Opinion
H045869
05-28-2021
STEVEN MCLAUGHLIN et al., Plaintiffs and Appellants, v. ROGER MACHEN, Defendant and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Monterey County Super. Ct. No. 16CV003178)
Captain Cook Coffee Company, Ltd. (Captain Cook) was a closely held family corporation that grew and sourced coffee cherry in Hawaii, milled the fruit to remove the coffee beans, and sold the resulting green coffee to retailers and roasters in California and elsewhere. At all times relevant to this appeal, Steven McLaughlin and his wife Flordeliza McLaughlin were the principal shareholders and directors of Captain Cook (together, plaintiffs). Plaintiffs sued the company's former general manager, Roger Kaiwi Machen (Machen) for claims arising from his alleged mismanagement of company operations in Hawaii and other misconduct. With respect to remedies, plaintiffs sought indemnity from Machen for costs incurred to resolve a federal lawsuit over labor violations at their Hawaii operations; rescission of a settlement, release, and indemnity agreement signed by the parties in 2011; and tort damages.
Following a bench trial, the trial court ruled that plaintiffs' causes of action were barred by the applicable statutes of limitations and were not subject to tolling pursuant to Code of Civil Procedure section 351. The trial court alternatively found that plaintiffs had failed to meet their burden of proof as to each cause of action. After entering the defense judgment, the trial court awarded attorney fees to Machen based on the application of Hawaii law pursuant to the choice of law provision in the 2011 settlement agreement.
As we discuss more fully below, Code of Civil Procedure section 351 "extends the time in which to file suit if the defendant was outside California when the action accrued or leaves the state after it accrued." (Heritage Marketing & Ins. Services, Inc. v. Chrustawka (2008) 160 Cal.App.4th 754, 759.)
On appeal, plaintiffs challenge each of these rulings by the trial court. For the reasons explained below, we affirm the judgment but reverse the trial court's postjudgment attorney fee order.
I. FACTS AND PROCEDURAL BACKGROUND
A. Captain Cook Coffee and Roger Machen's Employment
These facts are taken from the evidence presented at the bench trial.
Steven M. McLaughlin (McLaughlin) entered the coffee business in 1968 and started his own company in 1974 importing specialty green coffees to the San Francisco Bay area. In 1991, McLaughlin and two business partners who also owned coffee companies purchased Captain Cook, which at the time consisted of a small dry mill in Kainaliu, Hawaii. In 1993, McLaughlin purchased land and built a wet mill and expanded facilities for the coffee operation. Captain Cook bought coffee cherry from growers around the Kona area, then sold green coffee beans to retail outlets and small roasters in California and abroad. Captain Cook was headquartered in California, where its sales operation was based.
According to plaintiffs' reply brief, Steven McLaughlin, who was in his seventies at the time of the events described, passed away sometime after trial and presumably during the pendency of the appeal.
According to the evidence at trial, the coffee cherry fruit and husk are removed in a wet mill; the final step of coffee bean preparation occurs in a dry mill.
McLaughlin recognized by 1998 that he needed someone to run the operations in Hawaii. One of his business partners referred him to Machen, who was then living in California and working in construction. Machen was interested in moving to Hawaii. McLaughlin hired Machen in March 1998 as operations manager for Captain Cook. Machen was to oversee the labor force and day-to-day operations of the wet and dry mill. Machen had no prior experience operating a coffee operation.
In February 1999, plaintiffs made Machen the general manager of Captain Cook and, according to the minutes of a special meeting of the board of directors in May 1999, also a director of the company. McLaughlin testified that, as a member of the board of directors, Machen could give his opinion and make recommendations to the board but could not vote and was not a shareholder.
At trial, Machen did not recall becoming a director of Captain Cook and denied that he was made a director in fact.
As general manager, Machen oversaw Captain Cook's entire operation in Hawaii, including purchasing coffee cherry from other growers, overseeing the day-to-day operations of the wet and dry mills, and shipping to California. Machen oversaw the labor force and the seasonal hiring of additional workers. Machen testified that it was "very difficult" to find coffee pickers during the season because of competing jobs in rival companies or in construction. Machen also was responsible for overseeing the maintenance of the coffee trees during the off season and for procurement and upkeep of the coffee equipment. Machen hired his son, Jesse, to help him oversee the operations of Captain Cook.
Machen was Captain Cook's most senior representative in Hawaii. The shareholders and other directors of the closely held corporation lived and worked in California. McLaughlin was a director and President and CEO of Captain Cook; McLaughlin's wife, Flordeliza, was a shareholder in the company and became a director in May 1999 when an original investor and director stepped down. Flordeliza had no direct involvement in Captain Cook's operations. The McLaughlins' two sons, Steve Jr. and Chris, were each directors in the company and held the titles of vice-president.
McLaughlin generally visited the Hawaii facilities once or twice a year during the off season. He expanded Captain Cook's operation in 2001 by purchasing additional acreage with planted coffee trees, housing, and a warehouse. In 2006, McLaughlin invested $2 million to buy a 50-acre parcel and plant 25 acres of coffee trees. McLaughlin hired an experienced contractor for the project, which was completed in 2008. The coffee trees required specialized maintenance including pruning, fertilization, and irrigation. Machen told McLaughlin the contractor was charging too much for maintenance of the 50-acre parcel and offered the services of a business formed by Machen in 2006 on property adjacent to Captain Cook's farm called Kaiwi Farms. Kaiwi Farms also grew coffee cherry and sold it to Captain Cook.
Various problems arose between 2005 and 2011, during which time Captain Cook's sales fell precipitously. The company lost about a third of its production in 2007 or 2008 when a large windstorm damaged the coffee trees. Machen attributed a decrease in coffee production in 2009 in part to lack of funds to purchase fertilizer and to maintain the irrigation system. However, McLaughlin disputed that low yields were due to any lack of fertilizer or to the water being cut off. He believed that Machen failed to maintain the coffee trees properly and allowed the property to deteriorate and fall into a state of neglect.
In 2008 and 2009, Captain Cook began having cash flow problems and fell months behind in payments to its coffee cherry suppliers. Bad publicity related to charges and an investigation into Captain Cook and other companies by the Equal Employment Opportunity Commission (EEOC), discussed further below (part I.B., post), created additional problems with suppliers.
By February 2010, Captain Cook owed money to Kaiwi Farms and later that year could no longer pay Machen's wages. Machen resigned from Captain Cook in 2011 after obtaining two promissory notes—one for money due to Kaiwi Farms and one to Machen for unpaid wages, as well as a mutual settlement, release and indemnity agreement signed by the McLaughlins and their sons. We discuss the notes and settlement agreement in more detail below (part I.C., post).
Machen left Captain Cook in April 2011 for a position at Hawaii Coffee Company, which, like Captain Cook, purchases and processes coffee cherry. Machen's son Jesse and others from Captain Cook continued to operate and maintain Captain Cook's property in 2011 and 2012. The McLaughlins did not spend significant time on the Hawaii property until 2013 and 2014, when they discovered the property in poor condition and the coffee trees dying from lack of irrigation and maintenance. McLaughlin blamed the property's condition and yield problems on Machen's management when it was under his care, based on reduced yields starting in 2009 or 2010 when Machen took over maintenance. According to McLaughlin, the farm's yield was "okay" in 2011, started to decline in 2012, and was "practically zero" in 2013.
The McLaughlins were eventually forced to liquidate Captain Cook's Hawaii properties and assets. They also had to sell their personal residence in California and were planning on selling the home they had purchased for their intended retirement. McLaughlin testified that his family had lost everything they had. McLaughlin attributed the company's failure to Machen's mismanagement and to the EEOC litigation brought on by Machen's conduct.
B. EEOC Charges, Lawsuit, and Consent Decree
In early 2005, Machen informed McLaughlin that they were facing a labor shortage and would need to find workers to pick coffee. Machen attended a local trade show in Kona where he met a representative of Global Horizons, Inc. (Global), a California corporation and farm labor contractor based in Los Angeles, California. Global was the only company at the trade show that could supply coffee pickers. Machen sent the information about Global to McLaughlin. Machen "didn't know anything about the company at that time" but told McLaughlin it was their best or only option to solve the labor shortage. Machen testified that McLaughlin said he would look into it; however, McLaughlin relied on Machen's referral and did not conduct an independent investigation into Global.
McLaughlin signed a farm labor contractor H-2A agreement with Global (the Global contract) to provide workers to Captain Cook from September through November 2005. McLaughlin informed Machen that Global would furnish Thai workers who would be employees of Global and supervised by Global, not Machen, as provided for in the Global contract. Machen had no role in the negotiation of the Global contract.
At McLaughlin's direction, Machen undertook to have onsite housing approved by Hawaii County, which allowed Captain Cook to pay a lower rate for the Global contract workers than if they had to be housed elsewhere. The system for paying the contract laborers required Machen, on behalf of Captain Cook, to prepare a weekly timesheet of the hours worked, which McLaughlin approved and faxed to Global for processing and payment. Machen was in charge of resolving any questions about the reported hours. Machen also oversaw work assignments and transportation of crews to different sites.
We refer to the workers supplied through Captain Cook's contract with Global as the Global contract workers, though the parties refer to them primarily as "Thai workers."
According to McLaughlin, Machen was responsible for oversight of the Global contract and the Global contract workers. McLaughlin and Machen would speak daily on the phone during the coffee season about "[p]icking more cherry" and any issues with equipment. Machen never reported any problems about complaints from Global contract workers, aside from a single instance concerning a late payment to a worker which was faulted to Global, not Captain Cook. The Global contract workers had a 250-pound daily quota, which McLaughlin testified was "a reasonable amount," even though sometimes the Global contract workers were unable to meet it.
