Opinion
H037791
01-14-2016
GOLDSMITH SEEDS, Plaintiff and Appellant, v. GREAT AMERICAN INSURANCE COMPANY, Defendant and Appellant.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Santa Clara County Super. Ct. No. 1-08-CV-120930)
Plaintiff Goldsmith Seeds appeals from a judgment entered in favor of defendant Great American Insurance Company in this dispute about excess liability insurance. Goldsmith contends that (1) rescission of the policy was barred by the statute of limitations and by the doctrine of unclean hands; (2) the trial court erred when it "disregarded the jury's factual findings" and rescinded the policy; (3) the trial court erred in failing to order Great American to pay interest on the premium it ordered Great American to refund to Goldsmith; and (4) the trial court abused its discretion in denying Goldsmith's motion to strike or tax certain costs. We affirm.
Because we affirm the judgment (and as Great American acknowledges), we need not reach the issues raised in its cross-appeal. We dismiss the cross-appeal as moot.
I. Factual Background
Goldsmith develops new varieties of flowers and produces seed and plant cuttings. In 2003, it had operations in Kenya and Guatemala that produced geranium cuttings. Goldsmith sold the cuttings to plant brokers, who imported them into the United States and sold them to commercial growers and rooting stations.
Goldsmith Seeds was a flower seeds company. It was at the top of the Goldsmith hierarchy, which in 2003 had "seven subsidiaries all over the world." Goldsmith Plants was a subsidiary that cultivated cuttings of geraniums and other plants that were not reproducible by seed. The Goldsmith companies were sold to Syngenta AG in 2008. The parties refer to all entities collectively as "Goldsmith." We shall do the same.
Ralstonia solanacearum is a plant pathogen that is lethal to geraniums. Some strains are endemic to the United States but the strain at issue in this case, race 3, biovar 2 (R3b2) is not. R3b2 is of major concern to the United States Department of Agriculture (USDA) because it is deadly to potato crops. In 2002, the USDA placed R3b2 on its bioterrorism watchlist pursuant to regulations implementing the Agricultural Bioterrorism Protection Act of 2002 (7 U.S.C.A. § 8401 et seq.).
In January 2003, Goldsmith had an outbreak of Ralstonia at its Kenya facilities. Indiana grower Hood's Gardens was the first to complain about plants exhibiting the wilting that is indicative of Ralstonia. Goldsmith sent samples of diseased plants to the USDA for testing. On February 12, 2003, the USDA confirmed that the strain was R3b2. It immediately halted all geranium shipments from Kenya. It quarantined "around a thousand" United States greenhouses "that might have received any material that could have become affected" by R3b2. (Italics added.) It ordered the destruction of diseased plants and all plants and materials within a specified vicinity of the diseased plants. Growers' losses included "the soil, the pots . . . , any fertilizers or sprays that would have been on those plants, the costs of destruction . . . ." Growers "had to in some cases . . . have them incinerated . . . . They had to then go in and sanitize those greenhouses . . . ."
Goldsmith was soon inundated with claims. On February 24, 2003, a lawyer representing an Indiana grower wrote Goldsmith that compliance with the USDA's directives "appear likely to cause my clients tens of thousands of dollars in lost product and similar costs for the remediation . . . . [¶] Please . . . inform your own insurers of our claims for damages associated with the delivery of the contaminated geraniums." On February 25, 2003, another grower wrote to Goldsmith that "[w]hile it is unfortunate that . . . no more than a few thousand of your cuttings caused this problem, it is clear that this has caused a major disruption to many of our customer's [sic] businesses." "Clearly, many of these claims will be for more than just the geranium . . . cost." Goldsmith ultimately paid almost $4 million to resolve growers' claims for losses resulting from the Kenya outbreak.
In early 2003, Goldsmith learned that its excess carrier Zurich was not interested in renewing Goldsmith's policy, which would expire on April 1, 2003. Goldsmith instructed its broker to obtain a replacement policy before that date. Stephen Hussar, a partner with Voorhies, Parrish & Hussar, prepared a standard ACORD application and sent it to surplus lines brokers Bliss & Glennon, who faxed it to Great American underwriter Linda Bolds on March 7, 2003. The application was unsigned, as "the vast majority" are.
The ACORD form includes a "LOSS HISTORY" section, which asks the applicant to "enter all claims or losses (regardless of fault and whether or not insured) or occurrences that may give rise to claims for the prior 5 years (3 years in KS & NY)." (Capitalization omitted.) Two boxes to the right of the question state "Chk here if none" and "See attached loss summary." Below that are spaces for "Date of Occurrence," "Line," "Type/Description of Occurrence or Claim," "Date of Claim," "Amount Paid," "Amount Reserved," and "Claim Status." Below that is a section for "Remarks." (Capitalization omitted.)
The ACORD form also contains an "UMBRELLA SECTION." A space entitled "Previous Experience" asks the applicant to "give details of all liability claims exceeding $10,000 or occurrences that may give rise to claims during the past 5 years, whether insured or not. Specify date of coverage, description, amount paid, amount outstanding." (Capitalization omitted.) A box at the bottom states "NO SUCH CLAIMS."
The loss history section of the application that Bolds received on March 7, 2003 contained an X in the "See attached loss summary" box, but the loss summaries were not attached. (Capitalization omitted.) The other spaces in the loss history section were blank. The umbrella section of the ACORD form was also blank. Bolds requested the missing loss summaries, which Bliss & Glennon provided on March 28, 2003. Bolds also received answers to her inquiries (among others) about Goldsmith's daycare center and about hormones in the company's animal feed seed. The application that Bolds received did not mention the Kenya outbreak or R3b2. No one told her about Goldsmith's bioterrorism problem during the application process.
Bolds reviewed the loss runs, which together with the absence of other information in the "Loss History" and "Umbrella" sections of the application led her to conclude that Goldsmith had an "excellent loss history." (Capitalization omitted.) She agreed to bind coverage on March 31, 2003. She received a signed application, backdated March 31, 2003, on April 4, 2003. The signed application did not mention the Kenya outbreak or R3b2. Bolds did not learn about the Kenya outbreak until Goldsmith filed this lawsuit against Great American.
Goldsmith was still dealing with the Kenya outbreak when it had another R3b2 outbreak in December 2003, this time at its Guatemala facilities. As before, the USDA ordered the destruction of diseased plants and all plants and materials within a specified vicinity of the infected plants. Growers made claims for losses resulting from the Guatemala outbreak, and Goldsmith paid approximately $3.5 million to resolve those claims.
On February 26, 2004, Goldsmith's counsel Randall Creech sought coverage for claims resulting from the Guatemala outbreak. Ellen Forte Biondo, a senior vice president in Great American's excess liability division, handled the claim. She set up a file and began her investigation. She found mention of the Kenya outbreak on the USDA Web site and in an April 16, 2003 article in the Gilroy Dispatch, which reported that Goldsmith might be liable for $7 million in losses. The Gilroy Dispatch article reported that the problem started in January 2003, which Biondo noted was "before Great American's policy went into effect."
Joel Goldsmith, the president of Goldsmith Seeds, testified that he did not believe the company's insurance covered growers' losses resulting from the Kenya outbreak. In April 2003, he ran into Hussar at a Rotary lunch, and Hussar explained that the policy's product liability coverage applied because Goldsmith's product caused harm to others' property. Hussar submitted a claim to Zurich on April 8, 2003. Zurich ultimately reimbursed about $3 million in claims for the Kenya outbreak.
