Opinion
A148217
03-14-2018
HENRY M. BURGOYNE III, Plaintiff and Appellant, v. GOLDSTEINENRIGHT et al., Defendants and Respondents.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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 City and County Super. Ct. No. CGC-14-536581)
Plaintiff Henry M. Burgoyne III and Karl Kronenberger co-founded a law firm from which Kronenberger later ejected Burgoyne. In this action, Burgoyne seeks to recover from the law firm's accountants damages that he alleges the accountants caused him in the aftermath of this breakup. A jury that heard the evidence agreed with Burgoyne. They found the accountant, David Woo, and his firm, GoldsteinEnright, liable on breach of contract, professional negligence, and breach of fiduciary duty causes of action, and they awarded Burgoyne $292,000 in damages. Then the trial court entered judgment notwithstanding the verdict (JNOV) on the ground that the jury's damages award was not supported by substantial evidence. Because the question on a JNOV motion is whether the record contains substantial evidence that the plaintiff suffered damages in some amount—not whether the evidence supports the specific amount of damages awarded—we reverse.
FACTUAL AND PROCEDURAL BACKGROUND
Viewing the evidence in the light most favorable to the jury's verdict, the record includes substantial evidence of the following facts.
Kronenberger and Burgoyne memorialized their partnership in an agreement, which they amended over time. Before 2009, Kronenberger owned 55 percent of the equity in Kronenberger Burgoyne LLP, and Burgoyne owned the remaining 45 percent. But in 2009, the partners agreed to become equal partners, and the schedules that the firm's bookkeeper shared with Woo began showing an equal split of the firm's income. However, Woo continued to prepare the partnership's income tax returns and Burgoyne's personal income tax returns as if Burgoyne still owned only 45 percent of the firm.
In October 2011, Kronenberger ejected Burgoyne from the partnership. He changed the firm's name to Kronenberger Rosenfeld, LLP, terminated the firm's relationship with Woo and GoldsteinEnright, and hired as the firm's new tax accountants Monique Tiger and her firm Calegari & Morris. At Kronenberger's direction, Tiger prepared a termination calculation to show how much money the firm owed Burgoyne, or Burgoyne owed the firm, upon his departure. But this calculation understated Burgoyne's interest in the firm because Tiger credited Burgoyne with only a 45 percent interest in Kronenberger Burgoyne, LLP, in part based on the firm's income tax returns as Woo had prepared them in 2009 and 2010. Burgoyne should have received $186,887 as the return of capital he had invested in the firm, but instead the mistaken calculation showed he had a negative balance in his capital account.
In December 2011, Burgoyne filed an action in federal court against Kronenberger and his former law firm. Among the various claims in the federal case, Burgoyne alleged that the firm should buy him out at a price reflecting his 50 percent ownership in the firm. In May 2012, Kronenberger filed a counter-claim alleging that Burgoyne owed his former partnership money instead, based on Tiger's calculation assuming Burgoyne owned just 45 percent of the firm. After a number of depositions and attempts at mediation, the partners finally settled the federal case in September 2013. Pursuant to the settlement, Kronenberger and his firm paid Burgoyne approximately $530,000, and the parties executed mutual releases of all claims except those against "outside accountants."
Several months later, in January 2014, Burgoyne filed this case against both sets of outside accountants. His claims against Tiger and her firm were dismissed on summary judgment, and are the subject of a related appeal also decided today. (See Burogyne v. Calegari & Morris, case No. A146746.) His claims against Woo and GoldsteinEnright went to trial in October 2015. At trial, Burgoyne called an accounting expert by the name of Thomas Chapman, who presented his damages claim.
Chapman calculated Burgoyne's damages at $515,416, the sum of two component parts. First, was a claim for $186,887, representing Burgoyne's half of the equity the partners had in the firm at the end of 2011. Chapman calculated this number by looking at the balance sheet in the 2011 partnership income tax return and (after accounting separately for interest, charitable contributions, and certain other minor expenses) dividing this amount equally between the two partners. Chapman deducted nothing from the $186,887 he calculated this way. In particular, he did not reduce Burgoyne's damages claim by offsetting against Burgoyne's share of the firm's capital any of the $530,000 that Kronenberger and his firm had paid Burgoyne in settling the federal case. Chapman testified that, although he was aware of the settlement, he did not "associate the settlement" with the money owed Burgoyne for his capital account.