McLaughlin signed a second farm labor contract with Global in August 2006, which ran from October 2006 through January 2007. Machen suggested to McLaughlin that Captain Cook not bring Global back for a second contract because he did not have time to help Global supervise their workers. At one point during the second contract with Global, Machen informed McLaughlin there was a problem with the Global workers' compensation insurance. McLaughlin contacted Global and threatened to halt operations, but Global provided the necessary proof of insurance. Machen did not report any other problems with Global during the second agreement period.
In August 2007, the EEOC issued two separate notices of charges of discrimination against Global, naming Captain Cook as a joint employer (August 2007 notices). Other than noting the charges were for discrimination due to national origin, the August 2007 notices did not provide any details about the charges. McLaughlin was not aware of the complaints that later emerged regarding overcrowded housing, late pay, food shortages, or mistreatment of the Global contract workers. Captain Cook later received 22 additional notices of discrimination from the EEOC.
Plaintiffs retained a law firm in Hawaii to handle the EEOC notices. There was negative press locally due to the charges and Captain Cook's association with Global. In March 2008, Captain Cook's board of directors decided it could no longer use Global as a contractor. At the March 2009 board meeting, the board noted it was continuing to correspond with its Hawaii counsel and that no further action had been taken by the EEOC, which was also investigating six other companies in Hawaii in relation to alleged discrimination against foreign laborers.
McLaughlin acted as the point of contact between Captain Cook and its Hawaii counsel. The EEOC interviewed McLaughlin in May 2010 and asked questions primarily about administrative details concerning Captain Cook's reporting of payments to Global. The EEOC also interviewed Machen and his son Jesse. Other than the occurrence of the interviews, McLaughlin was not aware of what was happening with the EEOC's investigations. He did not understand at the time that Captain Cook was potentially responsible as a joint employer with Global.
The EEOC charges led in mid-April 2011 to the filing of an EEOC lawsuit in federal court against Global, Captain Cook, and other companies. The complaint did not allege specific facts or events concerning Captain Cook. McLaughlin contacted Machen, who asserted there had been no discrimination against any Global contract workers.
The EEOC filed a second amended complaint in December 2011, again naming Captain Cook as a defendant (December 2011 complaint). The December 2011 complaint contained specific allegations against Captain Cook: it named Machen as the person responsible for setting the Global contract workers' picking schedules, monitoring their hours and housing conditions, and ensuring access to transportation and food. It also alleged that Machen scolded workers if they did not meet their quota, transferred a worker away from Captain Cook's farm because the individual had seen a doctor, threatened the Global contract workers with deportation, limited their movements, and prohibited them from contacting others outside Captain Cook. According to McLaughlin, the December 2011 complaint was the first time he received any information about the alleged violations.
McLaughlin contacted Machen again after the allegations became known; Machen denied the allegations and insisted that he had done nothing wrong.
By late 2012, Captain Cook could no longer afford to pay the legal fees of its Hawaii counsel. Captain Cook began settlement discussions directly with the EEOC in early 2013 and applied for a hardship settlement.
In September 2014, Captain Cook entered into a consent decree with the EEOC to settle all of the EEOC charges contained in the third amended complaint. The consent decree involved payment of a $100,000 settlement to the EEOC over six years, as well as approximately $22,000 in costs to bring certain Global contract workers back to Kona for the 2013 coffee season. Captain Cook incurred substantial attorney fees in connection with the EEOC proceedings. McLaughlin testified that during their settlement discussions, the EEOC attorneys told him they had a "very strong case against Captain Cook" and that the company would not have been involved if it were not for Machen's alleged conduct.
The EEOC's third amended complaint, which is the subject of the consent decree, is not in the record on appeal. The trial court noted at trial that it could not evaluate the EEOC's charges as alleged in the third amended complaint because plaintiffs had not submitted at trial a copy of the operative EEOC complaint.
C. Machen's April 2011 Agreement with Captain Cook
Machen resigned from Captain Cook effective April 1, 2011, two weeks before the EEOC filed the first amended complaint against Captain Cook. As noted above, Captain Cook owed Machen back wages and owed Kaiwi Farms for unpaid work. The amounts owed were not in dispute, and McLaughlin and Machen agreed that Captain Cook could pay them over time.
In March 2011, Machen had an attorney prepare two promissory notes and sent them to the Captain Cook directors in California for signature. Machen testified that his attorney, and his future employer at Hawaii Coffee Company, where he was scheduled to work after leaving Captain Cook, advised him to get a settlement agreement with Captain Cook to protect against later lawsuits and discrimination claims.
On April 1, 2011, Machen sent an agreement titled "Mutual Settlement, Release and Indemnity Agreement" (the 2011 settlement agreement) to California for signature by the other directors. McLaughlin understood from Machen that the agreement was "part of the promissory notes" and that Machen needed to have the matter completed before he left for his new position. McLaughlin did not seek independent legal advice because he trusted Machen, had no disagreements with him, and had no reason to believe the agreement had any effect apart from the promissory notes.
Machen testified that he did not discuss the settlement particulars with McLaughlin but told him it was necessary that McLaughlin read the agreement. Machen also told McLaughlin the agreement was part of the deal and he needed to sign it "to make everything a clean break." McLaughlin signed the agreement and obtained the signatures of the other directors (his wife and two sons) that same day. McLaughlin did not think it was an important document but "just part of the promissory notes" when he signed it. None of the directors reviewed the agreement when they signed it.
Flordeliza McLaughlin testified that when she signed the agreement, she understood it meant they had to pay Machen what they owed him. She did not speak with Machen but trusted what he had told her husband about the agreement.
The parties to the 2011 settlement agreement are Machen and Kaiwi Farms, and Captain Cook, Steven and Flordeliza McLaughlin, and their two sons (Chris and Steve Jr.). The agreement contains broad release language. It states, in pertinent part, that the "Releasors" (Captain Cook and the McLaughlins) "have not relied upon any representations, express or implied, made by any other party hereto or any of their respective representatives as to any of the consequences of this Agreement; [¶] THE RELEASORS HEREBY ACNOWLEGE that facts in addition to or different from those which are known or believed to be true with respect to the matters addressed herein may be hereafter discovered, but that it is their intention to fully and finally and forever settle, release and discharge any and all of the claims addressed herein."
The 2011 settlement agreement also contains a choice of law provision stating "that the terms and conditions of this Agreement shall be governed by and construed in accordance with the laws of the State of Hawaii." The agreement does not include any provision explicitly referencing attorney fees.
D. Plaintiffs' Lawsuit Against Machen
Plaintiffs filed the initial complaint in this action on October 11, 2016, naming Machen as the sole defendant. Plaintiffs alleged causes of action for breach of the duty of loyalty (in Machen's capacity as a former employee), breach of fiduciary duties (in Machen's capacity as a former director), intentional misrepresentation (fraud), negligent misrepresentation, concealment, and indemnification. Plaintiffs filed a first amended complaint in November 2016, adding a cause of action for rescission and declaratory relief as to the 2011 settlement agreement. In February 2017, the trial court granted plaintiffs' motion to amend the first amended complaint. The second amended complaint (complaint) amended certain allegations but otherwise asserted the same causes of action set forth previously.
A filed copy of the complaint is not part of the record, though an unfiled copy is attached as Exhibit A to plaintiffs' motion to file the second amended complaint, which the trial court granted. The trial court stated on the record that trial was proceeding on plaintiffs' second amended complaint.
Plaintiffs generally allege in the complaint that Machen had operational control of all aspects of Captain Cook's Hawaii operation, including contacts with Global and oversight of worker housing, work assignments, reporting hours to Global, and monitoring Global's actions on behalf of Captain Cook. They allege that Machen failed to report Global's abuses to Captain Cook's other directors and personally engaged in verbal abuse, threats, and withholding of earned wages of the Global contract workers. Plaintiffs allege that after making extensive investments in the development and expansion of their coffee farm and milling operations, they lost everything because of Machen's breaches and misconduct, the costs of resolving the EEOC litigation, and lost business due to mismanagement and bad publicity. Plaintiffs allege profound financial losses to Captain Cook and to themselves and their family.
Machen filed his answer after unsuccessfully demurring to the complaint. He generally denied the allegations and asserted defenses, including based on the applicable statutes of limitations.
E. March 2018 Bench Trial
The trial court held a bench trial over several days in March 2018. The trial court heard testimony from witnesses on both sides, including from two of the Global contract workers who testified on plaintiffs' behalf.
Disputed evidence regarding the treatment and conditions affecting the Global contract workers suggested that they were housed separately from locally hired workers in severely overcrowded housing and suffered from long lines to access a single bathroom and a single stove to cook. The Global contract workers testified that they were not permitted to leave the property on their own, even during non-work times. They sometimes did not have enough to eat because they were not allowed to leave the property without permission and could not get to the store. They testified that Machen on occasion shouted at them and became angry when they were not able to meet their quota. Either Machen or Global took their passports when they arrived and held them until they moved to another property. One of the Global contract workers testified that he complained to Global about his wages not being correct and to Machen about the living conditions. The other Global contract worker stated that he did not speak enough English to converse with Machen and did not know if any of the Global contract workers contacted Machen or Captain Cook about the problems they were having.
Both contract workers testified at trial through an interpreter.
