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Green Wood Industrial Co. v. Forceman Internat. Development Group, Inc.

Court of Appeal of California, Second District
Nov 1, 2007
156 Cal.App.4th 766 (Cal. Ct. App. 2007)

Summary

focusing on premature timing and holding that the plaintiff had not shown with sufficient certainty that it would be forced to pay the third-party damages at issue

Summary of this case from Visa Inc. v. Sally Beauty Holdings, Inc.

Opinion

No. B190948.

November 1, 2007. [ CERTIFIED FOR PARTIAL PUBLICATION]

Pursuant to California Rules of Court, rules 8.1100 and 8.1110, this opinion is certified for publication with the exception of BACKGROUND, parts A.2. through A.5. and part B., DISCUSSION, parts A.1. through A.3., part A.8., and parts B.1. and B.2.

Appeal from the Superior Court of Los Angeles County, No. BC315751, Ricardo A. Torres, Judge.

Retired judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.

Esner, Chang Ellis, Stuart B. Esner and Andrew N. Chang for Defendant and Appellant.

Law Offices of Jeffrey C. Chiao and Jeffrey C. Chiao for Plaintiff and Respondent.




OPINION


INTRODUCTION

A jury returned special verdicts finding defendant and appellant Forceman International Development Group, Inc. (Forceman), liable for fraud and negligence for its role in a conspiracy to induce plaintiff and respondent Green Wood Industrial Company (Green Wood) to pay for shipments of scrap metal that never existed. The jury awarded Green Wood compensatory damages of $1,508,416.20 and punitive damages of $5,000. In the unpublished portion of this opinion, we affirm the judgment as to the fraud and negligence claims in favor of Green Wood and reverse the award of punitive damages. In the published portion of the opinion, we hold, inter alia, Green Wood can recover from Forceman all damages arising out of the conspiracy to commit fraud, notwithstanding the timing of Forceman's overt acts in support of the conspiracy; the source of monies paid by Green Wood for the goods is not relevant to Green Wood's right to recover the payments as damages; as the transaction concerned the sale of goods, even though the goods were not delivered, damages are governed by the California Uniform Commercial Code, and therefore Green Wood may recover its lost profits as damages for fraud; and Green Wood may not recover as damages amounts alleged to arise from a claim by a third party against Green Wood, or obligation of Green Wood to a third party, even though the claim or obligation is the proximate result of Forceman's tortious conduct. Thus, we reduce the compensatory damage award by the amount attributable to that claim of or obligation to a third party.

Judgment was entered in favor of Green Wood against nine defendants, including Forceman. All other parties either did not appeal or have abandoned or voluntarily dismissed their appeals.

BACKGROUND

A. Factual Background

We state the facts in the light most favorable to the jury's verdict, resolving all conflicts and indulging all reasonable inferences to support the judgment. ( Bickel v. City of Piedmont (1997) 16 Cal.4th 1040, 1053 [ 68 Cal.Rptr.2d 758, 946 P.2d 427], abrogated on another ground as stated in Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 100 [ 99 Cal.Rptr.2d 745, 6 P.3d 669].)

1. Summary of Relevant Facts

Green Wood, a sole proprietorship based in Hong Kong, is primarily in the business of buying scrap metal from sellers in the United States for resale to buyers in China. Richshine Metals, Inc., a California corporation (Richshine), was in the business in California of selling scrap metal for export. Green Wood placed a purchase order with Richshine to acquire scrap plate metal and scrap iron (collectively, the goods) from Richshine and agreed to resell the goods to a buyer in China. Green Wood paid Richshine $1,074,548.20 for the goods. Green Wood's Chinese buyer funded $862,500 of that amount.

Defendant Forceman obtained and delivered certain certificates, required by the Chinese government, that the goods had been inspected (China Certification and Inspection Corporation or "CCIC" certificates). The goods, however, never existed. The certificates obtained by Forceman and provided to Green Wood, as well as packing lists, invoices, and bills of lading provided to Green Wood by Richshine to evidence shipment of the goods, were false. Green Wood sued Richshine, Forceman, and others for, inter alia, fraud, conspiracy to commit fraud, and negligence. The trial court instructed the jury that defendants could be liable for a conspiracy to commit fraud. The trial court also instructed the jury that compensatory damages claimed by Green Wood included amounts expended for the goods, additional harm arising from false representations, and lost profits. The jury returned special verdicts against Forceman, among others, finding it liable for fraud and negligence. The jury awarded Green Wood compensatory damages against all defendants, jointly and severally, in the sum of $1,508,416.20 — the amount Green Wood had requested. The figure requested consisted of Green Wood's payments to Richshine, Green Wood's lost profits on the resale transaction of $159,000, and a claim against Green Wood by, or an obligation of Green Wood to, its Chinese buyer for nondelivery of the goods in the amount of $274,868. We hold in the unpublished portion of this opinion that substantial evidence supports the judgment of liability for fraud and negligence against Forceman. Forceman challenges various components of the damages awarded against it.

Green Wood obtained additional damages against Richshine and its principals relating to other transactions not relevant here.

2.-5. 2. About CCIC Certificates Generally To import a shipment of scrap metal into China, the importer must obtain a CCIC certificate. A CCIC certificate is a certification from the China Certification and Inspection Corporation, a corporate entity owned by the Chinese government, that the shipment does not contain "garbage." For shipments originating in the United States or Canada, CCIC certificates are issued by CCIC North America, based in Los Angeles. For shipments originating in Mexico, Central America or South America, CCIC certificates are usually issued by CCIC South America, based in Brazil. This case involves CCIC certificates issued by CCIC South America. The CCIC certificates are issued on a standard form. The CCIC certificate identifies the specific shipping containers comprising the shipment by container number and seal number. The CCIC certificates provide, "We, CCIC SOUTH AMERICA INC., LTDA., hereby certify that the shipment of the above goods was visually inspected for the purpose of the inspection and reporting on cleanliness of the material. . . . [¶] The cargo loading was under our supervision and each container of the above-mentioned goods was visually inspected. We confirm that no excess prohibitive materials were found. . . ." The CCIC certificates in this case all bear the stamp of CCIC South America, and are subscribed, "Chief Inspector: Xu Zheng." CCIC South America issues three classes of CCIC certificates (the CCIC certificate classification system). A Class "A" certificate is issued if the shipment was visually inspected by an employee of CCIC South America. A Class "B" certificate is issued if the shipper has been authorized by CCIC South America to conduct self-inspections and inspected the shipment itself. A Class "C" certificate is issued if the shipment was inspected by a third-party inspector engaged by CCIC South America for that purpose. The CCIC certificates in this case purported to be Class "B" self-inspection certificates. The only difference between the three classes of certificates apparent from the face of the certificate is a single letter — an A, B or C — in the certificate's serial number. The classification system is not explained on the certificate. Unless one is familiar with the CCIC certificate classification system, therefore, one would not know from the face of the CCIC certificate that a "B" in the serial number signifies that the shipment was self-inspected by the shipper.