The second element of Burgoyne's damages, as Chapman reckoned them, was money Burgoyne paid in attorney's fees and costs in the federal case. Chapman understood this amount to exceed $300,000, and that these fees were "associated with" Burgoyne's "defense of his . . . equality position in the partnership." Burgoyne testified that when he first saw Woo's erroneous tax accounting during a June 2012 mediation in the federal case, he realized that the documents would "give some support to" Kronenberger's argument that he was a 55 percent owner, and that instead of the case winding up quickly there would be "a lot of fighting" over Burgoyne's ownership percentage as a result of the partnership tax documents that Woo prepared. A number of depositions ensued, and at least half the questioning at several of them was devoted to whether Burgoyne had a 50 percent equity interest in Kronenberger Burgoyne LLP.
To substantiate the $325,000 he says he spent on legal fees for the federal litigation, Burgoyne introduced into evidence a stack of invoices, heavily redacted. The bills are from attorneys, court reporters, potential expert witnesses, and other service providers that Burgoyne or his counsel appear to have retained, but on the attorney invoices all of the descriptions of services provided are redacted, so only amounts per attorney remain. The trial court ruled that because Burgoyne never produced unredacted bills, he could not testify to the proportion of his attorney's fees that was devoted to litigation over the miscalculation of his capital account, nor could his attorney argue in closing that a portion of the attorney's fees (as opposed to the entire sum) should be allocated as damages.
At the close of evidence, the jury received a special instruction meant to prevent them from performing this sort of allocation of attorney's fees. The court gave standard instructions that proof of the amount of damages need not be exact, but that the jury "must not speculate or guess in awarding damages," and then informed them that Burgoyne was claiming two specific items as reflected on the verdict form: "payment of capital accounts not received" and "attorney's fees and costs in the [f]ederal litigation." The court also gave the following special instruction: "Plaintiff has requested that you award $323,529 to compensate Mr. Burgoyne for his attorney's fees and costs incurred in the [f]ederal litigation . . . . To award these damages, you must find that Mr. Woo's breach was the cause of Mr. Burgoyne's incurring the sum of $323,529 in attorney's fees." This was a milder version of a special instruction that Woo and GoldsteinEnright had requested, intending to convey that the jury should award attorney's fees only if they found that Woo's breach caused Burgoyne to incur "the entire sum" of $323,529 in attorney's fees.
The jury read the instruction more flexibly. Their verdict found that Burgoyne had satisfied all of the elements of his breach of contract, professional negligence, and breach of fiduciary duty causes of action, including that for each cause of action Woo's and GoldsteinEnright's failings had been "a substantial factor in causing harm to Mr. Burgoyne." But in quantifying Burgoyne's damages, the jury awarded less than 40 percent of what he had sought for attorney's fees in the federal action, even as they shaved just a little from what he had requested for capital account damages. The jury assessed damages identically for each cause of action: "Payment of capital account not received: $172,000" and "Attorney's fees and costs in the federal litigation: $120,000," for a total of $292,000. On November 23, 2015, the trial court entered judgment on the jury verdict, awarding Burgoyne $292,000 plus costs and interest, and reserving jurisdiction to rule on defendants' motion for judgment notwithstanding the verdict (JNOV).
On December 22, 2015, the trial court granted the JNOV motion as to damages. She made two orders, one addressing each of the two elements of damages. First, the motion was "granted as to the jury's $120,000 award of attorney fees" because "[t]he jury disregarded the court's instruction not to speculate or guess about the amount of MR. BURGOYNE'S attorney fees incurred for accounting and ownership issues in the federal litigation . . . . Second, the motion was "further granted as to the jury's award of $172,000 for payment of capital account not received" for reasons the court explained at some length. The trial court acknowledged that substantial evidence showed Woo and GoldsteinEnright "had mistakenly reported to the [Internal Revenue Service] in 2009 and 2010 that MR. BURGOYNE was a 45% partner," and that Chapman had testified that Burgoyne, "as a 50% partner, was owed $186,887 for his capital account." But it found no substantial evidence to support that Burgoyne had not been fully compensated for this loss already in his $530,000 settlement of the federal action. In particular, the court found Burgoyne's testimony that the "settlement agreement did not 'specifically label' " any of the settlement proceeds as payment on his capital account "was not substantial evidence."
The parties filed competing memoranda of costs. Burgoyne argued that the trial court had discretion to designate him the prevailing party, since the court had not disturbed the jury's verdict as to liability. Woo and GoldsteinEnright argued that an award of costs in their favor was mandatory, as they were prevailing parties. The trial court agreed with defendants, as Burgoyne recovered no relief against them. On March 17, 2016, the trial court vacated its prior judgment and entered judgment in favor of Woo and GoldsteinEnright, awarding them $66,583 in costs.
This appeal timely followed.
