Opinion
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
APPEAL from a judgment of the Superior Court of Los Angeles County, Richard L. Fruin, Jr., Judge, Los Angeles County Super. Ct. No. BC310893
Parker Mills & Patel, Parker Mills Morin, David B. Parker, William K. Mills and Howard M. Fields for Defendant and Appellant.
Simke, Chodos & Sasaki, David Manning Chodos and Richard A. Fond for Plaintiff and Respondent.
ASHMANN-GERST, J.
A jury found in favor of respondent Cal-City Construction, Inc. (Cal-City) in its legal malpractice action against appellant Wilson, Elser, Moskowitz, Edelman & Dicker, LLP (Wilson Elser). The evidence established that Wilson Elser was retained to represent Cal-City after the Los Angeles Unified School District (District) removed Cal-City on a construction project known as “Belmont 2” and refused to make progress payments on a construction project known as “Belmont 3.” Wilson Elser advised Cal-City to walk off Belmont 3. Cal-City walked off and sued the District for breaching its contracts on both projects. Just prior to trial, Wilson Elser advised Cal-City that it should never have walked off Belmont 3, and that because it did so, its only option was to settle on unfavorable terms. Cal-City obtained a judgment against Wilson Elser for $2,478,500 plus costs. The award included $941,000 in damages related to the adverse settlement with the District, and $1,722,500 for lost future profits on the theory that Wilson Elser’s negligence caused Cal-City to lose bonding capacity and forfeit projects that it was thereby prevented from bidding on. Wilson Elser moved for judgment notwithstanding the verdict (JNOV) or, in the alternative, for partial JNOV regarding lost future profits. The motion was denied. Wilson Elser now appeals the judgment and the denial of the motion for JNOV and argues: (1) Cal-City failed to offer evidence that it would have obtained a better result in the underlying disputes but for Wilson Elser’s negligence; and (2) Cal-City’s award for lost future profits was based on speculative evidence. We conclude that substantial evidence supports a finding that Wilson Elser caused Cal-City damage in connection with the underlying disputes, and that the award of $941,000 must stand. However, we also conclude that the trial court should have granted a partial JNOV as to lost future profits. To recover, Cal-City had to prove what it lost in net profits, but its expert put on evidence only of lost gross profits, and the expert’s testimony was otherwise speculative. We affirm the judgment, but only after modifying it to remove the award of lost future profits.
FACTS
The Belmont 2 and Belmont 3 disputes
In 2000, Cal-City was the successful bidder on Belmont 2 and Belmont 3 and was awarded the projects. Each project required Cal-City to build a primary school center for children. The Belmont 2 contract was dated August 31, 2000. The price was $3,116,310, and the project was supposed to be completed in 150 calendar days. The Belmont 3 contract, which was dated December 22, 2000, provided that Cal-City would be paid $3,398,351. Cal-City had 180 days to complete work. Both contracts provided that the District could grant extensions by change orders.
While Cal-City was working on the south retaining wall at Belmont 2, a field engineer from the Division of the State Architect (State Architect) visited. The field engineer told Cal-City to stop building the south retaining wall until it had a sufficient plan for reengineering the south end pile. According to the field engineer, the original plan for the south end pile did not require that the excavation be deep enough. Based on the original schedule and plans, the south retaining wall was supposed to be built first. This changed Cal-City’s schedule. Instead of grading and compacting the entire site, it was forced to grade only half of the site. This resulted in delay.
It rained at Belmont 2 from December 2000 to the middle of March 2001. Cal-City covered the area with visqueen, a vinyl covering. But that helped only a little. Due to mud, Cal-City could not pour concrete to build foundations. On days it did not rain, Cal-City used sump pumps to suck water into a hose and expel it onto the street. Cal-City also removed water using buckets. Eventually, when the rain stopped, Cal-City dug up the mud and spread it out so that it would dry.
Cal-City needed District surveyors, but they did not show up on the days requested. Cal-City could not proceed. It did not know the location of the property lines or the building corners.
Nicholas J. Toghia (Toghia), an attorney who worked one day a week for Cal-City, contacted Cal-City’s bonding company, The Hartford Casualty Insurance Company (Hartford), and spoke to Paul Boucher (Boucher) for advice. Soon thereafter, Cal-City, Boucher and the District met. The meeting resulted in a plan for future action.