3. Richshine Metal and the Purchase Order
Green Wood is a sole proprietorship, based in Hong Kong, owned and operated by Joseph Li. Richshine was owned and operated by its president, Christine Fan (Fan). Richshine also employed Fan's husband, Chris Wong (Wong), and her cousin, Zhijun Zhang, also known as Jim (Jim). In the summer of 2003, Green Wood purchased approximately 680 metric tons of scrap plate metal from Richshine. Green Wood sold the scrap plate to a buyer in China. Green Wood's buyer was pleased with the material supplied by Richshine and wanted more. Green Wood placed additional orders with Richshine for both scrap metal and scrap wire. In early November 2003, Green Wood issued purchase order number GW038 (the purchase order) to Richshine for 2,100 metric tons of scrap plate metal and 10,650 metric tons of scrap iron for a total purchase price of $1.89 million. Green Wood was to pay a $200,000 deposit, $340,000 cash on delivery, and the balance by letter of credit. Richshine was to deliver the goods directly to Green Wood's buyer at Guangxi Port in southern China by the end of November. The scrap iron was to be shipped as loose freight, which would cost less than shipping it in containers. Fan countersigned the purchase order on behalf of Richshine and faxed it back to Li. Li wired sufficient funds to Richshine to pay the deposit on the order. Later in November, Li called Fan to inquire when the goods would arrive because Li needed to arrange travel to the United States to "handle some of the procedures" relating to the shipment. Fan claimed that Richshine had not yet received the goods at its port in Stockton, California, and thus Richshine was unable to ship the goods to China. When the end of November arrived and the goods still had not shipped, Li traveled to the United States to meet with Fan. Fan took Li and Linlin Wang, the United States representative of Green Wood's Chinese buyer, to the port in Stockton. Fan showed them a ship she said was the loose freight carrier that would deliver the scrap iron to China. The ship, however, was still loaded with another shipper's cargo of cement, and therefore was not available to be loaded with Green Wood's scrap iron. Fan also showed Li and Linlin Wang piles of scrap metal that she said were some of the goods to be shipped pursuant to the purchase order. While at the port in Stockton, Fan introduced Li to Anjie Zhu, the owner of Forceman, as one of her buyers. In December 2003, Fan called Li and told him that her brother in China had an urgent need for 100,000 renminbi (the currency of mainland China), the equivalent at the time of $12,048.20. Li gave the money to Fan's brother in cash in Nanhai, China, and obtained a receipt. Fan agreed to apply the money toward Green Wood's payment on the purchase order. By the beginning of January 2004, Richshine still had not shipped the goods. During this time frame, the price of scrap metal was rising in the world market. Li and Green Wood's buyer became concerned that Richshine might have sold the goods to another buyer at a higher price. Li and the buyer also determined that replacing the goods on the open market would cost more than paying Richshine an extra $20 per ton to expedite shipment of the scrap iron by shipping it in containers, rather than as loose freight. Li confirmed the change in shipping method with Fan. Li also told Fan that Green Wood would pay the remaining purchase price for the goods in cash rather than by letter of credit. Fan agreed. Believing that the change in shipping method eliminated the reason for Richshine's delay in shipping the goods, Li traveled back to the United States in the middle of January. Fan told Li that she was prepared to load approximately 220 shipping containers of goods, which Li calculated to be worth approximately $625,000 at the contract price, including the increased shipping costs. Green Wood paid Richshine $100,000 in cash, and $512,500 by wire transfer directly to Richshine from the U.S. accounts of Green Wood's Chinese buyer. Shortly thereafter, Jim delivered to Green Wood packing lists and invoices for 156 shipping containers of goods in partial fulfillment of the purchase order. In early February, Li was with Jim when Anjie Zhu from Forceman arrived to hand deliver an envelope containing CCIC certificates for 156 containers. The CCIC certificates were dated January 29, 2004, and indicated that the containers had been inspected in Mexicali, Mexico. Li believed that the CCIC certificates demonstrated that shipping containers filled with goods had been inspected, and therefore believed that the goods had been loaded into containers and were ready to ship. Li was not aware of CCIC South America's certificate classification system, however, and did not understand that the CCIC certificates purported to be Class "B" self-inspection certificates. Li faxed copies of the CCIC certificates to Green Wood's buyer in China, and instructed Linlin Wang to wire another $350,000 payment to Richshine. The funds were wired by Linlin Wang directly to Richshine in early February. A few days later, Richshine delivered to Li additional packing lists, invoices, and CCIC certificates for another shipment of 212 containers. The CCIC certificates in this second set were dated January 30, 2004, and indicated that the containers had been inspected in Tijuana, Mexico. Richshine also delivered bills of lading that had apparently been issued by CN Link Freight Services, a freight-forwarding firm used by Richshine to arrange shipment with shipping lines. Richshine delivered CN Link bills of lading for another 68 containers shortly thereafter. Li understood the documents to indicate that the shipments had left port and that the goods were in transit to China. None of the goods ever arrived. 4. The Richshine Conspiracy Unbeknownst to Li, the packing lists and invoices provided by Richshine with respect to the purchase order were fake, the CN Link bills of lading were forgeries, and the CCIC certificates were obtained fraudulently. The goods that Richshine had purported to ship pursuant to the purchase order had never existed. Obtaining the fraudulent CCIC certificates was the most intricate component in Richshine's scheme. Fan instructed Jim to see if Forceman could help Richshine obtain the CCIC certificates. Jim told Anjie Zhu of Forceman that Richshine needed CCIC certificates for the shipments, and faxed to Forceman the fake packing lists and invoices. Jim testified that he did not tell Anjie Zhu that the packing lists and invoices were fake. He also testified, however, that Richshine had never been authorized by CCIC South America to conduct self-inspections (and thus was ineligible to obtain Class "B" CCIC certificates), and that, at the time, he did not know about the CCIC certificate classification system. Anjie Zhu then called Kerry Lee, the owner of North American Marine Survey Association (NAMSA). Anjie Zhu and Kerry Lee had known each other for five or six years, having met when CCIC North America had assigned NAMSA to provide an inspection for Zhu. In July 2002, NAMSA had entered a contract with CCIC South America to inspect shipments for Class "C" CCIC certificates, but in the ensuing three years NAMSA had conducted, at most, one such inspection. Kerry Lee testified that nearly all of NAMSA's services for CCIC South America were "clerical" services related to customers seeking Class "B" certificates. Kerry Lee described NAMSA as an "agency" of CCIC South America. In their telephone conversation concerning Richshine, Anjie Zhu told Kerry Lee that Richshine would load approximately 300 containers of "steel scrap in Mexico and they want to apply for the CCIC South America certificate." Anjie Zhu specifically asked for a CCIC South America certificate because, according to Kerry Lee, Anjie Zhu "kn[e]w if the container load in Mexico, he should apply for the certificate from CCIC South America. . . ." Anjie Zhu provided NAMSA with the shipment's container and seal numbers. Kerry Lee had never heard of Richshine, but knew that Richshine was not among the companies authorized to self-inspect by CCIC North America. NAMSA prepared draft CCIC certificates — including the Class "B" certificate serial numbers — and e-mailed the information to CCIC South America. Xu Zheng, the head of CCIC South America, called Kerry Lee to inform him that the Class "B" CCIC certificates were approved. When NAMSA received the signed and stamped certificates from CCIC South America by Federal Express, Kerry Lee called Anjie Zhu to inform him that the certificates were ready. Anjie Zhu personally picked up the certificates from NAMSA's office and delivered them to Jim. Forceman was invoiced by NAMSA and paid $55 per container for Richshine's CCIC certificates. Forceman, in turn, invoiced Richshine at a rate of $60 per container. In total, Richshine paid more than $22,000 for the CCIC certificates. 5. The Investigation When the goods had not arrived by late February 2004, Li contacted Fan to inquire about the shipments. Fan claimed there had been shipping problems, and that Richshine had loaded a third shipment and wanted Green Wood to pay Richshine more money. Li refused. After several unsuccessful attempts to resolve the situation with Fan, and after contacting CN Link without success, Li decided to track the individual shipping containers listed in the bills of lading and CCIC certificates he had received from Richshine. He discovered from the shipping line's records that the containers had not been in Mexicali or Tijuana, Mexico on January 29 or 30. Instead, the containers had been spread all over the world, from Asia to Europe. Li also discovered that Richshine had given him false shipping information relating to other purchase orders. Linlin Wang launched her own inquiry into what had happened to the goods, but found that Fan would not take or return her phone calls. When Linlin Wang finally reached Fan, she demanded that Fan return the money paid for the goods unless and until the goods — which Fan continued to insist were en route — arrived in China. Fan refused to wire the funds, but instead wrote two checks that she said the buyer could deposit if the goods did not arrive, and sent the checks by mail to Linlin Wang. When the checks arrived in April 2004, Linlin Wang noticed that the payee name on the checks was wrong, and the checks had been post-dated to June 15. She also noticed that the return address on the envelope the checks arrived in was Moundhouse Metals in Dayton, Nevada. Although she was nine months pregnant, Linlin Wang traveled to Fan's house in California to confront Fan in person. Fan was not there. Wong and Jim told Linlin Wang that Fan had left the country on business. When Fan called her later, however, Linlin Wang's caller I.D. displayed a Nevada area code. Linlin Wang then had to return home to Florida to give birth to her child. In June, Linlin Wang discovered that Fan had sold her house in California and that Richshine had abandoned its offices in the City of Industry. Working from the return address on the envelope Fan had sent the checks in and the Nevada telephone number from her caller I.D., Linlin Wang and Li discovered that Fan, Wong and Jim had relocated to Nevada and were doing business under the name of Moundhouse Metals. Linlin Wang traveled to Nevada to confront Fan, telling her that if the goods did not arrive soon and Fan did not return the money, Li would sue Richshine. Fan, in essence, dared Li to do so. A crane and an industrial weigh scale, formerly used by Richshine, were at the Moundhouse Metals facility. In a final effort to determine where the goods were, Linlin Wang called CCIC South America to verify that it had inspected the goods. A woman from CCIC South America told her that CCIC South America had inspected the goods and issued the CCIC certificates, but that CCIC South America would not provide any written documentation to that effect. By this time, Xu Zheng had been replaced at CCIC South America. His successor e-mailed Kerry Lee and instructed him to contact Linlin Wang to resolve her inquiry. Kerry Lee called her. He told Linlin Wang that CCIC South America's responsibility was only to inspect the goods, not to verify that the buyer received the goods or to ensure that the seller had not sold the goods to someone else. Linlin Wang said that was fine, as long as CCIC South America had actually inspected the goods. Linlin Wang understood Kerry Lee to mean that he had inspected the goods for CCIC South America. Li calculated Green Wood's out-of-pocket damages with respect to the purchase order to be $1,074,548.20, consisting of (a) $100,000 wire transfer from Green Wood to Richshine to fund the deposit on November 10, 2003; (b) $12,048.20 in cash paid by Green Wood to Fan's brother in China on December 29, 2003; (c) $100,000 in cash paid by Green Wood to Richshine on January 23, 2004; (d) $512,500 wire transfer from Green Wood's buyer to Richshine on January 23, 2004; and (e) $350,000 wire transfer from Green Wood's buyer to Richshine on February 9, 2004. Li calculated Green Wood's lost profits on the purchase order to be $159,000. Li also presented evidence that Green Wood's buyer had made a claim for $274,868 against Green Wood in China, apparently for its own lost profits attributable to Green Wood's non-delivery of the goods. Green Wood had agreed to pay the buyer's claim, but had not yet paid. Li therefore calculated Green Wood's total damages related to the purchase order at $1,508,416.20.

