Opinion
A116543
4-23-2008
FREDERICK BENSON, Plaintiff and Appellant, v. RHINO INDUSTRIES, INC., et al., Defendants and Appellants.
NOT TO BE PUBLISHED
Defendants Rhino Industries, Inc. (Rhino), and Core Marketers Group, Inc. (Core), appeal from a judgment by court trial in favor of plaintiff Frederick Benson (Benson) on his claims for breach of contract and contractual interference. Rhino and Core contend the courts statement of decision is inadequate, the judgment on the breach of contract and contractual interference causes of action is not supported by the evidence, and the court erred in its determination of damages. Benson cross-appeals from that portion of the judgment in favor of Rhino and Core on Bensons claims for breach of fiduciary duty and constructive fraud. Benson argues that the court erred in finding that no fiduciary or confidential relationship existed between Benson and Rhino. We disagree with both sets of contentions and affirm.
BACKGROUND
Benson is the former president and successor in interest of Crydex, Inc. (Crydex), a California corporation organized in the mid-1990s. Crydex manufactured and sold a track-based cargo tie-down system for installation in vehicle cargo beds. Benson marketed this product under the name Pro-Trak, and obtained a trademark for the name.
In 1995, Crydex signed a sales representative agreement with Mark Crisafi (Crisafi), under which Crisafi agreed to market and sell Pro-Trak. Crisafi facilitated negotiations between Benson and Russell Lewis (Lewis), the president of Rhino, for the sale of Pro-Trak. In March 1996, Crydex entered into an agreement with Rhino for the sale of Crydexs assets, which consisted of an Agreement for the Purchase and Sale of Assets (Purchase Agreement) and a Royalty Agreement.
Under the Purchase Agreement, Rhino purchased all of the assets of Crydex, free of liens and encumbrances. The Purchase Agreement defined assets to include all trade names and trademarks, customer and supplier lists, product designs, equipment and inventory, and orders and accounts as of March 1, 1996. The Purchase Agreement provided for the sale of these assets for the purchase price of $58,253 plus royalties, as set forth in the accompanying Royalty Agreement.
The Royalty Agreement stated that Rhino would pay Crydex 5 percent of the gross sales of the Pro-Trak product line until proceeds reached $100,000, and thereafter would pay Crydex 2 percent of gross sales for 10 years from the date of the contract. The Royalty Agreement provided that "Rhino Industries, Inc. will use its [sic] best efforts to ensure reasonable growth in sales of the PRO-TRAK line of products." The Royalty Agreement also stated, "In the event of a sale of the PRO-TRAK product line by Rhino Industries, Inc., this Agreement shall transfer in its entirety to the new owner(s)," and "Royalties shall be paid in accordance with this Agreement whether the product line is manufactured or sold under its present name of PRO-TRAK or any other name. This will include any products having the same or similar design, intent and use."
Around the time of the March 1996 Purchase Agreement, Rhino established a separate division, Anchor USA (Anchor). Anchor was responsible for manufacturing, marketing and selling "after market" accessories, including Pro-Trak. About this same time, Rhino also hired Crisafi to oversee marketing and sales for the Anchor division, including the marketing of Pro-Trak. At some point thereafter, Crisafi formed his own company, Core, through which he continued to provide marketing and sales services to Anchor.
In 1999, the sales of Pro-Trak began to decline. This decline continued until early 2001, when Lewis informed Benson that he was no longer interested in selling Pro-Trak. Lewis further informed Benson that Crisafis company, Core, was negotiating for the purchase of the Pro-Trak product line. Crisafi then contacted Benson and attempted to renegotiate the terms of the Royalty Agreement, stating that he wanted to decrease royalty payments paid to Benson to 1 percent. Benson was reluctant to renegotiate, and Crisafi informed Benson that if they were not able to reach an agreement on royalties for use of the name Pro-Trak, Core would move forward to produce the product under a different identity. Lewis urged Benson to negotiate with Crisafi, and told Benson that he could either take 1 percent royalty payments from Crisafi or get 5 percent of nothing. Benson informed Crisafi that if he wanted to market and sell Pro-Trak, he would be subject to the Royalty Agreement.
In late 2001, Core began selling its own track-based cargo tie-down system, marketed under the name Core-Trax. Core-Trax was substantially similar to Pro-Trak, and had similar packaging and warranty language. Benson received no royalties for sales of Core-Trax.
