Summary
rejecting an argument that fixed manufacturing costs should not be included in the amount awarded for breach of contract
Summary of this case from Unihan Corp. v. Max Grp. Corp.Opinion
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
APPEAL from the Superior Court of San Bernardino County. Super.Ct.No. BCV06746, Steve Malone, Judge.
Elbert W. Muncy, Jr., for Plaintiff and Appellant.
Law Offices of Fletcher, White & Adair and Paul S. White for Defendants and Respondents.
OPINION
HOLLENHORST, Acting P. J.
This is the second appeal in this case. In the first appeal, Silver Valley Propane, Inc. v. Lamanco, Inc. et al., case No. E037389 (filed 8/21/2006), Silver Valley Propane (SVP) appealed from a postjudgment order granting a new trial on damages following a jury verdict in favor of SVP and against defendants Louie Laymance (Laymance), Julie White (White), Lamanco, Inc. dba Kelly Gas (Lamanco/KELLY), Kellie Robinson (Mrs. Robinson), Lloyd Robinson (Mr. Robinson), K&L Gas (K&L), Collette Davis (Mrs. Davis), Leland Davis (Mr. Davis) and Skyfire Propane (SKYFIRE) based on their violation of the California Unfair Practices Act (UPA) (Bus. & Prof. Code, § 17001 et seq.). We affirmed the postjudgment order and remanded the case for retrial on the issue of damages only. Both parties waived jury, and the matter was tried before the court, which awarded $47,488 in damages to SVP for its loss of net profits. SVP appeals, contending: (1) the court’s methodology used in awarding damages was inconsistent with and contrary to law; and (2) the court erred in excluding Mr. and Mrs. Robinson as additional judgment debtors.
All defendants will be collectively referred to as “Defendants.”
All further statutory references are to the Business and Professions Code unless otherwise indicated.
I. PROCEDURAL BACKGROUND AND FACTS
Following a verdict in favor of SVP, the jury awarded damages; however, the trial court found that the damages were based on a loss of “gross profits” and not “net profits” as required by law. Recognizing that an inappropriate measure of damages was used, the trial court ordered a new trial on damages only unless SVP accepted a remittitur. SVP rejected the remittitur and the order remained. SVP appealed. On appeal, we agreed with the lower court and affirmed the order; however, we directed the court to retry the issue of damages using loss of net profits as the appropriate measure.
On retrial, the parties waived a jury. Initially, SVP argued that loss of net profits is not the correct measure of damages, as it supposedly does not accurately reflect SVP’s loss. According to SVP, damages should be based on lost revenue less certain variable costs. SVP insisted that “fixed costs” should not be considered in calculating lost profits. SVP argued that this court had misinterpreted the case law in our opinion in the first appeal. The trial court rejected SVP’s arguments, stating that it would follow our mandate. Both sides provided evidence and argument. On December 17, 2007, the trial court issued its “Statement of Decision.” The court awarded $47,488 in damages based on SVP’s loss of net profits. SVP appeals.
According to SVP, “[t]he essential[] fact[s] needed to resolve this case are not disputed. It is the application of the facts to the law.” SVP states that the essential facts are: (1) SVP calculates its damages as $403 per year per location; (2) Defendants calculate damages as $47.30 per year per location; (3) each customer would have been expected to continue with SVP for four years; (4) between April 28, 2000, and May 20, 2001, SVP lost 17 customers to Defendants due to their violations of the UPA; (5) between May 21, 2001, and November 21, 2001, SVP lost 15 customers to Defendants due to their violations of the UPA; and (6) between November 12, 2001, and December 31, 2003, SVP lost 73 customers to Defendants due to their violations of the UPA.
II. METHODOLOGY USED IN CALCULATING DAMAGES
Given SVP’s concession that the facts are undisputed, the issue boils down to the methodology used in calculating damages, i.e., whether the trial court should have used $403 per customer rather than $47.30 per customer.
