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Knafo v. Collectors Universe, Inc.

COURT OF APPEAL OF THE STATE OF CALIFORNIA FOURTH APPELLATE DISTRICT DIVISION THREE
Apr 30, 2018
G054661 (Cal. Ct. App. Apr. 30, 2018)

Opinion

G054661

04-30-2018

CLAUDE KNAFO, Plaintiff and Appellant, v. COLLECTORS UNIVERSE, INC., et al., Defendants and Respondents.

Herbert Abrams, for Plaintiff and Appellant. Attlesey, Storm, and Keith A. Attlesey and John P. Ward, for Defendant and Respondent Collectors Universe, Inc. Christopher L. Bauer, for Defendant and Respondent Michael Souza.


NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 30-2015-00772786) OPINION Appeal from a judgment of the Superior Court of Orange County, Deborah C. Servino, Judge. Affirmed. Herbert Abrams, for Plaintiff and Appellant. Attlesey, Storm, and Keith A. Attlesey and John P. Ward, for Defendant and Respondent Collectors Universe, Inc. Christopher L. Bauer, for Defendant and Respondent Michael Souza.

Claude Knafo appeals from a judgment entered in favor of Collectors Universe, Inc., a company which grades the quality of certain sports collectibles, including trading cards. Knafo submitted a 1972 Julius Erving trading card to Collectors for grading, and Collectors returned the card to him in a tamper-proof case bearing a label that incorrectly described the card as being in perfect "Gem Mint 10" condition. Collectors quickly realized its error and requested Knafo return the card to it for correction of the mistaken description.

In his opening brief, Knafo states that while he is waiving certain claims against another defendant, Michael Souza, he is "reserving" a cause of action against Souza for violation of the Cartwright Act. Knafo contends the court erroneously sustained a demurrer to that cause of action without leave to amend and requests it be reinstated against both Collectors and Souza. However, although Souza has filed a respondent's brief in this appeal, our record contains no evidence that Knafo appealed from any judgment entered in Souza's favor. Instead, Knafo's notice of appeal reflects he is appealing solely from the judgment entered on February 1, 2017, which is in favor of Collectors. Consequently, we will address his argument only as it applies to Collectors.

Knafo not only refused to return the card for correction, he then sued Collectors, alleging its effort to alter the card's grade had interfered with his nascent agreement to sell the card to a third party for a substantial sum and that it also violated Collectors' own guarantee of the grade it had given to the card. Collectors responded by seeking specific performance of its submission agreement, which it alleged obligated Knafo to return the card for a correction of the erroneous grade.

The trial court sided with Collectors and entered a judgment requiring Knafo to return the card for correction. He appeals, arguing the court erred by applying the terms of the submission agreement to this dispute, rather than focusing exclusively on the language of Collectors' guarantee. According to Knafo, once a graded card has been returned to the customer in Collectors' tamper-proof case, Collectors' guarantee is "the only applicable contract between the parties."

Knafo filed a related appeal regarding an attorney fee dispute with respect to this litigation, Knafo v. Collectors Universe, Inc., (Apr. 30, 2018, G055112) (Knafo II).

We are unpersuaded by Knafo's claim. The terms of the submission agreement demonstrate it is intended to bind the party submitting the card—in this case, Knafo—even after that card has been graded and returned by Collectors. And nothing in the language of Collectors' guarantee even references the submission agreement, let alone reflects any intention to supersede or nullify it.

Because Knafo remains bound by the provisions of the submission agreement, including its requirement that he return an incorrectly described card upon Collectors' request to correct it, we affirm the judgment.

FACTS

Collectors' Business of Evaluating Trading Cards

Collectors, through its division Professional Sports Authenticator (PSA), authenticates and evaluates the quality of sports trading cards and other collectibles. Since its founding in 1991, Collectors has processed over 27 million cards and collectibles, with a cumulative value estimated at over a billion dollars. As Knafo alleges in his complaint, Collectors is the "most important third-party grader in connection with the grading of trading cards." Collectors does not purchase, sell, or consign trading cards.