Great American attempted to discover what Goldsmith knew about the Kenya outbreak when it applied for the policy. In January 2004, Creech wrote that his investigation indicated "that no claims have been made nor losses incurred as of the time my client prepared its application . . . ." Creech insisted that Goldsmith "was as much in the dark about the situation as everyone else was when it prepared its application for excess coverage." As Biondo later testified, Great American sent Goldsmith "maybe half a dozen or more letters asking them for what information they knew, what documents they had, to support the view that they were telling us, which was that they weren't aware of any claims." What Goldsmith was telling Great American "didn't make a lot of sense based upon the newspaper article . . . ." As late as January 2008, Creech continued to insist that "at the time the insurance application was submitted, all of Goldsmith's actions were consistent with their nonrecognition of any significant issue." Biondo explained that "[a]t first he said there were no claims and then, at some point, it was that Goldsmith didn't recognize that they had any significant claim. Then he said that, you know, one of the reporters in one of the articles, he had no idea where he had gotten his information from."
Great American formally denied coverage on March 21, 2008, citing (among other reasons) Goldsmith's failure to disclose the Kenya outbreak in connection with its application for insurance.
II. Procedural Background
Goldsmith filed suit in August 2008, alleging breach of contract, bad faith, and negligence. Great American generally denied the allegations and asserted various affirmative defenses, including a second affirmative defense of "Non-disclosure, Concealment and/or Misrepresentation of Material Facts." That defense alleged that "Goldsmith's claims are barred because facts that were known to the insured and were material to the risk insured by Great American were omitted, not disclosed, concealed and/or misrepresented in connection with the application for insurance with Great American."
Goldsmith moved for summary adjudication in November 2010, asserting among other things that Great American's second affirmative defense lacked merit. The trial court denied the motion. The court rejected Goldsmith's argument that rescission was Great American's only remedy for Goldsmith's alleged nondisclosure of a material fact. "[I]n an appropriate case, the insurer may retain the premium and . . . reform the policy to exclude a risk that the insured concealed in the insurance application." The court also rejected Goldsmith's argument that the statute of limitations barred Great American from seeking to rescind the policy.
Great American filed a competing motion for summary judgment or summary adjudication, arguing among other things that Goldsmith's failure to disclose material information in its application was a complete defense to its breach of contract cause of action. The court denied the motion, citing Great American's failure to present evidence that if Goldsmith had disclosed the Kenya outbreak, Great American would have issued a policy that excluded coverage for subsequent bacterial outbreaks. The court explained that on the evidence presented, Great American could not "keep the premium and avoid coverage. At best, this evidence might entitle Great American to avoid coverage by returning the premium and, in effect, rescind[ing] the policy." The court denied Great American's motion for reconsideration but clarified its earlier order. The court agreed that Great American's evidence that it would not have issued a policy had it known the undisclosed facts established that those facts were material. But that evidence "also raise[d] legal and factual issues as to whether . . . Great American can avoid liability for a claim that is plainly covered by the policy without offering to return the premium." The court also ruled that although Great American's second affirmative defense did not give adequate notice that it sought rescission, "if Great American wishes to amend its answer to seek such relief, it should be permitted to do so."
In January 2011, Great American moved to amend its answer to add rescission and other equitable remedies to its second affirmative defense. Goldsmith orally objected that allowing Great American to do so "would take away" Goldsmith's defense that rescission was untimely under Insurance Code section 650. The trial court granted Great American's motion. As pleaded in Great American's amended answer, the defense alleged that "Goldsmith's claims are barred because facts that were known to the insured and were material to the risk insured by Great American were omitted, not disclosed, concealed and/or misrepresented in connection with the application for insurance with Great American. Based on this omission, non-disclosure, concealment and/or misrepresentation, the policy issued by Great American is void, voidable, invalid, invalidated, and/or subject to rescission or reformation and/or any other remedy (at law or equity) that precludes recovery under the policy."
Great American moved pursuant to Code of Civil Procedure section 597 to have its rescission defense tried first to the court, arguing that equitable claims are properly tried first and that a favorable ruling would dispose of the entire case. Goldsmith opposed the motion, arguing at the hearing that a ruling in Great American's favor would not be dispositive and that the "merits" of each case were "absolutely intertwined" because "the same set of witnesses" would testify in each phase. The court responded, "[C]ould be, but it's an equitable issue which I need to decide either beforehand or after a jury trial . . . ." The court explained that the equitable issue could be tried to an advisory jury. "I have that discretion. I can take everything to the jury and let them fact-find and I can decide the equitable issue afterwards. They find the facts. I'll accept them or not and order rescission. I'm just not sure it makes sense to go through a couple of weeks of jury trial when it seems to me to be a case that could be tried in two days on a rescission issue. . . . What's it going to be? It's going to be Miss Bolds, basically."
Subsequent statutory references are to the Code of Civil Procedure unless otherwise noted.
After supplemental briefing and a hearing on what issues might survive a grant of rescission, the court denied Goldsmith's motion to try the equitable issue first. The case proceeded to trial.
Goldsmith called Great American underwriting specialist Linda Bolds as an adverse witness. Bolds had more than 20 years of experience underwriting commercial policies for agricultural accounts. She testified that she would not have issued the policy had she known about the Kenya outbreak because Great American had "no interest in providing coverage for accounts that have the combination of both loss severity and loss frequency." Loss severity means the typical loss is "very substantial . . . ." "Great American considers any loss in excess of [$]50,000 large." The loss reported by Hood's Gardens was "[e]ight times" that. Bolds explained that loss frequency means many claims in a policy period. More than 800 greenhouses were affected by the Kenya outbreak, "which means [that] multiple claims . . . are going to be generated . . . ." Bolds had reviewed "thousands" of agricultural applications over the course of her career and had never had an applicant fail to disclose such "critical" information. The Kenya outbreak should have been disclosed because the question on the application expressly asked for loss history information.
Bolds explained the difference between "loss history" and "loss runs" (or loss summaries). "Loss history" means (as the question on the application states) "all claims or losses (regardless of fault and whether or not insured) or occurrences that may give rise to claims for the prior 5 years." (Capitalization omitted.) By contrast, "loss runs" list only those claims that were turned in to an applicant's carriers. "The loss runs can make up portions of the loss history." "It can be a portion or it can be the whole entire loss history. It depends on the account." Bolds testified that the "[m]ajority of the time, in my experience as an underwriter, the loss runs are indicative of the loss history because there is nothing else to report." (Italics added.) If the loss runs do not give a complete picture of the loss history, brokers provide the additional information on the application. Bolds gave an example where a broker representing a multi-hotel account provided the loss runs and then indicated in the loss history section of the form that a guest at one of the hotels had recently jumped into the shallow end of a hotel pool and sustained severe head injuries.
