Opinion
H042255
03-14-2018
DIYA TV, INC., Plaintiff and Respondent, v. KAXT, LLC et al., Defendants and Appellants.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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. 1-13-CV-245340)
Defendants KAXT, LLC and Warren Trumbly appeal from a judgment in favor of plaintiff Diya TV, Inc., challenging a $213,500 damages award for lost advertising revenues. Defendants argue that the lost revenues are special damages that were not pleaded with particularity, and that the award is not supported by substantial evidence or proven with reasonable certainty. For the reasons stated here, we will affirm the judgment.
I. FACTUAL SUMMARY
The summary is drawn from the trial court's statement of decision.
Warren and Linda Trumbly were co-founders of Broadland Properties, Inc. (Broadland), which owned an analog television station required by the FCC to convert to digital broadcast. The station had suffered financial difficulties, and in 2009 it needed capital to accomplish the conversion, which would result in an expansion to a 12-channel digital station. Ravi Kapur, who early in his career had been mentored by Warren Trumbly, invested $300,000 in Broadland together with his mother and brother. The understanding was that their investment would finance the digital conversion and buy them an ownership interest in the new company, KAXT, LLC (KAXT), including the free and exclusive use of one of the digital channels.
KAXT was formed, with the Kapurs collectively holding a 42 percent ownership interest. Warren Trumbly served as manager and president, Ravi Kapur served as vice president, and his mother Nalini Kapur was co-manager. KAXT acquired Broadland, and Ravi Kapur founded Diya TV, Inc. (Diya), to provide television content to South Asian viewers. Diya operated on KAXT channel 1.3 for four years, KAXT paid Ravi Kapur a $5,500 monthly salary, and Diya provided services to KAXT such as logo design and website development.
The parties' business relationship soured when the Trumblys decided to sell KAXT in 2012. The Kapurs resisted the sale by asserting a majority ownership interest in the company, and Warren Trumbly reacted by removing Ravi Kapur from KAXT's bank accounts, removing Nalini Kapur from her management position, and invoking arbitration to determine the ownership rights to the station. While arbitration was pending, Warren Trumbly demanded Diya pay $8,000 per month to remain on the air. Diya refused, and in April 2013 Warren Trumbly and KAXT removed Diya from channel 1.3, and replaced Diya's broadcasting with a shopping network.
In a January 2014 arbitration award, Warren Trumbly was found to have breached duties to Ravi Kapur, but the Trumblys prevailed against the Kapurs' majority ownership claim. The arbitration award was confirmed by the superior court in April 2014, Ravi Kapur was fired from KAXT, and the Trumblys went forward with the sale of the station in July 2014 despite the Kapurs' opposition.
II. TRIAL COURT PROCEEDINGS
Two days after being taken off the air, Diya filed a complaint against KAXT for breach of contract, promissory estoppel, and unjust enrichment/quasi contract. The parties stipulated to entry of a preliminary injunction which allowed Diya to resume limited broadcasting on KAXT channel 1.1. Diya shared channel 1.1 with a scrolling program guide so that Diya's programing was only visible on the top half of the television screen. The injunction remained in effect until the station was sold.
KAXT countersued for conversion and unjust enrichment, and Diya amended its complaint, adding causes of action against Warren Trumbly for intentional interference with contract, conversion, and trespass to property.
A court trial was held shortly after the station's sale. The trial court found KAXT liable for breach of contract for removing Diya from channel 1.3. Diya was awarded $213,500 in damages for lost 2013 advertising revenues, plus cost of suit and post-judgment interest. The court dismissed Diya's other claims against KAXT as moot, and denied all remaining claims and counterclaims. KAXT and Warren Trumbly have appealed.
We will refer to appellants collectively as KAXT. Diya filed a notice of cross-appeal but did not file a cross-appellant's brief challenging the judgment. We will therefore dismiss the cross-appeal as abandoned.
III. DISCUSSION
A. LOST ADVERTISING REVENUES ARE MEASURED AS GENERAL DAMAGES
KAXT argues that the trial court's damages award must be vacated because lost advertising revenues are special damages which Diya did not plead with particularity. Civil Code section 3300, which measures damages for breach of contract as "the amount which will compensate ... for all the detriment proximately caused thereby, or which, in the ordinary course of things, would be likely to result therefrom," encompasses both general and special damages. "General damages are often characterized as those that flow directly and necessarily from a breach of contract, or that are a natural result of a breach." (Lewis Jorge Construction Management, Inc. v. Pomona Unified School Dist. (2004) 34 Cal.4th 960, 968 (Lewis Jorge).) Because the occurrence of general damages is sufficiently predictable, the parties are deemed to have contemplated them at the time of contracting. (Ibid.)
