Opinion
G054376
10-22-2018
L&MC RACING, LLC, et al., Plaintiffs and Respondents, v. MATT COOK, Defendant and Appellant.
Buchalter and Robert M. Dato for Defendant and Appellant. K&L Gates, Timothy L. Pierce, Kevin S. Asfour, and Kate G. Hummel for Plaintiffs and Respondents.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 30-2012-00565313) OPINION Appeal from a judgment of the Superior Court of Orange County, Frederick Paul Horn, Judge. Affirmed. Respondents' Request for Judicial Notice denied. Buchalter and Robert M. Dato for Defendant and Appellant. K&L Gates, Timothy L. Pierce, Kevin S. Asfour, and Kate G. Hummel for Plaintiffs and Respondents.
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Motorcycle racer Jeremy McGrath and his racing team, L&MC Racing, LLC, obtained a judgment against Matt Cook, after Cook backed out of sponsoring L&MC's 2012 racing season. The jury found that Cook breached his agreement with L&MC, awarding it damages at over $425,000 as a result. The jury also found Cook defrauded McGrath and concealed information from him, which caused McGrath harm. Although the jury awarded no separate measure of compensatory damages to McGrath for the fraud and concealment, it did award him punitive damages in a separate phase of the trial.
Cook appeals, arguing McGrath could not have relied on any fraud or concealment because it was L&MC, rather than McGrath, which entered into the sponsorship agreement in reliance on his alleged promises. He also argues that because the jury made no separate award of compensatory damages to McGrath in its fraud and concealment verdicts, those verdicts could not support a punitive damages award.
We reject both arguments and affirm the judgment. It was McGrath who had the authority to bind L&MC to the sponsorship agreement and it was his reliance on Cook's fraudulent representations that induced him to do so. Moreover, as reflected in the jury instructions, the parties tried the case on the theory that McGrath and L&MC were acting collectively, rather than individually, for purposes of the fraud claim. We cannot ignore that theory of the case on appeal.
Additionally, we concur with the trial court's assessment that the jury's failure to make a separate award of damages to McGrath in the fraud and concealment verdicts was because it had been instructed that the damages recoverable on those claims were the same as the damages recoverable on L&MC's breach of contract claim, and those damages could be awarded only once. The jury's explicit finding that Cook's fraud and concealment caused harm to McGrath precludes any inference that he suffered no damages as a consequence of those wrongs.
FACTS
McGrath was a professional motorcycle racer who successfully competed in Supercross before his retirement in 2003. In 2011, he teamed up with Larry Brooks, a friend and former team manager, to start a racing team, L&MC, for the 2012 Supercross season. Although McGrath referred to Brooks "as a partner in L&MC Racing," he characterized it as "my own team" and identified himself as the team's "owner."
As McGrath explains, "[Supercross] is a series of dirt bike races that takes place on a man-made course constructed inside a stadium or arena. Each race features several laps where riders tackle high jumps, hairpin turns, and a variety of obstacles."
In late 2011, McGrath met with Cook and engaged in several conversations about racing and McGrath's nascent team. Cook expressed an interest in becoming L&MC's "title sponsor"—that is the team's biggest sponsor, who in exchange for providing sponsorship funds receives the right to prominently feature his selected brand name on the team rider's uniform, equipment, and other team related materials.
Cook represented to McGrath that he owned the website "Supercross.com," which was the brand name he wanted to feature as L&MC's title sponsor. McGrath hesitated because he had concerns about the prior owners of Supercross.com, who had attempted to leverage their ownership of that domain name into a large payout from the separate company that owned the Supercross racing circuit. McGrath did not want to be associated with those prior Supercross.com owners because of his own longstanding and beneficial relationship with the Supercross racing circuit.
Cook assured McGrath that he was the sole owner of Supercross.com and that its prior owners were no longer connected with the company. That representation was untrue, however, because Cook was actually a licensee of the name Supercross.com, whose ownership had not changed.
Relying on Cook's representation, McGrath negotiated an oral agreement for title sponsorship of L&MC with Cook. In exchange for Cook's payment of $1.5 million, McGrath committed L&MC to featuring Supercross.com on its rider and team paraphernalia for the 2012 Supercross season.