Bolds considered an applicant's answer to the loss history question "vital" to her analysis of any account. "I have to have a complete picture of the insured's loss history to make an intelligent decision" whether to issue a policy. When she saw the X in the "See attached loss summary" box in the loss history section of Goldsmith's application, she believed "[t]hat X . . . meant that the information supplied to me was going to be an answer to the question on which I relied." "I relied on the information that the broker gave me. It was loss runs, therefore I relied on the information. That's all there was to report. There was nothing else. There was no report of incidents, the insured didn't know about any incidents, he didn't know about any occurrence that could rise [sic] to the claim. She gave me the loss runs, I relied upon them as to the loss history. I didn't know anything about any of this stuff. So I relied upon them as the complete loss history of this insured." "[T]here was nothing to indicate to me . . . there was [anything] other than the loss runs that compiled the loss history. There [were] no red flags telling me that there was an incident or an occurrence that happened before I got this submission . . . . [T]here was nothing telling me -- to doubt what they sent me as loss runs would be the complete loss history. There was absolutely no reason why I would doubt what the broker gave me as loss history."
Goldsmith's broker Hussar testified that his office put the March 6, 2003 application together. He explained that his firm "had been the brokers on this account for 30 years, so we had all the loss history that was known. . . . Carriers will [not] proceed . . . without . . . prior carrier loss history, so we had to do that." Hussar prepared the application "from our knowledge of the account." He was not aware of any occurrences or unreported claims when he did so. He was not aware of the Kenya outbreak.
Jay Smith was Goldsmith's controller in 2003. It was his responsibility to obtain and renew insurance for the company. He did not see the March 6, 2003 application that Hussar prepared. In the last week of March, Smith learned that Great American would issue an excess policy, that an application was being prepared, and that he would have to sign it. When Hussar brought the application to him on March 31, Smith "scanned it quickly." He asked Hussar if there was anything to be concerned about and was told that there was not. Smith signed the application.
Smith was aware of the Kenya outbreak during the application process because he was involved with documenting claims. Based on what he understood and on "the breadth of the situation with the U.S. government," Smith "knew that probably it wasn't over and there were going to be more . . . ." He testified that he "was not asked the question" about Goldsmith's loss history. He did not tell Hussar about the Kenya outbreak.
Richard Goldsmith was the president of Goldsmith Plants in 2003. During the Kenya outbreak, he was "sort of on the fire. I was the one . . . contacted by the press." He was the one contacting growers and brokers and setting up meetings in Washington, D.C. He was aware of the settlements that Goldsmith paid to resolve growers' claims. He received "a few letters from lawyers" but did not tell Jay Smith or Goldsmith's brokers about those claims.
Joel Goldsmith was the president of Goldsmith Seeds in 2003. He was "very much" aware of both R3b2 outbreaks. He learned about the Kenya outbreak from his brother Richard in January 2003. He knew by March 31 that Goldsmith had paid some claims. He did not report those claims to Goldsmith's brokers or to its insurance carriers. He admitted that Creech's statement that no claims had been made nor losses incurred as of the time that Goldsmith prepared the application was not true.
Donald Roinestad testified for Goldsmith as an expert on "industry standards" in underwriting commercial excess liability policies. According to Roinestad, it is consistent with industry standards to provide only loss runs in response to the loss history question on the ACORD application.
On cross-examination, Roinestad acknowledged that he had spent 25 years at a single insurance company that wrote commercial general liability policies. He had no experience underwriting agricultural companies. He conceded that each company has its own idiosyncrasies and differences. He explained that he was not offering an opinion on how many or what percentage of companies would do something a particular way. He agreed that an insurance company can rely on the information that an applicant provides in its application. He also agreed that good faith "runs both ways."
The defense case focused on what Goldsmith knew about the Kenya outbreak during the application process. Donald Snow was the production manager at Goldsmith Plants. He knew in 2002 that R3b2 was on the USDA's bioterrorism list. He went to Kenya in early 2003 after learning about the Ralstonia issues there. He went to Washington, D.C. in February 2003 after the USDA confirmed that the Kenya outbreak involved R3b2. Snow worked closely with USDA officials. He received e-mails about claims commercial growers were making. He knew in March 2003 that Goldsmith's R3b2 problem was "very serious" and threatened the existence of the company. He did not know that Goldsmith was applying for excess insurance in February and March 2003. He did not suggest that management make an insurance claim in connection with the Kenya outbreak because "[i]t's not my job."
Snow worked closely with Linda L. Schmale-Tate, a lobbyist for the Society of American Florists who was trying to obtain funding to compensate growers affected by the quarantine. On March 17, 2003, Snow wrote Senator Barbara Boxer to emphasize the magnitude of the problem. "We are currently experiencing the most difficult situation that any such company has ever suffered in the history of bedding plant production. At this time, we have about 850 commercial greenhouse growers across the United States that have had either part or all of their crops quarantined . . . . [¶] . . . [¶] These customers are now at the point where their entire crops are becoming not saleable . . . . This will put us in the position of having to pay for their entire crop . . . . [¶] With so many growers involved, we will probably not be able to pay on all these claims and remain in business."
Snow kept contemporaneous written notes of his activities during the Kenya outbreak. Goldsmith's lawyers never asked for them. Snow "volunteered" them several months before his 2011 deposition.
Great America recalled Jay Smith, who admitted that he knew in 2004 and thereafter that Great American wanted documents from Goldsmith's files showing what Goldsmith knew about the Kenya outbreak. He admitted that Creech never provided any documents to Great American during its investigation of the claim. He admitted that no one offered to produce Snow's handwritten notes. Smith said that Creech "did his share of mischaracterizations and miscommunications."
After the close of evidence, the court heard various motions that had been proffered at the close of Goldsmith's case but deferred. These included Great American's renewed motion to have the court decide the rescission issue before it submitted legal issues to the jury. Great American argued that it was appropriate for the court to exercise its equitable powers "now . . . at the end of the case . . . now that all of the evidence is before you."
Among other rulings, the court granted Great American's motion for a directed verdict on Goldsmith's negligence cause of action
Goldsmith argued in opposition that the jury was the proper fact finder because there were "very serious factual question[s]" about materiality and "whether or not the application has essentially been rewritten by industry standards to not call for providing a loss history, but rather to call for providing loss runs." Goldsmith argued that the uncontroverted evidence showed that Bolds "made no efforts" to verify her "assumption" that Goldsmith had provided a full answer to the loss history question on the application. The court interjected, "How could you argue . . . that . . . a multi-million-dollar potential claim would not be material to an insurance carrier? Even your expert would probably agree to that." "Isn't there some responsibility on the part of the insured and the broker to provide information at least on major situations?" After further argument, the court stated, "Okay. I hear your argument. I don't think I buy it."
After the matter was submitted, the court told the parties, "The only issue I see here frankly . . . is whether I let the jury decide several factual questions. And even if they decided factual questions, if they find (A) and I think they're way off base, then --"
There were several jury instruction conferences. When the instructions were finalized, the court told the parties, "We need to do the verdict form, but just so that we're clear, the jury will be making decisions. The rescission issue is mine. I've heard all the evidence. The jury is going to give us some help on findings, but I assume everyone agrees its mine." Over Goldsmith's objection, the court told the parties, "It's an equity issue I need to decide based on the facts that I have." The court further advised the parties that it would not decide the rescission issue immediately after the jury returned its verdicts but would instead set the second phase of the trial for a later date.
The "Special Verdict Form" contained four questions under the heading "Breach of Contractual Duty" and three questions under the heading "Breach of the Implied Covenant of Good Faith and Fair Dealing." It also included advisory questions under the heading "Factual Issues Re Great American Insurance Company's Affirmative Defense." During preparation of the form and in its statement of decision, the trial court described the first advisory question as "a question asking generally about Great American's equitable defense." It was followed by four "specific" subquestions numbered 1(a) through 1(d). Goldsmith argued that the subquestions were "unnecessary" and did not advance the jury's task of finding the facts necessary to resolve the case. The court responded, "I think it advances my task."