Special damages, which are required to be pleaded with particularity (Shook v. Pearson (1950) 99 Cal.App.2d 348, 351-352), are "losses that do not arise directly and inevitably from any similar breach of any similar agreement," but "are secondary or derivative losses arising from circumstances that are particular to the contract or to the parties." (Lewis Jorge, supra, 34 Cal.4th at p. 968.) "[A] party assumes the risk for special damages liability for unusual losses arising from special circumstances only if it was 'advised of the facts concerning special harm which might result' from breach[.]" (Id. at p. 969.) In distinguishing special damages, a leading treatise explains: "If, however, the surrounding circumstances are special and unusual, such as would not themselves have been foreseen by an ordinary person," damages resulting from that injury are not recoverable unless "the defendant was clearly warned of the probable existence of [those] unusual circumstances or if, because of the defendant's own education, training and information, there was reason to foresee the probable existence of such circumstances." (11 Corbin on Contracts (2005) Damages, § 56.9, pp. 120-121.) The characterization of contract damages as general or special is a legal question which we review independently. (See Lewis Jorge, at p. 973; Hurtado v. Superior Court (1974) 11 Cal.3d 574, 579.)
In Lewis Jorge, a construction contractor prevailed in a breach of contract action against a school district that wrongfully declared the contractor to be in default and terminated the contract. (Lewis Jorge, supra, 34 Cal.4th at p. 965.) As a result of the school district's actions, the contractor's surety reduced the contractor's bonding capacity, and the contractor recovered damages against the school district for potential profits lost on future contracts that the contractor would not win as a result of the surety's action. (Ibid.) In concluding that the lost future profits were not general damages, the California Supreme Court noted that the parties' contractual bargain (with profits capped in the bid price) did not contemplate future profits and that the school district's breach did not directly or necessarily cause the contractor's loss of potential profits on future contracts, as they resulted from the surety's independent decision. (Id. at p. 973.)
KAXT argues that the "[p]otential lost profits, which [the contractor in] Lewis Jorge claimed it would have earned on prospective construction contracts it never won because of its impaired bonding capacity, is no different than the potential lost revenue that Diya claimed it would have earned on prospective future broadcast orders it never received because of its impaired broadcast ability." That analogy is inapt, as the parties in Lewis Jorge bargained for a different opportunity than the parties here. The contractor in Lewis Jorge bargained for work to be performed in exchange for payment, with profit embedded in that payment. In contrast, the Kapurs bargained for a business opportunity—the exclusive use of one of the station's digital channels with advertising revenues a foreseeable part of that opportunity.
In discussing contract damages generally, the Lewis Jorge court observed that lost profits from collateral transactions are recoverable as general damages for breach of contract typically in situations where the "related or derivative transaction is so obvious ... that the breaching party must be deemed to have contemplated them at the inception of the contract." (Lewis Jorge, supra, 34 Cal.4th at p. 972.) The court cited Brandon & Tibbs v. George Kevorkian Accountancy Corp. (1990) 226 Cal.App.3d 442 (Brandon & Tibbs) as an example of general damages flowing from a lost collateral revenue stream (Lewis Jorge, at pp. 971-972), and we find that case analogous here. In Brandon & Tibbs, lost profits were the measure of general damages for breach of a joint venture agreement to expand an accounting practice by acquiring an existing firm. (Brandon & Tibbs, at pp. 449-451, 457.) The contractual bargain in Brandon & Tibbs was to realize profits from a newly acquired business. (Id. at p. 450.) Similarly, Diya bargained for a for-profit television channel that would generate revenue from advertising. Indeed, KAXT concedes in its briefing it "knew that Diya would be seeking profits from advertising and would generally lose advertising profits if taken off the air."