McGrath then set up a meeting between Cook and the top executives of the company that owned the Supercross circuit, to "clear the slate" between Supercross.com and the circuit. Cook also represented to the circuit executives that he was the new owner of Supercross.com. With their approval, McGrath began preparing his team for the 2012 season.
In December 2011, Cook made the initial payment of $300,000 owed under the title sponsorship agreement, and a month later, he made his second payment of $150,000. Cook thereafter refused to make any further payments, offering instead to "loan" the team $500,000 to finish out the season, but only if McGrath and Brooks would personally guarantee repayment.
In an attempt to mitigate the effect of Cook's breach of the title sponsorship agreement, McGrath found a new title sponsor for the remainder of the 2012 season, which paid the team $750,000. Those additional funds were insufficient to keep the team afloat, however, and McGrath was forced to shut it down. At that point, the team owed a significant amount of salary to its rider, so McGrath personally loaned the team $200,000 to pay a portion of that obligation, and he agreed the team would pay the rider an additional $118,000 out of any money it recovered from Cook.
McGrath and L&MC filed a complaint against Cook, jointly alleging causes of action for breach of contract and fraud. At trial, however, McGrath made clear that the title sponsorship agreement was entered into between Cook and L&MC; he was not individually a party to it. Thus, the jury instructions specified that the breach of contract claim was asserted by L&MC only, while the fraud claims were being asserted by both McGrath and L&MC together.
The jury was also instructed that although McGrath and L&MC were asserting multiple legal theories, "each item of damages may be awarded only once, regardless of the number of legal theories alleged." The jury was told that L&MC was asserting both breach of contract and fraud, and that the damages recoverable only once under either theory were: "1. The unpaid balance of the contract; and [¶] 2. Monetary damages paid to third parties." The jury was then told that the damages recoverable by McGrath, suing only for fraud, were the same, i.e.: "1. The unpaid balance of the contract; and [¶] 2. Monetary damages paid to third parties."
The jury was also instructed that if it decided Cook made "misrepresentations and/or concealed information from Plaintiffs L&Mc (sic) Racing, LLC and Jeremy McGrath and this caused Plaintiffs' harm, you must decide whether that conduct justifies an award of punitive damages." To reach that determination, the jury was told it "must decide whether the Plaintiffs have proved that Defendant engaged in that conduct with malice, oppression, or fraud," and the instruction also defined those terms.
Several of the jury instructions spell L&MC using a lower case "c," while others use the upper case "c."
The jury returned several special verdicts, finding first that Cook breached the agreement he made with L&MC, and awarding $425,833.34 in damages on that cause of action. The jury also found that Cook intentionally made a material false representation to L&MC, which it relied on, but that L&MC was not harmed by that misrepresentation. It rendered substantially the same verdict on L&MC's claim that Cook concealed material information.
The jury also returned special verdicts finding that Cook had intentionally made a material false representation to McGrath, that Cook concealed material information from him, and that McGrath relied on both. The jury found that McGrath was harmed by both the misrepresentation and the concealment. However, the court awarded no additional damages in those special verdicts.
In a separate special verdict, the jury found that "Cook engage[d] in the conduct with malice, oppression, or fraud." In light of that finding, the court held a second phase of the trial, so the jury could consider an award of punitive damages. At the conclusion of that second phase, the jury returned a special verdict awarding $118,000 in punitive damages to L&MC, and $1.6 million in punitive damages to McGrath.
Cook filed motions for judgment notwithstanding the verdict, to set aside and vacate the judgment, and for a new trial. The court partially granted Cook's motion "for an order correcting and vacating the judgment." The court made no change to the award of $425,833.34 in favor of L&MC for breach of contract, and also made no change to the award in favor of McGrath on the fraud claim, finding that "[c]ompensatory damages are not awarded to avoid duplicative recovery, as the jury found."
The court also reduced the award of punitive damages to McGrath, finding that an award of $851,766.68—"twice the amount of the compensatory damages award that the jury would have awarded but for the duplication"—was reasonable. The court also awarded prejudgment interest to L&MC.
Although not mentioned in the court's ruling on the post-trial motions, the amended judgment also omits the jury's separate award of punitive damages in favor of L&MC.