The jury began its deliberations and returned its special verdicts the next day. Its responses were as follows:
"Factual Issues Re Great American Insurance Company's Affirmative Defense
"1. Did Great American prove that Goldsmith Seeds did not disclose, misrepresented, or concealed material facts in connection with its application for insurance? [¶] No.
"If your answer to question number 1 is yes, stop here . . . ; if you answered no, answer questions 1(a), 1(b), 1(c), and 1(d).
"1(a) Did Great American prove that before March 31, 2003, Goldsmith had received claims (regardless of fault or whether or not insured) from the Ralstonia Race 3 Disease Outbreak? [¶] Yes.
"1(b) Did Great American prove that before March 31, 2003, Goldsmith was aware that the Ralstonia Race 3 Disease Outbreak may give rise to claims? [¶] Yes.
"1(c) Did Great American prove that Goldsmith did not disclose this information to Great American before March 31, 2003? [¶] Yes.
"1(d) Did Great American prove that, had Goldsmith disclosed facts regarding the Ralstonia Race 3 Disease Outbreak before March 31, 2003, such information would have reasonably and probably influenced Great American's decision to insure Goldsmith? [¶] "Yes.
"Go to Question 2.
"Breach of Contractual Duty
"2. Did Goldsmith prove that it suffered a 'loss' as that term is defined in the Great American Insurance Policy? [¶] Yes.
"If your answer to question number 2 is no, stop here . . . ; if you answered yes, go to question 3.
"3. Did Great American prove that coverage for Goldsmith's claim was barred by an affirmative defense? [¶] No.
"If your answer to question number 3 is yes, stop here . . . ; if you answered no, go to question 4.
"4. What is the amount of policy benefits, if any, that Great American failed to pay Goldsmith? $2,480,509.04 [¶] . . . [¶]
"Go to question 5.
"Breach of the Implied Covenant of Good Fai[th] and Fair Dealing
5. Did Goldsmith prove that Great American owed benefits to Goldsmith under the insurance policy? [¶] Yes.
"If your answer to question 5 is yes, go to question 6. If you answer [to] question 5 is no, stop here . . . .
"6. Did Goldsmith prove that Great American unreasonably or without proper cause failed to pay Goldsmith for benefits under the insurance policy? [¶] Yes.
"If you answered yes to question 6, go to question 7. If you answered [no to] question 6, stop here . . . .
"7. Did Goldsmith prove that Great American's failure to pay benefits under the insurance policy was a substantial factor in causing Goldsmith harm? [¶] No."
In March 2011, the trial court requested additional briefing on rescission issues. It conducted the second phase of the trial on May 17, 2011. Great American argued that the court was obligated to make its own independent findings of fact on the rescission issue and that the advisory jury in fact found in its favor. "[T]he four specific advisory findings, 1(a) through 1(d) are fully supported by the evidence. They are all the elements that Great American needs to prove its rescission case."
Goldsmith reasserted its statute of limitations argument. It argued further that rescission was not an equitable issue "under the facts of this case," that "[t]he jury in this case was not advisory," and that the jury's responses to special verdict questions 1 and 3 were binding on the court.
The court decided the rescission issue in Great American's favor. It rescinded the policy ab initio and ordered Great American to refund Goldsmith's $41,158 premium. The court ruled that Goldsmith should take nothing on its complaint because there can be no breach of or recovery under a rescinded contract. The court declared that Great American was entitled as the prevailing party to recover its costs.
On February 10, 2012, the court heard argument on Goldsmith's motion to tax costs claimed by Great American. The court disallowed $36,247.74 in costs and allowed "[a]ll other expenses . . . as authorized by Code." The court entered judgment for Great American, and Goldsmith filed a timely notice of appeal.
III. Discussion
A. Statute of Limitations
Goldsmith challenges the trial court's denial of its motion for a directed verdict that Great American's rescission defense was barred by the statute of limitations. Goldsmith argues that the statute of limitations applied because rescission is a form of affirmative relief. We disagree.
Our review is de novo. " ' "It is a question of law whether a case or a portion of a case is barred by the statute of limitations." ' " (William L. Lyon & Associates, Inc. v. Superior Court (2012) 204 Cal.App.4th 1294, 1304.) "A directed verdict is also subjected to de novo appellate review." (Brassinga v. City of Mountain View (1998) 66 Cal.App.4th 195, 210.)
Section 337, subdivision (3) imposes a four-year statute of limitations on an "action based upon the rescission of a contract in writing." As the California Supreme Court explained in Styne v. Stevens (2001) 26 Cal.4th 42 (Styne), statutes of limitations bar " 'actions or proceedings,' " that is, "claims for affirmative relief." (Id. at pp. 52-53.) Statutes of limitations do not bar mere defenses to claims for relief initiated by others. (Styne, at pp. 52-54.) The court rejected the defendant's argument that the plaintiff sought affirmative relief "by asking, in effect, for a declaration that the contract [at issue was] void and unenforceable." (Styne, at p. 53.) "If the result the defendant seeks is simply that he or she owes no obligations under an agreement alleged by the plaintiff, the matter must be deemed a defense to which the statute of limitations does not apply." (Ibid.)
Styne controls here. Great American asserted rescission as a defense to Goldsmith's coverage action. Great American sought a ruling that it owed no obligations under the excess policy that it issued to Goldsmith because Goldsmith's failure to disclose the Kenya outbreak rendered the policy void ab initio. This was not a request for affirmative relief. As in Styne, "the matter must be deemed a defense to which the statute of limitations does not apply." (Styne, supra, 26 Cal.4th at p. 53.) The trial court did not err in denying Goldsmith's motion for directed verdict.
The cases that Goldsmith cites do not compel a different conclusion. In Imperial Livestock & Mortgage Co. v. Tracy (1929) 208 Cal. 205, the defendant asserted rescission as a defense to an action to enforce five promissory notes that the plaintiff allegedly obtained by fraudulent representations. (Id. at p. 207.) The case says nothing about the statute of limitations.
Andrade v. Azevedo (1935) 9 Cal.App.2d 495 says nothing about rescission. The plaintiff sued the administrator of her father's estate to recover expenses she had paid on her father's behalf. (Id. at p. 497.) The defendant claimed that the plaintiff owed her father $7,000 at the time of his death. (Id. at p. 498.) He conceded that this defense sought affirmative relief and was therefore barred by the statute of limitations. (Id. at pp. 498-499.) Andrade does not advance Goldsmith's position.
The three remaining cases are factually distinguishable. In Hermosa Beach Land & Water Co. v. Law Credit Co. (1917) 175 Cal. 493, the defendant's answer sought affirmative relief in the form of specific performance, which (unlike Great American's rescission defense) was subject to the statute of limitations. (Id. at p. 495.) In Schuman v. Ignatin (2010) 191 Cal.App.4th 255, neighboring property owners challenged the construction of a house that they alleged would violate recorded covenants (CC&R's) governing their development. The defendants sought and obtained a judgment that a 1998 amendment extending the life of the CC&R's was invalid. (Id. at p. 261.) The Court of Appeal reversed, holding that the defense sought affirmative relief in the form of a ruling that "would affect all of the property owners" in the 68-lot development. (Id. at pp. 266-267.) The defense was therefore subject to the statute of limitations.