On February 1, 2001, the parties entered into a memorandum of understanding and amendment to the Belmont 2 contract. The project completion date was extended to June 1, 2001. The amendment also provided that “[t]he caisson shoring along the South property line has been deleted from the scope of work” and that “[t]he Architect of Record will prepare revised drawings of sloped grade with small concrete retaining wall to replace the caisson shoring design.” Further, the parties agreed: “Construction work shall continue without regard to the revised slope grade drawings. This new work is not considered part of the critical path. At such time as the drawings are finalized and approved, Cal-City will provide pricing for such work and will be issued an appropriate change order.” The parties agreed “to adjust the contract price to reflect the deduction of the value of the caisson shoring and to compensate Cal-City for the 2-month delays incurred to date in the sum of $66,501.”
When Cal-City began working on the lunch shelter, it had to dig 17 to 18 feet deep for the caissons, which are concrete tubes. The caissons were supposed to support the patio. Cal-City found black, sticky soil with a gasoline smell. After smelling it, Young Lee (Lee), Cal-City’s project manager for both Belmont 2 and Belmont 3, got dizzy and nauseated. Cal-City’s workers and the nearby residents complained.
Lee asked the District to test the soil. After waiting a few weeks, Lee asked if he could have the site tested himself and was told yes. Lee hired a soils engineer. When the soils engineer arrived and Cal-City began drilling, a District inspector was present. He watched for about half an hour, made a phone call, then told the Cal-City to stop drilling. At that point, the soils engineer had taken two samples. Lee did not stop drilling because he had permission to drill, and because he wanted to get samples at 13 to 15 feet, which is the strata where he found the contamination. The District inspector called the police, who forced Cal-City to leave. Also, the District inspector confiscated the soil samples that Cal-City and its soils engineer had collected.
The parties met again and discussed the contaminated soil. The District stated that it had received testing results, but the results were not disclosed. Boucher thought this was unusual. Cal-City could not proceed with the project without knowing the test results. In Boucher’s view, the District was trying to get rid of Cal-City. But Cal-City was tenacious; it was working on the project even though it was not getting paid.
On April 23, 2001, the District served a three-day notice that informed Cal-City that it would be in default unless it cured a list of deficiencies.
On May 1, 2001, Larry Blackford (Blackford) of the District wrote an expulsion letter to Cal-City. The letter stated in part: “Pursuant [to] specification section 00500 Form 82.39 Article 16, you are hereby found in default of your contract and expelled from the construction site. [¶] Your failure to acknowledge the stop notice issued by the Inspector Of Record to cease unauthorized drilling and vacate the site is in violation of your contract.”
Prior to Belmont 2, Cal-City had never been thrown off a job, and it had never failed to complete a job.
Meanwhile, Cal-City worked on Belmont 3. To get a progress payment, Lee submitted a segregation of construction cost form to the District. Even though Lee used the same form and format he had successfully used in the past, the District refused to approve the form and authorize a payment. Lee amended the form twice, each time trying to address the District’s concerns, and each time it was again rejected by the District. He asked the District’s project manager why the form was being rejected but did not get an answer.
Belmont 3 grew more complicated when Cal-City uncovered 67 concrete blocks that had to be excavated. Those 67 concrete blocks were not in the District’s plans and specifications, so the cost of removal was not included in Cal-City’s bid. But Cal-City wanted to be paid.
Cal-City retained Wilson Elser. G. Wayne Murphy (Murphy) was assigned the case.
Cal-City’s goal was to get permission to return to Belmont 2 by negotiation or litigation. As to Belmont 3, Cal-City wanted its segregation of construction cost forms approved, and it wanted to be paid for the removal of the 67 concrete blocks that were hindering progress at Belmont 3.
Murphy wrote a May 29, 2001 letter (walk-off letter) on Cal-City’s behalf stating that it was going to walk off Belmont 3. At the time Murphy drafted the walk-off letter, he believed Cal-City had winnable causes of action against the District in connection with Belmont 2 and Belmont 3. When Toghia saw the walk-off letter, he called Murphy to ask if the walk-off letter had been cleared by Hartford. According to Murphy, it had been. Eventually, the District sent several demands for Cal-City to return to the job. On both occasions Toghia asked Murphy for his advice. Each time Murphy replied: “Stay the course. Don’t return to the job.”
As of May 29, 2001, the subcontractors had not demanded full payment. Cal-City had a good relationship with them. The subcontractors usually waited to get paid until Cal-City got paid by the District.