On October 18, 2002, Benson filed his third amended complaint against Rhino and Core. The third amended complaint alleged causes of action for breach of contract, fraud, negligent misrepresentation, interference with contractual relations, accounting, breach of fiduciary duty, and constructive fraud. On April 19, 2006, following a court trial, the court issued a tentative decision in favor of Benson on his breach of contract and contractual interference claims and in favor of Rhino and Core on Bensons remaining claims, and directed counsel for Benson to prepare a statement of decision. Rhino and Core then filed a request for a statement of decision asking the court to address specific controverted issues, including what evidence supported the findings of breach of contract and contractual interference. After Benson filed his proposed statement of decision, Rhino and Core filed objections to the proposed statement contending that it failed to address controverted issues raised in their request for a statement of decision. The court issued an order adopting Bensons proposed statement of decision and overruling Rhino and Cores objections.
On November 6, 2006, the court issued judgment in favor of Benson on the first cause of action (breach of contract) and the fourth cause of action (intentional interference with contractual relations), and incorporated the statement of decision submitted by Benson. The court found defendants Rhino and Core jointly and severally liable to Benson in the amount of $36,105. The court found in favor of Rhino and Core on the remaining causes of action.
Rhino and Core filed a timely appeal from the courts judgment in favor of Benson on Bensons first and fourth causes of action. Benson filed a timely cross-appeal from the courts judgment in favor of Rhino and Core on Bensons sixth cause of action (breach of fiduciary duty) and seventh cause of action (constructive fraud).
DISCUSSION
I. Appeal
A. Adequacy of Statement of Decision
Rhino and Core contend that the trial courts statement of decision failed to adequately address the controverted issues, in that it did not articulate the legal or factual basis for its finding in favor of Benson on his breach of contract and contractual interference claims. We disagree.
Under Code of Civil Procedure section 632, "In superior courts, upon the trial of a question of fact by the court, written findings of fact and conclusions of law shall not be required. The court shall issue a statement of decision explaining the factual and legal basis for its decision as to each of the principal controverted issues at trial upon the request of any party appearing at the trial." The court need not discuss each question listed in a partys request for a statement of decision: "[A]ll that is required is an explanation of the factual and legal basis for the courts decision regarding the principal controverted issues at trial as are listed in the request." (Hellman v. La Cumbre Golf & Country Club (1992) 6 Cal.App.4th 1224, 1230.)
We conclude that the courts nine-page statement of decision more than adequately sets forth the legal and factual basis for the trial courts decision in favor of Benson on his breach of contract and contractual interference claims. After summarizing the factual background laid out above, the court concluded that Rhino was liable for breach of the Royalty Agreement because Rhino failed to use its best efforts to ensure reasonable growth of Pro-Trak sales. The court found that Rhino failed to use its existing marketing and distribution networks to market Pro-Trak, shifted key employees and resources away from Pro-Trak to more lucrative ventures, significantly scaled back on its marketing efforts starting in 1999 and abandoned those efforts in 2000, and closed down the Anchor division responsible for marketing Pro-Trak in 1999. The court rejected Rhinos claim that it had abandoned Pro-Trak because it was unprofitable, finding that in 2001, Rhinos former vice-president, Crisafi, began marketing a very similar system under the name Core-Trax, and this product had generated sufficient sales to stay in the market. The court further concluded that Core was jointly and severable liable for contractual interference, because Crisafi knew of the Royalty Agreement and intentionally participated with Rhino in acts intended to cut off Bensons royalty rights and otherwise disrupt the contractual relationship between Rhino and Benson. This statement of decision adequately addresses the principal controverted issues as required by Code of Civil Procedure section 632.
B. Breach of Contract and Contractual Interference Claims
Rhino and Core next contend that the courts judgment in favor of Benson on his breach of contract and contractual interference claims is not supported by evidence or case law. Again, we disagree.
First, Rhino and Core contend the court erred in finding that Rhino was liable for breach of contract for failing to use its best efforts to ensure reasonable growth of Pro-Trak. Rhino and Core do not contend that the court erred in its interpretation of the phrase "best efforts," which the court defined as "reasonable efforts under the circumstances," but instead argue that the evidence does not support the courts finding that Rhino failed to use its best efforts.
Whether a defendant used its best efforts under the circumstances is a factual question. (U.S. Ecology, Inc. v. State of California (2001) 92 Cal.App.4th 113, 136.) We review the courts determination that Rhino failed to use its best efforts under the deferential substantial evidence standard. "`Where findings of fact are challenged on a civil appeal, we are bound by the "elementary, but often overlooked principle of law, that . . . the power of an appellate court begins and ends with a determination as to whether there is any substantial evidence, contradicted or uncontradicted," to support the findings below. [Citation.] We must therefore view the evidence in the light most favorable to the prevailing party, giving it the benefit of every reasonable inference and resolving all conflicts in its favor. . . . [Citation.]" (Bickel v. City of Piedmont (1997) 16 Cal.4th 1040, 1053.)
