Opinion
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
APPEAL from a judgment of the Superior Court of Los Angeles County, Judith C. Chirlin, Judge, Los Angeles County Super. Ct. No. BC280010.
Manatt, Phelps & Phillips, Michael M. Berger, Barry S. Landsberg, Benjamin G. Shatz and Joanna S. McCallum for Defendants and Appellants.
Law Offices of Victor L. George, Victor L. George, Wayne C. Smith; Esner, Chang & Ellis, Andrew N. Chang and Stuart B. Esner for Plaintiffs and Respondents.
MANELLA, J.
INTRODUCTION
Appellants Kindred Healthcare Operating, Inc., Kindred Healthcare Services, Inc. (Kindred), and two Kindred hospitals, Kindred Los Angeles and Kindred Brea, appeal from a judgment entered upon special verdicts finding Kindred liable for breach of contract, fraud and intentional conversion of medical equipment belonging to respondents Tarik Omari and Bio-Tek Technology, Inc., doing business as Tartech. (See appendix A.) The jury also found by clear and convincing evidence that Kindred committed the fraud or conversion by means of malice, oppression or fraud, and awarded punitive damages. (See appendix B.) Kindred’s primary contentions are that the fraud verdicts are not supported by substantial evidence, the court erroneously excluded impeachment evidence, compensatory and punitive damages were excessive and the punitive damage award was invalid under California law and the United States Constitution. We reject appellants’ contentions and affirm the judgment.
The parties referred to all the named Kindred entities collectively as Kindred.
The special verdicts are reproduced in the appendices to this opinion. Appendix A is the special verdict form used by the jury for the liability phase of the trial, and appendix B is the form used by the jury for the punitive damage phase.
PROCEDURAL BACKGROUND
The jury returned a verdict against appellants in the sum of $1,828,113, which included damages for emotional distress in the amount of $500,000. In addition, the jury assessed punitive damages against them in the amount of $3,000,000. After judgment was entered April 18, 2005, appellants timely filed motions for a new trial and for judgment notwithstanding the verdict. Both motions were denied June 21, 2005, and appellants timely filed a notice of appeal July 19, 2005.
Defendants Ghassan El-Abed and Cynthia Duque are not appellants here. Judgment was entered against El-Abed for $1,828,113, plus $1,000,000 in punitive damages. Judgment was entered against Duque in the sum of $1,856,813, plus $1,000,000 in punitive damages. El-Abed did not file a notice of appeal, and Duque’s appeal was dismissed when she failed to file an opening brief.
We summarize only the evidence supporting the prevailing parties, and we do so in the light most favorable to respondents, drawing all reasonable inferences and resolving all conflicts in respondents’ favor. (Nestle v. City of Santa Monica (1972) 6 Cal.3d 920, 925; Campbell v. Southern Pacific Co. (1978) 22 Cal.3d 51, 60.)
In 1981, Tarik Omari immigrated to the United States from Israel, where he had been a college instructor in electronics and computer science. While working full time, Omari obtained a masters degree in biophysics in 1988, and in 1990, formed his own company, American Medical Services Company (American Medical), a sole proprietorship which sold and serviced biomedical and radiology equipment in the San Fernando Valley.
American Medical provided services to several Vencor hospitals beginning in 1997, before Vencor’s name was changed to Kindred in 2000. At that time, American Medical was the primary service contractor for the radiology department at the Kindred hospitals of Los Angeles, Westminster, Brea and Ontario. The chief executive officer (CEO) of Kindred Los Angeles was Judy McCurdy, whom Omari met while providing services between 1997 and 2000. Virgis Narbutas was the CEO of both Kindred Westminster and Kindred Brea, and had previously been CEO of Kindred Ontario. Omari first met Narbutas in 1999, and exchanged greetings with him many times in the cafeteria of Kindred Brea, while providing radiology services for that hospital from 1997 to approximately 2000. On average, Omari would appear personally at one or another Kindred facility weekly to provide services. He never received any complaints about his services.
For convenience, the parties have referred to appellants as Kindred when referring to the company both before and after the name change. We shall do so as well.
In 1996, Omari met Ghassan El-Abed, who was then the director of biomedical engineering with the Kindred regional offices. The two became friends, and eventually Omari considered El-Abed his best friend. In 1999, while El-Abed was still employed by Kindred, they began discussing the formation of a biomedical and hemodialysis company. In 2000, after El-Abed left Kindred and while he was employed by Anaheim General Hospital, they incorporated Bio-Tek Technology, Inc., and set about doing business as Tartech, a company Omari had incorporated in 1998. Omari was the CEO and the chief financial officer (CFO), and El-Abed was the secretary of the corporation. Omari and El-Abed did not have a written contract, but agreed that Omari would provide the capital for the venture, and El-Abed would use his contacts to obtain contracts with Kindred hospitals. Omari was to have a 60 percent ownership in the company, and El-Abed was to have a 40 percent interest.
Omari invested $400,000 to start Tartech. He purchased and overhauled five dialysis machines, a portable X-ray machine, a telemetry machine and other equipment and accessories. Omari hired nurses and licensed personnel to service and maintain the medical equipment, as well as a physician to serve as medical director. Tartech also obtained professional liability and worker’s compensation insurance, as required of Kindred vendors. At first, because only Omari was licensed to maintain the biomedical machinery, the company hired a temporary biomedical technician; in 2001, it hired Richard Damon as a full-time technician.
Like other hospitals, Kindred required vendors such as Tartech to have written protocols and procedures, and Omari hired a consultant to write them. El-Abed recommended Candy Peter and his good friend, Cynthia Duque, doing business together as “Peter Duque,” and El-Abed represented to Omari that Duque and Peter had the necessary expertise to write a protocol and procedures manual. Omari paid Peter Duque $11,000 to write the manual. At some point after retaining Peter Duque, Omari learned that Duque was employed by Kindred. Duque had been the director of nursing at Kindred Ontario before her promotion in 2000 to the position of chief operating officer (COO) of the Brea facility. Kindred policy forbids employees from entering into separate contracts with vendors or taking money from them. Omari was unaware of that policy.
In the spring of 2001, Duque told Omari she and her children were being evicted from her rented house, and asked him to lend her the down payment to purchase a house. Omari obliged, lending her $28,700. She never repaid the loan to Omari, but instead gave a portion of it to El-Abed, who deposited it into his personal account, and spent it.
Respondents’ expert in hospital administration testified that because all acute care hospitals handle a great deal of money, they must have a policy against accepting gifts from vendors by the materials manager, CEO, CFO, COO and anyone else who handles money.
Tartech’s first contract was with Kindred Los Angeles, and was signed by McCurdy in February 2000; later, Tartech obtained contracts from Westminster, Ontario and Brea. Tartech’s income from Kindred hospitals increased every month, and according to respondents’ economist, Tartech could have expected a profit beginning November 2001. However, in November 2001, without Omari’s knowledge, El-Abed formed a corporation, International Healthcare Resources, Inc. (IHR), in order to take over Tartech’s business. El-Abed filed a statement of domestic stock corporation showing himself as the CEO, secretary and member of the board of directors. Duque was listed as the CFO and the only other director. There were no other officers.
Duque denied knowing that she was listed on the statement, denied that she was an officer of IHR from the time of its formation and claimed ignorance of El-Abed’s purchase of business cards in late December showing her as vice-president and CFO of IHR. Duque also denied that a computer and cell phone IHR purchased for her in December bore any relationship to her interest in IHR, claiming she had none.
El-Abed and Duque put their plan into action two days after Omari left the country in mid-December 2001 for a family vacation in Israel. El-Abed submitted contract documents to the four Kindred hospitals under contract with Tartech, in order to begin the process of obtaining approval of IHR as a vendor, representing to the hospitals that Tartech had simply changed its name to IHR. Such an approval process normally takes several weeks, and is overseen by the COO -- in Brea’s case, Duque. The CFO must also approve the contract prior to the CEO’s final approval. The CFO at Brea was John Browne, who, along with Duque, was responsible for verifying compliance with Kindred’s vendor requirements checklist. Although the checklist included liability and worker’s compensation insurance policies, it was apparent on the certificate of insurance El-Abed submitted to the accounting department that IHR had no liability insurance prior to January 1, 2001, and no worker’s compensation insurance at all.
IHR had a different federal tax identification number from Tartech.
Browne testified that it was Duque’s responsibility to review all vendor contracts, determine that all hospital policies and procedures were in place, check for regulatory compliance and make recommendations. Although Narbutas had final approval authority, Duque had the power to block any contract to which she had a clinical objection. According to Browne, Duque “basically approved” contracts before he and Narbutas saw them, and she approved IHR’s contract with Kindred Brea.
El-Abed informed the accounting department that he would be submitting invoices with the new company name, and Duque assured the person responsible for payment of invoices, Tanzmeister, that El-Abed’s information was correct. Tanzmeister’s note forwarding the contract to Narbutas contained the notation, “Cynthia states all OK.” Narbutas signed the contract January 8, 2002, although it was deemed effective November 1, 2001.
Norry overheard El-Abed’s side of a telephone conversation with Duque in which El-Abed said he needed to have the hospital pay Tartech’s bills to IHR, and instructed her to have the name changed to IHR and the check for the November and December services made out to IHR, not Tartech, so that he would be able to cash it. Later, Duque told Norry that she had arranged for the payment of the Tartech invoices to IHR. There was evidence that in late December 2001, Kindred Brea authorized payment of IHR invoices for services rendered in November 2001.
In mid-December 2001, El-Abed personally met with McCurdy, CEO of Kindred Los Angeles, who agreed to “renew” Tartech’s contract under the “new company name.” McCurdy told El-Abed that she liked the services performed by Damon, and would do “whatever it takes” to keep him. Although not clear from the record how IHR became a vendor for Kindred Westminster, by late December Tartech had been replaced by IHR, and outstanding invoices for services performed by Tartech as of November 1, 2001, were paid to IHR by Kindred Westminster, Brea, Los Angeles and Ontario. El-Abed offered jobs to Tartech’s employees, and by the end of December 2001, most of them were employed by IHR, paid with the money diverted from Tartech. Thereafter, IHR provided the services Tartech had previously provided, using Tartech’s equipment and employees, including licensed biomedical technician, Richard Damon.