Machen testified that McLaughlin did not provide instructions regarding his duties with respect to the Global contract workers. Machen understood that Global was to supervise their employees, and he, Machen, had no supervisorial authority over them. Machen took the Global contract workers' passports when they arrived to copy their names to the pay sheets but returned them immediately to Global. Machen testified that when he found out a Global contract worker was sick, he drove the worker to the hospital and called the Global supervisor. He testified that when he discovered they had no food because they were not getting paid, he gave the workers $100 each and drove them to the store so they could buy food. Machen contacted the Global supervisor and told him that this was never to happen again. Machen testified that he informed McLaughlin of that incident.
McLaughlin testified that Machen never reported anything to him concerning the allegations or complaints that had arisen about treatment of the Global contract workers. McLaughlin was not aware that Global confiscated their workers' passports. He was not aware that any alleged threats, intimidation, unhabitable housing, or abusive conduct had occurred.
After detailed closing arguments from counsel, the trial court summarized from the bench its findings on the evidence and its analysis of the legal issues. As to the evidence presented, the trial court found that McLaughlin hired Machen to run Captain Cook's Hawaii operations, and later made him general manager, despite knowing that Machen had no managerial experience or supervisorial training. The trial court found that Machen was not a director "in fact, but in name" because he had no ability to vote, was not a shareholder, and had no participation in ultimate decisions of the company. The court further found that McLaughlin, as president and CEO of the company, received the EEOC notices of discrimination in 2007 and did not take appropriate steps to investigate the situation or provide additional training or support to Machen, but left Machen to continue running operations unchecked while relying entirely on Captain Cook's local counsel to handle the EEOC notices and investigation.
The trial court noted that based on statements made by the EEOC in the federal litigation in 2013, it appeared the main issues were Captain Cook's lack of compliance with the farm labor program in the Global contract, and Captain Cook's entry into a second contract with Global even though Global had been suspended. The trial court found that McLaughlin entered into the contract with Global in his capacity as Captain Cook's president and CEO and was responsible for the Global contracts and for ensuring his employees understood the contract terms and their obligations. The trial court found that McLaughlin abdicated his duties and responsibility to the company's shareholders and claimed ignorance based on lack of knowledge.
Regarding the 2011 settlement agreement, the trial court found that McLaughlin and the other Captain Cook directors failed to ensure they understood the agreement before signing, even though it was titled "Mutual Settlement Release and Indemnity Agreement" and was supplied by an employee (Machen) who was leaving the company during the pendency of an EEOC investigation. The trial court found the agreement was valid, since at the time it was signed the parties knew that Machen was moving to another company and that Captain Cook was under investigation by the EEOC.
As for Machen's statute of limitations defense, the trial court rejected plaintiffs' claim pursuant to Code of Civil Procedure section 351 that the applicable limitations period was tolled while Machen was out of state. The trial court found that Machen left California in the late 1990's to move to Hawaii for employment with Captain Cook, where he also formed his own business and took employment with another company engaged in interstate commerce. The court compared the facts of the case to several California appellate court decisions and determined that applying the tolling statute under the circumstances would place an impermissible burden on interstate commerce by forcing Machen to return to California and give up his employment in Hawaii to avail himself of the statute of limitations defense. The trial court concluded that the statute of limitations barred plaintiffs' claims, which at a minimum arose when the EEOC filed its complaint against Captain Cook. The court further concluded that plaintiffs' indemnity cause of action accrued when McLaughlin began to expend money in defense of the EEOC charges in 2007.
Although the trial court does not specify whether it believed plaintiffs' claims arose when the EEOC filed its initial complaint or second amended complaint—at which point Captain Cook had direct notice of Machen's alleged wrongdoing—either case would not bring the complaint within the four-year statute of limitations period.
Finally, the trial court found that plaintiffs wholly failed to meet their burden of proof on the causes of action alleged by failing to establish that Machen's conduct alone was the substantial and proximate cause of the damages alleged.
The trial court entered judgment in favor of Machen.
F. Award of Attorney Fees
After trial, Machen sought costs and filed a separate motion for attorney fees. In support of his motion, Machen relied on the Hawaii choice of law provision in the 2011 settlement agreement. Machen argued that Hawaii's revised statutes permitting the prevailing party to recover attorney fees " 'in all actions in the nature of assumpsit' " (Haw. Rev. Stat. § 607-14) applied where plaintiffs had expressly promised not to file suit by settling and compromising all legal matters between the parties. He asserted that the choice of law provision was triggered by the trial court's finding that the parties had voluntarily entered into the 2011 agreement and its denial of plaintiffs' request for declaratory relief and rescission.
Plaintiffs moved to strike costs and filed an opposition to Machen's motion for attorney fees. Plaintiffs argued there was no basis for an attorney fee award under California law because the agreement did not contain a fees provision. Plaintiffs further contended that the choice of law provision in the agreement was not enforceable, but even if it were, it would not justify application of a procedural fees statute to a matter pending in a California forum. Plaintiffs also claimed that Machen waived the right to assert Hawaii law by arguing at various points in the litigation that the agreement was subject to California statute of limitations law, and that awarding fees under the circumstances would violate California public policy concerning attorney fee awards. Finally, plaintiffs argued that even under Hawaii law, Machen was not entitled to a fee award because the express terms of the 2011 settlement agreement did not so provide.
After a hearing on the attorney fees and costs motion, the trial court struck certain costs, granted the remaining $8,701.48 in costs, and awarded $81,705 in attorney fees. The court explained from the bench that Machen had not expressly waived his right to seek attorney fees under Hawaii law, the parties had entered into contract in Hawaii and had a substantial relationship to Hawaii, and the matter was an action in assumpsit "because there are damages on the breach of contract." With respect to the choice of law provision in the 2011 settlement agreement, relying on Applera Corp. v. MP Biomedicals, LLC (2009) 173 Cal.App.4th 769 (Applera), the court held that Machen was entitled to attorney fees under the Hawaii assumpsit statute based on the substantial relationship of the parties and contract to Hawaii and because the state of Hawaii "has a materially greater interest in the determination" of the attorney fee issue.
Captain Cook filed a timely notice of appeal from the May 16, 2018 judgment and a timely notice of appeal from the August 17, 2018 order on attorney fees and costs. In February 2019, this court issued a writ of supersedeas staying enforcement of the trial court's August 17, 2018 order on attorney fees and costs pending final determination of the appeal.
II. DISCUSSION
Plaintiffs contend the trial court erred as a matter of law in finding each cause of action barred by the statute of limitations. Plaintiffs also claim the trial court erred in finding the evidence insufficient to meet their burden of proof on the causes of action in their complaint. They assert that the trial court's methods and rulings resulted in a denial of their due process rights. Plaintiffs also challenge the trial court's decision to apply Hawaii law under the 2011 settlement agreement and contend the attorney fees award must be reversed.
Machen disputes any error of law and argues the trial court properly considered the evidence presented at trial. Machen submits that this court's review may begin—and end—with the trial court's finding that plaintiffs failed to meet their burden of proof as to each cause of action.
As a threshold matter, we first consider whether Machen is correct that affirmance of the judgment is proper because plaintiffs failed to prove their claims by sufficient evidence. We next consider whether the trial court erred in finding plaintiffs' claims barred by the statute of limitations. We lastly decide whether the trial court erred in awarding attorney fees to Machen.
A. Failure of Proof
The written judgment states that plaintiffs "wholly failed to meet [their] burden of proof on any of their causes of action as alleged in their Second Amended Complaint in that defendant's actions were solely and were the substantial proximate cause of plaintiffs' damages." Though the trial court's reference to "sole[] and . . . substantial proximate cause of [] damages" is not entirely clear, the intended meaning appears to be that plaintiffs failed to meet their burden of proof as to causation of damages for each of the causes of action. The trial court indicated from the bench after trial that plaintiffs had not produced sufficient evidence to support their claims.
Plaintiffs contend the trial court's conclusion was "error as a matter of law" and it based its determination on facts that did not form the basis for any element of plaintiffs' causes of action. Plaintiffs also argue the trial court erred in referring to the "sole" cause of damage to plaintiffs, where the causation requirement for intentional and negligent torts is only to show the alleged misconduct was a substantial factor in bringing about the harm. Machen responds that the failure-of-proof determination alone is grounds to affirm the judgment, because plaintiffs have not shown reversible error in the trial court's finding that plaintiffs failed to meet their burden of proof.
This court has previously addressed the appellant's burden in a failure-of-proof case. Most recently in Ajaxo, Inc. v. E*Trade Financial Corporation (2020) 48 Cal.App.5th 129 (Ajaxo), this court stated that in cases where the trier of fact has determined the party with the burden of proof did not carry its burden at trial, and that party appeals, " 'it is misleading to characterize the failure-of-proof issue as whether substantial evidence supports the judgment.' [Citations.] Instead, 'where the issue on appeal turns on a failure of proof at trial, the question for a reviewing court becomes whether the evidence compels a finding in favor of the appellant as a matter of law.' " (Id. at p. 163.)
Plaintiffs have not attempted to meet that onerous standard here. To do so, they would have to show their evidence in support of each cause of action " 'was (1) "uncontradicted and unimpeached" and (2) "of such a character and weight as to leave no room for a judicial determination that it was insufficient to support a finding" ' " in their favor. (Ajaxo, supra, 48 Cal.App.5th at pp. 163-164; see Roesch v. De Mota (1944) 24 Cal.2d 563, 571.) Plaintiffs also must overcome the standard presumption on appeal that a trial court's judgment "is ordinarily presumed to be correct" (Jameson v. Desta (2018) 5 Cal.5th 594, 608-609) and to demonstrate, on the basis of the record presented, trial court error justifying reversal of the judgment. (Id. at p. 609.)