Cal-City sued the District for breach of contract on Belmont 2 and Belmont 3. The District cross-complained, contending that it was entitled to recover the cost of completion on both projects. Soon afterwards, Cal-City told Wilson Elser that it wanted a jury trial. After Wilson Elser had billed Cal-City about $200,000, Murphy indicated that he might not try the case. Murphy said he had to attend a surety convention.
Murphy said John Sher (Sher) would take over the case. That was 60 days before trial. Sher said he was not a surety or construction lawyer, and that he was unfamiliar with the facts, the documents and the legal issues. According to Sher, he needed Toghia’s assistance.
Toghia learned that Wilson Elser did not post jury fees. Instead, it had checked a box on a form requesting a bench trial. Sher said Cal-City would have to move for relief from default. Sher went on to explain that he wanted a jury trial because the District’s lawyer had never been the lead lawyer in a jury trial. That motion was heard and denied on February 18, 2002. At that point, trial was only a few days away.
Sher began to question whether Cal-City submitted proper segregation of construction cost forms. If the forms were not done properly, then Cal-City did not have a right to get paid, and did not have a right to walk-off Belmont 3. If that was true, Sher concluded that Cal-City was going to lose the Belmont 3 portion of its lawsuit. Also, the District would likely prevail on its cross-complaint for breach of contract.
During the second day of a settlement conference, Sher told Cal-City, “We did some last minute research and have determined that Cal-City can’t win the trial on Belmont 3 because the walk-off constitutes abandonment. And because Cal-City voluntarily abandoned [Belmont 3], I cannot win Belmont 3, so therefore the case has to be settled because you’re going to lose and I’m going to lose the trial.” Worse yet, Sher said that Cal-City would have to pay the District money for walking off Belmont 3. He indicated that he still thought the Belmont 2 case was winnable. Nonetheless, he thought the trial judge was biased. Sher stated: “I’m not going to try this case.”
Cal-City agreed to settle on unfavorable terms. It agreed to assign any project receivables to the District, pay the District $520,000, and not bid on District projects for five years.
Cal-City’s loss of bonding capacity
After Cal-City was expelled from Belmont 2 and walked off Belmont 3, Hartford reduced Cal-City’s bonding capacity from about $6 million to $500,000. This prohibited Cal-City from bidding on public works projects it considered to be within its expertise, which were projects from $1.5 million to $6 million. Toghia convinced Hartford to increase the capacity for a bid bond to $1.5 million. This allowed Cal-City to bid on a $1.24 million project. But when Cal-City was the low bidder, Hartford refused to issue the performance bond and the payment bond. Eventually Toghia placed the performance and payment bonds with Insco Dico, a local company.
The next project exceeded Insco Dico’s limits. Cal-City switched to a company called I.F.I.C. I.F.I.C. issued bonds for about eight months. But then it learned that Cal-City’s litigation with the District ended in a settlement and refused to issue any more bonds.
After a gap, Great American took over and wrote bonds. But it, too, ended its relationship with Cal-City after it demanded and received financial statements which revealed that Cal-City gave up its Belmont 2 and Belmont 3 receivables and had to pay the District $520,000.
Cal-City’s malpractice action against Wilson Elser
Cal-City called witnesses such as Lee, Toghia and Sher to testify about the events surrounding Belmont 2 and Belmont 3.
Mark Feldman (Feldman), a legal expert, testified that the District had a dispute resolution office. It was designed to avoid litigation. Disputes could be resolved in weeks, and sometime hours. Feldman opined that Wilson Elser should have told Cal-City to try resolving its dispute on Belmont 3 by utilizing the District’s dispute resolution services.
Keith Clements (Clements), senior regional bond manager for Allied Nationwide Insurance Company, testified that Cal-City was “very bondable” prior to the termination of Belmont 2. Cal-City handled every project on time, no bond claims were presented, it was taking care of small problems, and it was making money and growing over the years.
After the termination from Belmont 2, the walk-off from Belmont 3, and the settlement, Cal-City was in a terrible position. There was a possibility Cal-City could get limited bonding from a substandard carrier. But Cal-City lost the bonding capacity that it needed. After Great American refused to bond Cal-City, it had only a slim chance of getting bonded.
William Scott Mowrey, Jr. (Mowrey), a forensic accountant, testified regarding Cal-City’s lost future profits.