McCurdy was the COO at Anaheim General Hospital when El-Abed worked there, but claimed she could not remember if she knew him at that time, or whether they became acquainted after he was with Tartech.
On December 27, 2001, El-Abed hosted a holiday luncheon for Kindred staff to celebrate his new company. He purchased gifts for them -- an iPod for the director of nursing, a Palm Pilot or Blackberry for Narbutas, an expensive pen set for Browne, perfume for Tanzmeister, and for Duque, a cell phone with service included.
The gifts, luncheon, Duque’s computer and other IHR startup costs were charged to credit cards belonging to Norry, because El-Abed could not obtain credit in his name due to a recent bankruptcy.
Before leaving for his vacation in mid-December 2001, Omari had signed several blank checks and left them with El-Abed to be used for Tartech expenses during his absence. El-Abed admitted writing one of the checks to cash for $3,000 and depositing it into his personal account. When the check was returned due to insufficient funds, the bank telephoned Omari in Israel to inform him that there were no more funds in his account and that several checks had been returned unpaid. Omari called El-Abed, who behaved as though he did not know what was happening, and said it must be a mistake. Omari cut his vacation short and returned.
Once home, Omari discovered El-Abed’s fraud. In a panic, Omari called his friend Nizar Marouf, told him that his partner had taken everything, and asked him for help. The next morning, January 2, 2002, they visited three of the affected hospitals together -- Los Angeles, Brea and Ontario. Marouf drove, because Omari was “an emotional wreck.” Omari took with him the articles of incorporation and the statement of domestic stock corporation for Bio-Tek Technology, Inc. The documents showed Omari as the CEO, CFO, director and majority shareholder, and El-Abed as secretary and director.
They went first to Kindred Ontario, where they met with CFO Nancy Wilson, who said she would investigate. Wilson followed up, and the matter was resolved. Kindred Ontario was not named as a defendant.
At Kindred Brea, they asked to see CEO Narbutas, but were sent to accounts payable, where Omari showed Tanzmeister the corporate documents. Tanzmeister sent them to see COO Duque, to whom Omari emotionally explained that his partner El-Abed had somehow changed the accounts and contracts. Duque smiled, told him to relax and not to worry, and promised to investigate and correct any mistake. She did not reveal her role in IHR, and behaved as though she knew nothing of El-Abed’s fraud. In the days following the meeting, Omari telephoned Duque and Narbutas to inquire about the investigation, but neither of them ever took or returned his calls.
Omari’s third visit on January 2 was to Kindred Los Angeles, where he spoke to the CFO, Katherine Rodriguez, in accounts payable. Rodriguez accompanied Omari and Marouf to CEO McCurdy’s office, where Omari showed her the corporate documents, and explained that there had been no name change, that Tartech was still active, and that he was the president and majority shareholder. Without revealing that she had entered into a vendor contract with IHR the week before, McCurdy said she would investigate and get back to him. When Omari did not hear from McCurdy, he telephoned and asked about the investigation. She swore at him and hung up. She called him back a day or two later, apologized for her rudeness, and again promised to investigate. Although Omari left messages for her, she never called back.
On January 15, 2002, McCurdy sent a letter notifying Tartech that its contract with Kindred Los Angeles was cancelled as of January 1, 2002, the day before she had met with him. The next day, El-Abed wrote a letter to McCurdy, agreeing to be responsible for all financial disputes that might arise from Kindred’s termination of Tartech’s contract. McCurdy admitted that her only investigation into the conflict consisted of talking to El-Abed, but denied asking El-Abed for a hold-harmless agreement. McCurdy testified that she cancelled the Tartech contract in order to hire Richard Damon, who was by then working for IHR. Damon was essential to the hospital, because it was expecting an accreditation survey by the Joint Commission on Accreditation of Hospitals, and would not have been able to pass the accreditation review without him. She later recruited Damon to work directly for the hospital, telling her CFO Rodiguez in a February e-mail message, “We must keep Richard -- pull out the stops as we cannot get along without him.”
Vendor contracts were all on a standard Kindred form, and provided for 30 days’ written notice prior to termination.
McCurdy’s testimony was replete with internal conflicts. At first, she denied all knowledge of Damon’s employment with IHR, although she admitted signing IHR’s contract on December 27, 2001. She claimed Damon had already resigned from Tartech when she hired him, and denied knowing he worked for IHR, but upon further questioning, stated she hired Damon when he told her he intended to resign from Tartech. When shown her e-mail message to Rodiguez, McCurdy admitted the hospital was still attempting to recruit Damon in February 2002, and she finally admitted knowing Damon was an IHR employee before he was hired by Kindred Los Angeles. McCurdy resigned from Kindred in or around March 2002, and was unemployed at the time of trial.
On January 2, 2002, the same day Omari visited the hospitals, Narbutas addressed a letter to El-Abed at Tartech’s office, notifying Tartech that its contract with Kindred Westminster was terminated, effective February 1, 2002. One week later, Narbutas gave his final approval to the IHR contract with Brea, deemed effective November 1, 2001. Three days later, on January 11, 2002, Omari wrote Narbutas, explaining that Tartech had never ceased to exist, that Tartech had not changed its name or ownership, and that the attempt to transfer its assets to another company was unauthorized. Omari’s letter demanded reversal of the transfer and immediate release of all payments owed Tartech. At approximately the same time, El-Abed’s attorney sent Narbutas a letter entitled, “Notice of Non-Affiliation,” also dated January 11, 2002, which claimed that the affiliation between El-Abed, IHR and Tartech had been formally severed, and that any statements made by Omari against El-Abed and IHR were false and made with ill will. Narbutas received both letters and understood there was a problem, but did not contact Omari, follow up, or investigate further.
Unsuccessful in his own communications with Brea, Westminster and Los Angeles, Omari retained an attorney, Mr. Motaz M. Gerges. On January 31, 2002, Gerges wrote to the hospitals and the corporate offices, explaining El-Abed’s fraud and naming COO Duque as his coconspirator. The letter demanded payment of specified invoices totaling more than $60,000, and informed Kindred that the equipment used in providing the services remained the property of Tartech. Gerges expressed the opinion that Duque had intentionally harmed Omari’s business in retaliation for his demand for repayment of sums lent to her to buy her house.
Subsequently, counsel submitted additional invoices.
When Narbutas read the claim that Duque had taken money from a vendor, he notified Steve Turner, Kindred’s regional vice-president, who asked him to investigate. Narbutas testified that his concern was Duque’s behavior, and he could not recall whether he mentioned the conflict between Omari and El-Abed to Turner. With Browne as a witness, Narbutas called Duque into his office and asked her whether she had taken the money, but claimed not to have spoken to her about the Tartech-El-Abed conflict. When she admitted having borrowed the money, Narbutas suspended her and reported the admission to human resources and legal counsel in Louisville, Kentucky, where it was decided that she would be terminated for violating company policy. On February 14, 2002, before Narbutas could fire her, Duque resigned. Before she left, however, she unlocked a door to a room in a deserted wing of the hospital for El-Abed, and he and an IHR employee moved Tartech’s machines there. As for the Omari-El-Abed conflict, Narbutas did nothing to investigate, except suggest to Browne that he “kind of look into it.”
Browne testified that Narbutas defended Duque until she resigned. After Browne was asked to look into the matter, he forwarded both letters from Omari’s attorney to corporate counsel in Louisville. He retrieved from Tanzmeister the unpaid disputed invoices and, though aware of Tartech’s claims, continued to pay IHR, without determining whether the Tartech invoices listed in Gerges’s two letters had been paid. He then prepared a letter for Narbutas’s signature, cancelling IHR’s contract with Brea, effective March 14, 2002.
The e-mail referred to Gerges’s correspondence as “fan mail.” The court sustained appellants’ objection to the e-mail and excluded a copy of it, but Browne went on to testify as to its contents without objection or motion to strike.
Narbutas sent the letter to El-Abed at IHR’s offices on or about February 11, 2002, and although no similar letter was sent to Tartech, Narbutas testified that he considered the letter to El-Abed to be notification to Tartech that its contract was terminated as well. Narbutas admitted that he had seen El-Abed’s notice of non-affiliation with Tartech, but could give no explanation for his failure to communicate with Omari or Gerges.
By the time the IHR contract was cancelled, Browne had received a copy of Gerges’s letter informing the hospital that the equipment used by IHR at the hospital, including five dialysis machines, belonged to Tartech, and he knew that the equipment was still located at the hospital. Without informing Gerges or Omari, Browne telephoned El-Abed on March 7, 2002, and invited him to pick up the equipment. El-Abed came with Norry the same day Browne telephoned, and Browne watched as they drove the equipment out of the parking lot in a U-Haul truck. Two months later, on advice of counsel, Browne telephoned El-Abed to ask him to return the equipment to Omari. El-Abed refused. In fact, it was too late -- El-Abed and Duque had already shipped all but one item to the Philippines, where Duque had negotiated a sale.
Initially, Browne explained that he called El-Abed because it was El-Abed who had delivered the equipment to the hospital. Browne later admitted he did not know who had installed the equipment. Browne also testified that he thought there was no legal claim to the equipment, and that corporate counsel had advised him to give it to El-Abed. He then changed his testimony, claiming that it was the regional vice-president, Steve Turner, who advised him to give the equipment to El-Abed. Turner did not testify.
Norry testified that Duque told him that he and El-Abed must pick up the machines before Omari could do so, because she had a buyer for them in the Philippines.
Omari testified that the cost of purchasing and refurbishing the stolen dialysis machines was $110,200. The cost of purchasing and refurbishing the X-ray machine and purchasing accessories was $87,000. Omari’s expert witness, economist Phillip Allman, testified that based upon past expenses and income, Tartech’s expected lost profit was approximately $1.2 million through the time of trial. Appellants presented no expert testimony.
The parties stipulated to several facts: Tartech owned all the hemodialysis machines and other medical equipment released by Kindred to El-Abed; McCurdy, CEO of Kindred Los Angeles, Narbutas, CEO of Kindred Brea, and John Browne, CFO of Kindred Brea, were all officers and managing agents of Kindred, and all their actions were taken within the scope of their employment; the net worth of the “whole corporate Kindred organization” was $1.4 billion at the time of trial.