DISCUSSION
A. Legal Standard
We review de novo a judgment notwithstanding the verdict, using the same substantive standard as does the trial court. (Oakland Raiders v. Oakland-Alameda County Coliseum, Inc. (2006) 144 Cal.App.4th 1175, 1194.) " ' " 'A motion for judgment notwithstanding the verdict of a jury may properly be granted only if it appears from the evidence viewed in the light most favorable to the party securing the verdict, that there is no substantial evidence to support the verdict. If there is any substantial evidence or reasonable inferences to be drawn therefrom in support of the verdict, the motion should be denied.' " ' " (Hansen v. Sunnyside Products, Inc. (1997) 55 Cal.App.4th 1497, 1510 (Hansen), quoting Clemmer v. Hartford Insurance Co. (1978) 22 Cal.3d 865, 877-878.) The court must make this assessment without weighing competing evidence. Indeed, we must "disregard[] conflicting evidence on behalf of the defendants and giv[e] to plaintiff's evidence all the value to which it is legally entitled, therein indulging in every legitimate inference which may be drawn from that evidence." (Reynolds v. Willson (1958) 51 Cal.2d 94, 99 (Reynolds).)
A failure of proof as to any one element of a claim justifies dismissing the entire claim on JNOV. (See, e.g., Garretson v. Harold I. Miller (2002) 99 Cal.App.4th 563, 572-573.) Here, all three causes of action include a damages element. (See Troyk v. Farmers Group, Inc. (2009) 171 Cal.App.4th 1305, 1352 [breach of contract]; Loube v. Loube (1998) 64 Cal.App.4th 421, 429 [professional negligence]; Stanley v. Richmond (1995) 35 Cal.App.4th 1070, 1086 [breach of fiduciary duty].) Thus, we must affirm if Burgoyne has presented no substantial evidence of his damages.
JNOV is not appropriate, however, in a case where the element of damages is proven, but the amount of damages the jury awards is improper. (Grail Semiconductor, Inc. v. Mistubishi Electric & Electronics USA, Inc. (2014) 225 Cal.App.4th 786, 794-796 (Grail).) If at trial plaintiff proves resulting harm but the jury assesses incorrectly the amount of damages, a defendant may be entitled to a new trial but not to JNOV. (Id. at p. 795.) This is so whether the jury's mistake is characterized as having applied an "incorrect measure of damages" as in Grail (id. at p. 793), or having awarded damages that are "based on speculation." (Dell'Oca v. Bank of New York Trust Co., N.A. (2008) 159 Cal.App.4th 531, 552, 558 (Dell'Oca) [affirming new trial grant and denial of the defendant's JNOV motion].) Where the jury resorts to speculation in fixing damages but there is a "real possibility that the plaintiff has a meritorious case," a new trial is appropriate but a JNOV is not. (Id. at p. 548, italics omitted; see also Teitel v. First L.A. Bank (1991) 231 Cal.App.3d 1593, 1604-1607 (Teitel) [reversing JNOV and remanding for reconsideration of new trial motion].) Thus, we must reverse if Burgoyne has presented substantial evidence that he suffered at least some damages, even if the evidence does not support the amount of damages the jury found.
Whether we "concur with the jury's evaluation of the testimony is not controlling. The controlling factor is [whether] there was evidence from which the jury could have inferred" facts sufficient to support its verdict. (Hale v. Farmers Ins. Exch. (1974) 42 Cal.App.3d 681, 692.) Here, "the only problem presented is whether (disregarding all conflicting evidence favorable to the defendants), there is sufficient substantial evidence" that Burgoyne suffered some amount of compensable damages. (Reynolds, supra, 51 Cal.2d at p. 99.)
B. JNOV Is Not Proper Given Substantial Evidence of at Least Some Damages
Burgoyne argues that there was substantial evidence that he suffered damages as a result of defendants' conduct, both with regard to his attorney's fees and costs in the federal action and with regard to payment on his capital account not yet received. We agree.
On attorney's fees and costs in the federal action, Burgoyne introduced substantial evidence that he sustained at least some damages. Specifically, the jury had evidence that: (a) Burgoyne spent about $325,000 on legal fees and costs in the federal case; (b) whether Burgoyne was a 45 percent owner or a 50 percent owner of the firm was a major issue in the federal litigation, taking up at least half of the deposition time in several depositions (e.g., 90 percent of bookkeeper Wallace's deposition; 80-85 percent of Woo's deposition; at least 50 percent of accountant Tiger's deposition); and (c) the errors in Woo's accounting work gave "some support" to Kronenberger's argument that Burgoyne owned only 45 percent of the firm, fueling "a lot of fighting" over the issue. These facts together provide substantial evidence in support of a jury verdict holding Woo and GoldsteinEnright liable for the torts the jury found they committed.