Customers submit cards to Collectors in accordance with the terms of a written submission agreement, which binds the customer "and any third party for whom Customer may be acting with respect to this agreement." The submission agreement provides for three different types of submissions: "Grading," "Review," and "Crossover." "Grading" refers to the evaluation of "raw cards," meaning cards that have never previously been graded by any company. "Review" refers to re-evaluation of a card previously graded by Collectors, when a customer believes the card "might be worthy of a higher grade." And "Crossover" refers to the evaluation of a card previously graded by another company.

The submission agreement also provides for various "service level[s]," which depend primarily on the customer's declared valuation of the card and the amount of time allowed for completion of the service. The prices range from $17 for "regular" service, which is available only for cards valued at under $500, up to $500 for "premium" service, which is required for any card valued at more than $10,000. The submission agreement specifies that in the event a submitted card is lost or damaged, Collectors cannot be held liable for any amount in excess of the customer's declared value.

After a card is submitted to Collectors, its experts review the card for authenticity and any signs of alteration. Assuming the card is deemed both genuine and unaltered, they "grade the condition of each card on a scale of 1-10, with 10 being best." The card is then encapsulated in a tamper-proof case that also incorporates a label—commonly referred to as the "flip"—which displays "the card's pertinent information (including its grade) and unique certification number." The card is then returned to the customer in its tamper-proof case.

Each grade also correlates, at least informally, to a verbal description. Thus, a card graded 10 is described as a "Gem Mint," while a card graded 9 is described as merely "Mint." A card graded as a 5 is described as "Excellent."

Collectors refers to its cases as a "tamper-evident" cases, presumably because they are designed to reveal whether a case has been tampered with, rather than actually preclude such tampering.

Collectors' submission agreement obligates the customer to "inspect all cards immediately upon receipt," and states Collectors "disclaims any liability for damage or discrepancies or errors, including, but not limited to, errors in the description of the card unless reported to [Collectors] within five (5) days of Customer's receipt of the card(s)." Moreover, the agreement provides that "Customer agrees to return any incorrectly described card to [Collectors] upon request for correction . . . ."

The Dispute

In October 2014, Knafo submitted 186 trading cards to Collectors for grading. Included among them was a 1972 Julius Erving card (the Erving card), which Knafo valued on the submission form at $100.

Collectors' grading experts assigned the Erving card a grade of "EX-5," which reflects it has signs of deterioration such as minor rounding of the corners, minor chipping on the edges or surface wear. A 1972 Julius Erving card with a rating of EX-5 has a value in the range of $75-100, which is consistent with the value placed on the card by Knafo when he submitted it for grading.

However, while the card was being processed by Collectors, an employee mistakenly entered a grade of "PSA Gem Mint 10" into the system that produces the "flips" for graded cards. Thus, on January 8, 2015, Collectors shipped the graded Erving card back to Knafo with a flip that identified it as a "Gem Mint 10."

Knafo immediately began efforts to sell the Erving card, which included negotiations with defendant Souza, a former employee of Collectors, who offered to purchase the card for $35,000. However, after Knafo sent a photograph of the card to Souza, Souza contacted Collectors regarding the card's perfect "Gem Mint 10" grade.

Collectors quickly determined the grade reflected on the Erving card's flip was incorrect. They then contacted Knafo by e-mail on January 21—less than two weeks after it had shipped him the graded card—to inform him that due to a clerical error, the grade on the Erving card's flip was incorrect. Collectors requested Knafo return the card for correction, as required by the terms of its submission agreement. Knafo declined to do so unless Collectors paid him $30,000.

Collectors then advised Knafo that if he made any further efforts to sell the Erving card as a Gem Mint 10, he would be engaging in a fraud, and it informed him that it had removed any reference to the card from its online database and "population report" to ensure the card could not be sold before the grade was corrected.

The Lawsuit

Feeling thwarted in his effort to realize the value of the Gem Mint 10 grade for the Erving card, Knafo filed suit against both Collectors and Souza. He initially alleged causes of action for "interference with business," violation of the Cartwright Act (Bus. & Prof. Code, § 16700, et seq.), and "breach of express warranty." The trial court sustained a demurrer to Knafo's Cartwright Act cause of action, without leave to amend.

