Opinion
NOT TO BE PUBLISHED
APPEALS from a judgment and order of the Superior Court No. INC038758 of Riverside County, Gary Tranbarger, Judge.
BENKE, Acting P. J.
In this breach of contract case, the trial court granted defendant Longs Drug Stores California, Inc.'s (Longs), motion for nonsuit and thereafter granted Longs's motion for an award of attorney fees. In a consolidated appeal, plaintiff ATM Capitol Company (Capitol) argues it presented evidence which supported three alternative breach of contract theories. Thus Capitol asks that we reverse the nonsuit and vacate the attorney fee award.
Like the trial court, we find Capitol did not present evidence upon which relief may be granted. Capitol's first theory was that Longs failed to permit it to timely commence installation of the automated teller machines (ATM's) which were the subject of the parties' agreement. This theory was defeated by the fact the record shows that after Capitol demanded, by way of a notice of default, that installation commence, the parties agreed to a new installation schedule and thereafter began installation under the terms of the new schedule. Thus the record shows the installation issue as cured under the notice and cure procedure set forth in the parties' agreement.
Capitol's second theory was that Longs unilaterally and unlawfully repudiated the contract. This theory fails because, although the record shows Longs was very upset with the manner in which Capitol was performing its obligations under the contract, rather than cancelling the agreement, Longs instead sent Capitol a notice of default in which it demanded that Capitol cure defects in Capitol's performance. In light of this record, which shows Longs affirmed the contract and in fact continued to demand Capitol perform under the contract, Capitol cannot show that Longs was guilty of any repudiation of the parties' agreement.
Capitol's final theory was that Longs, through its employees, committed acts of interference with and vandalism of Capitol's ATM's and thereby breached the covenant of good faith and fair dealing. However, although required by the terms of its agreement with Longs, Capitol did not give Longs any notice of default with respect to any of the alleged instances of interference or vandalism. Thus having failed to give Longs an opportunity to cure defects in its performance, Capitol could not, under the terms of the agreement, predicate any breach of contract claim on the alleged interference and vandalism.
FACTUAL AND PROCEDURAL BACKGROUND
1. Agreement/Test Period
On May 20, 2002, Capitol and Longs entered into an agreement which permitted Capitol to place its ATM's in Longs's drug stores throughout California.
The agreement called for a test period during which Capitol would place its ATM's in 10 of Longs's stores. If the test period proved successful, Capitol would complete a system-wide introduction of ATM's to Longs's remaining California stores. The agreement provided the test period would last for six months, from May 20, 2002, through October 31, 2002. The agreement permitted either party to cancel the agreement at the end of the test period; in the absence of cancellation, the term of the agreement would automatically be extended for three years. The agreement also provided that with respect to breaches, other than those involving the payment of money, each party would be given notice of the breach and 30 days in which to cure the breach or commence good faith efforts to cure the breach. Finally, the agreement states: "[T]he parties shall mutually agree on installation and commencement schedules."
The ATM installation process started slowly, and no ATM's were actually installed until around August 2002, three months into the test period. In October 2002 several members of Longs's upper management changed. As a result of this change, no individual at Longs had responsibility for the ATM agreement. The only person who had any knowledge about the agreement after the change in management was the assistant treasurer, Frank Jack.
For his part, Jack was under the mistaken impression that because the ATM's were not installed until August 2002, the test period would extend six months from that date, until late January or early February 2003. The test period in fact ended on October 31, 2002, and neither party cancelled the agreement. Thus the term of the agreement was automatically extended to November 1, 2005.
At the end of the test period, Capitol wanted to move forward with the system-wide installation of ATM's. Capitol made several telephone calls and sent several e-mails to Longs's management and received no response.