See footnote, ante, page 766.

CCIC South America did not put on any evidence at trial. Evidence relating to the CCIC certificate classification system was elicited by Green Wood during its examination of one of the defendants, Kerry Lee, pursuant to Evidence Code section 776. (See Background, Part A4, post.)

Richshine, Fan, Wong and Jim were defendants in the trial court. None is a party to this appeal.

Green Wood's claims against Richshine at trial concerned five orders that Richshine failed to fulfill. Green Wood's claims against Forceman, however, relate only to purchase order GW038.

All references to currency are to U.S. dollars unless specified otherwise.

Green Wood's buyer had previously wired more than $1.6 million to Linlin Wang in the United States to fund Green Wood's payments to Richshine. Doing so avoided the additional currency conversion costs that would have been incurred by first transferring the funds to Green Wood's accounts in Hong Kong.

The CCIC certificates were marked as trial exhibit 24. As admitted at trial, exhibit 24 appears to have contained five pages of CICC certificates pertaining to 156 containers. Appellant's Appendix of Trial Exhibits, however, contains only three of the five pages, concerning 93 containers. Except for the certificate serial numbers and the identifying information for each container, each of the three pages is identical.

Jim admitted at trial that he, Fan, and Wong knew the documents were fake, but claimed the documents had been created surreptitiously by Li on Jim's home computer so that Li could "extend his . . . import quota" into China. The jury necessarily rejected Jim's testimony in that regard.

NAMSA is a fictitious business name used by a corporation wholly owned by Kerry Lee. NAMSA and Kerry Lee were defendants in the trial court. Neither is a party to this appeal.

CCIC North America ceased doing business with NAMSA in 2004.

Neither Anjie Zhu nor any other representative of Forceman testified at trial.

Shortly after issuing the CCIC certificates in question, Xu Zheng was replaced at CCIC South America and returned to China. He provided no discovery, and did not attend or testify at trial.

See footnote, ante, page 706.

B. BACKGROUND PROCEDURAL fn_ In its fourth amended complaint (the complaint), Green Wood alleged causes of action against Forceman and other defendants for, inter alia, fraud and negligence. The complaint included allegations that Forceman engaged in a conspiracy and/or aided and abetted Richshine and the other defendants in defrauding Green Wood. Green Wood alleged in its fraud claim that Richshine had never intended to supply the scrap metal in the amounts or at the prices agreed in the purchase order, and had conspired with Forceman (among others) to obtain false CCIC certificates in furtherance of its scheme to defraud Green Wood. Green Wood alleged in its negligence claim that Forceman had breached its duty to Green Wood "to ensure that [Forceman's] agents did not assist in the preparation of fraudulent or false documentation in the common plan to obtain false or fraudulent [CCIC certificates]." The trial court denied defendants' motions for summary judgment. The case proceeded to trial on all of Green Wood's claims, including its claims for fraud and negligence against Forceman. The trial court denied defendants' motions for nonsuit at the close of Green Wood's case in chief. After the close of evidence, the trial court granted a directed verdict against Fan and Richshine on Green Wood's claims for breach of contract and fraud. The trial court denied Forceman's motion for directed verdict, finding a "substantial triable issue of fact . . . whether or not [Forceman] actually committed fraud." The jury returned verdicts against all of the defendants on all of Green Wood's claims. With respect to Forceman, the jury returned special verdicts that (1) Forceman had made a false representation of an important fact to Green Wood; (2) Forceman knew the representation to be false or made it recklessly without regard for its truth; (3) Forceman intended Green Wood to rely; (4) Green Wood reasonably relied; (5) Forceman's misrepresentation was a substantial factor in causing Green Wood's damage; (6) Forceman was negligent; (7) Forceman's negligence caused 5% of Green Wood's damage; and (8) Green Wood had proved by clear and convincing evidence that Forceman had acted with malice, oppression or fraud. With respect to compensatory damages, the trial court had instructed the jury as follows: "If you decide that plaintiff has proved its case against defendant, you must also decide how much money reasonably compensate [ sic] plaintiff for the harm. This compensation is called damages. The amount of damages must include an award for each item of harm that was caused by defendant's wrongful conduct. Even if the particular harm could not have been anticipated [ sic]. Plaintiff does not have to prove the exact amount of damages that will provide reasonable compensation for the harm. However, you must not speculate or guess in awarding damages. [¶] . . . [¶] The following are specific items of damages claimed by plaintiff. [¶] One, amounts that plaintiff reasonably spent in reliance on false representations [i]f those amounts would not otherwise have been spent in the purchase or acquisition of property. [¶] And two, additional harm arising from the transaction to the extent that Richshine Metal and Christine Fan's false representation was a substantial factor in causing that additional harm arising from the transaction, and three, lost profits." The special verdict question submitted to the jury did not require the jury to itemize the damages, but asked simply, "State the amount of damages, if any, suffered by Green Wood." The jury awarded Green Wood compensatory damages of $1,508,416.20 against Forceman and others, jointly and severally. After additional instruction and deliberation, the jury awarded punitive damages of $950,000 each against Richshine and Fan; $900,000 each against Wong, Jim and Moundhouse Metals; $600,000 against CCIC South America; $150,000 against NAMSA and Kerry Lee; and $5,000 against Forceman. The trial court entered judgment on the jury's verdicts, and denied Forceman's subsequent motions for judgment notwithstanding the verdict and for a new trial. Forceman timely appealed.

Forceman answered Green Wood's third amended complaint with a general denial. The record contains no answer to the fourth amended complaint, and no stipulation or order deeming Forceman's prior answer to be Forceman's answer to the fourth amended complaint.

The jury apportioned 75% of the fault to CCIC South America and 20% to NAMSA and Kerry Lee.

The trial court had earlier instructed the jury, "To decide the amount of damages for lost profits you must determine the gross or total amount plaintiff would have received if the contract had been performed and then subtract from that amount the cost plaintiff would have had if the contract had been performed. You do not have to calculate the amount of the lost profit with mathematical precision, but there must be a reasonable basis for computing the loss."

The jury awarded an additional $389,692.90 in compensatory damages against Richshine, Fan, Wong, Jim and Moundhouse Metals for damages relating to other purchase orders.