Substantial evidence supports the courts finding that Rhino failed to use its best efforts to ensure reasonable growth of Pro-Trak sales. In March 1996, Rhino acquired Pro-Trak and undertook this duty. Three years later, in 1999, Lewis informed Benson that Rhino was not using its existing store outlets and advertising networks to promote and sell Pro-Trak. Rhino pulled employees, including Crisafi, off the Pro-Trak product line and shifted them to other more successful Rhino product lines. Rhino did not replace Crisafi with anyone responsible for overseeing the marketing and sales of Pro-Trak. Rhino also closed the separate Anchor facility, which had been responsible for manufacturing, marketing and selling Pro-Trak, and consolidated all Rhino operations at a single plant in San Diego. Rhino did not maintain records tracking the funds it had invested in promotion or marketing of Pro-Trak, and did not develop formal market studies or a written business plan for Pro-Trak.
Rhino and Core repeatedly assert that Rhino stopped selling Pro-Trak because the product was unprofitable, and note that Benson admitted that Rhino was not contractually obligated to continue selling Pro-Trak if it was not making a profit. However, the trial court was not persuaded by Rhinos claim that it abandoned Pro-Trak because it was unprofitable, and instead found that "the real reason for its abandonment appears to be a decision by Rhino to focus its energy and resources on other more profitable products." The court noted that Rhino could have remained in the cargo tie-down market and generated annual revenues at least equal to those generated by Core in its sales of Core-Trax. These findings are likewise supported by substantial evidence. As noted above, Rhino diverted employees and resources from Pro-Trak to more successful Rhino product lines. Moreover, after Rhino abandoned Pro-Trak, Core began selling Core-Trax, a product substantially similar to Pro-Trak. Although Crisafi testified that Core-Trax was not profitable, Core continued to manufacture and sell Core-Trax, and the product generated $140,000 to $150,000 in gross sales in 2005.
Rhino and Core also assert that the "best efforts" term in the Royalty Agreement is not sufficiently certain or definite, and therefore is unenforceable. (See, e.g., Civ. Code, § 3390, subd. (5) [to be enforceable, contract terms must be sufficiently certain to make the precise act to be done clearly ascertainable].) They likewise contend that because the "best efforts" clause is ambiguous it should be construed against Benson. (See Civ. Code § 1654 [ambiguous contract language interpreted most strongly against the party who caused the uncertainty to exist].) These arguments fail; California courts have repeatedly enforced contracts with "best efforts" clauses. (See, e.g., U.S. Ecology, Inc. v. State of California, supra, 92 Cal.App.4th at pp. 134-136 [question of fact whether party satisfied its promise to use its "best efforts" to achieve a particular result]; Larkin v. Williams, Woolley, Cogswell, Nakazawa & Russell (1999) 76 Cal.App.4th 227, 229-230 [breach of promise to use best efforts].)
Next, Rhino and Core argue that the courts finding that Core was liable for intentional interference with contractual relations is not supported by the record. However, the trial court found that Core, through Crisafi, had intimate knowledge of the Purchase and Royalty Agreements, and intentionally participated with Rhino in acts intended to cut off Bensons royalty rights and disrupt the contractual relationship between Benson and Rhino. The court further found that breach of the Royalty Agreement and disruption of the contractual relationship between Benson and Rhino ensued.
The courts findings are again supported by substantial evidence. In the months preceding the execution of the Purchase and Royalty Agreements, Crisafi facilitated negotiations between Benson and Rhino for the sale of Pro-Trak. In early 2001, Lewis informed Benson that Crisafis company, Core, was negotiating for the purchase of Pro-Trak. Crisafi then contacted Benson and attempted to renegotiate the terms of the Royalty Agreement, and informed Benson that if they were not able to reach an agreement on royalty payments for use of the name Pro-Trak, Core would move forward to produce the product under a different identity. Lewis urged Benson to accept the deal offered by Crisafi, and told Benson that he could either take 1 percent royalty payments from Crisafi or get 5 percent of nothing. In late 2001, Core began selling its substantially similar track-based cargo tie-down system under the name Core-Trax.