2. Capitol's Notice of Default / Amended Agreement
Capitol, frustrated that system-wide installation had not begun, sent Longs a notice of default on February 25, 2003. The notice stated Longs had precluded Capitol from moving forward with the contract, and as a result Capitol claimed it had sustained approximately $1.4 million in damages. Capitol's damage calculation was based on its earnings on a similar contract for Longs's drug stores located in Hawaii. Capitol estimated that over the life of the existing agreement it would earn $13 million and therefore its losses during the four-month period when Longs took no action on the agreement amounted to $1.4 million. However, Capitol's witnesses conceded that during the actual test period—August, September and October 2002—the average number of transactions was respectively 74, 111 and 130. According to Capitol, ATM's are not profitable unless they process 250 transactions a month, and Capitol conceded at trial the machines were never profitable during the period prior to the notice of default. Moreover, Capitol's witnesses also conceded that during the following nine months, its machines did not record an average of more than 200 transactions.
In any event, upon receiving the notice of default, Longs took immediate action to correct the default and begin a system-wide introduction of ATM's into Longs's California stores. Jack advised Capitol it was going to try to "mend the situation" and move forward with the contract. To that end, the parties signed an amended agreement which became effective May 20, 2003. The term of the agreement was extended an additional 14 months to January 1, 2007. The amended agreement further anticipated that within 15 days of signing the agreement, Longs would begin the system-wide introduction of ATM's. Incorporated within the amendment was an agreed schedule for installation, which was to be subject to Longs's ability to get dedicated telephone lines installed at its stores. The amendment stated that the parties agreed that ATM's would be installed at a rate of 20 stores a month.
3. Roll Out/Longs's Notice of Default
Shortly after both parties signed the amendment, the system-wide rollout began. Within the next few months, Capitol installed 40 to 50 ATM's in Longs's California stores.
At this point in time, Longs decided to relieve Jack of responsibility for the ATM contract and give that responsibility to an employee in its operations department. Longs also developed a procedure by which it would create a map of each store and a Longs's operations person and the store manager would sign off on a potential location for an ATM machine. During negotiations over the original agreement, Capitol asked that the location of ATM's in particular stores be determined by way of mutual agreement between the parties. Longs rejected this request and advised Capitol prior to signing the original agreement that the location of the ATM's would be at the sole discretion of Longs. Thus the parties' agreement states in part: "The location of ATMs in Premises shall be determined by Longs."
In August 2003 a disagreement arose between the parties regarding placement of ATM's. Capitol installed at least one machine in a location which had not been approved by Longs. Specifically, Capitol installed the ATM after hours, around 8:00 p.m., in front of a conveyor belt at a check stand. The chief executive officer of Capitol, Craig Spivak, also conceded at trial that he was aware that Longs was also concerned about the location of at least nine other ATM's.
As a result of the incorrect installation, the chief executive officer of Longs, Martin Bennett, called Spivak. The call occurred in September 2003. At trial Bennett and Spivak had somewhat different recollections of the conversation:
In Bennett's version, Bennett advised Spivak that Longs had the right to determine the placement of ATM's and Spivak responded he had a say in where the ATM's would be placed. Bennett conceded he may have stated he was going to consult his attorneys regarding the issue. According to Bennett, the call ended in disagreement.
In Spivak's version of the telephone conversation, Bennett advised him one machine was not in the correct location, and Spivak responded that he had no knowledge of an incorrect installation. According to Spivak, he then told Bennett that the location selected by Longs would not achieve the goals of the contract. According to Spivak, Bennett replied that he was going to speak to his lawyers and look for a way to void the contract. Furthermore, according to Spivak, Bennett told Spivak not to install any more ATM's in Longs stores.
In any event, there is no dispute in the record that on October 1, 2003, Longs sent Capitol a notice of default. The notice of default alleged Capitol repeatedly refused to locate ATM's in the locations designated by Longs. The notice of default demanded that Capitol relocate existing ATM's to locations approved by Longs and further stated: "Assuming Capitol elects to cure its default Longs would expect Capitol to honor the terms of the Agreement in the future and install the ATM's in locations determined by Longs."