In Bradbury v. Higginson (1914) 167 Cal. 553, the defendant's answer prayed for rescission of a lease based on the plaintiff's failure to comply with an obligation that the parties had mistakenly left out of their written agreement. (Id. at p. 556.) Because the defendant had no right to rescind under the lease as written, "it was essential to the [rescission] defense that a right of reformation be established." (Id. at p. 557.) Unlike in this case, the defense in Bradbury "consist[ed] of two parts." (Ibid.) It sought affirmative relief in the form of reformation, which was subject to the statute of limitations, and it also sought rescission, which was not. (Id. at p. 558.) None of these cases advance Goldsmith's position. The trial court properly rejected Goldsmith's statute of limitations challenge to Great American's rescission defense.
B. Unclean Hands
Goldsmith complains that Great American sat on its rescission right, forced Goldsmith to expend costs and attorney's fees, and played the rescission card "at the last minute." Goldsmith forfeited this argument by failing to raise it below. (Watson v. Poore (1941) 18 Cal.2d 302, 311-312.) It lacks merit in any event.
The doctrine of unclean hands "is an equitable rationale for refusing a plaintiff relief where principles of fairness dictate that the plaintiff should not recover, regardless of the merits of his claim. It is available to protect the court from having its powers used to bring about an inequitable result in the litigation before it." (Kendall-Jackson Winery, Ltd. v. Superior Court (1999) 76 Cal.App.4th 970, 985 (Kendall-Jackson).) " ' "It is well settled that public policy may favor the nonapplication of the doctrine as well as its application." [Citation.] "Whenever an inequitable result would be accomplished by the application of the 'clean hands' doctrine the courts have not hesitated to reject it." [Citations.]' " (Health Maintenance Network v. Blue Cross of So. California (1988) 202 Cal.App.3d 1043, 1061.) Whether the doctrine applies in a particular case is within the trial court's sound discretion. (Lovett v. Carrasco (1998) 63 Cal.App.4th 48, 55.)
The question is one of fact. (Kendall-Jackson, supra, 76 Cal.App.4th at p. 978.) "Whether the particular misconduct is a bar to the alleged claim for relief depends on (1) analogous case law, (2) the nature of the misconduct, and (3) the relationship of the misconduct to the claimed injuries. [Citations.]" (Id. at p. 979.) "The misconduct that brings the clean hands doctrine into play must relate directly to the cause at issue." (Ibid.) It "must ' " 'prejudicially affect . . . the rights of the person against whom the relief is sought so that it would be inequitable to grant such relief.' " ' [Citation.]" (Ibid.)
Here, neither party cites analogous case law, and we have found none. Additionally, neither the nature of the misconduct that Goldsmith alleges nor its relationship to the injuries Goldsmith claims supported application of the doctrine against Great American. The record reveals no misconduct on Great American's part. It shows instead that Goldsmith substantially contributed to its claimed injuries by impeding and thus prolonging Great American's investigation of Goldsmith's claim.
Biondo came across the Gilroy Dispatch article during her investigation. Correspondence in the record establishes that Great American asked Goldsmith for information about the Kenya outbreak and about what the company knew about it during the application process. It specifically asked Goldsmith when the first claims were made.
In response to repeated requests, Goldsmith consistently denied knowledge of any claims or losses. In May 2004, Creech wrote that his investigation showed "no claims have been made nor losses incurred as of the time my client prepared its application, nor did my client understand how the situation would evolve at that time." As late as 2008, Creech wrote that "at the time the insurance application was submitted, all of Goldsmith's actions were consistent with their non-recognition of any significant issue." Goldsmith's management admitted at trial that these representations were not true. Joel Goldsmith admitted that he saw Creech's 2004 letter when it was sent, and that he knew at the time that claims had been made.
Goldsmith also ignored Great American's repeated requests for documentation supporting Goldsmith's assertions that it was unaware during the application process of any claims arising from the Kenya outbreak. Jay Smith testified that he knew in 2004 and thereafter that Great American wanted documents from Goldsmith's files showing what the company knew about the Kenya outbreak and when it knew it. He admitted that the company failed to provide any documents to Great American during Great American's investigation of the claim. Donald Snow testified that management was aware of his handwritten notes about the Kenya outbreak "contemporaneously when it occurred" and that Richard Goldsmith asked him to hold onto them. The notes were not given to Great American during the investigation. They were not produced until shortly before Snow's 2011 deposition. On this record, there is no support for application of the doctrine of unclean hands against Great American.
C. Rescission Ab Initio
Goldsmith contends that the trial court erred when it "disregarded the jury's factual findings" and rescinded the policy ab initio. We disagree.
Goldsmith's argument assumes that the court gave all issues to the jury for determination. The record does not support that assumption. The trial court consistently maintained that Great American's rescission defense was "an equitable issue, which I need to decide either beforehand or after a jury trial." The court told the parties, "I try it and I decide it." "I'm not precluded from making factual findings in a rescission case . . . ." Accordingly, and as noted in the judgment, the court submitted the legal issues to the jury and asked it to render advisory verdicts on issues relating to Great American's rescission defense.
To support its assertion that "the trial court agreed with Goldsmith, and empanelled a jury to hear all of the issues," Goldsmith cites the order denying Great American's motion to bifurcate. But the court's one-sentence ruling does not establish the point. Great American's motion urged the trial court to try its rescission defense first because a ruling in Great American's favor would dispose of the entire case. Goldsmith vigorously disagreed with that position at the hearing, insisting that its bad faith claim or some claim based on Great American's "holding onto our premium" would survive. The hearing transcript reveals that while the trial court was not entirely persuaded by this argument, it was also not convinced that it was incorrect. The transcript also reflects the court's concern for judicial economy. We reject Goldsmith's suggestion that the court "agreed with Goldsmith" that the jury should determine all factual issues. We think the court denied the motion because it concluded that judicial economy would not necessarily be served by trying Great American's rescission defense first.
Goldsmith argues that the only advisory questions submitted to the jury were subquestions 1(a) through (d). Not so. We cannot agree with its assertion that the court considered question 1 "to be something different." In colloquy during preparation of the verdict form, the trial court interpreted question 1 as asking "generally about Great American's equitable defense." It was simply a summary of the "specific" questions posed by subparts (a) through (d), which were necessary to establish Great American's rescission defense. The subparts would "advance [the court's] task" because in the event the jury answered no to question 1, its answers to the subquestions would reveal how it viewed specific evidence. Similarly, the court explained in its statement of decision that "four factual questions that pertained exclusively to Great American's equitable defense" were added to the special verdict form "along with a question asking generally about Great American's equitable defense, in order to obtain an advisory verdict from the jury . . . ." We reject Goldsmith's claim that question 1 was not advisory.
We also disagree with Goldsmith's assertion that question 3 (asking whether Great American proved that coverage was barred by an affirmative defense) was not advisory. The question addressed Great American's rescission defense, an equitable issue that the trial court specifically reserved for its own determination. The court told the parties that it had the discretion to "take everything to the jury and let them fact-find and I can decide the equitable issue afterwards. They find the facts. I'll accept them or not and order rescission." In our view, question 3, like question 1, was advisory because it pertained exclusively to Great American's rescission defense.