In merely claiming that the trial court's finding regarding failure of proof was "in error" and "not based on substantial evidence," plaintiffs fail to address their burden on appeal to show the evidence they rely upon compelled a finding in their favor. (Ajaxo, supra, 48 Cal.App.5th at p. 164.) Plaintiffs claim that the trial court based its decision on evidence that it either misconstrued or was not at issue in the case. For example, plaintiffs point to the trial court's observations that there was no evidence that Machen was ever trained to supervise employees or to understand his obligations under the Global contracts. Plaintiffs argue that training of the offending director or employee is not an element of any of the asserted causes of action. But this argument ignores the inference to be drawn from the trial court's observations in support of the judgment. (Denham v. Superior Court (1970) 2 Cal.3d 557, 564.) That inference is that Machen's alleged failure to fulfill his duties in overseeing Captain Cook's Hawaii operations and to prevent harm to the company was not the cause of plaintiffs' damages, because plaintiffs failed in the first instance to provide Machen with the tools or training necessary to his position and, over the course of years, failed to investigate problems as they arose and did not attempt to mitigate harm before it became irreversible.
Plaintiffs do not demonstrate that the evidence of Machen's alleged failure to maintain the properties or to competently manage Captain Cook's obligations to the Global contract workers was either " ' "uncontradicted" ' " (Ajaxo, supra, 48 Cal.App.5th at p. 163) or " ' "of such a character and weight as to leave no room for a judicial determination that it was insufficient" ' " (Id. at pp. 163-164) to prove causation. Given the highly contested evidence at trial and the trial court's decisive findings against plaintiffs on several key issues, we have little difficulty concluding that plaintiffs cannot satisfy their burden on appeal to show the evidence admitted at trial compelled the trial court to find in their favor.
Even so, we decline Machen's invitation to resolve the entire appeal on this ground. As plaintiffs point out, the trial court's explanation for its finding—both from the bench and in the written judgment—refers to a failure to show that Machen's conduct was "solely" and "the substantial proximate cause of plaintiffs' damages." This phrasing could be interpreted as requiring proof that the defendant's conduct was the sole cause of damages. That interpretation would be incorrect as a matter of law, because "California has definitively adopted the substantial factor test . . . for cause-in-fact determinations." (Rutherford v. Owens-Illinois, Inc. (1997) 16 Cal.4th 953, 968.) Under that standard, "[c]ausation requires proof that the defendant's conduct was a ' "substantial factor" ' in bringing about the harm to the plaintiff." (Williams v. Wraxall (1995) 33 Cal.App.4th 120, 132, quoting Mitchell v. Gonzales (1991) 54 Cal.3d 1041, 1052-1053; see also CACI No. 430.)
To the extent the trial court's ruling could be interpreted to suggest the court applied something other than the "substantial factor" formulation to plaintiffs' intentional and negligent tort claims, we conclude that formulation was incorrect. Because the trial court phrased its ruling on the burden of proof issue in a way that may be susceptible to misinterpretation, and because the trial court primarily relied on the statute of limitations as the basis for resolving the action in Machen's favor, we conclude the underlying issue of tolling pursuant to Code of Civil Procedure section 351 warrants our review. We therefore turn to plaintiffs' claim of error in the trial court's analysis of the statute of limitations defense.
B. Statute of Limitations
Plaintiffs contend the trial court erred as a matter of law in ruling against them on statute of limitations grounds because each limitations period was subject to tolling pursuant to Code of Civil Procedure section 351. Plaintiffs alternatively claim that even without tolling, the relevant statute of limitations do not bar their claims because plaintiffs did not become aware of Machen's alleged misconduct until "well after October 2012." Plaintiffs separately assert the trial court erred in assessing the sixth cause of action for equitable indemnification as outside the limitations period, because a claim for indemnification does not accrue until payment on the underlying judgment or settlement
Unspecified statutory references are to the Code of Civil Procedure.
We note at the outset that plaintiffs filed this action on October 11, 2016 and state there is "no dispute" the applicable limitations period for their claims is four years. Even applying a four-year statute of limitations, however, does not bring the alleged misconduct underlying plaintiffs' claims for relief—all of which took place before Machen resigned from Captain Cook in April 2011—within the four-year limitations period. Plaintiffs must therefore demonstrate that the limitations period was tolled pursuant to section 351, or that they did not discover—and did not have reason to discover—grounds to sue any earlier than October 11, 2012.
Machen does not contest the asserted, four-year statute of limitations in his respondent's brief. However, we note for accuracy that several of the asserted causes of action appear to have a limitations period of less than four years. Machen's demurrer, for example, set forth the following limitations period: four years for plaintiffs' first, second, and seventh causes of action for breach of duty of loyalty, breach of fiduciary duty, and rescission/declaratory relief (see § 343 [assigning four-year limitations period when no other, more specific period applies]; William L. Lyon & Associates, Inc. v. Superior Court (2012) 204 Cal.App.4th 1294, 1312 [applying four-year " 'catch-all statute' " to breach of fiduciary duty "not amounting to fraud"]); three years for plaintiffs' third and fifth causes of action for fraud and concealment (§ 338, subd. (d) [assigning three-year limitations period for an "action for relief on the ground of fraud or mistake"]); and two years for negligent misrepresentation (see, e.g., E-Fab, Inc. v. Accountants, Inc. Services (2007) 153 Cal.App.4th 1308, 1316 ["a cause of action for negligent misrepresentation typically is subject to a two-year limitations period"]).
1. Governing Principles and Standard of Review
" 'Statute of limitations' is the collective term applied to acts or parts of acts that prescribe the periods beyond which a plaintiff may not bring a cause of action." (Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 806 (Fox).) The purpose of the statute of limitations defense is "to promote the diligent assertion of claims, ensure defendants the opportunity to collect evidence while still fresh, and provide repose and protection from dilatory suits once excess time has passed." (Aryeh v. Canon Business Solutions, Inc. (2013) 55 Cal.4th 1185, 1191 (Aryeh).)
"A plaintiff must bring a claim within the limitations period after accrual of the cause of action." (Fox, supra, 35 Cal.4th at p. 806; see § 312.) A cause of action typically "accrues at 'the time when the cause of action is complete with all of its elements.' " (Fox, at p. 806.) However, certain equitable exceptions "may alter the rules governing either the initial accrual of a claim, the subsequent running of the limitations period, or both." (Aryeh, supra, 55 Cal.4th at p. 1192.) The "discovery rule" is an important exception that, "where applicable, 'postpones accrual of a cause of action until the plaintiff discovers, or has reason to discover, the cause of action.' " (Ibid.) Equitable tolling also "may suspend or extend the statute of limitations." (Ibid.) Statutory tolling provisions, like section 351 at issue in this case, similarly operate to suspend or extend the statute of limitations.
"Resolution of the statute of limitations issue is normally a question of fact." (Fox, supra, 35 Cal.4th at p. 810.) However, to the extent the application of the statute of limitations on undisputed facts presents a purely legal question, we review it independently. (Aryeh, supra, 55 Cal.4th at p. 1191.) The initial burden to prove facts necessary to establish a statute of limitations defense lies with the party asserting the defense, and thereafter shifts to the party seeking to assert a nonstatutory exception to the limitations period. (Id. at p. 1197; see Luke v. Sonoma County (2019) 43 Cal.App.5th 301, 305.) Consistent with this framework, a plaintiff who invokes the discovery rule as a basis for postponing accrual of a cause of action bears the burden of showing non-negligence in failing to discover the injury sooner. (Samuels v. Mix (1999) 22 Cal.4th 1, 18 (Samuels).)
2. Code of Civil Procedure section 351
Plaintiffs challenge the trial court's finding that the application of section 351 to this matter would place an impermissible burden on interstate commerce in violation of the federal Commerce Clause (U.S. Const. art. I, § 8, cl. 3). They contend the refusal to apply the tolling provision here was error.
Because the facts relevant to the application of section 351 are not in dispute, we apply de novo review to the trial court's determination that tolling under the circumstances would burden interstate commerce. (Aryeh, supra, 55 Cal.4th at p. 1191.) We adhere to this standard in particular " '[W]hen the application of law to fact is predominantly legal, such as when it implicates constitutional rights and the exercise of judgment about the values underlying legal principles.' " (In re Taylor (2015) 60 Cal.4th 1019, 1035.)
Section 351 tolls the statute of limitations while a defendant is out of California. It reads, "If, when the cause of action accrues against a person, he is out of the State, the action may be commenced within the term herein limited, after his return to the State, and if, after the cause of action accrues, he departs from the State, the time of his absence is not part of the time limited for the commencement of the action." (§ 351.) Section 351, in short, "extends the time in which to file suit if the defendant was outside California when the action accrued or leaves the state after it accrued." (Heritage Marketing & Ins. Services, Inc. v. Chrustawka (2008) 160 Cal.App.4th 754, 759 (Heritage).) It is undisputed that Machen has resided in Hawaii—that is, outside of California—during the relevant time frame. Therefore, if section 351 applies, the relevant statutes of limitation have not yet begun to run.
For decades, California courts have fielded as-applied constitutional challenges to the tolling provisions of section 351. Plaintiffs rely on several decisions in which courts have upheld the application of section 351 in circumstances plaintiffs argue are analogous to those here. They point to Filet Menu, Inc. v. Cheng (1999) 71 Cal.App.4th 1276, 1284 (Filet Menu), Pratali v. Gates (1992) 4 Cal.App.4th 632, 643 (Pratali), and Kohan v. Cohan (1988) 204 Cal.App.3d 915, 924 (Kohan). Plaintiffs also attempt to distinguish cases finding the application of section 351 violative of the dormant Commerce Clause, like Heritage, supra, 160 Cal.App.4th at page 764. Plaintiffs do not discuss Arrow Highway Steel, Inc. v. Dubin (2020) 56 Cal.App.5th 876 (Arrow), a recent decision by the Second District, Division 2, which was issued after the conclusion of the briefing in this appeal and applies well-established commerce clause principles. Arrow decided that the tolling statute impermissibly burdens interstate commerce when applied against a judgment debtor who has moved away from California to engage in commerce. (Id. at p. 880.)