Mowrey noted that Cal-City was awarded seven District projects in the 2.6 years before the disputes with the District. Those contracts were worth $14 million. He calculated that the average number of projects awarded to Cal-City per year was 2.7, and that the average contract was worth $2,001,123. Multiplying those two numbers, Mowrey concluded that the average annual value of Cal-City’s District projects was $5.4 million, and that its lost profits due to the five-year ban on District projects was $3,244,071.
Regarding lost profits on non-District projects, Mowrey examined Cal-City’s projects of interest and found that historically it was the successful bidder on 11.33 percent of those projects. Next, Mowrey looked at non-District projects of interest during three periods during which Cal-City did not have bonding: May 30, 2001, to September 7, 2001, then from April 11, 2003, to July 18, 2003, and then April 20, 2004, through mid-2005. The contracts during the first period were worth $57,345,073. The average successful bids would have yielded contracts worth about $6.5 million. The average gross margin was 12.18 percent, which meant Cal-City would have made $791,323. For the next period, the contracts from the projects of interest were worth $67,980,000. Using the same percentages as before, Mowrey concluded that Cal-City would have made $938,078. And for the last period, Mowrey stated that Cal-City’s damages were $5,739,868.
Mowrey explained that his analysis differed from that of Neil Freedman (Freedman), the defense expert. Freedman used a three percent or six percent profit margin to determine lost profits. He did this after subtracting expenses from revenues. Mowrey, however, stated: “I’m of the opinion that in this particular industry . . ., the gross margin, in fact, sets forth the incremental profit.” This was true, he averred, because Cal-City’s financial statements showed that administrative and general expenses were allocated into project costs.
Mowrey was asked if Cal-City had the financial ability to continue working on Belmont 3 past the walk-off of May 29, 2001. He indicated that Cal-City had $234,000 in the bank on May 31, 2001, and that it had a $500,000 line of credit and a $200,000 line of credit. Cal-City could have continued working for a month or two. And assuming the subcontractors would wait to be paid, Cal-City would have had time to work out its problems with the District.
Woo Lim (Lim), Cal-City’s senior officer, testified that Cal-City’s net income was $85,000 in 1997, $502,688 in 1999, and $96,749 in 2000. Cal-City suffered a $47,436 loss in 1998. According to Lim, Cal-City had completed a variety of projects for the District in the past.
In its defense, Wilson Elser called Kathy Littman (Littman), a director of the District’s facilities department, and Freedman, among others.
According to Littman, the Belmont 2 contract required Cal-City to notify the District if contamination was found. Depending upon the type of contamination, and depending upon an assessment by the District’s environmental health and safety department, Cal-City was either supposed to stop work completely, or work around the contaminated area. The District was required to evaluate the contamination and determine the necessary action. Moreover, Cal-City was expected to comply with Cal-OSHA obligations. In light of those obligations, Cal-City was obligated to inform its employees and subcontractors of the nature and extent of the contamination. Nothing in the Belmont 2 contract prevented Cal-City from ascertaining the nature of the peril. Also, the Belmont 2 contract provided for extensions necessitated by rain delays.
Littman acknowledged that Cal-City did not have approval for all the necessary plans at Belmont 2. But then she testified: “There were revisions on the site, which is typical for a construction site.”
The District’s only purpose in rejecting a segregation of construction cost form was to obtain accurate information. It did not reject those forms unless there was good cause. If the District rejected a segregation of construction cost form, that did not mean that the District intended to continue rejecting it. The District required contractors to inquire how they could amend forms that had been rejected. A stricter protocol for segregation of construction costs was being used in Belmont 3. Cal-City was free to ask what it was required to submit to get paid. There was a process in place for a contractor or his representative to obtain necessary information.
According to Freedman, Cal-City’s average profit was only 3 percent. Also, its incremental profit was only 6 percent.
Profit is calculated by subtracting fixed overhead costs from the contract price when a contractor has only one job. Incremental profit occurs when a contractor has more than one job. Because the first job covers the fixed overhead costs, the profit on subsequent jobs will be incrementally higher.