Asking the jury for advisory verdicts with respect to Great American's equitable defense was entirely proper. The order of trial " 'is within the sound discretion of the trial court.' " (Hoopes v. Dolan (2008) 168 Cal.App.4th 146, 150, 163 (Hoopes).) "It is beyond dispute that where both legal and equitable issues are present, a jury may be empanelled to try the legal issues, and may also at the court's discretion be asked for advisory verdicts as to facts which may apply to the equitable issues." (A-C Co. v. Security Pacific Nat. Bank (1985) 173 Cal.App.3d 462, 473 (A-C).) "It is equally beyond dispute that while a jury may be used for advisory verdicts as to questions of fact, it is the duty of the trial court to make its own independent findings and to adopt or reject the findings of the jury as it deems proper." (A-C, at p. 474.)
That is precisely what the trial court did here. It empanelled a jury to try Goldsmith's legal claims for breach of contract and bad faith and to provide advisory findings on facts relevant to Great American's equitable defense of rescission. The court was free to adopt or reject those advisory findings. (A-C, supra, 173 Cal.App.3d at p. 474.)
Goldsmith argues that Hoopes "is controlling and requires reversal in favor of Goldsmith." We cannot agree. We are not bound by the decisions of our sister courts of appeal, and in any event, Hoopes supports Great American's position.
Hoopes was a dispute about parking rights. A landlord leased commercial property to a lumberyard (operated by Hoopes) and to a cafe. The cafe lease provided that the single parking area was to be shared by both businesses. The lumberyard lease said nothing about parking, but Hoopes claimed that the landlord told him he would have exclusive parking rights. (Hoopes, supra, 168 Cal.App.4th at p. 151.) In 1996, the landlord sent Hoopes a copy of the cafe lease to clarify that parking was to be shared. (Ibid.) That seemed to settle the matter, but eight years later, Hoopes again claimed exclusive parking rights. He sued the landlord and the cafe owners, seeking damages and declaratory and injunctive relief for breach of contract, trespass, fraud, and negligent misrepresentation. The defendants interposed various affirmative defenses, including equitable estoppel. (Id. at pp. 152-153.)
The legal issues were tried first to a jury, which found that Hoopes had the right under his lease to exclude the cafe's customers from the parking lot and awarded compensatory and punitive damages to Hoopes. (Hoopes, supra, 168 Cal.App.4th at pp. 154, 158.)
The equitable estoppel defense was then tried to the court. The court found that Hoopes was equitably estopped from asserting his breach of contract, trespass, and fraud claims because he knew in 1996 that the cafe had shared parking rights but did nothing to contest those rights during many years of shared use. (Hoopes, supra, 168 Cal.App.4th at p. 154.)
The court then ruled on the parties' competing requests for declaratory and injunctive relief. Contrary to the jury's special finding, the court found that Hoopes did not have the right to exclude the cafe's customers from the parking lot. (Hoopes, supra, 168 Cal.App.4th at pp. 154-155, 159.) It enjoined Hoopes from interfering with the cafe's use of the lot. (Id. at p. 155.)
On appeal, Hoopes contended that the trial court erred in disregarding the jury's verdict when ruling on declaratory and injunctive relief and on the estoppel defense. The court held that Hoopes was "right on the first point . . . but not the second . . . ." (Hoopes, supra, 168 Cal.App.4th at p. 155.) Addressing the first point, the court explained that "[t]he order of trial, in mixed actions with equitable and legal issues, has great significance because the first fact finder may bind the second when determining factual issues common to the equitable and legal issues." (Id. at p. 156, italics added.) "[A] jury's factual findings on legal causes of action should bind the trial court when granting ancillary equitable remedies based on the same facts." (Id. at p. 159.) Thus, the trial court erred in disregarding the jury's verdict when it ruled on the equitable remedies of declaratory and injunctive relief, because whether Hoopes had the right to exclude cafe customers from the parking lot was a factual issue that was common to the legal and equitable remedy issues and had already been decided. (Id. at pp. 158-160.)
But the trial court did not err in disregarding the jury's verdict when it ruled on the defense of equitable estoppel, because that "was a distinct matter within the exclusive province of the trial judge that raised legal and factual issues undecided by the jury." (Hoopes, supra, 168 Cal.App.4th at p. 155.)
Goldsmith argues that Hoopes requires reversal because "whether Great American was entitled to rescission on the issue of Goldsmith's alleged concealment or failure to disclose a material fact in its insurance policy . . . had been determined by the jury in Goldsmith's favor via, at a minimum, Special Verdict Findings 1 and 3." We disagree. In our view, Hoopes supports Great American's position.
Goldsmith's breach of contract claim involved the 2003 Guatemala outbreak. It turned on facts that occurred after Great American issued the policy. The legal issues that the jury was asked to decide were whether Goldsmith suffered a "loss" because of "property damage" as the policy defined those terms and if so, the amount of covered damages that Great American failed to pay. Goldsmith's bad faith claim similarly focused on acts that occurred after Great American issued the policy, specifically, on Great American's alleged failures "to attempt to negotiate a prompt and fair and reasonable settlement or any settlement at all of the growers' [Guatemala outbreak] claims" (Complaint, ¶ 18) and "to timely investigate and or [sic] make a prompt coverage decision" (Complaint, ¶ 19).
The jury was instructed that to establish its contract claim for benefits under the policy, Goldsmith had to prove "one, that Goldsmith suffered a loss because of property damage as those terms are defined in the policy; two, that Great American was notified of the loss as required by the policy; and, three, the amount of the covered loss that Great American failed to pay." It was instructed that to prove its bad faith claim, Goldsmith had to prove "one, that [it] suffered a loss because of property damage as those terms are defined in the policy; two, that Great American was notified of the loss; three, that Great American unreasonably or without proper cause failed to pay policy benefits; four, that Goldsmith was harmed; and, five, that Great American's failure to pay policy benefits was a substantial factor in causing Goldsmith's harm."
By contrast, Great American's rescission defense involved a different outbreak. That defense turned on facts that occurred before Great American issued the policy, specifically, what Goldsmith knew about the Kenya outbreak during the application process and how that information would have affected Bolds's decision to issue the policy had the information been disclosed. The issues raised by Goldsmith's legal claims were distinct from the equitable issues raised by Great American's rescission defense. The trial court properly decided the equitable issues. (Hoopes, supra, 168 Cal.App.4th at p. 155.)
Goldsmith maintains that the common issue of fact between its claim for breach of contract and Great American's rescission defense was "whether Goldsmith concealed a material fact within its application for insurance." It argues that the jury could not have found (in response to questions 4-6) that Great American failed to pay Goldsmith benefits owed "without determining . . . that a contract had been formed between Great American and Goldsmith and that Goldsmith had not concealed a material fact within its insurance application." But whether a contract was formed and whether Great American could avoid that contract were two distinct questions. The jury was not asked to determine whether a contract had been formed. That was not a disputed issue at trial. The issue whether Great American could avoid the contract was an equitable question for the trial court to decide.
Consistent with the jury's advisory findings, the court found that Goldsmith knew before it obtained the policy that it had actual and potential claims from the Kenya outbreak, that it did not disclose that information to Great American, and that Great American would not have issued the policy had Goldsmith disclosed the Kenya outbreak. The court disagreed with the jury's findings in response to questions 1 and 3, but as we have determined, those questions were advisory. Thus, the trial court was free to adopt or reject them. (A-C, supra, 173 Cal.App.3d at p. 474; Hoopes, supra, 168 Cal.App.4th at p. 155.)