There were two amendments to conform to proof: one to allege that Duque’s actions were done within the course and scope of her employment with Kindred and ratified by Kindred; the other to add Kindred to the cause of action for conversion.
DISCUSSION
1. Contentions
We summarize appellants’ five primary assignments of error, leaving the many subcontentions to such time that they become relevant to our discussion. The first assignment of error is that the punitive damage award was excessive, contrary to California law, and unconstitutional under the “guideposts” set forth in State Farm Mut. Automobile Ins. Co. v. Campbell (2003) 538 U.S. 408 (State Farm). In the second, appellants claim the fraud verdicts were not supported by substantial evidence. In appellants’ third assignment of error, they contend the damages awarded for Omari’s emotional distress were excessive and unsupported by substantial evidence, and that emotional distress damages are not recoverable for conversion of business equipment. In the fourth, appellants contend that the economic damages awarded were excessive and not supported by substantial evidence. Finally, appellants contend that the trial court abused its discretion in excluding a document offered to impeach Omari’s testimony regarding the cost of overhauling dialysis machines, and in denying the motion for new trial on that ground.
In addition to the contentions just summarized, appellants have included contentions and argument in at least 10 of the 33 footnotes in the opening brief and eight of the 28 footnotes in the reply brief. Each point in an appellate brief must be stated under a separate heading or subheading summarizing the point. (Cal. Rules of Court, rule 8.204(a)(1)(B).) As the placement of argument in a footnote does not comply with this rule, we disregard it. (See Santa Teresa Citizen Action Group v. State Energy Resources Conservation & Development Com. (2003) 105 Cal.App.4th 1441, 1451; Western Aggregates, Inc. v. County of Yuba (2002) 101 Cal.App.4th 278, 290.)
Respondents suggest that rather than follow appellants’ order of discussion, the contentions regarding the punitive damage award should be discussed last. We agree that the more logical approach is to begin with whether substantial evidence supports the jury’s findings of fraud, as the remaining contentions depend, in part, upon the resolution of that issue and issues relating to it. Indeed, all of appellants’ other issues are more easily discussed prior to punitive damages. Thus, we begin with appellants’ second assignment of error, that the fraud verdicts were not supported by substantial evidence, after which we discuss the third and fourth assignments of error, before finally turning to punitive damages. We also discuss some of appellants’ subcontentions -- not summarized here -- out of order where warranted.
2. Substantial Evidence -- Fraud and Conversion
Appellants contend that several fraud elements were unsupported by substantial evidence. Respondents contend that appellants’ inadequate summary of the evidence, consisting mostly of the evidence supporting appellants’ contentions, has resulted in a forfeiture of their substantial evidence claim. The only evidence relevant to a substantial evidence review is that evidence which supports the prevailing parties, and a proper summary disregards the appellant’s evidence. (Campbell v. Southern Pacific Co., supra, 22 Cal.3d at p. 60.) We agree with respondents that, contrary to the proper standard of substantial evidence review, appellants’ summary casts the most favorable light on the evidence favoring their position, and they have drawn all inferences necessary to support their arguments, rejecting those apparently drawn by the jury. (See Nestle v. City of Santa Monica, supra, 6 Cal.3d at p. 925.)
“The elements of fraud that will give rise to a tort action for deceit are: ‘“(a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or ‘scienter’); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.”’ [Citation.]” (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 974.)
For example, appellants contend there is no evidence of intentional misrepresentations or concealment by McCurdy, Narbutas and Browne. However, they fail to discuss McCurdy’s promise to investigate Omari’s claims, or her concealment of the fact that she had just signed a contract with IHR, and intended to do whatever was necessary in order to keep the services provided by Damon, whose technical expertise was necessary to permit Kindred Los Angeles to pass the accreditation review. Nor do they discuss evidence suggesting Browne facilitated El-Abed’s removal of the equipment after he knew it belonged to Tartech, and without notifying Omari.
Contrary to the events as described by appellants, Kindred officers were informed as early as January 2, 2002, that Tartech had not simply changed its name, and that Omari was alleging that El-Abed had stolen his business. By mid-January, El-Abed had admitted to Kindred in his notice of non-affiliation that the two companies were separate entities. By the end of January, Kindred officers knew Tartech was claiming entitlement to the equipment that it had installed. In January, February and March 2002, Kindred continued to pay IHR instead of Tartech for work performed using Tartech equipment; in March 2002, without notifying Omari, Kindred turned that equipment over to El-Abed. Kindred officers falsely promised Omari they would investigate and correct any mistake, but from January 2, 2002 through mid-March 2002, other than the Ontario CEO, Kindred officers failed to investigate, and ignored Omari’s and his attorney’s pleas for assistance.
Appellants contend that the facts do not show the officers’ conduct was fraudulent, apparently meaning that the evidence did not show fraudulent intent. “[F]raudulent intent must often be established by circumstantial evidence. . . . [It] has been inferred from such circumstances as defendant’s . . . failure even to attempt performance, or his continued assurances after it was clear he would not perform.” (Tenzer v. Superscope, Inc. (1985) 39 Cal.3d 18, 30.) Here, Kindred’s fraudulent intent may be found in their officers’ false promises to investigate, their concealment of the fact that they intended to pay El-Abed’s company notwithstanding Tartech’s contractual entitlement and their intentional return of equipment owned by Tartech to El-Abed.
Appellants contend that there was no justifiable reliance, and quoting Witkin, they define reliance as “‘an immediate cause of [the plaintiff’s] conduct which alters his legal relations.’” (See 5 Witkin, Summary of Cal. Law (10th ed. 2005) Torts, § 808, p. 1164.) Appellants’ quote does not define justifiable reliance; it defines actual reliance, which is an element of fraudulent inducement; actual reliance is presumed when material facts are misrepresented or concealed. (See Engalla v. Permanente Medical Group, Inc., supra, 15 Cal.4th at pp. 976-977.)
Appellants suggest that Omari’s ineffectual actions to protect himself show an absence of reliance, because he did, in fact, act by retaining an attorney and making demands. Appellants further suggest that Omari’s reliance was unjustified because he should have been aware of any fraudulent concealment by the time the equipment was sold. What appellants have described is, more realistically, a failure to act -- had Omari known all the facts, he could have taken court action or retrieved the equipment before Kindred released it to El-Abed. Reliance may consist of forbearance. (Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 174.) A plaintiff’s failure to protect himself is not deemed unjustifiable unless his “‘conduct . . . in the light of his own intelligence and information was manifestly unreasonable.’” (Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226, 1240.) Whether Omari’s forbearance was reasonable was a question of fact for the jury to resolve, and any failure to take action before it was too late was not manifestly unreasonable. (See id. at pp. 1239-1240.)
In addition, appellants argue that Omari was fully aware that Duque’s work on Tartech’s procedures manual and her acceptance of a loan constituted ultra vires misbehavior on her part -- that she was a “double agent.” However, the record fails to disclose that Omari knew of Duque’s position when he lent her money. Moreover, appellants disregard Omari’s testimony that he was unaware of Kindred’s policy or of the fact that Duque was employed by Kindred when he employed her as a consultant.
Appellants would have this court disbelieve Omari, and believe only those witnesses whose credibility was apparently rejected by the jury -- and by the trial judge, who, in denying appellants’ motion for new trial based upon alleged attorney misconduct in calling the defense witnesses “‘liars,’” stated: “Quite frankly, that is a mild word for some of the defense witnesses. This Court has been on the bench for 20 years and cannot remember a case where it appeared that so many of the defense witnesses were ‘making it up as they go along.’ The jurors obviously agreed.”
Appellants’ statement of facts recites testimony that was apparently rejected by the jury, omitting contrary evidence. For example, appellants cite Duque’s testimony that she did not have the authority to determine whether a vendor should be paid, from which appellants argue that Duque could not have arranged to have IHR’s invoices paid. However, the evidence showed that she did, in fact, arrange to have IHR’s invoices paid -- Duque assured Tanzmeister the name change was “all OK,” an assurance communicated directly to CEO Narbutas. Duque later told Norry that she had arranged for the payment of the Tartech invoices to IHR. Appellants also suggest that a change in vendor name and federal identification number did not prompt suspicion of El-Abed, because Kindred officers testified they believed it to be a simple name change -- testimony the jury was not required to believe. Further, they disregard evidence that one such officer was Browne, who later helped El-Abed misappropriate Tartech’s equipment. Similarly, appellants argue that Kindred officers did not know Omari’s relationship to Tartech, suggesting, as they did at trial, that the Kindred officers did not know Omari, and were acquainted only with El-Abed. They reference McCurdy’s testimony that she had never seen Omari before January 2, 2002, but disregard Omari’s testimony that he had known McCurdy since 1997, when he was the vendor doing business as American Medical, and that he had exchanged greetings many times with Narbutas at Brea.
It is the province of the jury, not the appellate court, “‘to judge of the effect or value of the evidence, to weigh the evidence, to consider the credibility of the witnesses, [and] to resolve conflicts in the evidence or in the reasonable inferences that may be drawn therefrom.’ [Citations.]”(Leff v. Gunter (1983) 33 Cal.3d 508, 518.) In doing so, a “jury is not required to believe the testimony of any witness, even if uncontradicted.” (Sprague v. Equifax, Inc. (1985) 166 Cal.App.3d 1012, 1028.) “It is well settled that the trier of fact may accept part of the testimony of a witness and reject another part even though the latter contradicts the part accepted. [Citations.] . . . ‘[T]he jury properly may reject part of the testimony of a witness, though not directly contradicted, and combine the accepted portions with bits of testimony or inferences from the testimony of other witnesses thus weaving a cloth of truth out of selected available material. [Citations.]’” (Stevens v. Parke, Davis & Co. (1973) 9 Cal.3d 51, 67-68.)
In reviewing for substantial evidence, we begin with the presumption that the record contains evidence to sustain every finding of fact. (Foreman & Clark Corp. v. Fallon (1971) 3 Cal.3d 875, 881.) It is appellants’ burden to demonstrate that it does not. (Ibid.) Appellants do not meet their burden by pointing out all the inferences that might have been drawn in their favor, while inviting this court to reject any contrary inferences. (See Crawford v. Southern Pacific Co. (1935) 3 Cal.2d 427, 429.) Appellants must show not only that their inferences are reasonable, but also that all contrary inferences are unreasonable -- and they must do so upon a complete and fair recitation of all the evidence most favorable to respondents. (Boeken v. Philip Morris, Inc. (2005) 127 Cal.App.4th 1640, 1658.)