The special jury verdict and judgment
In a special verdict form, the jury found that Wilson Elser was negligent in performing legal services in connection with Belmont 2 and Belmont 3. Also, the jury concluded it was more likely than not that, in the absence of Wilson Elser’s negligence, Cal-City would have obtained a better result in resolving its disputes with the District over Belmont 2 and Belmont 3. The jury found that Cal-City suffered $941,000 in damages related to Belmont 2 and Belmont 3, and that it suffered $1,722,500 in damages related to lost profits on projects other than Belmont 2 and Belmont 3. On Wilson Elser’s cross-complaint, the jury found that Cal-City owed $185,018 for legal services that had not been paid.
Judgment was entered.
Wilson Elser’s motion for JNOV
Wilson Elser filed a motion for JNOV. It argued that the Belmont 2 contract was void because it had not been approved by the State Architect, and that Cal-City could not have prevailed on Belmont 3. In the alternative, Wilson Elser argued that the future lost profits damages were speculative. If the trial court did not grant JNOV, Wilson Elser sought partial JNOV on lost profits.
The motion for JNOV was denied.
This timely appeal followed.
STANDARD OF REVIEW
A challenge to the sufficiency of the evidence supporting a judgment is reviewed under the substantial evidence rule. Our task is to determine whether, on the entire record, there is substantial evidence, contradicted or uncontradicted, which will support the jury’s factual findings. When two or more inferences can reasonably be deduced from the facts, “a reviewing court is without power to substitute its deductions for those of the [trier of fact]. If such substantial evidence be found, it is of no consequence that the [trier of fact] believing other evidence, or drawing other reasonable inferences, might have reached a contrary conclusion. [Citations.]” (Bowers v. Bernards (1984) 150 Cal.App.3d 870, 874.)
In reviewing an order denying or granting a JNOV, we determine whether the trial court’s ruling is supported by substantial evidence. (Trujillo v. North County Transit Dist. (1998) 63 Cal.App.4th 280, 284.)
DISCUSSION
1. Causation.
According to Wilson Elser, “[n]owhere in the 3000-page Reporter’s Transcript is there evidence (or even an attempt to show) that had Cal-City not settled with [the District], it would have prevailed at trial, much less that it could have settled the case on more favorable terms.”
We disagree.
a. The test for causation in a legal malpractice action.
When a plaintiff sues its lawyer for malpractice, the plaintiff must establish that but for the lawyer’s negligence, the plaintiff would have obtained a more favorable judgment or settlement in the underlying action. (Viner v. Sweet (2003) 30 Cal.4th 1232, 1241, 1244 (Viner) [holding that the “but for” test applies to transactional malpractice the same as to litigation malpractice.)
b. Cal-City offered evidence of causation.
To prevail on Belmont 2, Cal-City had to prove the following elements: (1) the contract, (2) plaintiff’s performance or excuse for nonperformance, (3) defendant’s breach, and (4) resulting damages. (Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1388.) Also, Cal-City could not have prevailed unless it could overcome the District’s defenses.
There is no dispute that Cal-City had a contract. Lee’s testimony, and the reasonable inferences that can be drawn from it, establish that Cal-City was performing to the extent possible. Cal-City suffered delays, but the evidence suggested that those delays were excused. The Belmont 2 contract provided for extensions necessitated by rain delays. Also, the District caused delays when it failed to get new plans for the south retaining wall, when it failed to provide surveyors, and when it refused to identify, or allow Cal-City to identify, the contamination. Because the Belmont 2 contract required Cal-City to address any contamination it found, and Cal-City received permission to drill, the inference is that the District’s decision to expel Cal-City was a breach of the Belmont 2 contract. Due to the expulsion, Cal-City was denied the benefit of its bargain. Cal-City did not pursue Belmont 2, however, because Sher said Cal-City stood to lose on Belmont 3, the right to a jury trial had been lost, and the trial judge was biased. That evidence creates that reasonable inference that but for Wilson Elser’s negligent advice on Belmont 3 and its negligent failure to secure a jury trial, Cal-City would have prevailed on Belmont 2. This evidence is substantial in nature, and it permitted the jury to find causation as to Belmont 2.
Wilson Elser avers that Littman was prepared to remove Cal-City from Belmont 2. But she did not. And, in any event, this is merely conflicting evidence that we are required to disregard.