In our opinion from the first appeal in this case, we cited Klamath-Orleans Lumber, Inc. v. Miller (1978) 87 Cal.App.3d 458 (Klamath-Orleans), and Sandler v. Gordon (1949) 94 Cal.App.2d 254 (Sandler). In Klamath-Orleans, the plaintiff was awarded damages and the court upheld a permanent injunction restraining two former employees from soliciting their former employer’s customers. The plaintiff, a manufacturer of load binders, had compiled a confidential customer list that contained such information as the creditworthiness and purchasing habits of each customer. The defendants, the plaintiff’s shop and office managers, left plaintiff’s employ to organize their own competing business. They wrote up the plaintiff’s customer lists from memory. Upon starting their business, the defendants mailed advertising brochures to the plaintiff’s customers. (Klamath-Orleans, supra, at pp. 461-462.) The plaintiff sued based on a claim of unfair business practices and was awarded damages in the amount of $20,894. (Id. at pp. 461, 463.) A certified public accountant testified as to two profit figures: $20,894 and $8,050. (Id. at p. 467.) The higher figure ignored the free bookkeeping and office management services by the defendant’s wife while the lower figure was adjusted to reflect the reasonable cost of a fulltime bookkeeper and office manager. (Ibid.) On appeal, the appellate court opined there was no justification for ignoring the cost of these services. (Ibid.) Thus, the appellate court held that “[t]he judgment must . . . be reversed, but only on the issue of damages.” (Ibid.)
In Sandler, an action was brought under section 17043. (Sandler, supra,94 Cal.App.2d at p. 256.) The appellate court upheld the trial court’s finding that the plaintiff sold certain items below his cost and below the lowest competitive price, but held that the purpose was not to injure competitors or to destroy competition. (Id. at p. 258.) Regarding damages, the plaintiff estimated that he had permanently lost 39 customers, and temporarily lost 34 customers. The plaintiff’s expert stated that the gross loss for customers temporarily lost was $165.54, and that the net loss, figuring variables but not including gas, oil and lubrication, was $74.10 or $62.10, including said items. In assessing damages, the trial court used the gross loss dollar amount; however, the appellate court determined that the net loss amount was the appropriate number, and therefore, damages should have been $1,219.50, instead of $1,400. (Id. at pp. 258-259.)
Based on the above case law, we found that the use of a gross profit margin regarding the sale of propane instead of a net profit margin was contrary to law. To the extent that SVP asks us to revisit our prior decision, we decline to do so. To the extent that SVP contends that we misinterpreted the case law, we disagree.
SVP begins by citing Civil Code section 3333 for the proposition that the measure of damages is the “amount which will compensate for all the detriment proximately caused thereby, whether it could have been anticipated or not.” Referencing Seaboard Music Co. v. Germano (1972) 24 Cal.App.3d 618 (Seaboard), SVP argues that the fully-allocated losses methodology improperly infers or assumes that all expenses will be reduced. Defendants contend that SVP has misinterpreted Seaboard.
In Seaboard, supra, 24 Cal.App.3d 618, the plaintiff leased juke boxes. The defendants wrongfully breached the lease. (Id. at p. 621.) According to the company’s president, the plaintiff’s share of the profits averaged $55.10 per week, and the operating/servicing expenses were $4.10 per week. (Id. at pp. 621-622.) Given 122 weeks remaining on the lease, the trial court awarded $51 per week for the 122 weeks remaining on the lease, or $6,222, for damages. (Ibid.) On appeal, the defendants argued that “it may be inferred overhead was reduced” and thus, the loss of net profits was actually less than the award. (Id. at p. 622.) Pointing out that there was no evidence in the record that overhead was reduced, our colleagues in Division One of this District admonished: “If plaintiff’s computation of net profit from the lease was inaccurate, or improperly arrived at, it was appellants’ duty to attack it in the trial court. We are at a loss to understand how either the trial court or this court could subtract an inference from $51 a week.” (Ibid.) As Defendants correctly note, the Seaboard court did not state that overhead should be ignored; rather, it is incumbent on the parties to present the evidence at trial.