Appellants do not challenge the sufficiency of the evidence as to conversion. Respondents contend that the conversion findings alone support the award of damages, and any defect in the fraud findings may be disregarded. We agree. The special verdict form, to which appellants did not object, did not require the jury to allocate damages between the fraud and conversion causes of action. “The ‘general verdict rule’ . . . provides that where several counts are tried, a general verdict will be sustained if any one count is supported by substantial evidence and is unaffected by error, despite possible insufficiency of evidence as to the remaining counts. [Citation.] The rule is based on the assumption ‘that the jury found on the cause of action or theory which was supported by substantial evidence and as to which there was no error,’ an assumption that may be proven incorrect by the special verdict or response to special interrogatories. [Citation.]” (Tavaglione v. Billings (1993) 4 Cal.4th 1150, 1157.)
Appellants do not contend that the special verdict form shows that different amounts were awarded as to the fraud and conversion counts. Instead, they challenge the economic damages award as excessive, because it included both the value of the equipment and consequential damages. They contend that Civil Code section 3336 allows one measure or the other, not both. Assuming arguendo that appellants’ interpretation of section 3336 is correct, they have failed to preserve this issue for appeal. “To preserve for appeal a challenge to separate components of a plaintiff’s damage award, a defendant must request a special verdict form that segregates the elements of damages. [Citations.]” (Greer v. Buzgheia (2006) 141 Cal.App.4th 1150, 1158.)
Moreover, substantial evidence supports the fraud verdicts. Duque concealed from Omari until he was out of the country her plan to assist El-Abed in the takeover of Tartech. Thereafter, she facilitated the plan by assuring Tanzmeister that the new contract with IHR represented merely a name change. Finally, before Omari was aware of her complicity, she promised to investigate his claim that El-Abed was trying to steal his business, and promised to correct any mistakes. The jury understandably concluded she had no intention of fulfilling these promises. A false promise -- one made without intention to perform -- is the equivalent of a misrepresentation of fact. (Las Palmas Associates v. Las Palmas Center Associates (1991) 235 Cal.App.3d 1220, 1238.) Before leaving Kindred, Duque, without notifying Omari, also assisted El-Abed in secreting Tartech’s equipment in a locked storage room, from which El-Abed later removed it.
Duque was not alone among the officers whom the jury could reasonably have concluded misrepresented and concealed material facts from Omari to his detriment. CEO McCurdy, after promising to investigate Omari’s claims on January 2, failed to do so, and failed to disclose that she had already signed a new contract with El-Abed -- the party Omari claimed was stealing his business and misleading the hospital into diverting payments due Tartech. Far from investigating Omari’s complaint, on January 15, McCurdy cancelled Tartech’s contract with Kindred Los Angeles, retroactive to the day before she promised to investigate his complaint. The jury was entitled to conclude that McCurdy, like Duque, misrepresented her intentions on January 2, induced Omari’s reliance on her promise to investigate, and did so to ensure the retention of technician Richard Damon who, by then, was employed by IHR and who, in McCurdy’s words, “we cannot get along without.” Omari, unaware of McCurdy’s true intentions, failed to take steps to stanch the flow of payments to IHR, and failed to protect his equipment from being returned to El-Abed.
The jury’s findings that officers of Kindred concealed facts from Omari was further supported by the evidence of CFO Browne’s conduct. He had before him evidence that Tartech had not undergone a name change, that El-Abed was attempting to take over Omari’s business and that payments due Tartech as the holder of the existing contracts were being made instead to El-Abed’s company, IHR. Browne continued to authorize payments to IHR, despite having been notified of unpaid invoices due Tartech. Further, after being advised that the medical equipment belonged to Tartech, Browne, without notifying Omari, contacted El-Abed and invited him to pick up Tartech’s equipment. The jury was entitled to find such concealment material, and that it was a substantial factor in causing Omari’s damages. We may not reject those findings. (See Crawford v. Southern Pacific Co., supra, 3 Cal.2d at p. 429.)
3. Vicarious Liability
Appellants contend that notwithstanding the jury’s contrary conclusion, Duque did not act within the scope of her employment with Kindred, and her fraud cannot, therefore, be imputed to Kindred. We disagree.
The jury was instructed that in order to find Kindred liable on the basis of Duque’s conduct, it was required to find that she was acting within the scope of her employment.
Under the doctrine of respondeat superior, “an employer is vicariously liable for the torts of its employees committed within the scope of the employment.” (Lisa M. v. Henry Mayo Newhall Memorial Hospital (1995) 12 Cal.4th 291, 296 (Lisa M.).) An employee’s actions need not benefit the employer; “an employee’s willful, malicious and even criminal torts may fall within the scope of his or her employment for purposes of respondeat superior, even though the employer has not authorized the employee to commit crimes or intentional torts.” (Id. at pp. 296-297.) “The employer is liable not because the employer has control over the employee or is in some way at fault, but because the employer’s enterprise creates inevitable risks as a part of doing business. [Citations].” (Bailey v. Filco, Inc. (1996) 48 Cal.App.4th 1552, 1559.) “[A]n employer is liable for risks ‘arising out of the employment.’ [Citations.] [¶] A risk arises out of the employment when ‘in the context of the particular enterprise an employee’s conduct is not so unusual or startling that it would seem unfair to include the loss resulting from it among other costs of the employer’s business. [Citations.] In other words, where the question is one of vicarious liability, the inquiry should be whether the risk was one “that may fairly be regarded as typical of or broadly incidental” to the enterprise undertaken by the employer. [Citation.]’ [Citation.] Accordingly, the employer’s liability extends beyond his actual or possible control of the employee to include risks inherent in or created by the enterprise.” (Perez v. Van Groningen & Sons, Inc. (1986) 41 Cal.3d 962, 968; see also, Hinman v. Westinghouse Elec. Co. (1970) 2 Cal.3d 956, 960.)
Appellants argue that Duque’s fraud cannot be imputed to Kindred, because “[a]n employer is not liable to a participant in an employee’s ex cathedra scheme.” Appellants rely upon several authorities which discuss circumstances under which the knowledge of an agent may be imputed to the principal. (E.g., First Nat. Bank v. Reed (1926) 198 Cal. 252, 258; Meyer v. Glenmoor Homes, Inc. (1966) 246 Cal.App.2d 242, 264; People v. Parker (1965) 235 Cal.App.2d 86, 93.) We do not disagree with the principle relied upon in those cases, viz., that “‘[a] corporation is not chargeable with the knowledge of an officer who collaborates with an outsider to defraud it.’” (Meyer v. Glenmoor Homes, Inc., supra, at p. 264, quoting People v. Parker, supra, 235 Cal.App.2d at p. 93, and citing First Nat. Bank v. Reed, supra, 198 Cal. at p. 258.) However, appellants have pointed to no evidence of Omari’s complicity in Duque’s fraud; thus, these cases are inapposite.
Where an employee has committed a fraud within the scope of employment, the corporate employer will be held liable even if the employee committed the fraud entirely for his or her own purposes, and even if the employer is “entirely innocent and has received no benefit from the transaction,” unless the party defrauded has notice that the employee has acted entirely for his or her own purposes. (Hartong v. Partake, Inc. (1968) 266 Cal.App.2d 942, 960.) This principle is illustrated in Rutherford v. Rideout Bank (1938) 11 Cal.2d 479, cited by respondents. There, a bank manager had made fraudulent representations to induce the plaintiff to sell her real property to a third person. (Id. at p. 482.) The court rejected the bank’s defense that its manager acted pursuant to an independent purpose of the purchaser and his own, and that the particular transaction was not authorized by the bank. (Id. at pp. 483-484.) Here, Duque engaged in a scheme to defraud Omari and used her position as COO of Kindred to facilitate the “name change,” thus diverting payment of Tartech’s invoices to IHR. By the time Omari discovered Duque’s fraud, it was too late.
Relying on Saks v. Charity Mission Baptist Church (2001) 90 Cal.App.4th 1116 (Saks), appellants contend the evidence showed that Omari knew Duque’s acts were her own and unauthorized by Kindred. In Saks, the plaintiff was denied recovery for damages caused when he was fraudulently induced by an employee to enter into a contract with the employer, knowing that the acts of the employee were in conflict with the interests of the employer. (See id. at pp. 1137-1140.) Appellants attempt to compare the facts of Saks with those of this case by arguing that “Omari knew and co-authored Duque’s material conflict of interest in all of her dealings with him -- illicit dealings that resulted in his hospital contracts -- and he repeatedly asserted her solely personal motivation when confronting Kindred.” The evidence was to the contrary. Omari testified that Duque was introduced to him by El-Abed, that he learned only after he retained Peter Duque that she was employed by Kindred, and that he was unaware of Kindred’s policy prohibiting employees from accepting loans from vendors. Moreover, the fact that Omari may have suspected Duque’s motivation related to his request that she repay the money she owed does not make him complicit in her fraudulent conduct. Indeed, Omari did not know -- because Duque had concealed from him -- that she was in partnership with El-Abed to transfer Tartech’s contracts with Kindred to El-Abed’s company. Instead, she assured Omari that she would investigate his complaints and rectify the situation. Far from being complicit in her scheme, he was the victim of it.
Citing Lisa M., supra, 12 Cal.4th 291, 298-299, and Farmers Ins. Group v. County of Santa Clara (1995) 11 Cal.4th 992, 1004-1005, appellants argue that no liability is imposed upon an employer if “an employee engages in an independent tort for her own purposes, or as a result of a personal quarrel. . . .” Appellants’ argument is an overstatement of the exception to vicarious liability; in fact, liability is the norm, “‘with a few exceptions’ in instances where the employee has ‘substantially deviated from his duties for personal purposes.’” (Mary M. v. City of Los Angeles (1991) 54 Cal.3d 202, 218 (Mary M.).) “To determine whether a particular set of facts falls into one of those ‘few exceptions,’ it is necessary to examine the employees’ conduct as a whole, not simply the tortious act itself. [Citation.] ‘“The fact that an employee is not engaged in the ultimate object of his employment at the time of his wrongful act does not preclude attribution of liability to an employer.”’ [Citation.] . . . ‘[T]he proper inquiry is not “‘whether the wrongful act itself was authorized but whether it was committed in the course of a series of acts of the agent which were authorized by the principal.’”’” (Id. at pp. 218-219.)