DISCUSSION

A. Sufficiency of the Evidence 1. Standard of Review "`Where findings of fact are challenged on a civil appeal, we are bound by the "elementary, but often overlooked principle of law, that . . . the power of an appellate court begins and ends with a determination as to whether there is any substantial evidence, contradicted or uncontradicted," to support the findings below. [Citation.] We must therefore view the evidence in the light most favorable to the prevailing party, giving it the benefit of every reasonable inference and resolving all conflicts in its favor. . . . [Citation.]`" ( Bickel v. City of Piedmont (1997) 16 Cal.4th 1040, 1053, abrogated on another ground as stated in Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 100.) "Substantial evidence" is evidence that is reasonable, credible and of solid value. ( Kuhn v. Department of General Services (1994) 22 Cal.App.4th 1627, 1633.) "The ultimate test is whether it is reasonable for a trier of fact to make the ruling in question in light of the whole record." ( Roddenberry v. Roddenberry (1996) 44 Cal.App.4th 634, 652.) We will uphold the judgment if it is supported by substantial evidence, even though substantial evidence contrary to the jury's verdict also exists. ( Howard v. Owens Corning (1999) 72 Cal.App.4th 621, 631.) We employ the substantial evidence standard regardless of the standard of proof applicable at trial. ( People v. Ceja (1993) 4 Cal.4th 1134, 1138-1139.) 2. Sufficient Evidence of Fraud The elements of a cause of action for fraud are (a) a misrepresentation; (b) knowledge of falsity; (c) intent to induce reliance on the misrepresentation; (d) justifiable reliance; and (e) resulting damage. ( Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 173.) Green Wood argued to the jury that Forceman was part of a conspiracy to defraud Green Wood, and the jury was instructed on a civil conspiracy theory of liability. To prove Forceman's liability as a conspirator, Green Wood was required to establish that Forceman had knowledge of and agreed to both the objective and the course of action that resulted in the injury, that there was a wrongful act committed pursuant to that agreement, and that there was resulting damage. ( Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 47; Berg Berg Enterprises, LLC v. Sherwood Partners, Inc. (2005) 131 Cal.App.4th 802, 823.) Substantial evidence supports the jury's fraud verdict against Forceman. The evidence established that Anjie Zhu and Forceman had an ongoing relationship with Fan and Richshine. Anjie Zhu was present at the Stockton port and was introduced to Li and Linlin Wang as early as November 2003, when Fan represented to Li that Richshine could not ship the goods because the ship it intended to use was filled with cement, and that some of the goods were at the port in Stockton. Jim testified that when Richshine needed to obtain CCIC certificates it knew were fraudulent, Fan instructed Jim to contact Forceman to see if Forceman could obtain them. Jim testified that he faxed the fake packing lists and invoices to Forceman. Although Jim of Richshine testified that he did not tell Forceman that the packing lists and invoices were fake, he also testified that Richshine had never been authorized by CCIC South America to self-inspect, and that he was not aware of CCIC South America's certificate classification system. Significantly, Jim did not testify that he told Forceman that the goods were to be loaded in Mexico, or that he told Forceman to obtain Class "B" CCIC certificates, or to obtain the CCIC certificates from CCIC South America, as opposed to CCIC North America. Yet, Kerry Lee of NAMSA testified that Anjie Zhu of Forceman told him that Richshine wanted to apply for CCIC certificates from CCIC South America, and that Richshine would be loading the scrap metal in Mexico. Forceman does not dispute that the evidence at trial showed that Forceman billed Richshine $60 per container, but paid at most $55 per container to NAMSA, for a profit of approximately $1,800. Anjie Zhu of Forceman did not testify, and none of the defense witnesses offered a cogent explanation of why Richshine engaged and paid a middleman, i.e. Forceman, $1,800 to make one or two phone calls and send one or two faxes to NAMSA, when Richshine only would have been eligible for Class "B" CCIC certificates if it had previously applied for and been granted self-inspection rights by CCIC South America. A reasonable jury could conclude from the evidence that (1) Forceman was aware of Fan's dealings with Green Wood from November 2003, at or near the inception of Richshine's scheme to defraud Green Wood; (2) Fan instructed Jim to engage Forceman for the specific purpose of obtaining fraudulent CCIC certificates; (3) Forceman made or collaborated with others in making the decisions to obtain Class "B" certificates, to obtain the CCIC certificates from CCIC South America, and to represent falsely that the non-existent goods were to be loaded in Mexico; (4) Forceman knew or should have known that Richshine did not have self-inspection rights and was thus not eligible to obtain valid Class "B" CCIC certificates; (5) Forceman knew that no one had inspected the non-existent shipping containers; (6) Forceman delivered the CCIC certificates to Richshine knowing that they were false; and (7) Forceman knew that Green Wood would rely on the fraudulent CCIC certificates. The evidence is undisputed that Green Wood did, in fact, rely on the CCIC certificates by making additional payments on the purchase order. Substantial evidence thus supports the conclusions that Forceman was engaged in a conspiracy to defraud Green Wood, and that Forceman itself engaged in fraudulent conduct by delivering fraudulent CCIC certificates knowing that Green Wood would rely on them. ( Whiteley v. Philip Morris, Inc. (2004) 117 Cal.App.4th 635, 681; Geernaert v. Mitchell (1995) 31 Cal.App.4th 601, 605; see also Mirkin v. Wasserman (1993) 5 Cal.4th 1082, 1095-1098; Rest.2d Torts § 533.) Forceman argues that it cannot be held liable on a conspiracy theory because "the jury's verdict did not include this theory at all." As noted above, however, Green Wood argued conspiracy to the jury, and the trial court instructed the jury on conspiracy. Just because the trial court did not submit a discrete special-verdict question to the jury with respect to civil conspiracy and the jury did not make a finding that Forceman engaged in a conspiracy does not mean that the jury findings do not necessarily result in a conclusion that Forceman engaged in a conspiracy. Greenwood pleaded facts that would support liability based on a conspiracy. ( Kidron v. Movie Acquisition Corp. (1995) 40 Cal.App.4th 1571, 1581-1582.) "[A] special verdict is that by which the jury find[s] the facts only, leaving the judgment to the Court." (Code Civ. Proc., § 624.) "When a special verdict is involved as here, a reviewing court does not imply findings in favor of the prevailing party." ( City of San Diego v. D.R. Horton San Diego Holding Co., Inc. (2005) 126 Cal.App.4th 668, 678.) Unlike a jury rendering a general verdict, however, it is not the jury's task in rendering special verdicts to determine whether its findings of fact support a judgment of liability under any particular legal theory. That task is left to the trial court. The fact that the special-verdict form did not expressly ask whether Forceman engaged in a conspiracy is therefore not determinative. (See 7 Witkin, Cal. Procedure (4th ed. 1997) Trial, § 352, pp. 399-401.) The special verdicts in this case necessarily entail a finding of conspiracy. Green Wood did not present evidence or argue that it had any direct dealings with Forceman, NAMSA, or CCIC South America. Green Wood, in fact, conceded that it had no direct dealings with Forceman in its responses to Forceman's requests for admissions, which Forceman read to the jury. The jury nevertheless found that Forceman, Richshine and its constituents, NAMSA, and CCIC South America all knowingly made false representations with the intent that Green Wood would rely on those representations. Based on the evidence and argument at trial, the jury must have concluded that defendants conspired to obtain fraudulent Class "B" CCIC certificates for Richshine, and that the CCIC certificates were obtained as part of Richshine's conspiracy to defraud Green Wood. Taken together, the jury's special verdicts compel the conclusion that the jury found that Forceman was involved in a conspiracy to defraud Green Wood. "That the word `conspiracy' was not used in nowise lessens the legal impact of the acts nor if the word `conspiracy' had been used would it have added anything to the legal significance of what was done." ( McPhetridge v. Smith (1929) 101 Cal.App. 122, 140, quoted in 5 Witkin, Cal. Procedure, supra, Pleading, § 875, p. 333.)

The trial court instructed the jury: "Plaintiff claims that it was harmed by Christine Fan's intentional misrepresentation and that defendants are responsible for the harm because they were part of a conspiracy to commit fraud. [¶] A conspiracy is an agreement of two or more persons to commit a wrongful act. Such an agreement may be made orally or in writing or may be implied by the conduct of the parties. If you find that Christine Fan committed an intentional misrepresentation that harmed plaintiff then you must determine whether defendants are responsible for the harm. [¶] Defendant is responsible if plaintiff proves both of the following: [¶] One, that a defendant was aware that Christine Fan and others planned to defraud plaintiff. [¶] And two, that the defendant agreed with Christine Fan and others and intended that the defraud [ sic] be committed. Mere knowledge of a wrongful act without cooperation or an agreement to cooperate is insufficient to make the defendant responsible for the harm. [¶] A conspiracy may be inferred from circumstances including the nature of the acts done, the relationship between the parties, and the interest of the allege[d] conspirators. Plaintiff isn't required to prove the defendant committed a wrongful act or that he or she or it knew all of the details of the agreement or the identities of all the participants."