Knafo's complaint against Collectors is based on the terms of its written guarantee, which states Collectors "guarantees that all cards submitted to it shall be graded in accordance with [Collectors] grading standards and under [its] procedures." It further provides that if Collectors "concludes that the card in question no longer merits the . . . grade assigned or fails our authenticity standards, [Collectors] will . . . [¶] . . . [¶] 2. Refund the difference in value between the original . . . grade and the current . . . grade if the grade is lowered. In this case, the card will also be returned to the customer along with the refund for the difference in value."

Based on that guarantee, Knafo alleged that when the Erving card "was returned to [him] with a grade of 10, [Collectors had] warranted to [him] and the public the fact that the Card was a Gem Mint 10 and thereby guaranteed the grade and authenticity thereof under the . . . Guarantee . . . . " Thus, when Collectors insisted Knafo return the card to it for a correction of that grade, it was allegedly breaching its written guarantee and wrongfully interfering with Knafo's right to realize the value of the card as originally graded by Collectors.

Knafo also alleged Collectors had engaged in a conspiracy with Souza, its former employee, for the purpose of "prevent[ing him] from completing the sale [of the Erving card], to circumvent [Collectors'] financial guarantee . . . and to destroy the value of the Card."

Collectors filed a cross-complaint against Knafo, alleging he breached the submission agreement and seeking specific performance of its provision requiring the customer "to return any incorrectly described card to [Collectors] upon request for correction . . . ."

In November 2016, Collectors moved for summary adjudication on its cross-complaint, as well as summary judgment on Knafo's complaint. Collectors alternatively sought summary adjudication on each of the causes of action set forth in Knafo's complaint. Collectors argued it was entitled to prevail because (1) Knafo was contractually obligated by the submission agreement to return the Erving card to it for correction upon its request, (2) Knafo had suffered no cognizable damages as a consequence of his failure to sell the Erving card for an artificially inflated price, and (3) Collectors had engaged in no wrongful acts.

In his opposition, Knafo argued he was not bound by the terms of the submission agreement because once the Erving card was graded and encased in its tamper-proof case, the "grading process has been completed and the submission agreement is no longer in effect."

Knafo also claimed there was a genuine dispute of fact about whether he had suffered damages because: (1) he had been offered $35,000 for the Erving card based on the grade of Gem Mint 10, and he lost that opportunity when Collectors backed off of the grade; and (2) the trial court had already ruled, in the context of a demurrer, that his allegations of damage were sufficient. In Knafo's response to Collectors' separate statement, he identified Collectors' claim he had suffered no damages as a disputed fact, but pointed only to the allegations of his Third Amended Complaint as the "evidence" disputing that claim.

The trial court granted Collectors' motion, ordering summary adjudication in its favor on both causes of action remaining in Knafo's complaint, as well as on the third cause of action for specific performance in Collector's cross-complaint. The court expressly ruled that Knafo remained bound by the provision of the submission agreement that required him to return the card to Collectors for correction, upon its request.

The court declined to grant Collector's request for summary adjudication of its cause of action for breach of contract against Knafo, explaining that a party cannot obtain both specific performance of a contract and damages for its breach. The court reasoned that because Knafo had not yet sold the incorrectly labeled Erving card to any third party, specific performance was the more appropriate remedy.

Following the court's order, Collectors voluntarily dismissed its remaining cause of action for indemnity against Knafo, and the court ordered Collectors to submit a proposed judgment in its favor. The court signed the order in favor of Collectors on February 1, 2017, and Knafo appealed from that judgment.

DISCUSSION

Standard of Review

As Knafo is challenging the propriety of an order granting summary adjudication, our review is de novo. "Summary judgment is granted when a moving party establishes the right to the entry of judgment as a matter of law. [Citation.] On appeal, the reviewing court makes '"an independent assessment of the correctness of the trial court's ruling, applying the same legal standard as the trial court in determining whether there are any genuine issues of material fact or whether the moving party is entitled to judgment as a matter of law.""' (Hesperia Citizens for Responsible Development v. City of Hesperia (2007) 151 Cal.App.4th 653, 658.)