Substantial evidence supports the jury’s conclusion that Duque’s fraud was committed in the course of duties authorized by Kindred. (See Mary M., supra, 54 Cal.3d at pp. 218-219.) Duque and Narbutas testified that Duque, as COO, was subordinate only to CEO Narbutas. Duque testified that all her duties at Kindred Brea were managerial and involved verifying regulatory compliance by vendors, including dialysis venders such as Tartech, and that she reviewed all clinical contracts and made clinical recommendations prior to review by the CFO and execution by the CEO. Narbutas testified that Duque was his “right-hand person,” whose job duties as COO included ensuring that the hospital operated according to regulatory requirements and advising him regarding clinical policies and procedures. She reviewed all vendor contracts, advised the CEO and monitored vendor performance. Browne testified that he and Duque both reviewed vendor contracts. Duque made recommendations to Narbutas and had the power to block any contract to which she had a clinical objection. Although Narbutas had final approval authority of hospital contracts, he relied upon Duque’s recommendations. In short, Duque “basically approved” contracts, including IHR’s contract with Kindred Brea, before they were presented to the CEO. Indeed, it was Duque who confirmed that the “name change” from Tartech to IHR was proper. Moreover, it was Duque to whom Omari was sent when he complained that his contracts with Kindred Brea were not being honored, and it was Duque who falsely assured him any mistakes would be rectified.
Thus, Duque used her authority as COO, the CEO’s “right-hand person,” and advisor to hospital administration regarding vendor contracts and performance, to assure Tanzmeister (and through her, Narbutas) that IHR was just a name change and to arrange to have Tartech’s invoices paid to IHR. Contrary to appellants’ argument, substantial deviation is lacking, because Duque’s fraud was accomplished by conduct incident to her duties, and thus was reasonably foreseeable by Kindred. (See Bailey v. Filco, Inc., supra, 48 Cal.App.4th at pp. 1559-1560.) That she did not perform her duties in a manner authorized by Kindred or that benefited Kindred is of no moment. (See Perez v. Van Groningen & Sons, Inc., supra, 41 Cal.3d at pp. 968-969.) We conclude that substantial evidence supports the finding that Duque committed fraud within the scope of her employment by Kindred; thus, the fraud was properly imputed to Kindred under the doctrine of respondeat superior.
4. Damages for Emotional Distress
Appellants contend that the verdict for emotional distress damages must be reversed, because the fraud cause of action was not supported by substantial evidence, and because emotional distress damages are not recoverable for conversion, unless the property converted had great sentimental value. We reject both contentions.
Emotional distress damages are recoverable for intentional fraud not involving the sale of property. (See Branch v. Homefed Bank (1992) 6 Cal.App.4th 793, 798-800; Sprague v. Frank J. Sanders Lincoln Mercury, Inc. (1981) 120 Cal.App.3d 412, 417.) Thus, as appellants failed to meet their burden to justify a reversal of the fraud verdict, Kindred’s fraud supported recovery of emotional distress damages.
Moreover, we reject appellants’ contention that conversion cannot support a recovery of damages for emotional distress. In general, “a plaintiff who as a result of a defendant’s tortious conduct loses his property and suffers mental distress may recover not only for the pecuniary loss but also for his mental distress.” (Crisci v. Security Ins. Co. (1967) 66 Cal.2d 425, 433-434.) Such damages are recoverable for conversion, so long as it was intentional. (Gonzales v. Personal Storage, Inc. (1997) 56 Cal.App.4th 464, 475-477.) Although appellants repeatedly characterize the conversion as negligent, the jury found it to have been intentional, and appellants do not directly challenge that finding.
Further, the cases cited by appellants provide no authority for limiting recovery of emotional distress damages to those caused by the intentional conversion of property with great sentimental value. (E.g., Schroeder v. Auto Driveaway Co. (1974) 11 Cal.3d 908, 921 [fraud and conversion; no discussion of which tort supported emotional distress damages]; Gonzales v. Personal Storage, Inc., supra, 56 Cal.App.4th at p. 476 [conversion of household furniture and pet dog cited only as examples of cases in which emotional distress damages were recovered]; Spates v. Dameron Hospital Assn. (2003) 114 Cal.App.4th 208, 221-222 [mere negligence -- no conversion]; Lubner v. City of Los Angeles (1996) 45 Cal.App.4th 525, 531-534 [same].)
Appellants further contend that $500,000 for emotional distress was excessive, because the evidence showed, at most, that Omari was merely angry and unhappy, which can be said of all litigants. They claim the only evidence of Omari’s mental suffering was his testimony that he saw a psychiatrist and took medication for a period of time. This understates the evidence the jury was entitled to consider. Nizar Marouf testified that when Omari called him January 1, 2002, he was in a state of panic. The next day, Omari was such “an emotional wreck” that Marouf insisted upon driving Omari to the hospitals. When Omari tried to explain the facts to Duque, she had to calm him down. McCurdy testified that when she spoke to Omari January 2, 2002, he was “pretty intense.” Omari testified that as a result of this incident, he was treated by a psychiatrist for the first time in his life. He was placed on Valium, Prozac and other medications, none of which he had ever taken before. Although he was no longer on medication at the time of trial -- some three and one-half years after the events giving rise to the lawsuit -- he broke down while recalling the events, and testified to “how my life turned upside down” as a result of appellants’ conduct. The weight to give such evidence was for the jury, and the reviewing court is not authorized to interfere with the jury’s judgment, unless the amount of the award was so grossly disproportionate to the economic damages as to raise a presumption that it was the result of passion and prejudice. (Pistorius v. Prudential Insurance Co. (1981) 123 Cal.App.3d 541, 552.)
Appellants suggest the award was grossly disproportionate to the economic damages. On appeal, it is the appellants’ burden to show the “‘verdict is “so plainly and outrageously excessive as to suggest, at the first blush, passion or prejudice or corruption on the part of the jury.’” [Citations.]” (McNulty v. Southern Pacific Co. (1950) 96 Cal.App.2d 841, 846.) Appellants’ attempt to meet their burden consists of a reference to a case in which the emotional distress award was more than three times the economic loss. (E.g., Merlo v. Standard Life & Acc. Ins. Co. (1976) 59 Cal.App.3d 5, 16-17.) Here, on the other hand, the emotional distress award was just over one-third the economic damages. We conclude that appellants have failed to carry their burden.
Appellants suggest that the emotional distress damages were excessive for the additional reason that Kindred’s tortious conduct was merely negligent. We again reject that characterization, as the fraud verdict is supported by substantial evidence, and appellants have not challenged the jury’s finding that the conversion was intentional.
5. Economic Damages
Appellants contend the economic damages awarded were excessive and not supported by substantial evidence. First, they contend that contract damages should have been limited to 30 days, because the contract allowed for termination at the will of Kindred upon 30 days’ notice. Appellants do not claim to have requested an instruction so limiting contract damages, and they did not request a special verdict allocating damages between the contract and tort causes of action or in any other way segregating the elements of damages. Thus, they have not preserved this issue for review. (Greer v. Buzgheia, supra, 141 Cal.App.4th at p. 1158.)
Moreover, appellants do not contend -- and have not shown -- that economic damages due to the breach of contract were awarded in addition to the amount of fraud or conversion damages. As there is nothing to suggest in the instructions, evidence or verdict that respondents were permitted to recover duplicative damages, appellants have not shown error. (See Tavaglione v. Billings, supra, 4 Cal.4th at pp. 1157-1158.)
Appellants also contend that respondents should not have been permitted to recover damages for lost future profits, because Tartech did not yet have a history of making a profit. As appellants did not object to the admission of evidence of future profits, and they did not request a special verdict form segregating the damages based upon lost profits from other items of damage, they have forfeited this contention. (Heiner v. Kmart Corp. (2000) 84 Cal.App.4th 335, 346.)
Moreover, according to the evidence, Tartech was not an unestablished business, as appellants suggest, but one which operated from February 2000 until the end of 2001, at which time it would have shown a profit had its November and December receivables not been diverted to IHR. Further, appellants’ contention is improperly based upon Tartech’s inability to pay salaries and the possibility that it would have had no clients if Kindred had lawfully terminated its contracts. Tort damages for the loss of prospective profits of an established business are ordinarily recoverable if there is a satisfactory basis for estimating probable earnings had there been no tort. (Piscitelli v. Friedenberg (2001) 87 Cal.App.4th 953, 989.) Appellants’ argument depends upon Tartech’s ruined state, not its condition prior to Kindred’s participation in the fraud and conversion. Respondents’ expert testified that Tartech would have shown a profit in November and December 2001, had El-Abed and Duque not taken over its receivables, equipment, employees and contracts. It may reasonably be inferred from that evidence that it would also have been able to pay salaries.
6. Exclusion of Impeachment Evidence
Appellants contend the trial court abused its discretion in excluding an exhibit offered to impeach Omari’s testimony that he overhauled the five dialysis machines. Omari testified that in order to start up Tartech, he purchased five dialysis machines for $60,000, and then overhauled and enhanced them himself at a cost of approximately $50,000, for a total investment of $110,200 for the machines. In cross-examination, in order to impeach that testimony and show that the machines were purchased already refurbished for a total of $60,000, appellants proffered what purported to be an offer to sell the equipment to Tartech for $12,000 per machine, unsigned by the offeree. A handwritten note at the bottom of the signature page requested the addition of a complete refurbishing of the machines.
Respondents’ counsel objected on the ground that the document had not been produced in discovery. In a sidebar conference, Kindred’s attorney represented that he had received the document two weeks before from El-Abed. Respondents’ counsel confirmed that the discovery request had called for “[a]ll documents related to the machinery . . . purchased by Tartech.” El-Abed represented to the court that the handwritten notations were his, and that the original, with the same handwritten notations, was eventually signed. The trial court excluded the exhibit, finding it had not been produced in discovery, appeared ”suspicious,” and lacked indicia of reliability.
The court reporter wrote, “indicia of liability,” which we discern to be an obvious typographical error.