Although Green Wood pleaded aiding and abetting, the jury was not instructed on that theory of liability.

Although the fake packing lists and invoices were admitted as exhibits at trial, Forceman did not include them in its Appendix of Trial Exhibits.

The jury was instructed, "You may consider the ability of each party to provide evidence. If a party provided weaker evidence when it could have provided stronger evidence you may disregard the weaker evidence." The jury was also instructed, "You may consider whether a party failed to explain or deny some unfavorable evidence. Failure to explain or deny unfavorable evidence may suggest that the evidence is true."

3. Sufficient Evidence of Negligence fn_
To recover for negligence, Green Wood was required to prove that (1) Forceman had a legal duty to use due care; (2) Forceman breached that duty; and (3) Forceman's breach was the proximate or legal cause of the resulting injury. ( Century Surety Co. v. Crosby Ins., Inc. (2004) 124 Cal.App.4th 116, 127 ( Century); 6 Witkin, Summary of Cal. Law (10th ed. 2005) Torts, 835, p. 52.) Forceman argues that the evidence is insufficient to establish that Forceman owed Green Wood a duty of care. We disagree. "`The threshold element of a cause of action for negligence is the existence of a duty to use due care toward an interest of another that enjoys legal protection against unintentional invasion. [Citations.] Whether this essential prerequisite to a negligence cause of action has been satisfied in a particular case is a question of law to be resolved by the court. [Citation.] `[Citation.]" ( Quelimane Co. v. Stewart Title Guaranty Co., supra, 19 Cal.4th at pp. 57-58.) "Privity of contract is no longer necessary to recognition of a duty in the business context and public policy may dictate the existence of a duty to third parties." ( Id. at p. 58.) "`"The determination whether in a specific case the defendant will be held liable to a third person not in privity is a matter of policy and involves the balancing of various factors, among which are [1] the extent to which the transaction was intended to affect the plaintiff, [2] the foreseeability of harm to him, [3] the degree of certainty that the plaintiff suffered injury, [4] the closeness of the connection between the defendant's conduct and the injury suffered, [5] the moral blame attached to the defendant's conduct, and [6] the policy of preventing future harm." [Citation.]" ( Ibid.) In Century, supra, 124 Cal.App.4th 116, the court applied these six factors to determine that an independent insurance broker owed a duty of care to an insurer in preparing an insurance application on behalf of an insured when the broker knew the application contained actual misstatements. In that case, the plaintiff liability insurer alleged that the independent insurance broker had prepared a liability insurance application for a general contractor that misrepresented the contractor's loss history. The insurer alleged that the broker failed to "`fully divulg[e] in good faith to [the insurer] all facts within [the broker's] knowledge material to the [insurance] contract which [the insurer] had no means of ascertaining. [Broker] owed a duty not to defraud [insurer].'" ( Id. at p. 127.) The insurer further alleged, "`[Broker] intentionally, carelessly, and/or negligently failed to prepare and process the [insurance] [a]pplication by failing to fully and truthfully divulge to [insurer] [the insured's] true and accurate loss history.'" ( Ibid.) The court of appeal held that the insurer had adequately alleged that the insurance broker owed a duty of care to the insurer. The court reasoned, "First, the transaction of applying for an insurance policy is intended to benefit the insurer as well as the insured and is designed to influence the insurer's conduct in issuing an insurance policy. Second, harm from misrepresentations in an insurance application, such as the precise harm alleged to have occurred in this case, is easily foreseeable. Third, injury is certain in that the insurer incurred costs in defending an insurance claim on a policy that would not have issued but for the misrepresentations in the application. Fourth, the misrepresentations in the application were material to the insurer's decision to issue the policy and thus were closely connected to the ensuing injury. Fifth, under the circumstances alleged, the factor of moral blame supports a finding of duty. Finally, imposing liability on insurance brokers for misrepresentations in insurance applications would act as a deterrent in preventing future harm." ( Century, supra, 124 Cal.App.4th at pp. 128-129.) The court cautioned that its "holding should not be construed as treating an insurance broker as a guarantor of information in an insurance application or as imposing a duty on a broker to independently investigate information provided by the insured." Nevertheless, the court concluded, "when the broker knows of actual misstatements, the broker may be held liable for transmitting those misrepresentations in an insurance application knowing the insurer will reasonably rely on them." ( Id. at p. 129.) The decision in Century, supra, 124 Cal.App.4th 116, is instructive here. First, obtaining CCIC certificates benefits both the buyer-importer and the seller-exporter because the CCIC certificates are necessary for scrap metal to clear Chinese customs. Second, harm from misrepresentations made in obtaining the CCIC certificates is easily foreseeable. If the goods have not been inspected, as stated in the CCIC certificate, the goods may not pass Chinese customs and will be returned to the country of origin — or, as in this case, the goods might not exist at all. Third, injury is certain in cases like this, in which the goods do not exist. Injury is also reasonably likely when the goods do exist. Kerry Lee testified that Chinese customs typically re-inspects some portion of all scrap metal shipments even when CCIC certificates have been obtained. As a result, there is a reasonable likelihood that non-conforming shipments will be discovered by Chinese customs and rejected. Fourth, the misrepresentations in the CCIC certificates that the goods had been inspected and were in accordance with Chinese customs requirements were material to Green Wood's decision to pay for the goods and thus were closely connected to the ensuing injury. Fifth, under the circumstances of this case, Forceman was morally blameworthy, supporting a finding of duty. Finally, imposing liability on brokers who obtain customs certifications knowing they contain misrepresentations would deter future harm. Accordingly, as in Century, a party acting as a broker or middleman in obtaining CCIC certificates is not the guarantor of information provided by the exporter and generally will not have a duty independently to investigate information provided by the seller. Nevertheless, "when the broker knows of actual misstatements, the broker may be held liable for transmitting those misrepresentations" ( Century, supra, 124 Cal.App.4th at p. 129) to the importer. As noted above, Green Wood introduced substantial evidence that Forceman knew that the CCIC certificates contained false statements and that Green Wood would rely on them. Thus, there was substantial evidence that Forceman owed a duty of care to Green Wood, and breached that duty by transmitting the fraudulent CCIC certificates. The jury's verdict that Forceman was negligent is therefore supported by substantial evidence.

4. Liability for All Damages Because of Conspiracy

Forceman contends that the trial court erroneously permitted Green Wood to recover damages for payments made to Richshine before Forceman obtained the fraudulent CCIC certificates. We have concluded, however, that there was substantial evidence that Forceman conspired with the other defendants in Richshine's scheme to defraud Green Wood. "`"[T]he major significance of the conspiracy lies in the fact that it renders each participant in the wrongful act responsible as a joint tortfeasor for all damages ensuing from the wrong, irrespective of whether or not he was a direct actor and regardless of the degree of his activity."' [Citation.]" ( Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 511 [ 28 Cal.Rptr.2d 475, 869 P.2d 454], italics added.) The timing of Green Wood's payments to Richshine and Forceman's conduct in procuring fraudulent CCIC certificates are thus irrelevant to Forceman's liability for all damage suffered by Green Wood as a result of the fraudulent scheme.

5. Damages Not Affected by Source of Funds

Green Wood is entitled, inter alia, to compensation for the amounts it paid to Richshine. (Cal. U. Com. Code, § 2711, subd. (1).) "The fact that the buyer is a middleman, who purchases for resale or with the intent of making a reshipment to his or her customer, does not alter the rule as to the measure of damages for breach." (4A Lawrence's Anderson on the Uniform Commercial Code (3d ed. rev. 2006) § 2-714:56, p. 559.)

Forceman argues that Green Wood was not entitled to recover for payments to Richshine that were funded or transmitted by Green Wood's Chinese buyer. The evidence was undisputed that the purchase order was a contract between Green Wood and Richshine, pursuant to which Green Wood was obligated to pay Richshine for the goods. Green Wood's buyer was not a party to that contract. Green Wood had entered a separate resale contract with its Chinese buyer. In essence, Green Wood's buyer prepaid amounts in connection with its contract to purchase the goods from Green Wood, and Green Wood used those funds to pay Richshine. The funds sent to Richshine were thus, in effect, payments by Green Wood. The fact that Green Wood funded its payments to Richshine by instructing its buyer to transmit the funds directly to Richshine (thus saving substantial currency conversion costs) is irrelevant to Green Wood's right to recover for payments it was fraudulently induced to make for goods that never existed. (See Allied Canners Packers, Inc. v. Victor Packing Co. (1984) 162 Cal.App.3d 905, 910-911 [ 209 Cal.Rptr. 60] [purchaser of raisins for resale to Japan was a buyer, not a broker, even though its Japanese resale buyer sent letter of credit to allow purchaser to pay seller]; see also Goldman v. Bernstein (Fla.Dist.Ct.App. 2005) 906 So.2d 1240, 1241 [that some of the money was wired to defendant for plaintiff from a third person's account is irrelevant as to the issue of plaintiff's damages].) Forceman cites no authority to the contrary.