The Belmont 3 claim relates to transactional malpractice. The question is whether, but for Wilson Elser’s negligence, Cal-City would have been better off if it had stayed on the job. The evidence supports an affirmative finding. Feldman testified that the District had a dispute resolution office designed to avoid litigation, and Littman testified that the only reason the District rejected segregation of construction cost forms was to obtain accurate information. The reasonable inference is that if Wilson Elser had advised Cal-City to seek assistance in resolving its payment dispute with the District, the dispute would have been resolved in short order. Mowrey’s testimony and Lim’s testimony supported an inference that the subcontractors would have worked until Cal-City got paid, and that Cal-City had sufficient capital to continue working on Belmont 3 until its disputes were resolved. Thus, there is an inference that but for Wilson Elser’s negligence, Cal-City would have stayed on the job and it would have been paid and received the benefit of its bargain.
c. Enforceability of the Belmont 2 contract and Belmont 3 contract.
Education Code section 17307 provides that no contract for the construction of a school is valid, and no public money shall be paid for work done on such contract, unless the Department of General Services provides written approval of a project’s plans and specifications.
The State Architect is a division of the Department of General Services.
Wilson Elser argues that the Belmont 2 contract was void pursuant to Education Code section 17307 because the plans and specifications had not been approved by the Department of General Services, and that Cal-City could not have prevailed on a claim for breach of that contract. Also, Wilson Elser contends that Cal-City could not have prevailed on Belmont 3 because there was no evidence that its plans and specifications were ever approved.
Below, Wilson Elser neglected to argue that the Belmont 3 contract was void. Arguments raised for the first time on appeal are considered waived. (Steele v. Totah (1986) 180 Cal.App.3d 545, 551–552.) Thus, Cal-City was at least entitled to prevail on damages related to Belmont 3, which means that there is no basis for reversing the award of Belmont 2 and Belmont 3 damages. They were not segregated, and Wilson Elser did not argue that they were excessive.
Moreover, regarding Belmont 2, Sher testified: “The District took the position that [the plans] had been approved and that there had been changes, but they were going to have to get approval on those changes.” This was substantial evidence that the Belmont 2 plans had been approved. And the further inference is that even if an approval of a redesign on one portion of Belmont 2 was pending, approval would have been forthcoming and Cal-City could have gotten paid. Also, Education Code section 17307 was never raised in the underlying litigation. This is with good reason. Both Cal-City and the District sued for breach of the Belmont 2 contract, presuming that the contract was valid. Thus, there is an inference that even if Education Code section 17307 was arguably applicable, it would not have been raised as a defense and would not have barred Cal-City from its recovery.
2. Lost profits.
Wilson Elser contends, inter alia, that Cal-City did not offer evidence that it would have realized a profit on any future projects. We agree.
a. The law regarding lost profits.
In order to recover, a plaintiff must establish lost profits with reasonable certainty as to both their occurrence and extent. (Maggio, Inc. v. United Farm Workers (1991) 227 Cal.App.3d 847, 869–870.) In the construction context, our Supreme Court stated: “Loss of business, restriction of research, reduction of bonding capacity, and destruction of a former advantageous competitive position comprise imponderable factors which may affect different companies to differing extents and amounts. Measurement of the damages requires proof of the effect of these factors upon the profits of plaintiff. [Citation.]” (Warner Constr. Corp. v. City of Los Angeles (1970) 2 Cal.3d 285, 301 (Warner Construction).) A plaintiff must put on the best evidence of which the nature of the case is capable. (Ibid.)
In Arntz Contracting Co. v. St. Paul Fire & Marine Ins. Co. (1996) 47 Cal.App.4th 464 (Arntz), the case relied upon most by Cal-City, a jury found that a surety breached a contract to provide bonding. The jury awarded the contractor $16.5 million for lost future profits after the contractor’s expert witnesses opined that the lost profits were between $15.8 million and $18.8 million. The Arntz court stated that “lost profit from impaired bonding capacity is recoverable in a proper case, and is not inherently speculative. [Citations.]” (Arntz, supra, 47 Cal.App.4th at p. 489.) The court did not detail the expert testimony regarding lost profits. Rather, it simply stated it had reviewed the expert’s testimony and deemed it to be substantial evidence because it was not inherently improbable. (Id. at pp. 489–490.)