Appellants contend the court “prejudicially erred in penalizing Kindred for another defendant’s discovery transgression.” They offer no excuse for their failure to produce the exhibit, called for in discovery, during the two weeks appellants admittedly had it. More important, the exhibit simply did not impeach Omari’s testimony. It consisted of an unsigned offer by a third party. Appellants do not suggest the documents were otherwise admissible, and the court was well within its discretion in excluding the evidence. (See Dart Industries, Inc. v. Commercial Union Ins. Co. (2002) 28 Cal.4th 1059, 1078.)
To the extent appellants sought to demonstrate that El-Abed negotiated a particular arrangement for the purchase of the equipment, they were free to call him to testify. They did not.
7. Punitive Damages -- Officer or Managing Agent
Appellants contend that punitive damages could not be awarded under California law, because there was no evidence of malice, oppression or fraud on the part of an officer or managing agent of Kindred. Civil Code section 3294, subdivision (a), provides that punitive damages may not be recovered unless “it is proven by clear and convincing evidence that the defendant has been guilty of oppression, fraud, or malice. . . .” As relevant here, a corporate employer may be liable for punitive damages due to the conduct of an employee only if the act of oppression, fraud or malice was committed by an officer, director or managing agent of the corporation. (Civ. Code, § 3294, subd. (b).)
Appellants contend that as Duque had resigned, there was no officer involved in the conversion who was guilty of malice, fraud or oppression. Appellants ignore Duque’s role, while still employed by Kindred, in facilitating the conversion by storing the equipment in a locked room of a deserted wing of the hospital. Further, the jury’s finding that the conversion was intentional was supported by Browne’s admission that he had reviewed the letters showing that the equipment belonged to Tartech and that El-Abed was no longer affiliated with Tartech, before he invited El-Abed to pick up the equipment. The jury could reasonably have inferred from Browne’s actions and failure to communicate with Omari that he accomplished the conversion by means of fraudulent concealment.
The clear and convincing standard at the trial level does not alter our standard of review -- “all we are required to find is substantial evidence to support a determination by clear and convincing evidence [citation]. . . .” (Tomaselli v. Transamerica Ins. Co. (1994) 25 Cal.App.4th 1269, 1287 (Tomaselli).)
Appellants argue that the jury’s finding that Duque was an officer or managing agent of Kindred was not supported by substantial evidence. We need not reach appellants’ contention that Duque was not a managing agent, because she was clearly an officer, and the statute requires conduct by either a managing agent or an officer. (Civ. Code, § 3294, subd. (b); cf. White v. Ultramar, Inc. (1999) 21 Cal.4th 563, 573 [officer is in the same category as managing agent].)
Appellants further contend that the jury instructions identified Duque’s conduct as the sole basis for a punitive damage award, precluding an award based upon the conduct of other Kindred officers. In support of their contention, they refer to a single jury instruction. The court instructed: “You may also award punitive damages against Kindred based on Ms. Duque’s conduct if Tartech and Mr. Omari prove by clear and convincing evidence that Miss Duque was an officer or a managing agent of Kindred acting within the scope of her employment, and on behalf of Kindred at the time of the conduct constituting malice, oppression or fraud.” A review of all the instructions and special verdicts does not compel the conclusion urged by appellants. (See Hasson v. Ford Motor Co. (1977) 19 Cal.3d 530, 540, overruled on other grounds in Soule v. General Motors Corp. (1994) 8 Cal.4th 548, 574.)
Appellants assert that Duque’s title of “officer” did not make her an officer. They rely on Cruz v. HomeBase (2000) 83 Cal.App.4th 160, in which the appellate court held that the title, “supervisor,” did not necessarily mean that the supervisor was a managing agent. The court did not hold, even by implication, that an officer is not necessarily an officer. (See id. at pp. 167-168.) Duque’s title was certainly evidence that she was an officer. Moreover, the testimony was not simply that her title was “chief operations officer”; Duque and Narbutas testified that she was the chief operations officer. Further, Duque’s position in the hospital was second only to the CEO’s, and appellants stipulated that the CEO and the CFO were officers. The jury’s conclusion that Duque was an officer is supported by the evidence, and we are not authorized to reject it. (See Nestle v. City of Santa Monica, supra, 6 Cal.3d at p. 925.)
Appellants contend that Duque’s conduct was not so despicable as to support punitive damages. As respondents note, fraud alone supports the imposition of punitive damages. (Las Palmas Associates v. Las Palmas Center Associates, supra, 235 Cal.App.3d at p. 1239.) Thus, punitive damages are supported by the fraud findings in the special verdicts, supported by substantial evidence that Duque committed fraud. Despicable conduct is an element of malice, not fraud. (Civ. Code, § 3294, subd. (c).) As appellants did not request a special verdict form that would have required the jury to specify which ground -- malice, oppression or fraud -- justified punitive damages, we assume that it found whichever ground or grounds support the award, and rejected any that do not. (See Tavaglione v. Billings, supra, 4 Cal.4th at p. 1157.)
The statute defines “[m]alice” as “conduct which is intended by the defendant to cause injury to the plaintiff or despicable conduct which is carried on by the defendant with a willful and conscious disregard of the rights or safety of others.” (Civ. Code, § 3294, subd. (c)(1).)
We note, however, that Duque’s conduct was more than sufficient to support a finding of malice. As noted above, there was ample evidence that she collaborated with El-Abed to transfer Tartech’s contracts to IHR, used her authority as COO to divert payments due Tartech to IHR, concealed her scheme from Omari (while assuring him she would investigate his complaints and rectify any problems), took steps to enable El-Abed to take expensive medical equipment that belonged to Tartech, and negotiated the sale of the equipment in the Philippines. The jury was more than entitled to find such conduct sufficiently “‘base,’ ‘vile,’ or ‘contemptible.’ [Citation.]” (College Hospital Inc. v. Superior Court (1994) 8 Cal.4th 704, 725.)
For the same reason, we need not reach appellants’ contention that the conversion verdict could not support punitive damages. The special verdict form did not ask the jury to assign the punitive damage award separately to each of the three alleged torts, and the jury found that “the acts constituting that misrepresentation, concealment and/or conversion [rose] to the level of fraud, oppression, malice or despicable conduct by an officer or managing agent of Kindred.” Again, we assume the jury found whichever ground or grounds support the award, and rejected any that do not. (See Tavaglione v. Billings, supra, 4 Cal.4th at p. 1157.)
8. Punitive Damages -- Constitutionality
Appellants contend the punitive damage award is invalid and excessive, in violation of the United States Constitution. The due process clause of the Fourteenth Amendment places limits on both the manner of imposing punitive damages and the amounts of such awards. (State Farm, supra,538 U.S. at pp. 416-418.) “The imposition of ‘grossly excessive or arbitrary’ awards is constitutionally prohibited, for due process entitles a tortfeasor to ‘“fair notice not only of the conduct that will subject him to punishment, but also of the severity of the penalty that a State may impose.”’” (Simon v. San Paolo U.S. Holding Co., Inc. (2005) 35 Cal.4th 1159, 1171 (Simon), quoting State Farm, supra, at pp. 416-417, and BMW of North America, Inc. v. Gore (1996) 517 U.S. 559, 574 (BMW).)
The United States Supreme Court has developed the following “guideposts” for determining whether a punitive damage award comports with due process: “(1) the degree of reprehensibility of the defendant’s misconduct; (2) the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and (3) the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases. [Citation.]” (State Farm, supra, 538 U.S. at p. 418; see BMW, supra, 517 U.S. at p. 575; Simon, supra,35 Cal.4th at pp. 1171-1172.)
We determine the constitutionality of the award under a de novo standard of review. (Cooper Industries, Inc. v. Leatherman Tool Group, Inc. (2001) 532 U.S. 424, 436-437 (Cooper Industries).) We make “an independent assessment of the reprehensibility of the defendant’s conduct, the relationship between the award and the harm done to the plaintiff, and the relationship between the award and civil penalties authorized for comparable conduct. [Citations.] This ‘[e]xacting appellate review’ is intended to ensure punitive damages are the product of the ‘“‘application of law, rather than a decisionmaker’s caprice.’”’ [Citation.]” (Simon, supra,35 Cal.4th at p. 1172, quoting State Farm, supra, at p. 418.)
Appellants contend that the de novo standard of review precludes any deference to the jury’s findings. It does not. “[F]indings of historical fact made in the trial court are still entitled to the ordinary measure of appellate deference. [Citations.]” (Simon, supra,35 Cal.4th at p. 1172.) Thus, we “defer to the [jury’s] findings of fact unless they are clearly erroneous.” (Cooper Industries, supra, 532 U.S. at p. 440, fn. 14.)
Degree of Reprehensibility
Appellants contend that there was no evidence of reprehensible conduct by Kindred. “‘[T]he most important indicium of the reasonableness of a punitive damages award is the degree of reprehensibility of the defendant’s conduct.’” (State Farm, supra, 538 U.S. at p. 419, quoting BMW, supra, 517 U.S. at p. 575.) Several subsidiary factors guide the determination of the degree of reprehensibility: (1) whether “the harm caused was physical as opposed to economic”; (2) whether “the tortious conduct evinced an indifference to or a reckless disregard of the health or safety of others”; (3) whether “the target of the conduct had financial vulnerability”; (4) whether “the conduct involved repeated actions or was an isolated incident”; and (5) whether “the harm was the result of intentional malice, trickery, or deceit, or mere accident.” (State Farm, supra, 538 U.S. at p. 419; see BMW, supra, 517 U.S. at pp. 576-577.) “The existence of any one of these factors weighing in favor of a plaintiff may not be sufficient to sustain a punitive damages award; and the absence of all of them renders any award suspect. It should be presumed a plaintiff has been made whole for his injuries by compensatory damages, so punitive damages should only be awarded if the defendant’s culpability, after having paid compensatory damages, is so reprehensible as to warrant the imposition of further sanctions to achieve punishment or deterrence. [Citation.]” (State Farm, supra, at p. 419.)