4. Litigation Commences
On October 8, 2003, Capitol filed suit against Longs. Capitol alleged Longs had failed to cooperate with it in locating ATM's in Longs's stores and that Longs's failure gave rise to claims for breach of contract, breach of the covenant of good faith and fair dealing and declaratory relief. In apparent response to the lawsuit and ongoing dispute with Capitol, Bennett sent store managers a memo which in part stated: "Due to a contract dispute with ATM Capitol, some or possibly all of the ATM's installed or still in your warehouse may be picked up by an ATM Capitol representative. If the machine is picked up, please make sure they sign a statement that the machine was picked up."
Sometime in the fall of 2003, after Spivak's conversation with Bennett, Capitol noticed a higher than normal rate of ATM malfunctions. Specifically, Capitol noticed errors resulting from the physical removal of telephone cords from its ATM's. Other problems included machines without cash and out of order signs placed on machines. Capitol believed Longs's employees intentionally tampered with the machines. However, Capitol never sent Longs any notice of default regarding the alleged vandalism.
Other testimony indicated the machines were never tested to determine if they were in fact out of order. The record also shows Longs spent substantial time and money preparing its stores for installation of ATM's. Notwithstanding its suspicions, Capitol presented no direct evidence Longs's employees intentionally unplugged functioning machines.
In 2004, while Capitol's lawsuit was pending, Longs and Capitol engaged in disputes with respect to whether Capitol had paid Longs amounts earned from the ATM's and whether Capitol was installing ATM's according to the terms of the agreement as amended. On December 1, 2004, Longs sent Capitol a demand that installations resume or Longs would require that all previously installed ATM's be removed.
Eventually, Capitol stopped installing machines at Longs's stores. Spivak testified he was aware there were at least 55 stores ready to receive ATM's but he elected to stop communications with Longs and end ATM installation at Longs's stores. On March 6, 2006, Capitol sent Longs an e-mail stating it would no longer install ATM's.
5. Trial
Prior to trial, Longs moved for summary judgment and its motion was denied. At trial, Longs moved for a nonsuit following Capitol's opening statement. The trial court deferred ruling on the motion, and Longs renewed the motion at the close of Capitol's case. At that point, the trial court granted the motion. The trial court found all the items set forth in Capitol's February 23, 2003 notice of default were addressed and cured by way of the parties' May 20, 2003 amendment to their agreement, that Bennett's statement to Spivak in September 2003 was not an unambiguous and unconditional anticipatory breach of the contract and, even if it was such a breach, it was revoked by way of Longs's later notice of default in which it demanded performance on the contract. The court also noted that if Capitol believed Bennett's statement was a breach, it was required under the terms of the agreement to give Longs notice of the breach and an opportunity to cure. Next, the trial court found that any claim with respect to later interference or vandalism of machines was barred by Capitol's failure to give Longs any notice of default about those claims.
Finally, the trial court stated: "Separate from all that, the Court is prepared to find there is zero basis from which a reasonable jury could conclude that plaintiffs suffered any damages, assuming some sort of breach."
Following its order granting the motion for nonsuit, the trial court entered judgment in Longs's favor. Longs moved for an award of attorney fees and costs under the terms of the parties' agreement and the trial court awarded Longs $750,000 in attorney fees and $18,452.33 in costs. Capitol appeals separately from the judgment entered on the nonsuit and the later order granting Longs its attorney fees and costs. We consolidated the appeals.
DISCUSSION
I
"The scope of a trial court's inquiry on a motion for nonsuit is... limited. A motion for nonsuit or demurrer to the evidence concedes the truth of the facts proved, but denies as a matter of law that they sustain the plaintiff's case. A trial court may grant a nonsuit only when, disregarding conflicting evidence, viewing the record in the light most favorable to the plaintiff and indulging in every legitimate inference which may be drawn from the evidence, it determines there is no substantial evidence to support a judgment in the plaintiff's favor. [Citations.]
".... We are bound by the same rules as the trial court. Therefore, on this appeal we must view the evidence most favorably to appellants, resolving all presumptions, inferences and doubts in their favor, and uphold the judgment for respondents only if it was required as a matter of law. [Citations.]" (Edwards v. Centex Real Estate Corp. (1997) 53 Cal.App.4th 15, 27-28.)