Moreover, when an appeal turns on an issue of contract interpretation, as this one does, our review is also de novo. (See, Powerine Oil Co., Inc. v. Superior Court (2005) 37 Cal.4th 377, 390.)

Applicability of Submission Agreement to the Dispute

Knafo describes this appeal as "involv[ing] one issue, to wit: which contract governed the relationship between the parties; the warranty guarantee . . . or the submission agreement . . . ." He argues the trial court erred by concluding the submission agreement "was the enforceable contract between the parties rather than the warranty guarantee," because (1) once a card is assigned a grade and placed in a tamper-proof case, the submission agreement is "superseded by the warranty guarantee," and (2) the submission agreement is "in direct contravention of the warranty guarantee, which explicitly provides for relief where there is a mistake made by . . . Collectors in this situation."

Knafo also claims that even if the submission agreement remained enforceable, its requirement that a customer return an "incorrectly described card" to Collectors has no application to this case because an incorrectly "described" card is different than an incorrectly "graded" card.

Knafo also suggests the trial court was somehow bound by its prior finding, made in connection with Collector's demurrer, that the "warranty guarantee . . . was the operative agreement between the parties." He cites no authority to support that suggestion, and our own review of the demurrer ruling reveals the court made no such finding. Instead, the court's ruling focused only on whether the allegations of Knafo's complaint, which were presumed to be true, were sufficient to state a cause of action. (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 966-967.) It made no findings as to the merits of that cause of action. But even if the court had made the finding Knafo describes, we would not be bound by it on appeal.

We agree with Knafo that this appeal turns on whether the submission agreement governs the parties' dispute, but our agreement with him ends there. Our own review of the documents convinces us the submission agreement was not superseded by the guarantee, but remained in effect even after the Erving card was assigned a grade, encased in its tamper-proof case, and returned to Knafo.

Initially, we note there is no clause in the guarantee that either expressly states or implies it is intended to supersede or nullify the submission agreement. Such clauses are typical, and indeed the submission agreement itself includes one. Knafo does not point to any such language in support of his argument.

Additionally, while it is true that a later-drafted contract will be deemed to supersede an earlier one between the same parties when the provisions of the two contracts are inconsistent (see Frangipani v. Boecker (1998) 64 Cal.App.4th 860, 863 ["[w]here there is an inconsistency between two agreements both of which are executed by all of the parties, the later contract supersedes the former"]), that rule has no application here. In this case, it is clear the guarantee was not drafted later than the submission agreement because it is directly referenced in that agreement.

In fact, it is the submission agreement's direct references to the guarantee that form the basis of Knafo's assertion that the guarantee supersedes it. Specifically, Knafo points to two clauses which state, respectively, that Collectors "makes no warranty or representation . . . except pursuant to [the] Financial Guarantee of Grade and Authenticity," and that its liability is limited "except with respect to the remedies under the . . . Financial Guarantee of Grade and Authenticity." Knafo asserts, without explanation, that those provisions "mandate that the warranty guarantee was the operative agreement between the parties (since the Card was given a PSA grade and placed in a tamper-evident holder)." But those references do not mandate anything about the guarantee's primacy over the submission agreement; they merely acknowledge and affirm its existence.

And more significant, there are other provisions of the submission agreement—including the requirement that an "incorrectly described card" be returned to Collectors—which make clear the submission agreement is intended to govern the parties' relationship even after a card has been graded and shipped to the customer in its tamper-proof case. Indeed, that particular requirement could not take effect unless the graded card had first been shipped to the customer. Similarly, the submission agreement provides that Collectors will have no liability for any injury or damage "resulting from the breaking open of a . . . card holder." Again, such a claim of injury or damage could not even arise until after the graded card, encased in that holder, had been received by the customer.

And finally, the submission agreement also states that Collectors has the right to compile and maintain data and images of a card submitted to it, and that the customer assigns any and all current and future rights to such data and images to Collectors. That clause would be rendered illusory if the submission agreement were superseded by the guarantee language as soon as the card was graded and encased. We must avoid such a construction where possible. (Civ. Code, § 1643 ["A contract must receive such an interpretation as will make it lawful, operative, definite, reasonable, and capable of being carried into effect, if it can be done without violating the intention of the parties"].) Based on all of these provisions, we reject Knafo's assertion that the submission agreement was superseded by the guarantee once Collectors graded the Erving card and returned it to him.