$55.10 - $4.10 x 122 weeks.
SVP turns to the cases cited above and those in our prior opinion and attempts to distinguish them. Regarding Klamath-Orleans, supra, 87 Cal.App.3d 458, and Sandler, supra, 94 Cal.App.2d 254, SVP claims they hold that “only expenses that SVP would not have had ‘but for’ the defendant’s wrongful conduct should be deducted from the income.” Specifically, SVP claims the Klamath-Orleans court erred in not using a fully-allocated costs methodology, because if it had done so, it “would have only reduced the award by 42% (adding a full time bookkeeper to [the] [p]laintiff’s cost of doing business, then allocating the cost 42% to the diverted sales and 58% to sales that were not diverted). However, by using the higher figure, [t]he Court of Appeals imputed the additional out[-]of[-]pocket costs for producing the diverted sales.” What SVP has missed, as Defendants correctly point out, is the fact that the plaintiff’s damages in Klamath-Orleans were calculated based on the defendant’s profits, not the plaintiff’s lost profits. (Klamath-Orleans, supra, at p. 466.) Thus, the court considered all of the defendant’s profits, not an amount of the plaintiff’s lost profits. (Id. at p. 467.) Defendants here argue that “[i]f one is measuring total net profits, then it is logical to deduct total costs from total revenues. SVP and Defendants are seeking to calculate the amount of lost net profits, not total net profits. Therefore, costs must be allocated on a proportionate basis.” We agree.
Likewise, in Sandler, SVP argues that the appellate court “was discussing how certain expense items affected the plaintiff’s net profit (and damages).” SVP seems to suggest the appellate court held that “loss of net profits” is defined as gross loss minus variable costs, and fixed costs must be ignored. SVP’s suggestion is misplaced. The evidence before the Sandler court was (1) gross loss, (2) net loss with adjustments for costs savings, and (3) net loss without adjustments. (Sandler, supra,94 Cal.App.2d at pp. 258-259.) According to the appellate court, the net loss with adjustments for cost savings was the most appropriate measure of damages. (Id. at p. 259.) As Defendants note, “[w]hether to deduct fully allocated costs or only variable costs was not an issue before the court. [Rather,] the court held that net profits . . . should be used.”
Here, the trial court cited to three cases in its decision: Gerwin v. Southeastern Cal. Assn. of Seventh Day Adventists (1971) 14 Cal.App.3d 209, 222 through 223 (Gerwin); Resort Video, Ltd. v. Laser Video, Inc. (1995) 35 Cal.App.4th 1679, 1700 (Resort); and Kids’ Universe v. In2Labs (2002) 95 Cal.App.4th 870, 884 (Kids’). SVP contends these cases use the term “net pecuniary loss,” or “loss of net pecuniary gain.” Relying on these terms, SVP argues that calculation of damages does not stop at net profit. Instead, ‘[a]ll pecuniary damage awards for actual losses, whatever the legal theory, are predicated on calculating the difference between actual and anticipated.”
In Gerwin, the appellate court defined net profit as follows: “When loss of anticipated profits is an element of damages, it means net and not gross profits. [Citations.] . . . ‘To allow plaintiff to recover a judgment based in part on his gross profits would result in his unjust enrichment. If he is entitled to recover at all, because of his loss of profits, such recovery must be confined to his net profits. Net profits are the gains made from sales “after deducting the value of the labor, materials, rents, and all expenses, together with the interest of the capital employed.” [Citation.]’” (Gerwin, supra, 14 Cal.App.3d at pp. 222-223.) Resort and Kids’ reiterated the language in Gerwin. (Resort, supra, 35 Cal.App.4th at p. 1700; Kids’, supra, 95 Cal.App.4th at p. 884.) To the extent that SVP attempts to alter the above definition of net profits, we reject it. Regardless of the terminology used, the case law is clear that the calculation of damages is confined to net profits, i.e., gross profits minus all expenses.