Courts refer to the dormant Commerce Clause when describing the implicit limitations on state power imposed by the Commerce Clause, which entrusts Congress—not the states—with the power to regulate commerce among the states. (Arrow, supra, 56 Cal.App.5th at pp. 884-885.) "The 'common thread' among those cases in which the Court has found a dormant Commerce Clause violation is that 'the State interfered with the natural functioning of the interstate market either through prohibition or through burdensome regulation.' " (McBurney v. Young (2013) 569 U.S. 221, 235.)
As a preliminary matter, we do not agree with plaintiffs' characterization of Machen's arguments as presenting both a "per se" and "as applied" challenge to section 351. The issue presented—both to the trial court and on appeal—is limited to the factual context of the case, and we construe it as an as-applied challenge. Our review of the pertinent cases and constitutional doctrine leads us to conclude, as did the Courts of Appeal in Arrow and Heritage, that application of section 351 to plaintiffs' claims would violate the dormant Commerce Clause by excessively burdening Machen's ability to continue to pursue his livelihood, which itself involves interstate commerce, in Hawaii. To explain this conclusion, we briefly summarize the relevant authorities.
The United States Supreme Court has explained that statute of limitations defenses "are an integral part of the legal system and are relied upon to project the liabilities of persons and corporations active in the commercial sphere." (Bendix Autolite Corp. v. Midwesco Enterprises, Inc. (1988) 486 U.S. 888, 893 (Bendix).) Bendix examined an Ohio law that tolled the statute of limitations for any person or corporation not "present" in the state by means of an appointed agent for in-state service of process and supplied a framework to review the tolling statute under the Commerce Clause. (Id. at pp. 889-891.) Though "[s]tate laws that toll the statute of limitations on civil actions for out-of-state defendants (but not in-state defendants) are not uncommon" (Arrow, supra, 56 Cal.App.5th at p. 885), they may "run afoul of the dormant Commerce Clause" (ibid.) if, as in Bendix, the court concludes that "the burden imposed on interstate commerce by the tolling statute exceeds any local interest that the State might advance." (Bendix, supra, 486 U.S. at p. 892). Bendix explained that where a state's statute of limitations "denies ordinary legal defenses or like privileges to out-of-state persons or corporations engaged in commerce, the state law will be reviewed under the Commerce Clause to determine whether the denial is discriminatory on its face or an impermissible burden on commerce." (Id. at p. 893.)
California courts have applied Bendix and reached various conclusions as to the constitutionality of section 351 depending upon the circumstances presented. In Arrow, the court applied the analytical framework set out in Bendix in three steps, analyzing first whether the out-of-state defendant was engaged in interstate commerce, second whether section 351 discriminates against interstate commerce in purpose or practical effect, and third whether section 351 places burdens on interstate commerce that are excessive in relation to its putative local benefits. (Arrow, supra, 56 Cal.App.5th at pp. 886-888.)
The Arrow court decided that the defendant, who ran an interstate and international accounting, bookkeeping and tax practice in Nevada, was involved in interstate commerce for purposes of section 351, whether viewed in relation to the underlying transaction—when the defendant embezzled money from the plaintiff—or in the defendant's current employment. (Arrow, supra, 56 Cal.App.5th at p. 887.) Arrow concluded, consistent with several prior court decisions, that section 351 does not discriminate against interstate commerce "because it 'makes no distinction between residents and nonresidents for purposes of tolling' " (Arrow, at p. 887) and "does not have the 'practical effect' of treating local interests or residents more favorably." (Id. at p. 888.) However, the court reasoned that section 351 places a " 'significant' " burden on interstate commerce (Arrow, at p. 888) while "the putative state interest advanced by section 351 is weak" (id. at p. 889). The factors leading to a finding of a violation of the dormant commerce clause apply most forcefully where section 351 forces a choice upon defendants " 'between remaining in [or returning to] California until the limitations period expire[s], or [remaining outside of California but] forfeiting the limitations defense' " (Arrow, at p. 888), and that choice significantly burdens interstate commerce by creating an incentive for a defendant who "has 'travel[ed]' out of state to 'facilitat[e] . . . interstate commerce' . . . to remain in state. " (Ibid.)
The Arrow court further reasoned that, as the Supreme Court had found in Bendix, the state interest underlying the tolling statute is weak because the advent of long-arm statutes has enabled service of process on out-of-state defendants, and whatever functional benefit tolling provides by saving the trouble of locating and serving out-of-state defendants cannot justify the substantial burden that section 351 otherwise places on interstate commerce. (Arrow, supra, 56 Cal.App.5th at p. 889.) The court in Arrow held the application of section 351 was unconstitutional under the circumstances due to the excessive burden placed on the defendant's interstate commerce activities. (Arrow, at p. 889.)
The analytical framework articulated in Bendix and applied in Arrow leads us to arrive at the same conclusion here. Like the defendant in Arrow, Machen was involved in interstate commerce at all times relevant to our consideration. (See also Heritage, supra, 160 Cal.App.4th at p. 761 [naming "whether . . . the defendants' conduct sufficiently made an impact on interstate commerce to invoke the commerce clause" as a "determinative question"].) Machen moved to Hawaii to run Captain Cook's Hawaii operation and ship green coffee from Hawaii to California. He was engaged in that business when the alleged conduct underlying plaintiffs' claims arose, and has since stayed in Hawaii working for another company that purchases and processes coffee to sell to local roasters as well as to Japan and the mainland United States.
It is apparent that Machen's work in coffee cherry processing for commercial sale in other states had an impact on interstate commerce, making this case analogous to Arrow, supra, 56 Cal.App.5th at page 887, where the defendant ran an international and domestic accounting and bookkeeping business, and Heritage, supra, 160 Cal.App.4th at pages 759, 762, where the defendants moved out of state and later opened a business that purportedly competed with plaintiffs' California-based business. As was true in those cases, application of section 351 under these circumstances would impose an impermissible burden on interstate commerce by forcing Machen to choose between remaining in Hawaii to work in the coffee cherry business while indefinitely forfeiting the statute of limitations defense, or relinquishing his work in Hawaii to return to California to run down the limitations periods. (Arrow, at p. 888; Heritage, at p. 764.)
Plaintiffs' arguments to the contrary are unconvincing. Plaintiffs rely on Kohan for the proposition that section 351 applies even if the defendant was outside of California for the entire period during which the statute of limitations would have run had the defendant been present. (Kohan, supra, 204 Cal.App.3d at pp. 920-921.) But we do not decline to apply section 351 on that ground but rather because of the burden its application imposes on interstate commerce in this particular case. Plaintiffs argue that unlike the Ohio tolling law in Bendix, section 351 "is not directed at interstate commerce and any impact is only incidental." This argument would be more persuasive if defendant had sought to invalidate section 351 on its face, rather than bringing an as-applied challenge in this particular case. (Cf. Bendix, supra, 486 U.S. at pp. 891-892 [considering whether Ohio tolling law was facially invalid because of the "significant" burden it placed on foreign corporations with limited local benefit].) Plaintiffs' contention that California courts have declined to extend Bendix to invalidate tolling statutes like section 351 fails to appreciate this distinction.
Arrow recognized the burden of applying the tolling statute to an individual engaged in interstate commerce, which exists no less here than in that case. (See also Dan Clark Family Limited Partnership v. Miramontes (2011) 193 Cal.App.4th 219, 222 ["applying section 351 to toll the statute of limitations in this case would run afoul of the Commerce Clause because it would force a nonresident defendant to choose between remaining in the state for several years, or returning to his or her place of residence, thereby forfeiting the protections of the statute of limitations"].) Unlike the defendant in Filet Menu, who remained a California resident but traveled out of state for reasons not clearly attributed to his interstate commerce activities, Machen's absence from California cannot be attributed to reasons unrelated to "the facilitation of interstate commerce." (Filet Menu, supra, 71 Cal.App.4th at p. 1283.) The same distinction applies to Pratali, which plaintiffs also cite in support of their argument that Machen's presence in Hawaii did not implicate the dormant Commerce Clause. But in Pratali, "both parties [we]re local residents, and the alleged injury did not involve interstate commerce" because the dispute was over "a single amicable loan between California acquaintances while visiting in Las Vegas." (Pratali, supra, 4 Cal.App.4th at p. 643.) So too in Kohan, where the court decided that applying section 351 did not violate the Commerce Clause because the acts giving rise to the causes of action—which involved agreements between three brothers for the division of assets gained through their business dealings in Iran—did not "affect either interstate commerce or commerce between the United States and Iran, nor [did] it establish that [the] defendants were engaged in interstate commerce by any definition of that term." (Kohan, supra, 204 Cal.App.3d at p. 924.)
We conclude that the application of section 351 to the allegations in the complaint would require Machen to choose between continuing his livelihood based on interstate commerce in Hawaii while remaining subject to indeterminate prospective liability in California, or returning to California to run down the clock on the limitations period as to the claims against him. Under Bendix and consistent with the reasoning expressed in Arrow and other California precedent, application of section 351 here violates the dormant Commerce Clause by posing an excessive burden on interstate commerce without providing any appreciable benefit to California, whose long-arm statute authorized plaintiffs to serve Machen despite his absence from the state.