We also reject Knafo's contention that the submission agreement's provision requiring that he return an "incorrectly described card" does not apply to this situation. Without significant analysis, or any citation to authority, Knafo simply asserts that an incorrectly "described" card must be something wholly different from an incorrectly "graded" card because the words are different.

However, Knafo offers no alternative suggestion as to what the phrase "incorrectly described card" might refer to in the context of this agreement, and we must presume it means something. "We must give significance to every word of a contract, when possible, and avoid an interpretation that renders a word surplusage." (In re Tobacco Cases I (2010) 186 Cal.App.4th 42, 49.)

Our task is not a difficult one in this case. "'[I]n construing a contract the court's function is not merely to import all of the possible definitions or even the broadest definition, but to glean the meaning of the words from the context and usage of the words in the contract itself.'" (Mountain Air Enterprises, LLC (2017) 3 Cal.5th 744, 755.) Additionally, "[t]he fact that a term is not defined . . . does not make it ambiguous." (Powerine Oil Co., Inc. v. Superior Court, supra, 37 Cal.4th at p. 390.)

The provision before us, while not defining what a card's "description" is, explicitly requires the customer to examine the description promptly upon receipt of a graded card, and to report any errors in that description to Collectors within five days. Thus, it appears the description is something the customer receives with the graded card. More significantly, the customer is obligated to return the card to Collectors for correction of an erroneous description. Such a return would be unnecessary if the description were not physically attached to the card itself. Obviously, Collectors could correct its own database or internal records describing a card, without retaking possession of the graded card itself.

Based on the submission agreement's explicit requirement that the customer return an "incorrectly described card" to Collectors for correction, we conclude the card's "description" unambiguously refers to the information contained on the "flip" encased with card. A flip that reflects erroneous information about the card—including the grade assigned to it—incorrectly "describes" that card. Thus, when Collectors informed Knafo that the Gem Mint 10 grade reflected on the flip of his Erving card was incorrect, he was obligated by the terms of the submission agreement to return that "incorrectly described" card to Collectors for a correction.

We are unpersuaded by Knafo's assertion that this correction requirement is somehow inconsistent with the terms of Collectors' guarantee, or that it renders the guarantee a "hoax." Key to understanding why the guarantee is not illusory is a recognition that the submission agreement binds only the customer who submits the card for a grade and anyone on whose behalf that customer is acting. Hence, once that customer (or the principal on whose behalf the customer has submitted the card) sells the graded card to a third party, Collectors loses its ability to enforce the agreement's provision allowing it to correct erroneous information on the flip. At that point, Collectors will be bound under the guarantee to whatever grade is reflected thereon.

Collectors responds in kind to Knafo's "hoax" claim, accusing Knafo of engaging in a "shakedown" attempt. Tensions appear to be running high on both sides. We endorse neither side's characterization of the other. As we explain, Collectors' guarantee properly serves the purpose for which it is intended, which is to provide assurance to the purchaser of a graded card that the card has been reliably evaluated in accordance with its inherent characteristics, and the grade can be relied upon. The guarantee is never intended to artificially inflate the value of any card.

Paragraph 12 of the submission agreement states: "If any cards are being submitted for a third party, Customer represents and warrants that such third party has agreed and accepted this Agreement and has signed a duplicate copy hereof where indicated."

Thus, the effect of Collectors' guarantee is to protect third parties who would presumably rely on the grade reflected on a card's flip when choosing to purchase it, and to assure them that if the grade is thereafter determined to be incorrect, they would be compensated. The guarantee is not intended to confer any right on the customer submitting the card to enforce an incorrect grade.