S.C. Anderson, Inc. v. Bank of America (1994) 24 Cal.App.4th 529, 535 (S.C. Anderson) is instructive in loss of bonding capacity cases. Due to loss of bonding capacity, the plaintiff was unable to submit a prepared $2,980,000 bid on a school district project. The bid would have been the low bid. The plaintiff claimed it lost its 5 percent profit margin, which was $140,588. (Id. at pp. 534–535) The trial court granted a nonsuit. (Id. at p. 535.) The court affirmed. The plaintiff did not offer evidence that its bid was accurate or reasonable or that it could have done the work required under the plans and specifications for the amount of its bid that represented the projected costs of the project. There was no evidence whether the bid contained accurate statements of the cost of work estimated. As well, there was no evidence of the nature and scope of the project. The court stated: “We recognize [the plaintiff] was not required to establish the amount of its damages with absolute precision, and was only obliged to demonstrate its loss with reasonable certainty. [Citation.] However, the law also compels the plaintiff to present ‘the best evidence . . . [of damages] of which the nature of the case is capable.’ [Citation.] Here there was no showing by [the plaintiff] that it was impossible or impracticable to produce evidence relating to the accuracy of its bid, its ability to competently and efficiently perform the [school district] project, or its likely net profit. [Citations.]” (Id. at pp. 537–538.) From S.C. Anderson we glean the rule that a construction company seeking to recover lost profits due to loss of bonding capacity must demonstrate, with the best evidence available, the likely net profit it would have realized on lost business.
That lost profits must be net rather than gross is beyond dispute. (Gerwin v. Southeastern Cal. Assn. of Seventh Day Adventists (1971) 14 Cal.App.3d 209, 222, [“When loss of anticipated profits is an element of damages, it means net and not gross profits”].) If a plaintiff was allowed to recover gross profits, it would be unjustly enriched. Net profits, the only profits recoverable, “‘are the gains made from sales “after deducting the value of the labor, materials, rents, and all expenses, together with the interest of the capital employed”. [Citation.]’” (Id. at p. 223.) If the evidence in a case establishes loss of gross revenue rather than loss of pecuniary gain, damages based on lost profits cannot be upheld. (Ibid.)
Against this backdrop, our Supreme Court examined the law of lost profits in Lewis Jorge Construction Management, Inc. v. Pomona Unified School Dist. (2004) 34 Cal.4th 960, 968 (Lewis Jorge).
In Lewis Jorge, “[The plaintiff] sought to prove the extent of its lost future profits on unidentified construction projects, using as the relevant period the date of the [school district’s] breach to the date of trial, and relying on its profitability during the four years preceding the breach. [The expert], a financial analyst who specialized in calculating lost profits claims, projected that [the plaintiff] had lost $95 million in gross revenue for future contracts that, based on its past history, it would likely have been awarded. Historically, Lewis Jorge had realized a profit of about 6 percent of revenue. [The expert] calculated lost profits on unidentified projects at $4,500,000, which discounted to present value came to $3,148,107.” (Lewis Jorge, supra, 34 Cal.4th at p. 966.) The expert in Lewis Jorge attempted to show lost future net profits. However, the court concluded that lost profits could not be recovered as general contract damages. (Lewis Jorge, supra, at p. 973.) Further, the court analyzed whether the lost profits were reasonably contemplated by the parties and could qualify as special damages. In rejecting that theory, the court stated that “the lost profits [the plaintiff] claimed it would have made on future construction projects were uncertain and speculative.” (Id. at p. 977.)
Lewis Jorge reviewed a series of cases. It explained that Arntz is the only California decision upholding damages for a contractor’s lost profits on future contracts due to loss of bonding capacity. (Lewis Jorge, supra, 34 Cal.4th at p. 973.) As to cases from other jurisdictions, the court noted: “Although a few cases state that a contractor suing for breach of contract may recover as special damages any profits it might have earned on other unawarded construction contracts, such damages are frequently denied as too speculative. [Citation.]” (Id. at p. 975.)
b. Certainty of the proof.
The jury awarded Cal-City $1,722,500 for lost profits. According to Wilson Elser Mowrey’s testimony was insufficient to support the jury’s finding. This is true. Though Warner Construction contemplated the possibility that lost profits could be recovered due to loss of bonding capacity and Arntz upheld such an award, Lewis Jorge compels is to decide the lost profits issue in Wilson Elser’s favor. In Lewis Jorge, the expert multiplied projected gross revenues by a 6 percent historical profit, or net profit. Our Supreme Court rejected his testimony as speculative and uncertain. In our view, a similar fate must befall Mowrey’s testimony. He did not calculate net profits, so his testimony was less complete and more speculative than the testimony our Supreme Court found lacking. Following the lead of our Supreme Court, we have no choice but to find that Mowrey’s testimony was deficient.