The amended judgment provides that damages are awarded in favor of L&MC, and against Cook, in the amount of $425,833.34 on the claim of breach of contract; that McGrath is the prevailing party on his fraud and concealment claims against Cook, but compensatory damages are not awarded "to avoid duplicative recovery, as the jury found"; that $851,766.68 in punitive damages are awarded in favor of McGrath and against Cook; and that L&MC is entitled to prejudgment interest in the amount of $175,865.32.
DISCUSSION
On appeal, Cook does not challenge the judgment entered in favor of L&MC. Instead, he focuses exclusively on the judgment in favor of McGrath, arguing (1) that the jury's finding in favor of McGrath on his fraud and concealment claims fails as a matter of law because McGrath's concession that he was not a party to the title sponsorship agreement negates his claim of reliance; and (2) the jury's finding that McGrath "suffered no monetary damages" as a consequence of the fraud and concealment precludes any award of punitive damages. As we explain, we reject both arguments.
1. McGrath's Reliance
Cook's central contention is that "McGrath was not a party to the contract and he could not, as an individual, [have] been defrauded into entering into that contract." That much is true. If McGrath was not a party to the contract, he could not have personally entered into it—whether or not Cook engaged in any sort of fraud.
But that ignores the reality McGrath was the owner of L&MC, the person with authority to bind the racing team to the title sponsorship contract. Moreover, McGrath testified regarding the personal detriment he suffered as a consequence of Cook's fraud, including his loss of reputation and other opportunities in the Supercross community as well as his payment of $200,000 toward the salary owed to L&MC's rider after Cook withdrew his promised support. That evidence was sufficient to support the jury's determination that McGrath personally relied on Cook's misrepresentation and concealment, and was personally harmed by the fraud. (See Sutter v. General Petroleum (1946) 28 Cal.2d. 525, 530-531, [approving corporate shareholder's individual claim for fraud damages, even though the "promises made by defendants . . . were to run also to the [corporation]," because his abandonment of other projects and devotion of time to the project qualified as "a direct individual injury"].)
But even if that were not the case, we would reject Cook's effort to distinguish between McGrath and L&MC for purposes of the fraud claim because it is inconsistent with the theory on which the parties tried that claim. Cook asserts in his opening brief that the jury was "instructed that misrepresentation or concealment is actionable only if McGrath's reliance substantially influenced him to enter into a contract with Cook." That is incorrect. Cook did make that assertion to the jury, but it is inconsistent with how the jury was instructed.
Italics added, initial capitalization and underlining omitted.
The court initially explained to the jury that "[t]here are two plaintiffs in this trial. You should decide the case of each plaintiff separately as if it were a separate lawsuit. Each plaintiff is entitled to separate consideration of his or her own claims." However, in identifying the plaintiffs, the court explained they were—at least for some purposes—treated collectively: "L&Mc (sic) Racing, LLC and Jeremy McGrath filed this lawsuit. They are called the plaintiffs and I will refer to them collectively as Plaintiffs." Then, although the instructions made clear that L&MC was the sole plaintiff asserting the breach of contract claim against Cook—excluding any reference to McGrath—the fraud instructions consistently referred to McGrath and L&MC as acting collectively.
For example, the court's initial instruction on breach of contract told the jury, in pertinent part: "Plaintiff L&MC Racing, LLC claims that L&MC Racing, LLC and Defendant Matt Cook entered into a contract. To prove that a contract was created, L&MC Racing, LLC must prove all of the following . . . ." The court also instructed: "To recover damages from Defendant Matt Cook, Plaintiff L&MC Racing, LLC, must prove all of the following: [¶] 1. That L&MC Racing, LLC and Matt Cook entered into a contract; [¶] 2. That L&MC Racing, LLC did all or substantially all, of the significant things that the contract required it to do, or that it was excused from doing those things; [¶] 3. That all conditions required by the contract for Matt Cook's performance had occurred or were excused; [¶] 4. That Matt Cook failed to do something that the contract required him to do; and [¶] 5. That L&MC Racing, LLC was harmed by that failure."