6. Recovery of Lost Profits

Forceman asserts that the award to Green Wood of $159,000 for lost profits was erroneous. Forceman did not object to the lost profits instruction or offer an alternative instruction on compensatory damages in the trial court. "However, when a trial court gives a jury instruction which is prejudicially erroneous as given, i.e., which is an incorrect statement of law, the party harmed by that instruction need not have objected to the instruction or proposed a correct instruction of his own in order to preserve the right to complain of the erroneous instruction on appeal." ( Suman v. BMW of North America, Inc. (1994) 23 Cal.App.4th 1, 9 [ 28 Cal.Rptr.2d 133]; see also Code Civ. Proc., § 647; Huffman v. Interstate Brands Corp. (2004) 121 Cal.App.4th 679, 705-706 [ 17 Cal.Rptr.3d 397].) We therefore consider whether Green Wood was entitled to recover lost profits.

In supplemental briefing, Forceman contends that it objected to the lost profits instruction. The record does not support that contention. In context, the objection stated by Forceman's counsel refers not to the lost profits instruction, but to the portion of the trial court's instruction — based on the trial court's grant of a directed verdict against Christine Fan (president of Richshine) and Richshine — stating that "Plaintiff has proved its claim against Richshine Metal, Inc. and Christine Fan." (Italics added.)

The fraud in this case related to the purchase order. The purchase order was a contract for the sale of goods subject to division 2 of the California Uniform Commercial Code. (See Cal. U. Com. Code, §§ 2102, 2105.) Accordingly, the damages available to Green Wood from the fraud are governed by California Uniform Commercial Code, section 2721, which provides for recovery on a benefit-of-the-bargain basis. That section provides: "Remedies for material misrepresentation or fraud include all remedies available under this division for nonfraudulent breach. Neither rescission or a claim for rescission of the contract for sale nor rejection or return of the goods shall bar or be deemed inconsistent with a claim for damages or other remedy." California Uniform Commercial Code section 2721 represents an exception to the general rule in California, embodied in Civil Code section 3343, that a plaintiff defrauded in the purchase or sale of property may recover only out-of-pocket loss. (See Stout v. Turney (1978) 22 Cal.3d 718, 726-727 [ 150 Cal.Rptr. 637, 586 P.2d 1228]; Continental Airlines, Inc. v. McDonnell Douglas Corp. (1989) 216 Cal.App.3d 388, 429-433 [ 264 Cal.Rptr. 779]; see also 6 Witkin, Summary of Cal. Law (10th ed. 2005) Torts, § 1710, pp. 1238-1239.)

Neither party has raised any choice-of-law issue or disputed the application of California law.

When, as here, a seller fails to deliver goods pursuant to a contract governed by the California Uniform Commercial Code, and the buyer does not cover, the buyer's remedy is set forth in California Uniform Commercial Code section 2713, subdivision (1). That section provides, in pertinent part, "the measure of damages for nondelivery or repudiation by the seller is the difference between the market price at the time when the buyer learned of the breach and the contract price together with any incidental and consequential damages provided in this division (Section 2715), but less expenses saved in consequence of the seller's breach." (Italics added.) Green Wood did not seek damages based on the difference between contract price and market price, but rather sought its out-of-pocket damages and consequential damages based on its lost profits. Pursuant to California Uniform Code section 2715, subdivision (2)(a), a buyer of goods for resale may generally recover its lost profits as consequential damages, provided such damage "could not reasonably be prevented by cover or otherwise. . . ." (Cal. U. Com. Code, § 2715, subd. (2)(a); see Cal. Code com. 3, reprinted at 23A pt. 2 West's Ann. Cal. U. Com. Code (2002 ed.) foil. § 2715, p. 119; see R.B. Matthews v. Transamerica Transp. Services (9th Cir. 1991) 945 F.2d 269, 275 [under Cal. U. Com. Code, §§ 2713 2715, buyer may recover the difference between the market price and the contract price plus consequential damages including lost profits]; Sun-Maid Raisin Growers v. Victor Packing Co. (1983) 146 Cal.App.3d 787, 791 [ 194 Cal.Rptr. 612] [Cal. U. Com. Code, § 2715 permits recovery of "consequential damages such as lost profits"].) "[S]ection 2715, subdivision (2)(a) imposes upon the allegedly breaching party the burden of proving the inadequacy of efforts to mitigate consequential damages." ( Carnation Co. v. Olivet Egg Ranch (1986) 189 Cal.App.3d 809, 818 [ 229 Cal.Rptr. 261].)

In this case, none of the defendants offered evidence that Green Wood had failed to mitigate its consequential damages or requested a jury instruction on the issue. Green Wood, however, introduced substantial evidence to sustain an award of lost profits. Green Wood presented evidence of its purchase price from Richshine, which included the cost of shipping the goods to China. Joseph Li of Green Wood testified that Green Wood sold the plate scrap to its buyer for $25 per ton more than Green Wood paid, and sold the scrap iron at $10 per ton more than Green Wood paid. Forceman had a full and fair opportunity to test Green Wood's damage calculation through cross-examination or rebuttal. On appeal, Forceman does not identify any specific manner in which Li's calculation was erroneous, and Forceman provides no argument or authority that the amount of lost profits awarded was excessive. Accordingly, substantial evidence supports the $159,000 award for Green Wood's lost profits.

Relying on Kenly v. Ukegawa (1993) 16 Cal.App.4th 49 [ 19 Cal.Rptr.2d 771] ( Kenly), Forceman argues that California Uniform Commercial Code section 2721 does not "allow[] recovery of damages which would place the plaintiff in a better position than he or she would have been absent the fraud." In Kenly, the plaintiff was fraudulently induced to purchase a trust deed by the defendant's representation that the defendant would later sell to the plaintiff the farm that was the subject of the indebtedness. ( 16 Cal.App.4th at pp. 51-52.) The trial court awarded the plaintiff damages based not on the amount the plaintiff paid for the trust deed, but on the amount of profit the plaintiff anticipated from his intended acquisition and later, potential resale of the farm. ( Id. at p. 52.) The Court of Appeal reversed the damage award, holding that a plaintiff could not recover lost profits for fraud related to a property the plaintiff never acquired. The court reasoned that, in general, "`successful tort plaintiffs are not entitled to have damages computed on a contract, or "benefit-of-the-bargain," theory.'" ( Id. at p. 54.) Further, the provision in Civil Code section 3343, subdivision (a)(4) that permits a defrauded reseller (in cases not governed by the California Uniform Commercial Code) to recover lost profits is by its express language limited to purchasers who were fraudulently induced to "`purchase or otherwise acquire the property in question.'" ( Kenly, supra, 16 Cal.App.4th at p. 55, italics added.) Because the plaintiff had not acquired the farm but only the trust deed, the plaintiff had not acquired the property he intended to resell. ( Id. at pp. 54-55, italics added.)

Kenly, supra, 16 Cal.App.4th 49 is inapposite for several reasons. First, in cases within the scope of California Uniform Commercial Code section 2721, damages may be calculated on a benefit-of-the-bargain basis. Second, unlike in Kenly, Green Wood was not fraudulently induced to purchase different property than the property it intended to resell for profit. Green Wood was fraudulently induced to purchase the goods, and it entered into a contract to resell the goods. Nor was the recovery in this case based upon Green Wood's mere intention to resell those very goods, as it was in Kenly. Rather, Green Wood had a resale contract in place. Finally, this is not a case in which an award of lost profits would put Green Wood in a better position than it would have been had the fraud not occurred. The evidence was undisputed that Green Wood was in the business of buying and selling scrap metal, had purchased from other suppliers in the past, and had a buyer in place for the goods. Accordingly, had Richshine and its coconspirators not defrauded Green Wood, Green Wood presumably could have obtained the goods from an alternative source and realized a profit by reselling the goods so obtained. Because the scrap metal market was rising rapidly, the fraud perpetrated by defendants deprived Green Wood of the ability to do so. Having received only the monies it paid and its lost profits, Green Wood is not in a better economic position than it would have been had the fraud not occurred. Kenly is therefore not determinative of whether lost profits were available to Green Wood under California Uniform Commercial Code section 2721.