As we indicated at the outset, we agree with the trial court: notwithstanding the narrow circumstances under which a nonsuit is proper, here Capitol failed to provide evidence which would support relief on any of its alternative breach of contract theories.
II
Before discussing the specific theories Capitol advanced in the trial court and asserts again on appeal, we think it will be useful to consider circumstances in the record which in large measure prevent Capitol from recovering on any contract theory.
First, there is no dispute that at all times the agreement between Longs and Capitol contained notice and cure provisions by which both parties were required to give each other notice of any defaults under the agreement and an opportunity to cure. Capitol sent Longs only one notice of default and, after a lengthy period of negotiation, the parties then amended the agreement and again commenced performance under it. Capitol never gave Longs any additional notice of default. This sequence of events—notice, amendment, renewed performance under the contract with no further notice of default by Capitol—establish that Longs's default, including any loss of profit Capitol may have experienced, was treated as cured by both Longs and Capitol.
We also note that following the disputed September 2003 telephone conversation between Spivak and Bennett, Capitol did not send Longs any notice of default. Instead, Capitol sued Longs, but not on the theory Bennett's statement constituted an anticipatory breach, but rather on the theory Longs had not cooperated with Capitol in the location of ATM's in individual stores. Moreover, the record also shows that even after it was sued by Capitol in 2003, throughout 2004 and 2005, Longs nonetheless continued to request that Capitol install machines it its stores, that Capitol continued to do so and only in March 2006 Capitol, not Longs, unilaterally decided to stop installing ATM's in Longs's stores. These circumstances show unequivocally that neither Capitol nor Longs treated Bennett's statement as a termination of either parties' obligations under the contract.
Finally, we note Spivak conceded the average volume of transaction on ATM's never approached the $250 per machine needed to make the ATM's profitable. In light of that concession, Capitol could not demonstrate any lost profits, even if it had been able to show a breach by Longs.
III
We now turn to Capitol's contention the breaches raised in its February 23, 2003 notice of default were not cured by way of the parties' May 20, 2003 amended agreement.
Capitol's February 23, 2003 notice of default stated that although Capitol was ready, willing and able to commence installation of ATM's following the end of the test period, it was unable to proceed "due to a complete lack of cooperation on the part of Longs." The notice of default demanded that "Longs take all steps necessary to perform all of its obligations under the Agreement, WITHOUT FURTHER DELAY, and that you compensate [Capitol] fully for all of the substantial losses it has already incurred by reason of Longs's wrongful conduct, from November 1, 2002 to the date full compliance with the Agreement is achieved."
There is no dispute that in response to the notice of default, Jack contacted Capitol and promptly began negotiating with respect to the installation of ATM's at all of Longs's California stores. Moreover, there is no dispute that Capitol and Longs amended their agreement by extending the term of the agreement by 14 months, by agreeing that Longs would commence to obtain the needed dedicated telephone lines at its stores, and by agreeing that ATM's would be installed at a rate of 20 locations a month.
Given these undisputed circumstances, Longs's admitted failure to cooperate in starting installation of ATM's in all its California stores following expiration of the test period will not support a breach of contract claim. Although the parties' amendment to the agreement did not by its terms purport to expressly waive any breach by Longs, the terms of the underlying agreement, which as amended, remained in effect, prevent Capitol from arguing Longs's defaults constituted a breach of contract. In particular, paragraph 17 of the underlying agreement provides in pertinent part: "Longs is in breach of this Agreement if... (ii) in the case of a breach which cannot be cured by payment of money, it continues either (A) for 30 days after written notice or (B) in the case of a breach which cannot be cured within 30 days, continues for 30 days without diligent commencement of cure in good faith and is not 90 days after notice cured in fact. Longs will be liable to Capitol for all amounts necessary to compensate Capitol for all the detriment proximately caused by Longs'[s] failure to perform its obligations under this Agreement." Under paragraph 17, if Longs was able to cure any default within the period permitted, it would not be guilty of any breach of the parties' agreement.