We also reject Rhino and Cores contention that the trial court could not find Core liable for contractual interference because Core "engaged in no conduct that was wrong by some other legal measure." Rhino and Core rely on Della Penna v. Toyota Motor Sales, U.S.A., Inc. (1995) 11 Cal.4th 376, 393, which held that in an action for interference with prospective contractual or economic relations, the plaintiff must prove that defendants conduct "was wrongful `by some legal measure other than the fact of interference itself." However, "[w]rongfulness independent of the inducement to breach the contract is not an element of the tort of intentional interference with existing contractual relations," and thus the wrongfulness requirement does not apply here. (Quelimane Co., Inc. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 55.)
C. Damages
Finally, Rhino and Core contend that the court erred in its determination of damages. We disagree.
"The basic object of damages is compensation, and in the law of contracts the theory is that the party injured by a breach should receive as nearly as possible the equivalent of the benefits of performance. (Civ. Code, § 3300.) The aim is to put the injured party in as good a position as he or she would have been had performance been rendered as promised. [Citation.]" (Kashmiri v. Regents of University of California (2007) 156 Cal.App.4th 809, 848.)
The trial court concluded that Bensons expert witnesss calculation of damages was "unrealistically high." The court found a more realistic measure of damages to be "the contract percentage of gross sales against the average annual gross sales generated by Core for its similar product for each year since January 1999, the date that the Court finds that Rhino began its breach of the best efforts clause of the Royalty Agreement." We conclude the court impliedly found that Core exercised its best efforts in ensuring reasonable sales growth of the substantially similar Core-Trax product. Thus, royalties on gross sales of Core-Trax approximate the royalties Benson would have received had Rhino not breached the best efforts provision of the Royalty Agreement. This measure of damages properly seeks to put Benson in the position he would have been in had Rhino performed under the Royalty Agreement as promised. We reject Rhino and Cores assertion that the trial court should have focused on net profits rather than gross sales, as the Royalty Agreement based royalty payments on gross sales of Pro-Trak, not net profits.
D. Attorney Fees
Benson contends that he is entitled to recover attorney fees on appeal. The Purchase Agreement contains the following a provision for recovery of attorney fees: "In the event of any litigation arising out of this agreement, the prevailing party shall be entitled to the reasonable costs and expenses incurred, including attorney fees." In the judgment, the trial court reserved the issue of an award of attorney fees and costs pending a hearing on a motion to determine the prevailing party and fix the amount of attorney fees. Our record on appeal does not reveal if such a hearing was held and, if so, whether the trial court designated Benson as the prevailing party. If the trial court did determine that Benson was the prevailing party and was entitled to attorney fees in the trial court, he is also entitled to fees on appeal, in an amount to be determined by the trial court on remand. (See Villinger/Nicholls Development Co. v. Meleyco (1995) 31 Cal.App.4th 321, 329 [where party entitled by contract or statute to recover attorney fees as prevailing party, right includes attorney fees incurred on appeal].) However, if the trial court did not designate Benson as the prevailing party in the trial court, he is not entitled to attorney fees on appeal. We remand to the trial court with instructions that, if the court designated Benson as the prevailing party in the trial court, it is to make an award of appropriate attorney fees on appeal to Benson.
We express no opinion as to whether Benson should be designated as the prevailing party.
II. Cross-Appeal
In his cross-appeal from the courts judgment in favor of Rhino and Core on Bensons claims for breach of fiduciary duty and constructive fraud, Benson contends the court erred in finding that Rhino owed no fiduciary duty to Benson. Benson argues that the Purchase and Royalty Agreements created a confidential or fiduciary relationship between him and Rhino. We disagree.
"A fiduciary relationship is `"any relation existing between parties to a transaction wherein one of the parties is in duty bound to act with the utmost good faith for the benefit of the other party. Such a relation ordinarily arises where a confidence is reposed by one person in the integrity of another, and in such a relation the party in whom the confidence is reposed, if he voluntarily accepts or assumes to accept the confidence, can take no advantage from his acts relating to the interest of the other party without the latters knowledge or consent. . . ." [Citations.]" (Wolf v. Superior Court (2003) 107 Cal.App.4th 25, 29-30 (Wolf).) " `A "fiduciary relation" in law is ordinarily synonymous with a "confidential relation." It is . . . founded upon the trust or confidence reposed by one person in the integrity and fidelity of another, and likewise precludes the idea of profit or advantage resulting from the dealings of the parties and the person in whom the confidence is reposed. " (Rickel v. Schwinn Bicycle Co. (1983) 144 Cal.App.3d 648, 654; accord, Wolf, at p. 30) Both confidential and fiduciary relationships "give rise to a fiduciary duty, that is, a duty `to act with the utmost good faith for the benefit of the other party. " (Persson v. Smart Inventions, Inc. (2005) 125 Cal.App.4th 1141, 1160-1161 (Persson ).)