Appellants directly challenge only factors 1, 2 and 4. Thus, two factors are deemed established -- Omari’s financial vulnerability and intentional trickery or deceit. Appellants ask that we look to Simon, supra,35 Cal.4th 1159, for the proper perspective in this case. We note that in Simon, the Supreme Court found that although only one reprehensibility factor was present, it was enough to support an award of punitive damages. (See Simon, supra, 35 Cal.4th at pp. 1181, 1188.) As that factor was conduct amounting to trickery and deceit, as in this case, Simon’s perspective justifies an award of punitive damages in some amount.
In footnotes, appellants incorporate by reference their failed substantial evidence challenge to the fraud verdicts, and argue that Kindred had no knowledge of Omari’s financial vulnerability. Contentions in footnotes are forfeited as not properly raised. (See Santa Teresa Citizen Action Group v. State Energy Resources Conservation & Development Com., supra, 105 Cal.App.4th at p. 1451.)
We agree the first factor -- physical as opposed to economic harm -- is absent. (See State Farm, supra, 538 U.S. at p. 419.) The absence of a physical assault or physical injuries eliminates indifference to or reckless disregard of the physical safety of others. (See id. at p. 426.) However, the second factor does not involve physical health alone, and may consist of an assault on the peace of mind of the plaintiff, without regard to the effect on his or her mental health. (See Century Surety Co. v. Polisso (2006) 139 Cal.App.4th 922, 965.) Nevertheless, we agree that this factor is weak without a physical assault.
Appellants contend this was an isolated incident because it involved a single instance of “ending [an] at-will supply contract[] and returning (not stealing or even keeping) business equipment to one of [its] two owners. . . .” Appellants mischaracterize the jury’s findings. The jury found that this was not a simple breach of contract or negligent conversion. Duque’s intricate scheme set in motion a series of events which caused or enabled other officers to engage in tortious conduct which harmed respondents. Further, as each event unfolded, respondents’ loss became greater. There was McCurdy’s false promise to investigate Omari’s claim when she had already signed a contract with IHR and was committed to doing business with whoever could ensure the services of Damon; there was Browne’s decision to pay IHR’s invoices rather than Tartech’s; and there was Browne’s invitation to El-Abed to remove equipment despite his knowledge of Omari’s claim to the equipment.
As to the conversion count, the special verdict form asked: “Did Defendant(s) intentionally interfere with Tartech’s or Mr. Omari’s use or possession of [specified medical equipment] without Tartech’s or Omari’s consent?” The jury checked “Yes” beside the names of each of the three defendants: Duque, Kindred and El-Abed. (Appendix B, at p. 4.)
Appellants compare this case with Simon, supra,35 Cal.4th 1159, in which the California Supreme Court observed that deceptive conduct spanning several weeks could be characterized as more than a single isolated incident, but held that because all liability was based upon a single false promise or set of promises, it “fail[ed] to support a high assessment of reprehensibility.” (Id. at p. 1180.) As an example of fraud that was not an isolated incident, the court cited Johnson v. Ford Motor Co. (2005) 35 Cal.4th 1191 (Johnson), where the fraud was part of a repeated corporate practice. (Simon, at p. 1180; see Johnson,at p. 1196.) A repeated corporate practice shows recidivism, which is more reprehensible than an isolated incident. (State Farm, supra,538 U.S. at pp. 409-410.) Unlike Simon, this case involves more than a single false promise or set of false promises resulting in one loss. (See Simon, supra, 35 Cal.4th at pp.1166, 1180 [lost opportunity to purchase a commercial building].) Although the conduct was not a repeated corporate practice indicative of recidivism, Duque’s months-long fraudulent scheme ultimately resulted in the loss of money and equipment, the destruction of an established business, and Omari’s need for psychiatric treatment. (See State Farm, supra,538 U.S. at pp. 409-410.) We conclude that although this factor does not score high, as there was no recidivist behavior, it is entitled to some weight, as Duque’s fraud resulted in tortious conduct committed by more than one Kindred officer, resulting in significant loss.
Thus, four of the State Farm factors were present in varying degrees, justifying an award in some amount. (See Simon, supra, 35 Cal.4th at pp. 1181, 1188.) On the evidence presented at trial, the jury found that appellants’ officers fraudulently concealed material facts, while intentionally converting respondents’ equipment, thereby destroying the business of financially vulnerable plaintiffs. We independently conclude from such facts that appellants’ conduct was at least moderately reprehensible. Thus, we return to the guideposts for determining whether the amount of the punitive damage award comports with due process, considering “the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award. . . . [Citation.]” (State Farm, supra, 538 U.S. at p. 418; see BMW, supra, 517 U.S. at p. 575.)
Disparity Between Harm and Award
Appellants contend that in determining whether the disparity between the harm and the punitive damage award comports with due process, we should disregard all damages that can be attributable to fraud, because the fraud verdict was unsupported by substantial evidence, leaving “simply a breach of contract case” and “conversion, a strict liability tort.” As we have already rejected those contentions, we reject appellants’ suggestion that only a portion of the economic damages should be considered in this analysis.
Further, because it is appropriate to include both actual and potential harm in considering the disparity between the harm and the punitive damage award, we consider all the harm to respondents, not only the harm suffered while Duque was still employed by Kindred. (State Farm, supra, 538 U.S. at p. 418; BMW, supra, 517 U.S. at p. 575.) Potential harm includes “‘the harm likely to result from the defendant’s conduct as well as the harm that actually has occurred.’ [Citation.]” (TXO Production Corp. v. Alliance Resources Corp. (1993) 509 U.S. 443, 460, italics omitted.) A potential injury is one that was foreseeable. (Simon, supra, 35 Cal.4th at p. 1177.) The eventual total loss of Tartech’s receivables and equipment and Omari’s emotional distress were clearly foreseeable potential harms that not only could result from the fraudulent scheme set in motion while Duque was still an officer of Kindred, but which were the very result intended by Duque.
Appellants again invite a comparison to Simon, pointing out that the Supreme Court reduced the punitive damages award in that case from $1.7 million to $50,000. However, the court did not suggest that punitive damages for a single fraud should be no more than $50,000, as appellants’ argument suggests. Whether an award is excessive is measured not by the dollar figure, but by the ratio of punitive damages to compensatory damages, which should be a single digit, except in extraordinary cases. (See Simon, supra,35 Cal.4th at p. 1181.) In Simon, the court allowed a double digit ratio -- an award 10 times the compensatory damages -- due to the small size of the compensatory damages available, resulting in “[a] penalty of $50,000, though just exceeding the largest single-digit ratio amount, . . . not extraordinary for fraudulent conduct.” (Id. at p. 1189.)
In State Farm, the Supreme Court suggested that in comparing the ratio of punitive damages to compensatory damages, single-digit multipliers are more likely to comport with due process, while still achieving the state’s goals of deterrence and retribution. (State Farm, supra, 538 U.S. at pp. 424-425; BMW, supra, 517 U.S. at p. 582.) The court observed that it had previously “concluded that an award of more than four times the amount of compensatory damages might be close to the line of constitutional impropriety. [Citation.]” (State Farm, at p. 425, citing Pacific Mutual Life Insurance Co. v. Haslip (1991) 499 U.S. 1, 23-24.) However, the court also recognized “a long legislative history, dating back over 700 years and going forward to today, providing for sanctions of double, treble, or quadruple damages to deter and punish.” (State Farm, supra, at p. 425.) “The precise award in any case, of course, must be based upon the facts and circumstances of the defendant’s conduct and the harm to the plaintiff.” (Ibid.) In this case, as the punitive damage award was 1.6:1 -- less than twice the compensatory damage award -- no presumption of invalidity arises, and the inquiry becomes whether there are other circumstances peculiar to this case that make the award excessive. (See Simon, supra, 35 Cal.4th at pp. 1182-1183.)
The third State Farm guidepost -- a comparison of civil penalties authorized or imposed in comparable cases -- is less useful in a business fraud case, because common law tort duties do not compare easily with statutory duties carrying civil penalties. (Simon, supra, 35 Cal.4th at pp. 1183-1184.) There are, however, some civil statutes involving fraud that provide for treble damages. (See id. at p. 1184; e.g., Civ. Code, §§ 3345, 1947.10.)
Appellants contend that the emotional distress damages were duplicative of punitive damages. The Supreme Court warned in State Farm that a substantial award for emotional distress may have a punitive element, calling for a smaller ratio of punitive to compensatory damages. (State Farm, supra, 538 U.S. at p. 426.) Appellants suggest that State Farm held that all emotional distress damages are always duplicated in every punitive damage award. We disagree. The court made clear that the degree of duplication depends upon the facts and circumstances of the individual case. (See id. at pp. 426-427.) The court found duplication in that case, because the ratio of punitive to compensatory damages was very high -- 145:1 -- and the emotional distress award was high -- $1 million -- even though there was no physical assault or trauma, no physical injuries, and the defendant paid the excess verdict before the complaint was filed. (Id. at p. 426.) The low ratio in this case does not suggest duplication, but the emotional distress award was substantial. Assuming arguendo that the entire $500,000 in emotional distress damages was duplicative, eliminating it from the compensatory column and adding it to the punitive column results in a ratio of 2.7:1 -- a great deal less than the 4:1 ratio which might be “close to the line of constitutional impropriety. [Citation.]” (Id. at p. 425.)
We independently find that under the circumstances of this case, a ratio of 1.6:1 comports with due process, and a ratio of 2.7:1 is not so grossly disproportionate as to violate due process. We conclude, therefore, that the amount of the punitive damage award was not unconstitutionally excessive. (See State Farm, supra, 538 U.S. at pp. 416-417.)
Appellants contend the ratio was 10:1, because the compensatory damages awarded were excessive. As we have already rejected appellants’ challenge to the compensatory damages award, we reject their computation of the ratio, as well.
9. Punitive Damages -- Wealth
Although appellants stipulated that the net worth of the “Kindred” was $1.4 billion at the time of trial, they contend that respondents failed to meet their burden to show appellants’ financial condition. Because a punitive damage award must be proportionate to the defendant’s ability to pay, it is the plaintiff’s burden to produce evidence of the defendant’s financial condition at trial. (Adams v. Murakami (1991) 54 Cal.3d 105, 117-119.) Wealth is relevant for the additional reason that in California, “the wealthier the wrongdoing defendant, the larger the award of exemplary damages need be in order to accomplish the statutory objective” of making an example of the defendant and punishing him. (Bertero v. National General Corp. (1974) 13 Cal.3d 43, 65; Civ. Code, § 3294, subd. (a).)