The record shows Longs in fact met the cure requirements set forth in paragraph 17. That is, the record is unequivocal Longs in fact provided Capitol with the full cooperation Capitol's notice of default demanded. In particular, Capitol does not dispute Jack promptly responded to the notice of default and that within 90 days the parties had agreed to an installation schedule, predicated on Longs's ability to get dedicated telephone lines. Given those undisputed facts, a trier of fact would be required to conclude the default Capitol raised the failure to cooperate in commencing installation in all Longs California stores had been cured.
As it did in the trial court, on appeal Capitol contends that even if Longs provided the cooperation Capitol's notice of default demanded, Longs did not compensate Capitol for the losses it experienced as a result of the delay in commencing installation. The principal problem with this argument is that Capitol failed to produce any evidence the delay caused it any damage. Although a plaintiff which has not been able to establish a new business may nonetheless prove lost future profits, its burden in doing so is far more difficult than the burden facing an established enterprise with a history of profitability. (See Kids' Universe v. In2Labs (2002) 95 Cal.App.4th 870, 883-884.) In Natural Soda Prod. Co. v. City of L. A. (1943) 23 Cal.2d 193, 199, the Supreme Court held: "The award of damages for loss of profits depends upon whether there is a satisfactory basis for estimating what the probable earnings would have been had there been no [breach]. If no such basis exists, as in cases where the establishment of a business is prevented, it may be necessary to deny such recovery. [Citations.] If, however, there has been operating experience sufficient to permit a reasonable estimate of probable income and expense, damages for loss of prospective profits are awarded. [Citations.]"
Here, the record shows that during the test period and during the following nine months, the average return on the ATM's Capitol installed was well below what was needed to show a profit. Given those facts, a trier of fact could not conclude that the delay in commencing installation, from October 2002 until February 2003, caused Capitol any losses. (See Natural Soda Prod. Co. v. City of L. A., supra, 23 Cal.2d at p. 199.) In this regard, Capitol's reliance on average performance in the industry as set forth by its expert is unavailing. The law requires some evidence of actual, rather than hypothetical, profitability.
The other difficulty with Capitol's damages claim is that by amendment Longs extended the period of the contract by 14 months. Thus Capitol was provided with ample opportunity to recoup any lost profits it might have experienced as a result of the delay.
In sum on this record, a trier of fact could not conclude Longs was guilty of any breach or that Capitol suffered any loss as a result of Longs's tardy performance.
IV
Next, we turn to Capitol's contention that in Spivak's September 2003 telephone conversation with Bennett, Bennett repudiated the contract and thus Longs was guilty of an anticipatory breach.
In order to establish an anticipatory breach, Capitol was required to show Longs made a clear, positive, unequivocal refusal to perform. (See Taylor v. Johnston (1975) 15 Cal.3d 130, 138; Guerrieri v. Severini (1958) 51 Cal.2d 12, 18; Martinez v. Scott Specialty Gases, Inc. (2000) 83 Cal.App.4th 1236, 1246; Layton v. West (1969) 271 Cal.App.2d 508, 512.) " 'Anticipatory breach must appear only with the clearest terms of repudiation of the obligation of the contract. [Citations.]" (Guerrieri v. Severini, supra, 51 Cal.2d at p. 18.) Importantly, an alleged repudiation must be viewed in the context in which it was made. (See Martinez v. Scott Specialty Gases, Inc., supra, 83 Cal.App.4th at p. 1247.)
Although an implied anticipatory breach is also possible, that only occurs where a defendant makes its own performance impossible. (Taylor v. Johnson, supra, 15 Cal.3d at p. 139; Witkin, Summary of California Law (10th ed.) p. 952, Contracts, § 864.) There is no suggestion in the record Longs was ever unable to perform its obligations under the contract.