Goldsmith asserts that "the jury obviously found that Great American waived its right to information in response to the question regarding loss history within the insurance application." It argues that "[w]aiver IS the reason the jury found that Goldsmith did not disclose the Kenya Event, and at the same time found that Goldsmith did not fail to disclose any information in response to questions within the application for insurance." The argument lacks merit.
" 'A special verdict is that by which the jury finds the facts only, leaving the judgment to the court. The special verdict must present the conclusions of fact as established by the evidence . . . and those conclusions of fact must be so presented as that nothing shall remain to the court but to draw from them conclusions of law.' (Code Civ. Proc., § 624.)" (Myers Building Industries, Ltd. v. Interface Technology, Inc. (1993) 13 Cal.App.4th 949, 959 (Myers).) " 'Unlike a general verdict (which merely implies findings on all issues in favor of the plaintiff or defendant), a special verdict presents to the jury each ultimate fact in the case. The jury must resolve all of the ultimate facts presented to it in the special verdict, so that "nothing shall remain to the court but to draw from them conclusions of law." (Code Civ. Proc., § 624.) [¶] The requirement that the jury must resolve every controverted issue is one of the recognized pitfalls of special verdicts. "[T]he possibility of a defective or incomplete special verdict, or possibly no verdict at all, is much greater than with a general verdict that is tested by special findings . . . ." [Citations.]'" (Myers, at pp. 959-960.)
Here, as the trial court pointed out in its statement of decision, the special verdict form contains no finding of waiver. We reject Goldsmith's assertion that a finding of waiver is implied from the fact that the jury was instructed on waiver. "A jury instruction alone does not constitute a finding. Nor does the fact that the evidence might support such a finding constitute a finding." (Myers, supra, 13 Cal.App.4th at p. 961.)
D. Refund of Premium
Goldsmith contends that it was "entitled" to interest on the premium the court ordered Great American to refund, and that the trial court erred in failing to award it. We disagree.
Insurance Code section 481 provides that unless an insurance contract otherwise provides, a person whose policy is rescinded is "entitled to the return of . . . [¶] . . . the whole premium, if the insurer has not been exposed to any risk of loss." (Ins. Code, § 481, subd. (a)(1).) The statute does not establish a right to recover interest on the refunded premium. Goldsmith cites no authority establishing that it was "entitled" as a matter of right to interest on the premium. We have found none.
Goldsmith cites Insurance Code section 481.5, which applies by its express terms to "personal lines insurance . . . ." It is inapposite because the policy in this case was a commercial policy. Civil Code section 3289, which establishes the rate of interest chargeable after breach of a contract, is also inapposite. The contract here was rescinded, not breached. State Farm Mutual Automobile Ins. Co. v. Quackenbush (1999) 77 Cal.App.4th 55 (State Farm) addressed regulations implementing Proposition 103, which ordered rollbacks in insurance rates. (State Farm, at p. 70.) The case says nothing about rescission. In Gilmore v. Eureka Casualty Co. (1932) 123 Cal.App.20 (Gilmore), an insurance company in its answer tendered the amount of the premium plus interest to its policyholder. The trial court rescinded the policy but "failed to dispose of the $27.72" tendered. (Id. at p. 29.) "To finally dispose of the case," the Court of Appeal amended the judgment "to provide for the recovery of this sum from the [insurance company]." (Ibid.) Gilmore does not establish Goldsmith's entitlement to interest on the refunded premium. Star Pacific Investments, Inc. v. Oro Hills Ranch, Inc. (1981) 121 Cal.App.3d 447 and Utemark v. Samuel (1953) 118 Cal.App.2d 313 stand for the proposition that the trial court has broad equitable discretion in rescission cases to adjust the equities between the parties. Because neither case establishes an "entitlement" to interest on a refunded premium, neither case advances Goldsmith's position.
Under California's statutory scheme for rescission, trial courts have broad equitable discretion to fashion appropriate remedies so as to establish equity between the parties and effectuate substantial justice. (Runyan v. Pacific Air Industries, Inc. (1970) 2 Cal.3d 304, 315-319 (Runyan).) Civil Code section 1692 provides that "[w]hen a contract has been rescinded in whole or in part, any party to the contract may seek relief based upon such rescission . . . to recover any money or thing owing to him by any other party to the contract as a consequence of such rescission . . . ." The statute also provides that the court "may" require the party seeking rescission "to make any compensation to the other which justice may require and may otherwise in its judgment adjust the equities between the parties." (Civ. Code, § 1692.)
We find no indication in the record that Goldsmith ever claimed an entitlement to interest on the premium in the trial court. Goldsmith cannot fault the trial court for failing to grant relief that Goldsmith never asked for. Even if we assume that Goldsmith asked for interest on the premium, we cannot say that the trial court abused its discretion in failing to award it. "It is the purpose of rescission 'to restore both parties to their former position as far as possible' [citations] and 'to bring about substantial justice by adjusting the equities between the parties' despite the fact that 'the status quo cannot be exactly reproduced.' [Citations.]" (Runyan, supra, 2 Cal.3d at p. 316.) The trial court did that here.
We reject Goldsmith's assertion that Great American reaped a windfall by retaining the premium while it investigated Goldsmith's claim and defended against Goldsmith's lawsuit. Ample evidence supports a conclusion that Goldsmith's failure to cooperate in the investigation substantially contributed to the delay about which it now complains. It is reasonable to assume that Goldsmith's lack of cooperation also increased the cost of the investigation to Great American. On these facts, the trial court could reasonably have concluded that equity would best be served by denying Goldsmith interest on the premium.
E. Costs
Goldsmith contends that the trial court abused its discretion in denying Goldsmith's motion to strike or tax $28,478.82 in costs awarded to Great American. Great American counters that Goldsmith's failure to file a separate notice of appeal from the costs order precludes appellate review and that the costs award was proper in any event. We disagree with Great American's first point but agree with its second point.
Section 904.1, subdivision (a)(1) provides that an appeal may be taken from a final judgment. Section 904.1, subdivision (a)(2) provides that an appeal may be taken from "an order made after a judgment made appealable by paragraph (1)." "A postjudgment order which awards or denies costs or attorney's fees is separately appealable [citations], and if no appeal is taken from such an order, the appellate court has no jurisdiction to review it. [Citation.]" (Norman I. Krug Real Estate Investments, Inc. v. Praszker (1990) 220 Cal.App.3d 35, 46.) An exception applies, however, "when the judgment expressly makes an award of costs and/or fees" but leaves the amounts for later determination. (Grant v. List & Lathrop (1992) 2 Cal.App.4th 993, 997-998 (Grant).) In such cases, "the notice of appeal [from the judgment] subsumes any later order setting the amounts of the award." (Id. at p. 998.)
Here, the judgment expressly provided that "Great American, as the prevailing party in this action, is entitled to recover all costs of suit in an amount to be established by the submission of its Memorandum of Costs under California Rule of Court 3.1700." The post-judgment costs order is therefore subsumed within Goldsmith's notice of appeal. (Grant, supra, 2 Cal.App.4th at pp. 997-998.) It follows that we have jurisdiction to consider Goldsmith's challenge to the costs order.