Thus, the court instructed: "Plaintiffs L&Mc (sic) Racing, LLC and Jeremy McGrath claim that Matt Cook made a false representation that harmed each of them. To establish this claim, Plaintiffs must prove all of the following: [¶] 1. That Defendant represented to Plaintiffs that a fact was true; [¶] 2. That Defendant's representation was false; [¶] 3. That Defendant knew that the representation was false when he made it, or that he made the representation recklessly and without regard for its truth; [¶] 4. That Defendant intended that Plaintiffs rely on the representation; [¶] 5. That Plaintiffs reasonably relied on Defendant's representation; [¶] 6. That Plaintiffs were harmed; and [¶] 7. That Plaintiffs' reliance on Defendant's representation was a substantial factor in causing their harm."
The jury instruction on concealment described that claim in similar collective fashion: "Plaintiffs L&Mc (sic) Racing, LLC and Jeremy McGrath claim that they were harmed because Matt Cook concealed certain information. To establish this claim, Plaintiffs must prove all of the following: [¶] 1. That Matt Cook intentionally failed to disclose a fact that was known only to him and that Plaintiffs could not have discovered. Specifically, each of the following represents a separate fact that Plaintiffs' (sic) claim Defendant concealed: (1) that Defendant did not own Supercross.com, (2) that Lex Valaskos still owned Supercross.Com, and/or (3) that Ricky Johnson still owned Supercross.com; [¶] 2. That Plaintiffs did not know of the concealed fact; [¶] (3) That Defendant intended to deceive Plaintiffs by concealing that fact; [¶] 4. That had that omitted fact been disclosed, Plaintiffs reasonably would have behaved differently; [¶] 5. That Plaintiffs were harmed; and [¶] 6. That Defendant's concealment was a substantial factor in causing Plaintiffs' harm."
The jury instruction on reliance also adopted that collective reference, telling the jury that "[p]laintiffs L&Mc (sic) Racing, LLC and Jeremy McGrath relied on Defendant Matt Cook's misrepresentation, or would have behaved differently had omitted information been disclosed, if: [¶] 1. The misrepresentation or concealment substantially influenced Plaintiffs to enter into a contract with Defendants; and [¶] 2. That Plaintiffs would have not entered into the sponsorship agreement without the misrepresentation and/or concealment."
Those jury instructions were incorporated into the closing argument made by Cook's counsel as well. He repeatedly referred to McGrath and L&MC as a collective when outlining the elements of the fraud claim, e.g.: "The plaintiffs have failed to establish any evidence that they were harmed. They received over half a million dollars from [Cook]. They got the benefit of their employees helping them get ready for the race season. They used Mr. Cook's trailer. They used his shop. Received all these benefits. [¶] . . . [¶] So it begs the question are they really worse off for having entered into this relationship?"
By consistently lumping McGrath and L&MC together for purposes of establishing fraud, the instructions told the jury that it need not distinguish between them in determining whether the elements of fraud were established. That is a reasonable choice for the parties to make, given the inextricable connection between the two plaintiffs—it is undisputed McGrath engaged in all relevant negotiations with Cook, speaking for both himself and L&MC—as well as the largely duplicative damages the two plaintiffs could recover as a consequence of Cook's fraud.
If Cook wanted the jury to analyze the fraud elements separately for each plaintiff, it was up to Cook to propose instructions which clearly separated the jury's analysis of those fraud claims for each. ""'Whereas in criminal cases a court has strong sua sponte duties to instruct the jury on a wide variety of subjects, a court in a civil case has no parallel responsibilities. A civil litigant must propose complete instructions in accordance with his or her theory of the litigation and a trial court is not 'obligated to seek out theories [a party] might have advanced, or to articulate for him that which he has left unspoken.'"'" (Mayes v. Bryan (2006) 139 Cal.App.4th 1075 1090-1091.)
What Cook cannot do is accede to the joint treatment of McGrath and L&MC for purposes of establishing fraud at the trial level, and then switch tactics on appeal and argue it was error to do so. (County of Los Angeles v. Southern Cal. Edison Co. (2003) 112 Cal.App.4th 1108, 1118 ["'[w]here the parties try the case on the assumption that a cause of action is stated, that certain issues are raised by the pleadings, that a particular issue is controlling, or that other steps affecting the course of the trial are correct, neither party can change this theory for purposes of review on appeal'"].) We consequently reject the argument.