The trial court awarded JNOV as to the jury's $120,000 award of attorney's fees because it found the jury had disregarded its instruction not to speculate about the portion of Burgoyne's fees that was attributable to the ownership issue. We see two problems with granting JNOV on this basis. First, " '[w]here the fact of damages is certain, the amount of damages need not be calculated with absolute certainty.' " (Meister v. Mensinger (2014) 230 Cal.App.4th 381, 396-397.) An approximation based on evidence will suffice (ibid.), and here the record arguably includes enough evidence to support the jury in the approximation it made with regard to attorneys' fees because the jury's award represents less than 40 percent of the fees and costs Burgoyne paid in the federal litigation. Second, if a jury's damages award is based on an "incorrect measure of damages" or on mere speculation but the plaintiff may have a meritorious damages case, the defendant is entitled to a new trial on damages but not to JNOV. (Grail, supra, 225 Cal.App.4th at p. 793; Dell'Oca, supra, 159 Cal.App.4th at pp. 552, 558; Teitel, supra, 231 Cal.App.3d at pp. 1604-1607.) Here, because defendants sought no new trial, we need not decide whether they would have been entitled to one. It is enough to say that Burgoyne has put forward substantial evidence of at least some amount of compensable attorney's fees and costs in the federal case.
Respondents protest that any award for the attorney's fees and costs component of damages that is less than $323,529 is necessarily speculative because Burgoyne was not allowed to testify about the proportion of the federal litigation that was devoted to the ownership issue. It is true that the attorney invoices that Burgoyne produced in discovery and introduced at trial were heavily redacted, and that as a result the trial court refused to allow Burgoyne to testify that "the vast majority of" the federal litigation related to the ownership issue. (Cf. Dwyer v. Crocker Nat'l Bank (1987) 194 Cal.App.3d 1418, 1432-1433 [plaintiff who invokes Fifth Amendment privilege may be prevented from introducing related evidence at trial].) But Burgoyne was allowed to testify as to the proportion of certain depositions that were devoted to the issue, and the court reporter's invoices, which were not redacted, show that Burgoyne paid thousands of dollars for court reporting services and transcripts for those same depositions where ownership was a major issue. The court reporter's invoices enable Burgoyne, even without resorting to reverse engineering of his attorney's redacted invoices, to establish a non-speculative (albeit small) amount of legal costs that are directly attributable to the ownership issue.
Having introduced at trial substantial evidence that he suffered at least some damages, Burgoyne defeats JNOV. But we find with regard to his capital account, too, that Burgoyne has presented substantial evidence in the form of Chapman's testimony on damages. Chapman testified that Burgoyne was owed $186,887 for his capital account not yet received.
GoldsteinEnright and Woo object that Chapman did not reduce or offset this number with any of the money Kronenberger and his firm paid in settlement of the federal action, which is true. Burgoyne received $530,000 pursuant to a settlement agreement that expressly preserved any claims against outside accountants, and that did not specify any particular portion of the settlement proceeds as payment on his capital account. After the parties to the settlement were unable to agree on how to characterize the monies for tax purposes, they returned to their mediator and asked him to arbitrate the issue, and the arbitrator concluded $338,000 of the settlement was "being paid 'in consideration of [Burgoyne's] equity interest in the capital assets.' " GoldsteinEnright and Woo concede that the arbitrator's decision was obtained for tax reasons, and they do not argue that the decision has res judicata effect here. The jury was not required to credit the allocation of settlement proceeds contained in the arbitrator's decision, nor to draw the inference that the arbitrator's finding for purposes of determining the settlement's tax consequences was binding in the jury's determination here. The trier of fact remains free to reject any witness's testimony, even where it is uncontradicted, so long as that rejection is not arbitrary. (Hauser v. Ventura County Board of Supervisors (Feb. 20, 2018, B276903) 2018 WL 947887 *2 ; Ortzman v. Van Der Waal (1952) 114 Cal.App.2d 167, 170-171.) And the court is not entitled to weigh countervailing evidence in deciding whether to grant JNOV. (Reynolds, supra, 51 Cal.2d at p. 99.)
Because Chapman's testimony established quantifiable damages, it constituted substantial evidence. If the trial court found that evidence unpersuasive, it could have granted a motion for a new trial. (See, e.g., Teitel v. First L.A. Bank, supra, 231 Cal.App.3d at pp. 1604-1607.) But in granting JNOV on the record here, the trial court erred.
The parties' dispute as to whether the trial court erred in awarding costs to Woo and GoldsteinEnright is moot, in light of our decision on the JNOV motion. The trial court's original award of costs to Burgoyne is reinstated as part of the judgment in his favor on the jury verdict.
DISPOSITION
The judgment in favor of Woo and GoldsteinEnright is vacated. The previous judgment in favor of Burgoyne is reinstated.
Burgoyne is entitled to his costs on appeal.
/s/_________
Tucher, J. We concur: /s/_________
Richman, Acting P.J. /s/_________
Miller, J.
Judge of the Alameda County Superior Court, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution. --------