"Except as otherwise expressly provided by statute, a prevailing party is entitled as a matter of right to recover costs in any action or proceeding." (§ 1032, subd. (b).) Cost items enumerated in section 1033.5 are recoverable as a matter of right. (§ 1033.5, subds. (a), (b).) "Items not mentioned in [subdivision (a)] and items assessed upon application may be allowed or denied in the court's discretion." (§ 1033.5, subd. (c)(4).) "Allowable costs shall be reasonable in amount" and "reasonably necessary to the conduct of the litigation rather than merely convenient or beneficial to its preparation." (§ 1033.5, subd. (c)(2), (3).)
In ruling upon a motion to tax costs, the trial court's first determination is whether an item is expressly allowable and whether it appears proper on its face. (Nelson v. Anderson (1999) 72 Cal.App.4th 111, 131 (Nelson).) "If so, the burden is on the objecting party to show [the costs] to be unnecessary or unreasonable." (Ibid.) Where costs are not expressly allowed by the statute, the burden is on the party claiming the costs to show that the charges were reasonable and necessary. (Id. at p. 132.) "Whether a cost item was reasonably necessary to the litigation presents a question of fact for the trial court and its decision is reviewed for abuse of discretion." (Ladas v. California State Auto. Assn. (1993) 19 Cal.App.4th 761, 774.)
Goldsmith challenges $2,010.00 in "unexplained" service of process costs claimed by Great American. Goldsmith complains that Great American "never specified how the [nine] out-of-state subpoenas were served," which made it impossible to determine whether they were reasonable and necessary, which in turn requires disallowance of these costs. We disagree.
As Goldsmith acknowledges, costs for service of process are expressly allowed by statute. (§ 1033.5, subd. (a)(4).) Great American's costs memorandum listed the name of each out-of-state person served, the date each was served, and the cost of the service. The record reveals that Great American also submitted the sworn declaration of its trial counsel, which attached invoices detailing these costs. The declaration also explained that the costs were "reasonably necessary to the conduct of the litigation because there would be no other way to serve out-of-state entities short of sending Great American's counsel to each state." The trial court could reasonably have concluded from this evidence that the claimed costs appeared proper on their face. (Nelson, supra, 72 Cal.App.4th at p. 131.) It then became Goldsmith's burden to establish that the costs were unnecessary or unreasonable. (Ibid.)
The declaration is described in Great American's memorandum of points and authorities, but it is not included in the record on appeal.
On the record before us, we cannot say that the trial court abused its discretion in allowing the challenged out-of-state service of process costs. " 'Perhaps the most fundamental rule of appellate law is that the judgment challenged on appeal is presumed correct, and it is the appellant's burden to affirmatively demonstrate error.' [Citation.]" (People v. Sullivan (2007) 151 Cal.App.4th 524, 549 (Sullivan).) "Error will never be presumed . . . ." (People v. $17,522.08 United States Currency (2006) 142 Cal.App.4th 1076, 1084.) "[T]he defendant further bears the burden to provide a record on appeal which affirmatively shows that there was an error below, and any uncertainty in the record must be resolved against the defendant. [Citations.]" (Sullivan, at p. 549; Denham v. Superior Court (1970) 2 Cal.3d 557, 564.)
Goldsmith has not met its burden here. We do not know what specific issues were raised at the hearing on the costs motion or how those issues were addressed because Goldsmith failed to include the transcript of that hearing in the record on appeal. Thus, we must presume the correctness of the judgment. (Sullivan, supra, 151 Cal.App.4th at p. 549.) Goldsmith's challenge to the out-of-state service of process costs fails.
Goldsmith also challenges $26,268.82 awarded to Great American for "purported" costs of models, blowups and photocopies. The challenged amount included (1) the cost of a computerized graphic timeline and display illustrating what Goldsmith knew when about the Kenya outbreak and (2) the cost of renting equipment to project the images during opening statements and closing arguments. Great American successfully argued below that "blowups" of exhibits are expressly allowed by statute and that the challenged presentation "was a 'computerized' version of blowups of exhibits." (§ 1033.5, subd. (a)(13).) The trial court allowed the costs and expressly stated in its written order that "[t]he trial equipment rental and support product was more than reasonably helpful to court and jury." We find no abuse of discretion.
In American Airlines, Inc. v. Sheppard, Mullin, Richter & Hampton (2002) 96 Cal.App.4th 1017, the court rejected the defendants' argument that the trial court abused its discretion by allowing $19,307.33 for imaging documents and deposition transcripts and for display equipment rental. (Id. at p. 1057.) The court explained that "[w]hile admittedly 'high-tech,' the methods defendants used to display documents to the jury were specifically approved by the trial court, which found them to be highly effective, efficient, and commensurate with the nature of the case." (Ibid.)
In El Dorado Meat Co. v. Yosemite Meat & Locker Service, Inc. (2007) 150 Cal.App.4th 612, the court held that it was not an abuse of discretion to allow the prevailing defendant to recover the cost of renting projection equipment. (Id. at p. 619.) The court explained that "[t]he trial court had discretion both to interpret 'blowups' as including blowing up documents by projecting them on a screen and to find the projection equipment reasonably helpful." (Ibid.)
In Science Applications International Corp. v. Superior Court (1995) 39 Cal.App.4th 1095 (SAIC), the court held that it was not an abuse of discretion to allow the prevailing party to recover $159,877 for graphic exhibit boards and for a video illustrating the difference between the California Highway Patrol's manual and computer-assisted dispatch systems. (Id. at p. 1104.) The court explained that "[b]oth these items appear to be a computerized form of blowup or model which was apparently, in the opinion of the trial court, reasonably helpful to the trier of fact and possibly fitting within the category of 'models and blowups.' " The court "endorse[d] the CHP video with less enthusiasm than the exhibit boards because of the associated costs of writing, directing and filming the video." (Ibid.) But the court could not "rule it out on this basis alone because the same kind of 'creative' design and production expenses go into the final cost of professional charts and exhibits used in trial every day." (Ibid.)
Goldsmith argues that SAIC supports its position because the SAIC court disallowed the costs of "equipment rental of a graphics communication system and an on-site technician to facilitate the presentation of materials to the jury." The SAIC court explained that these items "appear[ed] to be a method of accessing information—a high-powered way of retrieving documents—more than anything else." (SAIC, supra, 39 Cal.App.4th at p. 1105.) In Goldsmith's view, "Great American's computerized presentation was no different that the graphics communication system in [SAIC]." We disagree. We think that Great American's computerized presentation, which was used during opening and closing statements, was more akin to the graphic presentation boards and the video that the SAIC court approved.
Goldsmith acknowledges that costs of "exhibits" are recoverable. It acknowledged below that "the trial court has the discretion to determine what constitutes a blowup." Indeed, it argued below that "having presided over the trial, the trial court is in the best position to determine whether items claimed were reasonably helpful to the trier of fact." Given Goldsmith's concessions and in light of the above authorities and the trial court's express finding that the presentation and the equipment rental were "more than reasonably helpful to court and jury," we cannot say that the court abused its discretion in allowing the challenged costs.
IV. Disposition
The judgment is affirmed. Great American shall recover its costs on appeal.
Great American's cross-appeal is dismissed as moot. The parties shall bear their own costs on the cross-appeal.
/s/_________
Mihara, J. WE CONCUR: /s/_________
Elia, Acting P. J. /s/_________
Walsh, J.
Judge of the Santa Clara County Superior Court, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.