7. Damages for Buyer's Claim Against Green Wood

Forceman asserts that the trial court erred in awarding Green Wood $274,868 for a claim made against Green Wood by its Chinese buyer, or an obligation of Green Wood to that buyer, for damages suffered by that buyer resulting from Green Wood's failure to deliver the goods. We agree that as to this item, the damage award was improper. A plaintiff may not recover damages for an unpaid liability to a third party, unless the plaintiff proves to a reasonable certainty that the liability could and would be enforced by the third party against the plaintiff or that the plaintiff otherwise could and would satisfy the obligation.

Forceman failed to include the trial exhibits relevant to the buyer's claim in appellant's appendix of trial exhibits. We have augmented the record with the exhibits. (Cal. Rules of Court, rule 8.124(b)(5).)

The recovery of such damages is also subject to other limitations on the recovery of damages, such as foreseeability, causation, and reasonableness.

Under California law, a plaintiff — whether the plaintiff's claim sounds in contract or tort — generally cannot recover damages alleged to arise from a third party claim against the plaintiff when caused by the defendant's misconduct. "It is clear that mere possibility, or even probability, that an event causing damage will result from a wrongful act does not render the act actionable" ( Walker v. Pacific Indemnity Co. (1960) 183 Cal.App.2d 513, 517 [ 6 Cal.Rptr. 924], citations omitted; see also Superior Gunite v. Ralph Mitzel Inc. (2004) 117 Cal.App.4th 301, 312-313 [ 12 Cal.Rptr.3d 423] ( Superior Gunite).) Accordingly, the existence of a mere liability is not necessarily the equivalent of actual damage. This is because the fact of damage is inherently uncertain in such circumstances. The facts that a third party has demanded payment by the plaintiff of a particular liability and the plaintiff has admitted such liability are not, by themselves, sufficient to support an award of damages for that liability, because that third party may never attempt to force the plaintiff to satisfy the alleged obligation, and the plaintiff may never pay the obligation. ( Superior Gunite, supra, 117 Cal.App.4th at pp. 312-313; see also Walker v. Pacific Indemnity Co., supra, 183 Cal.App.2d at p. 517; Crowley v. Peterson (C.D.Cal. 2002) 206 F.Supp.2d 1038, 1042.)

It is thus irrelevant for this purpose whether we apply a tort measure of recovery pursuant to Civil Code section 3343 or a contract measure of recovery pursuant to California Uniform Commercial Code sections 2713 and 2721.

In Pac. Pine Lumber Co. v. W. U. Tel. Co. (1899) 123 Cal. 428 [ 56 P. 103], the plaintiff alleged that the defendant telegraph company negligently failed to deliver a telegram to the plaintiff from a third party. As a result, the plaintiff breached a contract with, and caused damage to, the third party. The plaintiff alleged that it was damaged by the telegraph company's negligence because the third party had demanded contract damages against the plaintiff. The California Supreme Court held that the plaintiff had failed to allege cognizable damage. The possibility that the plaintiff might suffer future injury as a result of the third party's claim was insufficient to establish damages. ( Id. at pp. 430-431.)

California law does, however, recognize that a plaintiff in a tort action may recover for a "loss reasonably certain to occur in the future. This is known as prospective damage." (6 Witkin, Summary of Cal. Law, supra, Torts, § 1552, p. 1026; see also Civ. Code, § 3283; see Bihun v. ATT Information Systems, Inc. (1993) 13 Cal.App.4th 976, 995 [ 16 Cal.Rptr.2d 787], disapproved on other grounds in Lakin v. Watkins Associated Industries (1993) 6 Cal.4th 644, 664 [ 25 Cal.Rptr.2d 109, 863 P.2d 179].) A similar concept has been recognized by some authorities in the context of contract damages. For example, an authority states, "Indeed, in a resale situation, the buyer has been permitted to claim as consequential damages from the seller the amount of the buyer's potential liability to its customer; if the buyer establishes the probability that it will be sued by the customer, it is immaterial that the buyer has not yet been sued and made to bear the loss, and recovery is measured by the probable liability of the buyer to the customer." (24 Williston on Contracts (4th ed. 2002) § 66:68, pp. 737-738, fns. omitted; see also 4A Lawrence's Anderson on the Uniform Commercial Code, supra, §§ 2-715:307, 2-715:309, 2-715:313, pp. 858-861.) Other authorities note that plaintiffs may recover for future losses if there is an appropriate showing that those losses "will in fact be incurred in the future." (2 Dobbs, The Law of Torts (2001) § 380, p. 1056; see 1 Dobbs, Law of Remedies (2d ed. 1993) § 8.5; Rest.2d Torts, § 910.)

Civil Code section 3283 provides: "Damages may be awarded, in a judicial proceeding, for detriment resulting after the commencement thereof, or certain to result in the future." (Italics added.)

"When a seller makes a warranty, knowing that the buyer will resell with the same warranty, the buyer may sue the seller for breach of that warranty and recover, as consequential damages, for the liability which the buyer will sustain to the subpurchasers, and, so long as the buyer proves the probability of being sued, it does not matter that no suit has yet brought. Recovery is measured by the probable liability of the buyer to the subpurchasers." (4A Lawrence's Anderson on the Uniform Commercial Code, supra, § 2-715:309, fns. omitted.)

Although not discussing the issue, the court in a California case approved a damage instruction that included the following language: "`Where a buyer has entered into a contract to resell the goods and the seller knows of the existence of such commitment on the part of the buyer to such third party, and that the seller's breach or failure to deliver such goods to the buyer will, as a direct and proximate result, disable the buyer from fulfilling the buyer's obligation to deliver such goods to the third party, and subject the buyer to liability to the third party in consequence of the buyer's inability to make good his commitment to the third party, then the buyer is entitled to recover the amount of his liability to the third party or such actual payment as the buyer may have reasonably made in good faith in satisfaction and discharge of his liability to the third party.'" ( House Grain Co. v. Finerman Sons (1953) 116 Cal.App.2d 485, 494, 495-496, fn. 4 [ 253 P.2d 1034].)

It may be that existing California authorities generally require payment of the liability in order to include the liability as damages. But even if a liability to a third party might be included as damages without actual payment, more certainty is necessary than just evidence of an obligation to pay a third party. The obligation by itself does not mean that one will pay the third party. Accordingly, as with other types of prospective damage, a plaintiff must demonstrate that it will suffer the damage with reasonable certainty — that is, the plaintiff must prove to a reasonable certainty that the plaintiff could and would pay the liability.

(See 23 Cal.Jur.3d (2000) Damages, § 17, p. 36, citing Pac. Pine Lumber Co. v. W. U. Tel. Co., supra, 123 Cal. 428; see also Agnew v. Parks (1959) 172 Cal.App.2d 756, 768 [ 343 P.2d 118] ["It is the rule that fraud without damage is not actionable. . . . [¶] . . . Damage to be subject to a proper award must be such as follows the act complained of as a legal certainty . . . (citations)."].)

In this case, the evidence established that, at the time of trial, Green Wood had not paid any portion of its Chinese buyer's $274,868 claim. Although there is evidence that Green Wood had, in effect, settled the claim by agreeing to pay it, Green Wood presented no evidence that any such agreement would be enforceable in China, or that the liability could and would be enforced by the buyer in the United States or elsewhere, or that the claim will otherwise be paid. There was no other evidence from which the jury could conclude that it was reasonably certain that Green Wood would ever have to pay the money. ( Pac. Pine Lumber Co. v. W. U. Tel. Co., supra, 123 Cal. at p. 432.)

Furthermore, it appears that the Chinese buyer's claim against Green Wood was for the buyer's own lost profits. The only evidence regarding the Chinese buyer's business, however, was that the buyer is a manufacturer of some kind, not a reseller. Green Wood presented no evidence to establish the fact or amount of the Chinese buyer's lost profits other than the Chinese buyer's mere claim. This illustrates another problem with allowing damages based on a third party claim. If a defendant is liable for any sum a plaintiff agreed to pay a third party, that sum could be subject to unfair manipulation.

Accordingly, the evidence is insufficient to sustain the award of $274,868 for the Chinese buyer's claim.