KAXT argues that special damages generally include loss of income, citing Beeman v. Burling (1990) 216 Cal.App.3d 1586, 1599. But that case is distinguishable as it involves wrongful eviction, not breach of contract. The court in Beeman described general tort damages as encompassing " 'harm or loss such as pain, suffering, emotional distress, and other forms of detriment that are sometimes characterized as "subjective" or not directly quantifiable,' " and special damages in tort as " 'generally includ[ing] medical and related expense, loss of income, and the loss or cost of services.' " (Id. at p. 1599.) The inquiry is different in contract cases, where general damages are determined by the parties' bargain (Lewis Jorge, supra, 34 Cal.4th at p. 971), not by how readily a loss can be quantified. (See Myers v. Stephens (1965) 233 Cal.App.2d 104, 121 [noting different rationales for recovering lost profits as general damages in contract cases and special damages in tort cases].)
Diya's prayer for compensatory damages encompassed general damages for lost advertising revenue for the duration of Diya's ownership interest in KAXT. The Kapurs bargained for a broadcasting channel, with the capacity to sell air time to advertisers. Loss of advertising revenue therefore flowed directly from KAXT removing Diya from channel 1.3. As general damages, the loss did not need to be pleaded with specificity.
KAXT argues that Diya attempted to cast its damages as lost profits to avoid having to plead and prove the elements of a claim of interference with prospective economic advantage. But there is no requirement that Diya allege and prove a cause of action for interference with prospective economic advantage to recover revenue lost as general damages for breach of contract.
B. THE AWARD IS SUPPORTED BY SUBSTANTIAL EVIDENCE
KAXT argues that the damages award is based on evidence improperly admitted over objections, evidence lacking foundation, and speculative evidence. Specifically, KAXT complains that a media plan prepared by Diya's advertising broker, Thomas Marsillo, constitutes inadmissible expert opinion, and Marsillo's testimony was insufficient to support the award. We review a trial court's damages award for substantial evidence. (Bermudez v. Ciolek (2015) 237 Cal.App.4th 1311, 1324.) Evidentiary rulings are reviewed for abuse of discretion. (Shaw v. County of Santa Cruz (2008) 170 Cal.App.4th 229, 281.)
In early 2013 Diya hired Emerging Networks, LLC, a newly formed South Asian television representation company owned by Thomas Marsillo, to generate advertising revenue by selling airtime on channel 1.3. Marsillo testified that, as part of a cluster buy for his new clients, he obtained $213,500 in financial commitments from advertising agencies to run commercials on channel 1.3 for the duration of the 2013 calendar year. After meeting with four or five agencies with whom he had preexisting relationships, Marsillo secured financial commitments for his new clients, all of whom specialized in delivering content to the South Asian viewer in the United States.
Marsillo prepared and sent Ravi Kapur a "media plan" reflecting those commitments in early 2013. Marsillo described the document as a summary of the financial commitment secured from the advertising agencies and their clients, which functioned as the network's advertising plan for the remainder of the calendar year. Marsillo described the $213,500 figure as a revenue estimate assuming Diya performed. The plan allotted 25 weekly air spots on Diya's channel 1.3, and broke down the financial commitments for those spots.
The media plan was admitted into evidence over KAXT's objection that it was undisclosed expert work product and the subject of expert testimony. The trial court did not err in overruling the objection. The plan had been produced to KAXT at Ravi Kapur's deposition, the plan was not created for purposes of litigation, and Marsillo testified as a percipient witness to matters that could be explained to the trial court sitting as the trier of fact without the assistance of an expert. (Evid. Code, § 801 [expert opinion limited to "subject that is sufficiently beyond common experience that the opinion of an expert would assist the trier of fact."].)
KAXT complains the revenue commitments were hearsay, but it did not raise a hearsay objection when the media plan was admitted through Marsillo, nor does it reply to Diya's position on appeal that the document was properly admitted as a business record. KAXT's failure to object forfeits its claim on appeal that the document was improperly admitted. (Estate of Odian (2006) 145 Cal.App.4th 152, 168.) In any event, the document satisfies the business records exception to the hearsay rule (Evid. Code, § 1271), and was reliable and properly considered by the trial court.