To be clear, Knafo does not contend, nor did he offer any evidence suggesting, that his Erving card actually deserved the Gem Mint 10 grade. In his deposition, Knafo acknowledged that no one other than Collectors had graded the card and that he personally had no opinion as to whether the card was a Gem Mint 10, noting "[I]t's tough to gauge." He also estimated the card to have a value of $100 at the time he submitted it, consistent with the value of a card graded as a 5, not a 10. --------

To the contrary, the essence of Collectors' guarantee is its promise "that all cards submitted to it shall be graded in accordance with [its] grading standards and under [its] procedures . . . ." In other words, Collectors is promising that the resulting grades will be accurate, consistent, and reliable. Collectors fulfills that promise, rather than breaches it, when it endeavors to correct erroneous information included on a card's flip before anyone buys or sells the card in reliance on that mistaken information.

The Demurrer

Finally, Knafo contends the trial court also erred in sustaining, without leave to amend, Collectors' demurrer to his cause of action for violation of the Cartwright Act. The court ruled Knafo failed to state a cause of action because he had alleged neither the type of restraint that qualifies as a per se violation of the Cartwright Act, nor any facts demonstrating injury to anyone other than himself.

As the court explained, "'"Certain restraints which lack redeeming virtue are conclusively presumed to be unreasonable and illegal," and constitute a per se illegal practice.' [Citation.] Plaintiff fails to allege the kind of facts indicating that the alleged restraint, here, is within that limited category of restraints. [¶] Plaintiff also fails to allege any injury in excess of his own personal business concerns and circumstances. [Citation.] Like the anesthesiologist in Marsh [v. Anesthesia Service Medical Group, Inc. (2011) 200 Cal.App.4th 480], Plaintiff alleged facts showing an injury only to himself—not facts showing injury to some anticompetitive effect in the larger, interbrand market."

Knafo's challenge to the court's ruling acknowledges none of that, however, and makes no effort to explain why the court's reasoning was wrong. He has consequently waived the claim of error. "[I]t is settled that: 'A judgment or order of the lower court is presumed correct."' "'[A]nd error must be affirmatively shown. This is not only a general principle of appellate practice but an ingredient of the constitutional doctrine of reversible error.'" (Denham v. Superior Court of Los Angeles County (1970) 2 Cal.3d 557, 564; see Interinsurance Exchange v. Collins (1994) 30 Cal.App.4th 1445, 1448 ["[P]arties are required to include argument and citation to authority in their briefs, and the absence of these necessary elements allows this court to treat appellant[s'] [contentions] as waived"]; Dills v. Redwoods Associates, Ltd. (1994) 28 Cal.App.4th 888, 890, fn. 1 [appellate court "will not develop the appellants' arguments for them"].)

In any event, Knafo's Cartwright Act claim is doomed because, as we have already explained, there is no indication Collectors engaged in any wrongdoing when it sought to enforce the terms of its submission agreement against Knafo. Further, there is no indication that Collectors' insistence on correcting the erroneous grade on the Erving card might have had an anti-competitive effect on the marketplace. (Bus. & Prof. Code, § 16720 [defining an unlawful "trust" for purposes of the Cartwright Act]; Exxon Corp. v. Superior Court (1997) 51 Cal.App.4th 1672, 1681 [explaining that where an antitrust plaintiff alleges vertical restraints, facts must be pled showing "some anticompetitive effect in the larger, interbrand market"].)

DISPOSITION

The judgment is affirmed. Collectors is awarded its costs on appeal. In light of our affirmance of the attorney fee award in the related appeal (Knafo II, supra, G055112), we remand the case to the trial court with directions to exercise its discretion with respect to an award of attorney fees related to this appeal.

GOETHALS, J. WE CONCUR: BEDSWORTH, ACTING P. J. ARONSON, J.


Summaries of

Knafo v. Collectors Universe, Inc.

COURT OF APPEAL OF THE STATE OF CALIFORNIA FOURTH APPELLATE DISTRICT DIVISION THREE
Apr 30, 2018
G054661 (Cal. Ct. App. Apr. 30, 2018)
Case details for

Knafo v. Collectors Universe, Inc.

Case Details

Full title:CLAUDE KNAFO, Plaintiff and Appellant, v. COLLECTORS UNIVERSE, INC., et…

Court:COURT OF APPEAL OF THE STATE OF CALIFORNIA FOURTH APPELLATE DISTRICT DIVISION THREE

Date published: Apr 30, 2018

Citations

G054661 (Cal. Ct. App. Apr. 30, 2018)

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