Notwithstanding the above, SVP argues that California Civil Jury Instruction 3903N (CACI No. 3903N) accurately provides the method for calculating lost profit damages. CACI No. 3903N, in relevant part, provides: “To decide the amount of damages for lost profits, you must determine the gross amount [name of plaintiff] would have received but for [name of defendant]’s conduct and then subtract from that amount the expenses [including the value of the [specify categories of evidence, such as labor/materials/rents/all expenses/interest of the capital employed]] [name of plaintiff] would have had if [name of defendant]’s conduct had not occurred.” Citing the phrase “expenses . . . [SVP] would have had if [Defendants’] conduct had not occurred[,]” SVP contends these words limit the “expenses that may be deducted to only those additional expense[s] [it] would have incurred had [it] made the sales.” We disagree.
First, as Defendants point out, jury instructions are not the law. (Cal. Rules of Court, rule 2.1050(b).) The law is set forth in the cases cited above. The instructions are to aid the jury in understanding the law. Second, the express language in CACI No. 3903N identifies categories of expenses that should be deducted in calculating net profits. We reject SVP’s claim to the contrary, along with its attempt to set limitations.
For the above reasons, we reject SVP’s challenge to the methodology used by the trial court in calculating damages.
III. FAILURE TO NAME ROBINSONS AS INDIVIDUAL
JUDGMENT DEBTORS
Initially, Mr. and Mrs. Robinson were identified and named in the judgment. In the first appeal, they claimed the judgment should be modified to exclude any reference to them because there was no finding of liability against them by the jury. We agreed. The jury was not asked nor did it find that any of the individual defendants were personally liable on any of SVP’s claims. Although SVP sued the individual defendants, the special verdict forms limited the liability findings to the companies. Accordingly, we ordered any reference to the individual defendants in the judgment be stricken.
Now SVP contends the trial court erred by not naming Mr. and Mrs. Robinson as additional judgment debtors. SVP notes it was stipulated that the Robinsons were partners in K&L, which was formed and acted as a general partnership until July 25, 2006. SVP cites Corporations Code section 16306, subdivision (a), which states: “Except as otherwise provided in subdivisions (b) and (c), all partners are liable jointly and severally for all obligations of the partnership unless otherwise agreed by the claimant or provided by law.” (Corp. Code, § 16306, subd. (a).) Using the stipulation and this statutory cite, SVP argues that Mr. and Mrs. Robinson are liable jointly and severally for the judgment in this case, and thus, it was error not to name them in the judgment relating to damages incurred after January 25, 2001.
Defendants cite Corporations Code section 16307 which, in relevant part, provides: “(c) A judgment against a partnership is not by itself a judgment against a partner. A judgment against a partnership may not be satisfied from a partner’s assets unless there is also a judgment against the partner.” (Corp. Code, § 16307, subd. (c).) Corporations Code section 16307, subdivision (d), states: “(1) A judgment based on the same claim has been obtained against the partnership and a writ of execution on the judgment has been returned unsatisfied in whole or in part. [¶] (2) The partnership is a debtor in bankruptcy. [¶] (3) The partner has agreed that the creditor need not exhaust partnership assets. [¶] (4) A court grants permission to the judgment creditor to levy execution against the assets of a partner based on a finding that partnership assets subject to execution are clearly insufficient to satisfy the judgment, that exhaustion of partnership assets is excessively burdensome, or that the grant of permission is an appropriate exercise of the court’s equitable powers. [¶] (5) Liability is imposed on the partner by law or contract independent of the existence of the partnership.” Defendants note that the judgment has been paid.
Because none of the factors listed in Corporations Code section 16307, subdivisions (c) or (d), is applicable, SVP is foreclosed from naming Mr. or Mrs. Robinson in the judgment or executing on their assets.
IV. DISPOSITION
The judgment is affirmed. Defendants to recover costs on appeal.
We concur: RICHLI, J., KING, J.