8. Insufficient Evidence of Punitive Damages fn_

B. No Reversible Error in Excluding the Testimony of Christine Fan fn_
1. Factual and Procedural Background During pretrial proceedings, Fan was sanctioned for failing to appear at a court-ordered mediation, failing to appear at her deposition and to produce documents, and for failing to obey court orders. Approximately one month before trial, plaintiffs moved for terminating or, in the alternative, evidentiary sanctions against Fan and Richshine. The trial court found that Fan and Richshine had "played games and played games with the plaintiff and played games with the court and played games with their [own] attorneys and so now we are getting near trial and the court finds that Ms. Fan has failed to produce all the documents. . . ." The trial court granted an evidentiary sanction prohibiting Fan and Richshine from introducing any evidence at trial. The trial court also struck Fan's and Richshine's cross-complaint. Forceman offered no argument with respect to the sanctions and did not object to the sanction imposed. During the hearing on the parties' motions in limine, counsel for Wong, Jim and Moundhouse Metals stated that he intended to call Fan to testify on behalf of his clients. The trial court responded, "Christine Fan is not going to testify. . . . [¶] She is not going to testify. I already ruled. . . . [¶] . . . [¶] . . . If the defense tries to get in anything that was not provided in discovery to the plaintiff when she was not deposed, does not exist for you. It will not be asked in this trial, period. She will not go around and come in the back door. That will not happen." Counsel complained that the ruling prejudiced his clients, who had not been sanctioned. The trial court was unmoved. "It very well may," the trial court said, "in which case everyone should have thought of that, but she will not bring in evidence through the back door that she did not provide in an orderly and honest fashion in a court of law in the United States of America. That will not happen." Forceman did not indicate during the hearing any intent to call Fan to testify on its behalf. Forceman's principal, Anjie Zhu, was included on the parties' joint witness list. During trial, the trial court permitted further briefing and heard additional oral argument on whether Fan would be permitted to testify for other parties. The record does not indicate that Forceman submitted any briefing on that issue. Forceman offered no argument during the hearing on that issue, and did not indicate during the hearing any intent to call Fan to testify on its behalf. The trial court interpreted the sanction order to bar Fan from testifying at the trial. During Jim's testimony in his own defense, Green Wood sought and was granted permission to impeach Jim by reading an excerpt from Fan's deposition. Prior to presenting Forceman's defense case, trial counsel for Forceman asked the trial court whether Forceman could read an excerpt of Fan's deposition testimony as affirmative evidence in its case in chief. The trial court concluded that permitting Fan's deposition to be used as affirmative, exculpatory evidence would violate the sanction order. Forceman did not indicate any intention to call Fan to testify in person, did not identify the deposition excerpt it sought to read to the jury, and made no offer of proof of what the evidence would show except to say that Fan "testified in favor of our client." Forceman proceeded to put on its case in chief, which consisted only of reading Green Wood's responses to requests for admission. Forceman did not call Anjie Zhu to testify, stating during argument to the jury that doing so "would be a waste of time" because "he was just going to say the same thing" that the jury had already heard.

The Hon. Susan Bryant-Deason presided over pretrial proceedings in this case.

Forceman was one of the parties awarded monetary sanctions against Fan in May 2005 when Fan first failed to appear for her deposition.

No cross complaint is included in the record on appeal. The propriety of the sanctions order is not at issue on this appeal.

The only brief on this issue included in the record is Green Wood's, which frames the issue thus: "Plaintiff understands that defendants Chris Wong and Moundhouse Metals intend to call defendant Christine Fan to testify on their behalf. This should not be permitted. . . ." (Italics added.)

2. Forceman Failed to Preserve the Issue for Appeal
Forceman does not argue on appeal that the trial court erred by preventing it from presenting Fan's deposition testimony in Forceman's case in chief. Rather, Forceman argues that the trial court erred by precluding it from calling Fan to present live testimony. Forceman failed, however, to preserve any issue regarding Fan's live testimony for appeal. First, Forceman never called Fan to testify or indicated its intention to do so, either during the trial or in pretrial proceedings. Forceman did not object to the evidentiary sanction imposed against Fan on that (or any other) ground. Forceman did not brief the issue of whether Fan should be permitted to testify when given the opportunity to do so during trial. Forceman offered no argument at the hearing on that issue, and did not indicate its intention to call Fan to testify. Prior to presenting its case in chief, Forceman sought only to read Fan's deposition testimony. It did not seek permission to call Fan as a witness. Second, Forceman made no offer of proof to preserve the issue for appeal. (Evid. Code, § 354, subd. (a); Gutierrez v. Cassiar Min. Corp. (1998) 64 Cal.App.4th 148, 161; see also Austin B. v. Escondido Union School Dist. (2007) 149 Cal.App.4th 860, 886.) Forceman does not argue or cite authority that an offer of proof would have been futile (Evid. Code, § 354, subd. (b)), nor would the record support such a conclusion given that the trial court permitted the parties to submit briefing and argument on the issue of whether Fan should be permitted to testify. Furthermore, even if we construe as an offer of proof the vague remark by counsel for Forceman that Fan's deposition testimony would be "favorable" to Forceman, such an offer of proof was insufficient. "The offer of proof must be specific in its indication of the purpose of the testimony . . . and the content of the answer to be elicited. The judge may properly reject a general or vague offer that does not indicate with precision the evidence to be presented. . . ." (3 Witkin, Cal. Evidence (4th ed. 2000) § 402, pp. 491-492; accord, Semsch v. Henry Mayo Newhall Memorial Hospital (1985) 171 Cal.App.3d 162, 168.) Forceman points out that, in support of its motion for a new trial, it submitted to the trial court an excerpt from Fan's deposition. Forceman makes no argument, however, that the trial court erred in denying its motion for a new trial, nor does Forceman cite any authority that an offer of proof made in a post-verdict motion suffices to preserve an issue relating to the exclusion of evidence at trial. To the contrary, the failure to preserve an error during trial generally results in forfeiture of the error as a ground for a new trial. ( Weathers v. Kaiser Foundation Hospitals (1971) 5 Cal.3d 98, 103; In re S.B. (2005) 130 Cal.App.4th 1148, 1159.) In any event, any error in excluding Fan's testimony was harmless. To obtain reversal based on the erroneous exclusion of evidence, Forceman must show that a different result was probable if Fan's testimony had been admitted. ( Karlsson v. Ford Motor Co. (2006) 140 Cal.App.4th 1202, 1223.) As reflected in the deposition transcript submitted by Forceman on its motion for a new trial, Fan would have testified that she did not hire Forceman to do anything with respect to the purchase order, and never asked Forceman to "issue false documents" or "make any false representations" with respect to the purchase order. The evidence at trial was undisputed, however, that it was not Fan who contacted Forceman to obtain the CCIC certificates, but Jim, and that the packing lists and invoices that Jim faxed to Forceman were fakes. The deposition transcript does not establish that Fan would have testified otherwise. Forceman has thus failed to demonstrate that a different result was probable had Fan testified.

Evidence Code section 354 states in relevant part, "A verdict or finding shall not be set aside, nor shall the judgment or decision based thereon be reversed, by reason of the erroneous exclusion of evidence unless the court which passes upon the effect of the error or errors is of the opinion that the error or errors complained of resulted in a miscarriage of justice and it appears of record that: [¶] (a) The substance, purpose, and relevance of the excluded evidence was made known to the court by the questions asked, an offer of proof, or by any other means[.]"

DISPOSITION

The judgment in favor of Green Wood Industrial Company against Forceman International Development Group, Inc., is modified to award Green Wood Industrial Company $1,233,548.20 in compensatory damages and no punitive damages. As modified, the judgment is affirmed. Each party shall bear its own costs.

Armstrong, Acting P. J., and Kriegler, J., concurred.

A petition for a rehearing was denied December 3, 2007.


Summaries of

Green Wood Industrial Co. v. Forceman Internat. Development Group, Inc.

Court of Appeal of California, Second District
Nov 1, 2007
156 Cal.App.4th 766 (Cal. Ct. App. 2007)

focusing on premature timing and holding that the plaintiff had not shown with sufficient certainty that it would be forced to pay the third-party damages at issue

Summary of this case from Visa Inc. v. Sally Beauty Holdings, Inc.
Case details for

Green Wood Industrial Co. v. Forceman Internat. Development Group, Inc.

Case Details

Full title:GREEN WOOD INDUSTRIAL COMPANY, Plaintiff and Respondent, v. FORCEMAN…

Court:Court of Appeal of California, Second District

Date published: Nov 1, 2007

Citations

156 Cal.App.4th 766 (Cal. Ct. App. 2007)
67 Cal. Rptr. 3d 624

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