Cal-City argues that we should follow Arntz. The problems with this are twofold. Lewis Jorge is controlling precedent, so we have no authority to forge a new path in our jurisprudence. Also, the Arntz court did not set forth the expert testimony it reviewed and found acceptable. As a result, we cannot compare Mowrey’s testimony to that testimony. Nor can we confirm that the expert in Arntz provided an opinion on net profits rather than gross profits. Suffice it to say, the award of $16.5 million for lost profits in Arntz raises a red flag in our minds. How was it calculated? For what period of time did it cover? Arntz, we believe, is of dubious merit.
Even if we apply Arntz, it does not aid Cal-City’s cause.
Arntz stated: “As to the reasonableness of the assumptions underlying the experts’ lost profit analysis, criticisms of an expert’s method of calculation is a matter for the jury’s consideration in weighing that evidence. [Citation.] ‘It is for the trier of fact to accept or reject this evidence, and this evidence not being inherently improbable provides a substantial basis for the trial court’s award of lost profits. . . .’ [Citation.]” (Arntz, supra, 47 Cal.App.4th at pp. 489–490.)
Was Mowrey’s testimony inherently improbable? He testified regarding Cal-City’s gross profits, not its net profits. As a result, his testimony is called into question. We note that Mowrey opined that Cal-City lost $3,244,071 in gross profits due to the ban on District projects, and it lost $7,469,269 in gross profits related to non-District projects. Mowrey essentially testified that Cal-City lost about $11 million in gross profits. This bore no comparison to Lim’s testimony that Cal-City’s net income was $85,000 in 1997, $502,688 in 1999, and $96,749 in 2000, and that in 1998, Cal-City lost $47,436. The average net profit in those four years was about $160,000, a number which is skewed due to the abnormal profits in 1999. Looking at theoretical District projects and Mowrey’s numbers, Cal-City lost average gross profits of $648,814 of per year. In the year and a half or so Cal-City was not bonded, Mowrey’s numbers suggest that Cal-City lost an average of $7.333 million a year related to non-District projects. Thus, Mowrey’s calculations suggest that Cal-City lost over $8 million a year. But these numbers, when compared to past net profits, are wildly out of synch. As a result, Mowrey’s contention that in the construction industry expenses are allocated to contracts, and therefore implicitly accounted for, was inherently improbable. This rendered his entire damages calculation insufficient to support an award.
c. The motion for JNOV.
Wilson Elser requested a partial JNOV as to lost profits. A trial court is empowered to grant a partial JNOV. (Beavers v. Allstate Ins. Co. (1990) 225 Cal.App.3d 310, 314.) And a JNOV must be granted whenever a motion for directed verdict should have been granted had it been made. But can a trial court grant a partial JNOV as to some but not all damages?
Code of Civil Procedure section 630, subdivision (b) provides that a trial court can grant a directed verdict as to some but not all issues involved in an action. However, if damages are inadequate or excessive, all a trial court can do is deny a new trial on the condition that the opposing party agrees to an additur or remittitur. (Code Civ. Proc., § 662.5.) On the other hand, if a plaintiff is entitled to one type of damages awarded but not another, then there is no logical impediment to a partial JNOV. (See Teitel v. First Los Angeles Bank (1991) 231 Cal.App.3d 1593, 1605, fn. 6. [“A [JNOV] for an amount less than the jury verdict would seem appropriate where there can be no dispute as to the amount”].)
Wilson Elser was entitled to a partial JNOV in its favor with respect to the lost profits damages award of $1,712,333. Code of Civil Procedure section 629 provides, in relevant part: “If the motion for judgment notwithstanding the verdict be denied and if a new trial be denied, the appellate court shall, when it appears that the motion for judgment notwithstanding the verdict should have been granted, order judgment to be so entered on appeal from the judgment or from the order denying the motion for judgment notwithstanding the verdict.” Based on this, we are compelled to order entry of a partial JNOV in Wilson Elser’s favor.
DISPOSITION
Wilson Elser is entitled to a partial JNOV with respect to the lost profits award of $1,712,333. The judgment is hereby modified to eliminate the lost profits damages. As modified, the judgment is affirmed.
The parties shall bear their own costs.
We concur: BOREN, P. J., DOI TODD, J.