3. The Discovery Rule
Alternatively, plaintiffs contend that even if section 351 is not applied to toll the statute of limitations, the applicable statutes of limitations does not bar their claims because plaintiffs only became aware of Machen's alleged misconduct "well after October 2012" and less than four years before the filing of the complaint in October 2016.
A cause of action ordinarily accrues at the time when it is complete with all of its elements, or "from 'the occurrence of the last element essential to the cause of action.' " (Aryeh, supra, 55 Cal.4th at p. 1191.) For example, "[i]f the last element to occur in a tort action is damages, 'the statute of limitations begins to run on the occurrence of "appreciable and actual harm, however uncertain in amount," that consists of more than nominal damages.' " (Choi v. Sagemark Consulting (2017) 18 Cal.App.5th 308, 323 (Choi).) Machen, as the party asserting the affirmative defense, bears the initial burden to prove plaintiffs' claims are barred by the four-year limitations period, meaning in this case that all essential elements had accrued by October 2012. (Aryeh, at p. 1197.)
Except for the indemnity cause of action discussed separately below (part II.B.4, post), the record supports the showing that plaintiffs' causes of action were time-barred given that Machen left Captain Cook in April 2011, and the alleged acts of wrongdoing (i.e., failure to maintain the property, waste of company assets, mistreatment of the Global contract workers) and resulting harm to Captain Cook occurred prior to Machen's resignation.
Plaintiffs' attempt to invoke the discovery rule to delay accrual of their causes of action is unavailing. Plaintiffs rely in part on the fact that the EEOC's charges against Captain Cook did not make specific allegations about Machen's or Captain Cook's involvement in the alleged discrimination until the filing of the EEOC's second amended complaint in December 2011. They argue that even upon learning the EEOC's specific allegations in December 2011, Machen continued to deny that any wrongdoing had occurred. Plaintiffs moreover contend that the majority of their claims are not related to the EEOC lawsuit but arise instead from Machen's deliberate waste of the property and concealment of the property's condition from the other Captain Cook directors, which plaintiffs did not discover until "well after" Machen's departure from the company in April 2011 and not until after October 2012. They argue there is "no evidence in the records that they knew of Machen's behavior" before that and maintain that Machen actively concealed his misconduct from them.
California courts have long confirmed that a plaintiff seeking to postpone accrual under the discovery rule must " 'establish "facts showing that he was not negligent in failing to make the discovery sooner and that he had no actual or presumptive knowledge of facts sufficient to put him on inquiry." ' " (April Enterprises, Inc. v. KTTV (1983) 147 Cal.App.3d 805, 833; accord Cleveland v. Internet Specialties West, Inc. (2009) 171 Cal.App.4th 24, 31.) The discovery rule only " 'postpones accrual of a cause of action until the plaintiff discovers, or has reason to discover, the cause of action.' " (Aryeh, supra, 55 Cal.4th at p. 1192, italics added.)
Under the discovery rule, "[a] plaintiff is held to [his or] her actual knowledge as well as knowledge that could reasonably be discovered through investigation of sources open to [him or] her." (Jolly v. Eli Lilly & Co. (1988) 44 Cal.3d 1103, 1109 (Jolly).) "[T]he limitations period begins once the plaintiff ' " 'has notice or information of circumstances to put a reasonable person on inquiry . . . .' " ' [Citations.] A plaintiff need not be aware of the specific 'facts' necessary to establish the claim; that is a process contemplated by pretrial discovery. Once the plaintiff has a suspicion of wrongdoing, and therefore an incentive to sue, she must decide whether to file suit or sit on her rights. So long as a suspicion exists, it is clear that the plaintiff must go find the facts; she cannot wait for the facts to find her." (Id. at pp. 1110-1111.)
Courts evaluating at what point there is reason for suspicion or knowledge of the elements "do not take a hypertechnical approach" based upon "each specific legal element of a particular cause of action" but instead "look to whether the plaintiffs have reason to at least suspect that a type of wrongdoing has injured them." (Fox, supra, 35 Cal.4th at p. 807.) When facts exist to raise suspicion that an injury has been wrongfully caused, the potential plaintiff "must conduct a reasonable investigation of all potential causes of that injury. If such an investigation would have disclosed a factual basis for a cause of action, the statute of limitations begins to run on that cause of action when the investigation would have brought such information to light." (Id. at pp. 808-809.)
Plaintiffs assert it is the defendant's burden to prove actual or constructive discovery of wrongdoing to support the affirmative defense, but that is correct only insofar as the initial burden discussed ante. "Thereafter, the burden shifts to [plaintiffs] to demonstrate [their] claims survive based on one or more nonstatutory exceptions to the basic limitations period." (Aryeh, supra, 55 Cal.4th at p. 1197.) Plaintiffs' reliance on Samuels for the contrary proposition is misplaced. Samuels confirmed that while the defendant bears the burden to prove the elements of the defense asserted (Samuels, supra, 22 Cal.4th at p. 7, citing Evid. Code, § 500), the plaintiff bears the burden to prove the elements of the common law discovery rule, because it is the party who derives the benefit of the exception. (Id. at p. 18.) Because the discovery rule is a nonstatutory exception to a limitation period, the plaintiff "has the burden of proof to bring itself within it." (Glue-Fold, Inc. v. Slautterback Corp. (2000) 82 Cal.App.4th 1018, 1030.)
Applying these principles, it is not enough for plaintiffs to assert they did not in fact learn of Machen's alleged misconduct in managing the property, or of his alleged misconduct giving rise to the EEOC litigation, until after October 2012. The record provides ample support for the trial court's findings that McLaughlin and the other directors of Captain Cook failed to exercise reasonable diligence in investigating the operational issues and EEOC notices as they arose and therefore were negligent in failing to learn about Machen's wrongdoing. For example, the trial court found that McLaughlin did not take appropriate steps to investigate the EEOC notices of discrimination in 2007 and 2008 or follow up during the EEOC investigations in 2010, did not make in-person visits to observe Captain Cook's Hawaii operations, and left Machen running the Hawaii business unchecked. In addition, plaintiffs themselves proffered evidence that Captain Cook's coffee cherry production suffered from low yields in 2009 and 2010, the company had fallen months behind in payments by that time, and sales had dropped several million dollars by the 2010 to 2011 fiscal year. This substantial evidence supports the trial court's conclusion that the discovery rule does not apply.
The EEOC's charges in 2007 and 2008 and investigation in 2010, cash flow and production problems from 2008 to 2010, bad publicity for the company arising from the EEOC lawsuit, and falling profits due to the reluctance of other farms to sell to Captain Cook and to apparent problems with production, placed plaintiffs on inquiry notice that some type of wrongdoing or failure of oversight had occurred. (Jolly, supra, 44 Cal.3d at p. 1109.) Plaintiffs had "reason to at least suspect that a type of wrongdoing ha[d] injured them" (Fox, supra, 35 Cal.4th at p. 807), signaling the need to conduct a reasonable investigation. (Id. at p. 808.) The record reflects no effort by McLaughlin, as a director and Captain Cook's president and CEO, or the other officers and directors, to undertake a reasonable investigation into the reasons for decreasing production and sales or into the potential basis for the EEOC's notices and investigation. Consequently, plaintiffs cannot claim the benefit of the discovery rule.
4. Equitable Indemnity
Plaintiffs contend the trial court erred as a matter of law in deeming their sixth cause of action for equitable indemnification barred by the applicable statute of limitations of four years. (§ 343.) As noted above, plaintiffs filed their initial complaint on October 11, 2016. The trial court ruled the claim was barred because the cause of action "accrued at the time the right to indemnify became an issue in 2007."
Plaintiffs assert the trial court erred in fixing 2007 as the date on which their right to indemnity, which in this case is based on liability incurred in connection with the lawsuit brought by the EEOC, arose. They argue that the EEOC's charges against Captain Cook in 2007 were "administrative charges" that appeared to have been directed at Global and named Captain Cook only as a joint employer. Plaintiffs contend that even if the EEOC notices beginning in 2007 had mentioned Machen, a claim for indemnification accrues only at the time that liability is established and payment made—not upon discovery of wrongdoing.
Machen responds that plaintiffs' statute of limitations argument as to indemnification does not entitle them to relief. He contends that plaintiffs' indemnification claim is based on his alleged breaches of fiduciary duty and duty of loyalty as a director of Captain Cook; but since the trial court found he was not a director-in-fact of Captain Cook, but a director in name only, plaintiffs are unable to prove liability in any event.
We interpret Machen's response on this point as a concession to plaintiffs' argument regarding accrual of an indemnification cause of action, which would be consistent with the defense's position at trial in which Machen argued that the statute of limitations barred all of plaintiffs' causes of action, except for that for indemnification.
Our independent review confirms plaintiffs are correct that the trial court erred in finding the equitable indemnification cause of action is barred by the statute of limitations. "The right to equitable indemnity stems from the principle that one who has been compelled to pay damages which ought to have been paid by another wrongdoer may recover from that wrongdoer." (Bush v. Superior Court (1992) 10 Cal.App.4th 1374, 1380.) As the California Supreme Court has explained, "a cause of action for indemnity does not accrue until the indemnitee has suffered a loss through payment of an adverse judgment or settlement." (Valley Circle Estates v. VTN Consolidated, Inc. (1983) 33 Cal.3d 604, 611 (Valley Circle); accord Lantzy v. Centex Homes (2003) 31 Cal.4th 363, 378, fn. 12.) Stated differently, the rule is " 'that the period of limitations on the (equitable) indemnity claim begins when the claimant settles with the injured party.' " (People ex rel. Dept. of Transportation v. Superior Court (1980) 26 Cal.3d 744, 751.) The reasoning behind this rule is that " '[u]ntil the amount of the damages [i]s determined by a judgment or a compromise with the injured party, the indemnitor would have no way of either measuring or discharging his duty to his indemnitee.' " (Ibid.)