McGrath and L&MC have asked us to take judicial notice of the Articles of Organization for L&MC. Although they concede this document was not introduced into evidence in the trial court, McGrath and L&MC contend it is appropriate for consideration on appeal because Cook's brief "contains an argument that was not raised in the trial court below, namely, that under Cal. Corp. Code § 17701.04(a), a limited liability company is an entity distinct from its members, and thus that 'any reliance by L&MC, a distinct entity, is not a substitute for reliance by McGrath in connection with his personal fraud claims.'" In response to Cook's new argument, McGrath and L&MC wish to rely on the Articles of Organization of L&MC Racing, LLC, to "conclusively demonstrate that the entity was not formed and did not exist until November 17, 2011—well after the misrepresentations at issue." Because we have already concluded that L&MC's status as an entity distinct from McGrath was not relied upon in connection with the fraud claims below, and thus it cannot be asserted as a basis for reversal of the judgment on appeal, our consideration of that additional evidence is unnecessary. We consequently deny the request for judicial notice.
2. Jury's Failure to Award Separate Damages for Cook's Fraud and Concealment
Cook also contends the judgment in McGrath's favor must be reversed because the jury "found he suffered no monetary damages as a result of Cook's conduct." (Bold and initial capitalization omitted.) Once again, we cannot agree.
Cook's argument conflates the concepts of harm and damages. Strictly speaking, a plaintiff suffers harm, and is compensated for that harm with monetary damages. (See Civil Code, § 3281 ["Every person who suffers detriment from the unlawful act or omission of another, may recover from the person in fault a compensation therefor in money, which is called damages"].)
Cook is hardly the first litigant to refer to the harm inflicted on a plaintiff as "damages," but the distinction is significant here because the jury specifically found that McGrath was harmed by Cook's fraud: "McGrath's reliance on . . . Cook's representation [was] a substantial factor in causing harm to Jeremy McGrath." After expressly concluding that McGrath was harmed by Cook's fraud, the jury awarded "$0" in damages to compensate that harm. In the abstract, those findings are inconsistent because a jury is expected to award compensation for the harm it concludes has been inflicted.
The jury made the same finding with respect to Cook's "concealment."
But we do not construe the special verdicts in the abstract. Instead, we construe the verdicts in the light of each other and the jury instructions, and we will deem them inconsistent only when they are "beyond possibility of reconciliation under any possible application of the evidence and instructions. If any conclusions could be drawn thereunder which would explain the apparent conflict, the jury will be deemed to have drawn them." (Hasson v. Ford Motor Co. (1977) 19 Cal.3d 530, 540-541 (overruled in part on other grounds by Soule v. General Motors Corp. (1994) 8 Cal.4th 548, 574.)
In this case, the most logical conclusion is the one drawn by the trial court, i.e., that as a consequence of the instruction telling the jury that although the same damages were awardable under both breach of contract and fraud theories, they could "be awarded only once, regardless of the number of legal theories alleged," the jury declined to duplicate the breach of contract damages it had already awarded to L&MC in McGrath's fraud verdict.
Cook undercuts his own argument when he theorizes about how the jury calculated the damages it awarded on L&MC's breach of contract claim. According to Cook, the jury awarded L&MC $425,834.10 in damages, rather than the $300,000 L&MC was entitled to on a strict benefit of the bargain analysis, as compensation for Cook's breach of the title sponsorship agreement. Cook suggests the jury reached that number by calculating a different figure for the mitigated contract loss, and then adding in the $200,000 McGrath paid the team's rider out of his own funds, plus "about $30,000 McGrath claimed Cook did not pay concerning the team's transport vehicle." In doing so, Cook effectively concedes the jury drew no significant distinctions between McGrath and L&MC for purposes of assessing damages, and instead arrived at a single number intended to compensate both plaintiffs jointly.
According to Cook, L&MC should have recovered $300,000 for breach of contract, based on (1) its claim that Cook had paid only $450,000 of the $1.5 million promised under the title sponsorship agreement, and (2) L&MC later mitigated $750,000 of the loss by securing a second title sponsor.