The trial court found in favor of Rhino and Core on Bensons causes of action for breach of fiduciary duty and constructive fraud. In its statement of decision, the court stated, "[t]he court finds that [Benson] and . . . Rhino were in a contractual relationship in which confidential relationship existed and, thus, no fiduciary duty attaches. Accordingly, the court finds that since there is no fiduciary duty owed by . . . Rhino to [Benson], no liability for breach of a fiduciary duty or constructive fraud arises therefrom." Because a confidential relationship gives rise to a fiduciary duty (Persson, supra, 125 Cal.App.4th at pp. 1160-1161), the language quoted from the trial courts statement of decision is internally inconsistent. It appears that in adopting Bensons draft of the statement of decision, the court dropped one negative and the decision should be interpreted to read that Benson and Rhino "were in a contractual relationship in which [no] confidential relationship existed and, thus, no fiduciary duty attaches."
This interpretation is buttressed by our determination that, as a matter of law, the trial court could not conclude that the Purchase and Royalty Agreements between Benson and Rhino gave rise to a fiduciary duty. A contractual right to contingent compensation does not alone create a fiduciary relationship. (Wolf, supra, 107 Cal.App.4th at pp. 30-31.) In Wolf, the plaintiff, the author of a novel about Roger Rabbit, entered into a contract with the defendant, Walt Disney Pictures, agreeing to assign Disney the rights to the novel and Roger Rabbit characters. In exchange, Disney agreed to pay the plaintiff a fixed sum upon execution of the agreement, and an additional 5 percent of Disneys future revenues on merchandising of Roger Rabbit characters. (Id. at pp. 27-28.) The court held that no fiduciary relationship existed between Wolf and Disney. The court reasoned that "the contractual right to contingent compensation in the control of another has never, by itself, been sufficient to create a fiduciary relationship where one would not otherwise exist. [Citations.]" (Id. at pp. 30-31.) In addition, the mere fact that the plaintiff "necessarily reposed `trust and confidence in Disney to perform its contractual obligation" did not create a fiduciary relationship, as this trust and confidence exists in every contract. (Id. at p. 31.) Finally, the profit-sharing aspect of the agreement did not create a fiduciary relationship, as the plaintiff and Disney were not engaged in a joint venture. (Id. at pp. 31-32.) Similarly, here, Bensons contingent entitlement to future compensation under the Royalty Agreement, in the form of a percentage of future gross sales of Pro-Trak, did not alone create a fiduciary relationship between Benson and Rhino. Benson points to no additional evidence demonstrating that a confidential or fiduciary relationship existed between the parties.
Stevens v. Marco (1956) 147 Cal.App.2d 357, relied on by Benson, is inapposite. In Stevens, the plaintiff was the inventor of a novel device, and disclosed his secret to the defendant. The parties entered into a written agreement, under which the plaintiff assigned his interest in the device to the defendant, and the defendant promised to secure a patent, market the device, and pay the plaintiff a percentage of gross sales. The court held that, based on these facts, a jury could have found that a confidential or fiduciary relationship existed between the parties. (Id. at pp. 372-373.) "Where an inventor entrusts his secret idea or device to another under an arrangement whereby the other party agrees to develop, patent and commercially exploit the idea in return for royalties to be paid the inventor, there arises a confidential or fiduciary relationship between the parties. [Citations.] Indeed, it would be difficult to postulate a relationship more confidential than one in which a secret is imparted to a person professing to have the ability and facilities to develop, patent, and exploit it upon his promise to give the inventor a return in the form of royalties." (Id. at p. 373.) Here, unlike in Stevens, there is no evidence of a confidential relationship between Benson and Rhino. Benson was not an inventor who entrusted his secret to Rhino to patent and market. Instead, as Benson acknowledged at trial, the Pro-Trak device was not patented, and could be manufactured by anyone who chose to do so.
We note that the continued validity of the holding in Stevens is an issue currently pending before our Supreme Court. (City of Hope Nat. Medical Center v. Genentech, Inc., review granted Feb. 2, 2005, S129463.)
DISPOSITION
The judgment in favor of Benson on the first and fourth causes of action is affirmed. The judgment in favor of Rhino and Core on the sixth and seventh causes of action is affirmed. We remand to the trial court with instructions that, if the court designated Benson as the prevailing party in the trial court, it is to make an award of appropriate attorney fees on appeal to Benson. The parties shall bear their own costs on appeal.
We concur.
NEEDHAM, J.
STEVENS, J.