Under this standard, plaintiffs' cause of action for equitable indemnity would have accrued no earlier than the settlement between Captain Cook and the EEOC, which the United States District Court approved in September 2014, and possibly later based on plaintiffs' representations at trial in March 2018 that they were continuing to make payments on the settlement. (Valley Circle, supra, 33 Cal.3d at p. 612 [noting a tort defendant's " 'indemnity action does not accrue until he has suffered actual loss through payment' "], italics added.) By either measure, the four-year statute of limitations had not run as of the filing of plaintiff's complaint in October 2016.
Plaintiffs have nevertheless failed to demonstrate reversible error with respect to the trial court's ruling in Machen's favor on the indemnity cause of action. As discussed above, the trial court found the evidence as to all of plaintiffs' causes of action—including indemnity—insufficient to meet their burden of proof.
"In general, indemnity refers to 'the obligation resting on one party to make good a loss or damage another party has incurred.' " (Prince v. Pacific Gas & Electric Co. (2009) 45 Cal.4th 1151, 1157.) "The right to indemnity flows from payment of a joint legal obligation on another's behalf." (Bailey v. Safeway, Inc. (2011) 199 Cal.App.4th 206, 212 (Bailey).) To prevail on the indemnity claim, plaintiffs would need to show that Machen was both at fault and " 'equitably responsible' " for the damages that plaintiffs incurred. (Id. at p. 217 [describing the elements of a cause of action for indemnity as " '(1) a showing of fault on the part of the indemnitor and (2) resulting damages to the indemnitee for which the indemnitor is . . . equitably responsible.' "].)
Among its observations and findings pertinent to the indemnity cause of action, the trial court found that McLaughlin, not Machen as general manager, was responsible for entering into the labor contract with Global, conducted no independent investigation into the company or its credentials, and failed to ensure that Machen, as the manager responsible for overseeing the day-to-day Hawaii operations, including work and housing arrangements for the Global contract workers, understood the contract's terms and Captain Cook's obligations under it. Thus, the trial court did not find the evidence admitted at trial sufficient to prove that Machen was at fault for the harm resulting from the Global contracts.
In response, plaintiffs refer generally to the evidence at trial that supports their indemnity claim. This evidence includes Machen's position as general manager of the Hawaii property where the discriminatory and abusive practices against the Global contract workers allegedly took place, and Machen's direct participation in those practices, according to the EEOC's complaint. While there is no question that plaintiffs produced evidence in support of their right of indemnity, they do not attempt to prove reversible error in the trial court's findings and, as previously discussed, are unable to show the evidence in support of their cause of action compelled a finding in their favor. (Ajaxo, supra, 48 Cal.App.5th at p. 164.) Plaintiffs have not presented " ' "uncontradicted and unimpeached" ' " (id. at p. 163) evidence showing that fault on the part of Machen obligated them to enter into and comply with the EEOC consent decree, incurring payment of $100,000 and additional expenses to resolve the Title VII claims of the Global contract workers, as alleged in the operative complaint for indemnity. (See Bailey, supra, 199 Cal.App.4th at p. 217.)
We conclude that the trial court's error in applying the statute of limitations to the indemnity claim does not warrant reversal of the judgment, because plaintiffs have not shown reversible error in the court's separate and independent determination that plaintiffs' proof was insufficient.
5. Summary
Plaintiffs have been unable to show that the trial court's ruling based on the statute of limitations was erroneous as to the first, second, third, fourth, fifth, and seventh causes of action. Applying section 351 to the circumstances presented by Machen's absence from California to work in the coffee cherry business in Hawaii would impose an impermissible burden on his ability to engage in interstate commerce under the rubric established in Bendix and applied in California cases like Arrow. Plaintiffs have not satisfied their burden under the discovery rule to demonstrate that they could not have reasonably discovered facts supporting their claims prior to October 2012 despite diligent investigation of the circumstances, described above, that afflicted Captain Cook between 2007 and 2011. Plaintiffs also have not satisfied their burden on appeal to demonstrate reversible error as to the sixth cause of action for equitable indemnity, despite error in the trial court's application of the relevant statute of limitations, where the court's finding that they failed to meet their burden of proof at trial means that on appeal they must show the evidence in support of their cause of action compelled a finding in their favor.
Our determination on these grounds makes it unnecessary to examine plaintiffs' other claims on appeal regarding denial of due process based on the trial court's purported reliance on unfounded legal and factual assertions, as it is well settled that a ruling or decision that is correct " 'upon any theory of the law applicable to the case, [] must be sustained regardless of the considerations which may have moved the trial court to its conclusion.' " (D'Amico v. Board of Medical Examiners (1974) 11 Cal.3d 1, 19.) We therefore affirm the May 16, 2018 judgment in favor of Machen entered by the trial court.
C. Attorney Fee Award
Plaintiffs contend the trial court erred as a matter of law in awarding attorney fees under the 2011 settlement agreement and under Hawaii's revised statutes providing for attorney fees "in all actions in the nature of assumpsit." (Haw. Rev. Stat. § 607-14.) Plaintiffs argue the trial court's order rests on substantive and procedural errors, and they dispute the trial court's reliance on Applera, supra, 173 Cal.App.4th 769, which involved a similar question concerning the application of Swiss law under a licensing agreement. Machen counters that plaintiffs have failed to provide any authority showing why Applera should not apply or how the trial court otherwise erred.
While courts ordinarily review the award of attorney fees after trial under the deferential abuse of discretion standard, we apply de novo review where the propriety of awarding attorney fees presents a question of law or a matter of statutory interpretation. (Connerly v. State Personnel Bd. (2006) 37 Cal.4th 1169, 1175 (Connerly).) As relevant here, "[t]he interpretation of a choice-of-law provision on undisputed facts presents a purely legal question and is reviewed de novo." (Brack v. Omni Loan Co., Ltd. (2008) 164 Cal.App.4th 1312, 1320.) To the extent our inquiry implicates the resolution of disputed factual matters, we review the trial court's findings for substantial evidence, interpreting the evidence in the light most favorable to the prevailing party and drawing all reasonable inferences in favor of the trial court's finding. (Ibid.)
As detailed in the factual and procedural background (part I.C., ante), Machen sent McLaughlin the 2011 settlement agreement on April 1, 2011, in anticipation of his departure from Captain Cook. McLaughlin returned the agreement that same day with his signature and those of the other Captain Cook officers and directors. McLaughlin understood the agreement was "part of the promissory notes" which Machen's attorney had prepared and the parties had signed a few weeks earlier in March. McLaughlin and the others did not review the agreement when they signed it.
The agreement does not contain an attorney fees provision or forum selection clause but does state: "IT IS UNDERSTOOD AND AGREED that the terms and conditions of this Agreement shall be governed by and construed in accordance with the laws of the State of Hawaii."
The trial court's statements on the record at trial suggest it believed that the parties entered into the agreement voluntarily and in so doing "agreed what law would apply." In the written judgment, however, the trial court struck out the proposed language finding the 2011 agreement to be valid and binding and made no findings regarding the agreement. In ruling on the motion for attorney fees, the trial court noted the parties' substantial relationship to Hawaii, found the matter was an action in assumpsit, and concluded that under the reasoning in Applera, Machen was entitled to fees under the Hawaii statute. Though the trial court did not make findings on the agreement's validity or address its applicability to the overall action, those findings are implied in its order granting Machen's motion for attorney fees.
The language the trial court struck out of the written judgment pertained to two proposed findings—the first would have deemed the 2011 agreement to be "a valid legal and binding contract which bars all of plaintiffs' causes of action as alleged in their Second Amended Complaint," and the second would have found that the "parties agreed that the [agreement] would be governed and construed in accordance with the laws of the State of Hawaii."
Plaintiffs contend that Machen has no right to attorney fees under California law, which requires express authorization, by statute or contract, for an attorney fees award to the prevailing party. (§ 1021; see Mountain Air Enterprises, LLC v. Sundowner Towers, LLC (2017) 3 Cal.5th 744, 751 [explaining, under the "American rule," that "each party to a lawsuit ordinarily pays its own attorney fees" though parties may " ' "contract out" ' " of the rule by agreeing to award attorney fees to the prevailing party].) Plaintiffs argue the 2011 settlement agreement does not expressly permit an award of attorney fees, nor does the choice of law language in the agreement incorporate Hawaii procedural law as a basis for awarding fees, distinguishing this case from Applera. They contend that Machen "waived (or forfeited) the right to rely on Hawaii procedural" law by relying on California law throughout the litigation and by failing to raise Hawaii law prior to entry of the judgment. Plaintiffs also maintain that enforcing the choice of laws provision is contrary to California public policy.
For the reasons explained further below, we agree with plaintiffs that Applera is distinguishable and, based on our de novo review (Connerly, supra, 37 Cal.4th at p. 1175; Brack, supra, 164 Cal.App.4th at p. 1320), conclude that the choice of law provision in the agreement does not otherwise support the award of attorney fees here. We will therefore vacate the portions of the order on attorney fees and costs awarding attorney fees to Machen.
