximately caused thereby, or which, in the ordinary course of things, would be likely to result therefrom.' '[I]n the law of contracts the theory is that the party injured by a breach should receive as nearly as possible the equivalent of the benefits of performance. [Citations.] The aim is to put the injured party in as good a position as [it] would have been had performance been rendered as promised. This aim can never be exactly attained yet that is the problem the trial court is required to resolve. [Citation.]' (Brandon & Tibbs v. George Kevorkian Accountancy Corp. (1990) 226 Cal.App.3d 442, 454 [(Brandon & Tibbs)]; see also Lewis Jorge Const. Management, Inc. v. Pomona Unified School Dist. (2004) 34 Cal.4th 960, 967-968 (Lewis Jorge).)" (JMR Construction Corp. v. Environmental Assessment & Remediation Management, Inc. (2015) 243 Cal.App.4th 571, 585 (JMR Construction.)
As our Supreme Court recognized in Lewis Jorge, supra, 34 Cal.4th at pages 971-972: "Unearned profits can sometimes be used as the measure of general damages for breach of contract. . . . [¶] Lost profits from collateral transactions as a measure of general damages for breach of contract typically arise when the contract involves crops, goods intended for resale, or an agreement creating an exclusive sales agency." (Italics added.) "The only prerequisite to recovery of lost profits is proximate causation: the lost profits must be the natural and direct consequences of the breach. This rule is to be applied in any action for damages for breach of contract. (Civ. Code, § 3300.)" (Brandon & Tibbs, supra, 226 Cal.App.3d at p. 457.)
Moreover, the concept of general damages is not so rigid as 2B1 would have it. " 'The rules of law governing the recovery of damages for breach of contract are very flexible. Their application in the infinite number of situations that arise is beyond question variable and uncertain. Even more than in the case of other rules of law, they must be regarded merely as guides to the court, leaving much to the individual feeling of the court created by the special circumstances of the particular case." (5 Corbin, Contracts[ (1964)] Damages, § 1002, p. 33.)" (Brandon & Tibbs, supra, 226 Cal.App.3d at p. 455.)
Other principles recognized by the court also apply here. Section 3300 setting forth the primary measure of damages for breach of contract must be read together with section 3358's limitation that " 'no person can recover a greater amount in damages for the breach of an obligation than he could have gained by the full performance thereof on both sides' " (Phalanx Air Freight v. National Skyway Freight Corp. (1951) 104 Cal.App.2d 771, 776) and with the admonition of section 3359, that "damages must, in all cases, be reasonable." (Guerin v. Kirst (1949) 33 Cal.2d 402, 415 [this command of section 3359 is controlling in all cases under the "settled rule that all related provisions of the codes must be read and construed together, and that effect must be given to every section"].)
The question of foreseeability of the damages is also a critical consideration. (Hadley v. Baxendale (1854) 156 Eng.Rep. 145 (Hadley); Brandon & Tibbs, supra, 226 Cal.App.3d at p. 455-456.) "The Hadley rule has long been applied by California courts, which view it as having been incorporated into California Civil Code section 3300's definition of the damages available for breach of a contract. [Citations.]" (Lewis Jorge, supra, 34 Cal.4th at p. 969.) The rule recognizes two categories of damages: "First, general damages are ordinarily confined to those which would naturally arise from the breach, or which might have been reasonably contemplated or foreseen by both parties, at the time they made the contract, as the probable result of the breach. Second, if special circumstances caused some unusual injury, special damages are not recoverable therefor unless the circumstances were known or should have been known to the breaching party at the time he entered into the contract. The requirement of knowledge or notice as a prerequisite to the recovery of special damages is based on the theory that a party does not and cannot assume limitless responsibility for all consequences of a breach, and that at the time of contracting he must be advised of the facts concerning special harm which might result therefrom, in order that he may determine whether or not to accept the risk of contracting. [Citation.]" (Brandon & Tibbs, supra, 226 Cal.App.3d at pp. 455-456.)
Foreseeability is required for both categories of damages and is measured from the moment the contract is entered into. (See Lewis George, supra,34 Cal.4th at pp. 968-969 [Hadley rule of foreseeability has been incorporated into § 3300's definition of damages allowable for breach of contract]; Brandon & Tibbs, supra, 226 Cal.App.3d. at pp. 455-456 [general damages are those "which might have been reasonably contemplated or foreseen by both parties at the time they made the contract, as the probable result of the breach"]; 1 Witkin, Summary of Cal. Law (11th ed. 2017) Contracts, § 896 [§ 3300 incorporates the limiting rule of Hadley, unless some other statute expressly covers the situation].) "This rule does not mean that the parties should actually have contemplated the very consequence that occurred, but simply that the consequence for which compensation is sought must be such as the parties may be reasonably supposed, in the light of all the facts known, or which should have been known to them, to have considered as likely to follow, in the ordinary course of things, from a breach, and, therefore, to have in effect stipulated against." (Hunt Bros. Co. v. San Lorenzo etc. Co. (1906) 150 Cal. 51, 56.)
We find no error here. The court found that the amount of the loss sought by 2B1 ($221,714) was not within Cruz's reasonable expectation at the time he incurred the risk, a finding that is supported by substantial evidence. 2B1 argues that because Cruz knew the contents must be kept dry, damage to the contents of the container from the intrusion of water was a natural and, therefore, foreseeable consequence of the breach. Cruz testified he did not know what was being stored in the containers. He was not involved in loading the containers and he was not given a bill of lading or inventory of the property; nor did he have access to the containers after they were loaded. Although Hughston apparently testified he discussed the nature of his business with Cruz and that the containers would store 2B1's inventory of CDs, the court was not required to credit this testimony. Substantial evidence supports the court's determination that the replacement cost damages claimed by 2B1 would not have been within the reasonable contemplation of both parties at the time they entered the contract.
Finally, the court recognized that the damages awarded must be "reasonable" as provided by section 3359. It was not error to determine the damages sought by 2B1 ($221,714) were not reasonable in the circumstances.
We find no error in the trial court's measure of damages—i.e., the net costs 2B1 paid for the container that was damaged, plus its cost to store the inventory in that container, plus the estimated reasonable profits from sales of the damaged inventory to date of trial, plus a reasonable amount for future lost profits. Substantial evidence also supports the court's determination that such amount was reasonable to compensate 2B1.
DISPOSITION
The judgment is affirmed. Cruz is awarded his costs on this appeal.
/s/_________
Miller, J. We concur: /s/_________
Kline, P.J. /s/_________
Stewart, J.