We note that when Diya first attempted to admit the document as a business record through its chief operating officer, KAXT successfully objected, arguing that the record was created by Marsillo, not Diya's witness. --------
In April 2013, five days before Diya was taken off the air, Marsillo sent Ravi Kapur an advertising broadcast order for the four-week period beginning May 6, 2013. That order, also admitted into evidence, tracked the time slots identified in the media plan and showed weekly advertising revenue totaling $5,725. According to Marsillo, the order was cancelled after Diya was removed from channel 1.3 because its programming was unwatchable on channel 1.1 and Diya was unable to fulfill its broadcasting commitments. Marsillo's media plans for other clients were fulfilled in 2013 and renewed for 2014. Had Diya been able to meet its 2013 airtime commitment, Marsillo anticipated brokering a similar media plan for Diya in 2014.
Ravi Kapur and Diya's chief operating officer testified that they received the media plan and understood it to be a financial commitment from advertisers totaling $213,500 for the remainder of the year, and they never received that revenue because Diya was taken off channel 1.3 where the advertisements were to be broadcast. Kapur testified that there were no costs associated with inserting an advertisement into Diya's programing schedule.
Marsillo and Kapur both testified that a media plan and broadcast orders are standard industry practice, and no other pre-airing writings are generated to memorialize the respective obligations of an advertiser and a network. (After airing, a performance affidavit and invoice are generated for payment.) Marsillo acknowledged that a majority of the advertising commitments secured for Diya were response-driven, and it is not uncommon for an advertisement to be cancelled if it does not generate sales. But in the past, and specifically in 2013, he worked with advertising agencies with dozens of accounts to substitute for any that were unsuccessful, which enabled the agencies to meet their broadcast order commitments.
In sum, the media plan, together with the testimony of Marsillo, Kapur, and Diya's chief operating officer, provides substantial evidence that $213,500 in advertising revenue would have been realized had Diya remained on channel 1.3 through the end of 2013.
C. THE DAMAGES WERE PROVEN WITH REASONABLE CERTAINTY
KAXT argues that Diya's losses were uncertain, contingent, and speculative because Diya had never been profitable and had no earning history from advertising sales. "[D]amages for the loss of prospective profits are recoverable where the evidence makes reasonably certain their occurrence and extent." (Grupe v. Glick (1945) 26 Cal.2d 680, 693.) Although, as noted by the trial court, the media plan was not a contract per se, the revenue Diya would have received from advertisement orders shown in the media plan was established with reasonable certainty. The trial court found Marsillo to be an "independent witness[]" who "testified credibly" regarding the media plan. He explained that a media plan was standard practice in his industry, that the commitments were secure, and that similar client commitments had been realized in 2013 even with some cancellations by response-driven advertisers.
KAXT relies principally on Shoemaker v. Acker (1897) 116 Cal. 239 to argue that lost profits are calculated based on past profits, which Diya did not establish. But the Shoemaker court makes no such statement, and the reasoning employed to uphold the damages award in that case supports the award here. The contract in Shoemaker involved the defendant purchasing land to be improved and cultivated with citrus to be planted by the plaintiff for five years, with the parties to share all income and profits derived from the business venture. (Id. at p. 242.) The defendant terminated the contract after 15 months, and the plaintiff was awarded prospective profits for a completed business venture as general damages. (Id. at pp. 242, 245.) In upholding the award, the court in Shoemaker explained that the jury "had the right to know the present value of an orchard like the one here involved, if matured as contemplated by the contract." (Id. at p. 247) Noting that the land's future value was calculated at trial more than a year after the breach (and closer in time to the contract's maturation date), the court further explained that " 'parties are entitled to the benefit of any facts transpiring subsequently to the bringing of the action which show more clearly the gains prevented by the breach complained of, or the damages sustained from such a cause of action ... , the injurious effects of which extend into the future.' " (Ibid.) The post-breach evidence here—that the 2013 advertising commitments Marsillo had secured for his other new clients had been realized—was particularly relevant to establish Diya's losses with reasonable certainty.
A plaintiff is not required to show a profitable business in order to recover damages for lost revenue. If that were the rule, a breaching party would never be accountable for harm to a business operating at a loss. Even if Diya had been operating at a loss, that loss would have been smaller had Diya received advertising income under the media plan. The evidence establishes with reasonable certainty that Diya lost $213,500 in advertising revenue for 2013.
IV. DISPOSITION
The judgment is affirmed. Diya's cross-appeal is dismissed as abandoned.
/s/_________
Grover, J.
WE CONCUR:
/s/_________ Premo, Acting P. J. /s/_________ Mihara, J.