As an initial matter, it is not entirely clear to this court why the 2011 settlement agreement provides a basis for awarding Machen all of his attorney fees in defending against plaintiffs' complaint. None of plaintiffs' claims at trial (apart from the claim for declaratory relief and rescission) turned on construction of or application of the 2011 settlement agreement, and the trial court struck from the judgment the proposed findings regarding its validity, application to the claims, and choice of law provision. The trial court's oral comments on the record alone do not support the postjudgment application of the agreement to the attorney fee motion, since "a trial judge's prejudgment oral expressions do not bind the court or restrict its power to later declare final findings of fact and conclusions of law in the judgment" (Shaw v. County of Santa Cruz (2008) 170 Cal.App.4th 229, 268)—or in this case to later strike those findings from the judgment. However, we are not called on in this appeal to determine the relevance of the 2011 settlement agreement to the attorney fee award.
While plaintiffs recognize the problematic nature of Machen's claim to attorney fees, which they explain is based on his theory that their tort claims were barred by the 2011 settlement agreement, they do not directly challenge the underlying application of the 2011 agreement to the attorney fee motion. As plaintiffs have forfeited any challenge on appeal to the 2011 settlement agreement as a basis for the attorney fee award, we turn our attention to the issues plaintiffs have expressly raised for our review.
As a general matter, " 'choice of law provisions are usually respected by California courts.' " (Nedlloyd Lines B.V. v. Superior Court (1992) 3 Cal.4th 459, 464 (Nedlloyd).) More specifically, courts will honor the parties' reasonable choice of law "unless (1) it conflicts with a state's fundamental public policy, and (2) that state has a materially greater interest in the determination of the issue than the contractually chosen state." (Pitzer College v. Indian Harbor Ins. Co. (2019) 8 Cal.5th 93, 100 (Pitzer), citing Nedlloyd, at pp. 465-466; Rest.2d Conflict of Laws § 187.)
Applera illustrates this general principle. The case concerned a contract dispute over the defendant's alleged failure to pay royalties under a patent licensing agreement assigned to the plaintiff. (Applera, supra, 173 Cal.App.4th at p. 773.) The contract contained no attorney fee provision but included a choice of law provision, which stated, " 'This Agreement and its effect are subject to and shall be construed and enforced in accordance with the laws of Switzerland.' " (Id. at p. 789.) Because Swiss law, in contrast with California law, as a matter of course provides for the award of attorney fees to the prevailing party, the plaintiff in Applera argued the court "was required" to honor the parties' choice of law selection by awarding attorney fees. (Ibid.) The trial court rejected the application of Swiss law under the contract as contrary to California public policy and because it deemed California's interest in the determination of the issue " 'materially greater.' " (Ibid.)
The Court of Appeal disagreed with the trial court's analysis and reversed the postjudgment order denying plaintiff's motion for attorney fees. (Applera, supra, 173 Cal.App.4th at pp. 789-790, 793.) The court explained that "choice of law provisions in contracts between commercial entities should be enforced, so long as there is a reasonable basis for the parties' choice of law and the application of the chosen law would not violate public policy." (Id. at pp. 789-790, citing Nedlloyd, supra, 3 Cal.4th at p. 466.) It observed there was a reasonable basis for the original signatories to the licensing agreement (who at the time were based in France and Switzerland) to select Swiss law and reasoned that enforcement of the provision would not violate California policy because "the prevailing party's entitlement to attorney fees under Swiss law is qualitatively no different than the insertion of a reciprocal, prevailing-party attorney fees clause in a contract, which is clearly enforceable under California law." (Applera, at p. 790.) The court also rejected arguments based on waiver, forfeiture, and estoppel. (Id. at pp. 791-792.) It explained that while the plaintiff did not seek to rely on Swiss law until the postjudgment motion for attorney fees, the defendant had not shown "factually or legally that it suffered any prejudice or detriment by proceeding through trial under California law," especially since the record revealed prior notice by the plaintiff of its intent to seek an attorney fees award under Swiss law. (Id. at p. 792.)
Applera is informative in that it addresses several issues presented here. Most notably, the language of the choice of law provision in the agreement, which refers to being "governed by and construed in accordance with the laws of . . . Hawaii," is not materially different from the language in Applera providing that the patent licensing agreement be "construed and enforced in accordance with the laws of Switzerland." (Applera, supra, 173 Cal.App.4th at p. 789.) Contrary to plaintiffs' suggestion that the language in Applera is easily understood as incorporating the chosen jurisdiction's procedural rules, the phrase "governed by," as appears in the agreement here, has the same meaning—in practical effect—as the phrase " 'enforced in accordance with' " as used in the licensing agreement in Applera. (Ibid.) Both phrases suggest that the laws of the selected jurisdiction will dictate how the contract applies—a meaning complementary to the "construed in accordance with" language that also appears in both agreements and pertains to how the contract will be understood.
This similarity with Applera does not end our inquiry, however, because plaintiffs also contend that Machen "waived (or forfeited) the right to rely on Hawaii procedural statu[t]es" by relying on California law throughout the litigation and by failing to raise Hawaii law issues earlier in the litigation.
The defendant in Applera, like plaintiffs here, argued that the party seeking enforcement of the licensing agreement " 'waived or forfeited the right to invoke' " the choice of law provision (Applera, supra, 173 Cal.App.4th at p. 789) because the party "fail[ed] to announce its reliance on Swiss law until it moved postjudgment for an award of attorney fees." (Id. at p. 791.) The court identified the key inquiry, under the doctrines of waiver, forfeiture, and estoppel, as whether the plaintiff's assertion of Swiss law in the postjudgment motion for attorney fees was unfair to the defendant. (Id. at p. 792.) The court ultimately decided that proceeding through trial under California law without prior invocation of Swiss law had not caused the defendant to suffer prejudice or detriment, in part because the defendant did not claim it could have applied some element of Swiss law to its benefit during trial but failed to do so "because it was somehow misled." (Ibid.) What is more, the court observed that because the defendant had agreed the contract would be " 'enforced in accordance with the laws of Switzerland' " when it acquired its contract rights under the license agreement, barring some prejudice suffered by the application of Swiss law to the attorney fees issue, "there is no unfairness in holding [the] defendant to its promise." (Ibid.)
It is on this point that we conclude Applera is materially distinguishable. In the instant case, plaintiffs assert precisely such unfairness by Machen's invocation of Hawaii law for the first time in the litigation in the postjudgment motion for attorney fees. They argue that Machen's reliance on Hawaii law at this juncture, for the benefit of asserting entitlement to attorney fees, provides an improper advantage, because if Hawaii law had applied to all aspects of the litigation, it would have eliminated the statute of limitations defense—the primary basis on which the trial court resolved the complaint against plaintiffs.
Indeed, if Hawaii law had applied from the outset, the applicable statute of limitations period for the breach of fiduciary duty claims would have been six years. (Eckard Brandes, Inc. v. Riley (9th Cir. 2003) 338 F.3d 1082, 1086 [applying six-year statute of limitations under Hawaii law to "actions for the recovery of any debt founded upon any contract, obligation, or liability"]; see Haw. Rev. Stat. § 657-1.) The differential between the limitations periods in this case supports plaintiffs' argument that Applera does not dictate the outcome here. Simply put, the court's reasoning in Applera that it would "not infer a waiver unless it has ripened into an estoppel by reason of prejudice to the adverse party" (Applera, supra, 173 Cal.App.4th at p. 791) applies differently here, where plaintiffs have identified clear prejudice from the belated invocation of the law of a different forum.
That Machen's counsel informed plaintiffs' counsel in letters from November 2016 and September 2017 (well before the March 2018 trial) of the defense's intent to pursue attorney fees and costs does not eliminate the prejudice to plaintiffs, which arises not from a lack of notice regarding the intent to seek fees but from differential application of the choice of law provision. Thus, plaintiffs have shown sufficient prejudice arising from the exclusively postjudgment application of the attorney fee provision to support their equitable argument based on waiver. (Applera, supra, 173 Cal.App.4th at pp. 791-792.)
For these reasons, we conclude that the trial court erred in basing the attorney fee award on Applera. We further agree with plaintiffs that there are no other grounds from which to extrapolate an attorney fee award from the choice of law provision in the agreement. We stated ante that California courts follow the approach articulated in Nedlloyd when determining the enforceability of a contractual choice of law provision. The California Supreme Court directs courts to honor the parties' reasonable choice of law "unless (1) it conflicts with a state's fundamental public policy, and (2) that state has a materially greater interest in the determination of the issue than the contractually chosen state." (Pitzer, supra, 8 Cal.5th at p. 100.) But this analysis presupposes the applicability of the agreement that contains the choice of law provision to the judgment on the litigated claims. Here, we decide that application of the choice of law provision from the 2011 settlement agreement is not reasonable under the particular facts of this case. Without some basis—like in Applera—to treat the choice of law provision as tantamount to, or the equivalent of, an attorney fee provision, we are left with an agreement that does not meet California's fundamental criteria (i.e., by agreement of the .parties, or as authorized by statute) for awarding attorney fees to the prevailing party. (§ 1021.)
In sum, based on the specific facts and procedural history of this matter, we hold the trial court erred in granting Machen's postjudgment motion for attorney fees. We will reverse the August 17, 2018 order after hearing and remand with directions for the trial court to strike paragraphs 2. and 3. relating to the attorney fee award. We do not disturb the order as to costs.
Because this error requires reversal of the attorney fee award, we need not address plaintiffs' remaining assertions of error on the subject.
III. DISPOSITION
The May 16, 2018 judgment is affirmed. The August 17, 2018 order on attorney fees and costs is reversed and the matter is remanded with directions to strike paragraphs 2. and 3. (granting defendant's request for attorney fees) from the order. In the interests of justice, the parties shall each bear their own costs on appeal.
/s/_________
Danner, J. WE CONCUR: /s/_________
Greenwood, P.J. /s/_________
Grover, J.