Here, on the motion for nonsuit, the trial court was required, as are we, to accept Spivak's version of the telephone conversation in which Bennett told Spivak to stop installing ATM's in Longs's stores and Bennett stated he would have his lawyers look for a means of voiding the agreement. Nonetheless, there is no dispute this statement was followed in fairly short order by Longs's notice of default, in which Longs demanded that Capitol cooperate in relocating previously installed ATM's to locations selected by Longs and that in the future Capitol "install ATM's in locations determined by Longs."
Arguably, considered alone, Spivak's version of the telephone conversation might support a finding Longs had unequivocally repudiated the contract. Although, as Long's points out, the reference to consulting lawyers about voiding the contract is on its face conditional, the direction that Capitol stop installing machines is both fairly unequivocal and a termination of rights Capitol would otherwise have under the contract. Nonetheless, for two reasons the telephone conversation is not sufficient to support a claim of anticipatory breach.
First, contrary to Capitol's argument on appeal, in determining whether Longs was guilty of an anticipatory breach or simply demanding that Capitol place ATM's in locations selected by Longs, we cannot separate the telephone conversation from the closely-related notice of default Longs sent Capitol. Both communications concerned the subject matter of the parties' dispute, the location of ATM's in Longs's stores, and were prompted by the same events: Bennett's discovery that in at least one store Capitol had placed an ATM in front of a check stand conveyor belt and the ongoing difficulties Longs was experiencing with Capitol's placement of ATM's. Given its temporal and logical connection to the telephone conversation, the notice of default plainly and definitively clarified Longs's position with respect to what it expected from Capitol. (See Martinez v. Scott Specialty Gases, Inc., supra, 83 Cal.App.4th at p. 1247.) The notice of default makes its clear Longs expected existing ATM's would be moved to locations designated by Longs, and that in the future Capitol would honor the locations designated by Longs. In light of the notice of default, a trier of fact could not conclude that the telephone conversation was the unambiguous and unequivocal repudiation of the contract needed to support an anticipatory breach.
Secondly, even if we were unwilling to rely on the notice of default as a means of interpreting the earlier telephone conversation, the notice of default would nonetheless be, as the trial court found, a retraction of any repudiation. (See Taylor v. Johnston, supra, 15 Cal.3d at p. 138; Guerrieri v. Severini, supra, 51 Cal. at p. 19.) The notice of default made it unequivocally clear Longs expected Capitol would continue performing under the contract. The unambiguous manifestation of such an expectation is more than sufficient to retract any earlier repudiation of a contract. (See Taylor v. Johnston, supra, 15 Cal.3d at p. 138 [defendant's conduct in performing under contract following repudiation acts as retraction].)
Moreover, were there any doubt as to the impact of Bennett's statements, we need only look to the conduct of the parties from 2004 through 2006. During that period, Longs continued to ask that Capitol install more ATM's in its stores, Capitol continued to do so, and installation only ceased in 2006 when Capitol advised Longs it would not be installing any more ATM's. This course of conduct is entirely inconsistent with either parties' belief the contract had been terminated in 2003.
V
Finally, we turn to Capitol's contentions with respect to the interference with and vandalism of its machines. As the trial court noted, Capitol never gave Longs the notice of default and opportunity to cure required by paragraph 17 of the parties' agreement. In the absence of such notice and opportunity to cure, the interference and vandalism were not actionable breaches. Admittedly, as Capitol notes, had Longs been guilty of an anticipatory breach, Capitol might have been relieved of its responsibilities under the contract. However, as we have indicated, Longs was not guilty of any anticipatory breach, and Capitol was not relieved of its obligation to give Longs notice of any default.
DISPOSITION
The trial court did not err in granting Longs's motion for nonsuit. Thus the judgment in its favor must be affirmed. Because Capitol challenges the award of attorney fees and costs solely on the grounds the trial court erred in granting the nonsuit, the trial court's later award of attorney fees and costs must also be affirmed.
Judgment and order affirmed. Longs to recover its costs of appeal.
WE CONCUR: HALLER, J., IRION, J.