Cook also suggests the damages awarded for breach of contract were necessarily different than the damages for fraud and concealment, pointing to the different jury instructions on damages; he thus claims they could not have duplicated each other. The claim is not persuasive. Although the words used in the two instructions are different, the primary measure of damages described in each is largely, if not entirely, duplicative of the other.
The instruction for breach of contract damages informed the jury that "L&MC . . . claims damages for the unpaid balance of the contract amount (less the amount [it] received when it mitigated its damages by securing . . . a replacement title sponsor . . . .)"
By comparison, the jury instruction on damages for fraud and concealment told the jury that the basic measure of damages was calculated by taking "the fair market value of what Plaintiffs gave (i.e. the title sponsorship) and subtract from that the fair market value of what they received." And it explained the "fair market value" of the title sponsorship is "the highest price that a title sponsor would have paid in November, 2011 for a 2012 title sponsorship."
The only distinction between those measures of damages is that the latter allows for the possibility that the jury might have decided that a legitimate title sponsor would have paid a different amount for the title sponsorship in 2011 than the amount agreed to by Cook. But once that "fair market value" of the title sponsorship is decided, the jury simply subtracts from it the amounts paid by Cook and the replacement 2012 sponsor—i.e., the fair market value of what McGrath and L&MC received—to calculate the damages caused by Cook's fraud. That measure differs from the breach of contract measure only to the extent the jury might determine the "fair market value" of the title sponsorship was different than the contract amount Cook had agreed to pay.
The instruction on fraud damages also tells the jury that "[p]laintiffs may also recover amounts that they reasonably spent in reliance on Matt Cook's false representation and/or concealment if those amounts would not otherwise have been spent." --------
And as we have already noted, the instruction that explained to the jury it could not award the same item of damages more than once also specifically identified "[t]he unpaid balance of the contract" as a recoverable item of damages under both the breach of contract and fraud theories. The logical inference to be drawn from the instructions and special verdicts, taken together, is that the damages awardable to McGrath for fraud were viewed by the jury as duplicative of the damages awarded to L&MC for breach of contract. The trial court did not err in making such a finding.
Having reached that conclusion, we also reject Cook's final contention that the punitive damages awarded to McGrath must be stricken. The essential premise of Cook's contention is that the jury found McGrath was entitled to no compensatory damages for fraud. (See Cheung v. Daley (1995) 35 Cal.App.4th 1673, 1677 ["an award of exemplary damages must be accompanied by an award of compensatory damages . . . . That rule cannot be deemed satisfied where the jury has made an express determination not to award compensatory damages"].)
As we have explained, however, the jury's verdict cannot be read as a determination that McGrath was not harmed by Cook's fraud. To the contrary, the jury explicitly determined McGrath was harmed. We therefore infer that the jury, as instructed, refrained from duplicating the damage award it had already made to L&MC for breach of contract. The fact that McGrath was actually harmed by Cook's fraud is what distinguishes this case from the cases relied upon by Cook. In Jackson v. Johnson (1992) 5 Cal.App.4th 1350, 1357-1358, the court explained that although the defendant, an attorney, had breached his duty to the plaintiff by dismissing the plaintiff's lawsuit, that breach actually caused the plaintiff no harm because the lawsuit would not have succeeded in any event. Similarly, in Fassberg Construction Co. v. Housing Authority of City of Los Angeles (2007) 152 Cal.App.4th 720, 758, the court concluded the appellant suffered no "actual loss or harm."
Because the jury in this case expressly found that McGrath was harmed by Cook's fraud, we conclude, as did the trial court, that the jury refrained from awarding McGrath compensatory damages only because it believed those damages would be duplicative of the damages already awarded to L&MC for breach of contract. Thus, we infer the jury intended its award of damages to L&MC would also compensate McGrath for Cook's fraud. Consequently, the jury's award of punitive damages was properly based on that compensatory award.
DISPOSITION
The judgment is affirmed. Respondents are to recover their costs on appeal.
GOETHALS, J. WE CONCUR: BEDSWORTH, ACTING P. J. ARONSON, J.