“‘[T]he wealth of a defendant cannot justify an otherwise unconstitutional punitive damages award’ [or] replace reprehensibility as a constraining principle. [Citation.]” (Simon, supra, 35 Cal.4th at p. 1186, quoting State Farm, supra, 538 U.S. at pp. 427-428.) However, “the guideposts were not intended ‘to prevent juries from levying awards that serve important state interests and provide a meaningful deterrent against corporate misconduct.’ [Citation.]” (Simon, supra, at p. 1186.)
Appellants provide few facts relating to their contention that respondents failed to meet their burden to show appellants’ financial condition, and their summary of those facts serves to confuse, not clarify the issues. We therefore provide our own summary of the proceedings relating to appellants’ financial condition.
Following the initial verdicts, prior to trial on the issue of punitive damages, counsel engaged in a sidebar conversation regarding an unnamed witness, apparently the person most knowledgeable (PMK) regarding appellants’ financial condition, who was to be produced in compliance with respondents’ notice to appear. The witness had not yet arrived, so respondents’ counsel, Mr. George, asked for a stipulation to a net worth of $700 million, to which appellants’ counsel, Mr. Papenfuss replied, “It is on the Web site. . . . If they put it on the Web site, it has got to be right.” Later, apparently opposing George’s request for a brief continuance to call an accountant, Papenfuss stated: “We have a stipulation as to net worth. What more is he going to say? That it is worth more than a billion 4?”
Code of Civil Procedure section 1987, subdivision (c), provides that a notice served pursuant to that statute is the equivalent of a subpoena.
Counsel was referring to the Web site belonging to Kindred Healthcare, Inc.
Mostafa Darvish, the CEO of Kindred Los Angeles, appeared as Kindred’s PMK in response to respondents’ notice to produce “PMK Re: Financial Condition of all Kindred Defendants for the purpose of assessing punitive damages.” Initially, he claimed to be prepared to testify regarding the financial status of one hospital, but not regarding Kindred as a whole or “Kindred Healthcare.” He testified that “Kindred” was a mother company, and there were several other entities involved, but he did not elaborate. He admitted having been designated as the corporate representative March 8, 2005 (two weeks before), but said he was told only that morning to provide financial statements and profit and loss statements. He brought no statements for Kindred Los Angeles, any other hospital or the corporation, and the only document he brought was one taken off the Web site.
When George began to question Darvish about his failure to bring documents, Papenfuss objected, stating: “We have stipulated as to the net worth. That is why I didn’t bring anything . . . . You got the net worth in already. What is he going to add to it?” Darvish eventually admitted he had brought no evidence of the net worth of any individual hospital and that he did not know the net worth of any hospital. The Web site printout was entered into evidence upon appellants’ stipulation.
In closing argument, respondents’ counsel asserted that Kindred’s revenue for 2004 was $900 million, and suggested a punitive award of 1/52 of that amount, or $17.36 million. Appellants’ counsel in turn admitted the financial facts in the Web site printout, stating: “We didn’t bring a whole lot of financial documents because when we went into judge’s chambers and came up with the website, I said that is fine. . . . I didn’t make him lay a foundation for those numbers. You are certainly welcome to look at them.” Appellants’ counsel did not argue that Kindred’s financial condition had not been shown or that the $1.4 billion net worth was irrelevant. Indeed, counsel conceded the relevance of the stipulation, arguing: “What is going to happen here is there is [sic] 85 million shareholders out here that own this company. That is who will be hurt if you give a large punitive damage in this case.” Instead, counsel argued that “Kindred” should not be assessed punitive damages because its officers had merely made mistakes, and their conduct was not reprehensible.
Appellants claim that the punitive award was improperly based upon stock price. Although the Web site printout discusses stock price, respondents did not advance it as a basis for determining the amount of the award. Appellants also complain that the trial court did not define “net worth” for the jury, thus allowing respondents’ counsel to argue it meant whatever he wanted it to mean. As appellants did not request an instruction defining “net worth,” they may not now complain of its absence. (See Tabata v. Murane (1944) 24 Cal.2d 221, 228.) In general, the trial court has no duty to instruct on its own motion in civil cases. (Finn v. G. D. Searle & Co. (1984) 35 Cal.3d 691, 701.)
Appellants contend that respondents improperly attempted to shift their burden to prove wealth to appellants. However, they admit on appeal they were required to produce a witness who was the “PMK Re: Financial Condition of all Kindred Defendants for the purpose of assessing punitive damages.” Darvish did not meet this description and provided no financial information about any Kindred entity. Appellants produced no other witness in compliance with respondents’ notice to appear and now contend that the notice was directed to the wrong person. However, the notice did not specifically name Darvish and was sufficiently broad to require the appearance of a person knowledgeable about the financial condition of all Kindred defendants, not just Kindred Los Angeles. Respondents did not fail to subpoena the right witness; appellants failed to produce the right witness.
Appellants originally designated corporate counsel L. Jay Gilbert as their PMK. However, after being advised that if Gilbert flew out from corporate headquarters in Louisville, respondents would call him as a witness in the liability phase, appellants designated Darvish as their PMK.
Respondents contend that appellants failed to obey the court’s order to produce documents showing appellants’ financial condition, thus forfeiting any claim that wealth was not shown by substantial evidence. (See Mike Davidov Co. v. Issod (2000) 78 Cal.App.4th 597, 609; StreetScenes v. ITC Entertainment Group, Inc. (2002) 103 Cal.App.4th 233, 243-244.) Appellants counter that they were not required to produce financial documents, because the notice to appear did not require it, and the record contains no court order. Although the notice to appear does not require the production of documents, Darvish admitted that the court ordered him to be present and testified that he was asked to bring financial records. In her order denying appellants’ motions for judgment notwithstanding the verdict and new trial, the trial judge noted that appellants had failed “to provide financial data ordered by the Court and [failed] to provide the PMK or documents regarding its financial condition. . . .” Regardless of whether appellants were required to bring financial documents, it is clear they were required to bring financial data, at least in the form of knowledgeable testimony. They did neither.
Appellants also contend that although they stipulated to Kindred’s financial condition, they should not be held to it, because public policy prohibits waiver of the plaintiff’s burden to produce evidence of wealth, and because the stipulation pertained to the parent corporation, which was not a named party to the action. As support for both contentions, appellants cite Tomaselli, supra, 25 Cal.App.4th 1269. In Tomaselli, the plaintiff produced evidence of the wealth of the defendant’s parent corporation, which was not a party to the action, but no evidence relating to the financial condition of the defendant subsidiary. (See id. at pp. 1282-1283.) The appellate court held that the defendant’s failure to object to the evidence as irrelevant was not a waiver of the plaintiff’s failure to produce evidence of defendant’s wealth. (Id. at p. 1283.) Convinced by recent authority “that this is a requirement imposed as a matter of public policy and hence not subject to waiver by the failure of an inattentive defendant to object or otherwise call attention to the inadequacy of plaintiff’s proof,” the court held: “Because of the public’s interest in meaningful scrutiny of punitive damage awards, a private litigant cannot by inaction waive the requirement of financial data as a prerequisite to any award.” (Id. at pp. 1282, 1284, italics added.)
There has been no suggestion here that appellants forfeited anything as the result of inaction, as in Tomaselli, where there was no stipulation either agreeing or implying that evidence of the parent was sufficient. (Tomaselli, supra, 25 Cal.App.4th at p. 1283, fn. 11.) Moreover, Tomaselli is inapplicable, regardless of whether appellants’ stipulation relieved respondents of their burden to produce evidence of wealth, because there is no suggestion in Tomaselli that the defendant prevented the plaintiffs from meeting their burden, as appellants did here. Appellants failed to produce a PMK or financial records, and stipulated to the wealth of “Kindred.” Appellants did not suggest to respondents or the court that they were stipulating to the wealth of a separate nonparty entity. Indeed, at no time prior to verdict did appellants suggest that the corporation on the Web site, Kindred Healthcare, Inc., was a legal entity separate from the named Kindred entities. By their affirmative conduct, appellants have forfeited their contention that respondents failed to meet their burden to produce evidence of wealth. (See Mike Davidov Co. v. Issod, supra, 78 Cal.App.4th at p. 609.)
Such conduct approaches a fraud on the court. (Cf. Carr v. Barnabey’s Hotel Corp. (1994) 23 Cal.App.4th 14, 20-21 [defendant knew from the inception of the litigation it had been sued under the wrong name, but said nothing about the mistake in any deposition, motion, or other proceeding].) We note that appellants do not challenge the trial court’s discretion in rejecting their proffer of evidence of corporate structure after judgment had been entered, because the information “was never raised before or during the trial and indeed is contrary to [appellants’] theory of the case and the strategy that it employed throughout the litigation and trial of the case.”
DISPOSITION
The judgment is affirmed. Respondents shall recover their costs on appeal.
We concur: EPSTEIN, P. J., SUZUKAWA, J.
APPENDIX A
APPENDIX B
Mohamed Norry, a former Tartech employee who was later employed by IHR, testified that El-Abed told him Duque would be a secret partner and 50 percent owner of IHR. He also testified that the computer equipment was installed in Duque’s home so that she could network with IHR while still employed by Kindred.
Cheryl Tanzmeister, an employee in Browne’s department, testified that when El-Abed told her there had been a name change, she informed Duque; Duque then confirmed that IHR was the company’s new name, and that she had approved the processing of the new contract.
The trial court instructed in general terms as to the meaning of malice, fraud, oppression and despicable, by referring to “a defendant’s” conduct. (Italics added.) Moreover, the special verdicts asked whether there was clear and convincing evidence of “fraud, oppression, malice or despicable conduct by an officer or managing agent of Kindred,” not simply by Duque. (Italics added.) There was no need to instruct the jury that it must find Narbutas, McCurdy, or Browne to have been officers or managing agents, because appellants had so stipulated, and there was no relevance to such a stipulation other than as a predicate for punitive damages based on those officers’ conduct. At most, the instruction cited by appellants created an ambiguity in the instructions and special verdicts, about which they may not complain for the first time on appeal. (See Fuller-Austin Insulation Co. v. Highlands Ins. Co. (2006) 135 Cal.App.4th 958, 1005.)