Opinion
NOT TO BE PUBLISHED
APPEALS from a judgment of the Superior Court of San Diego County No. 37-2008-00064729- CU-CO-EC, Laura W. Halgren, Judge.
NARES, Acting P. J.
This action arises out of a 1999 settlement agreement between plaintiffs Hidden Valley Ranch, Edward Malone and Barbara Malone (collectively, the Malones) and defendant Ramona Valley Water District (the District), under which the District agreed to annually deliver to the Malones 300 acre feet of water without charge and to sell water between 300 and 550 acre feet at a rate set forth in the agreement.
The Malones initiated litigation in December 2002 to determine their water rate under the 1999 agreement. The matter was referred to arbitration, wherein the arbitrator determined the methodology for calculating the water rate for water delivered between 300 and 550 acre feet and conducted an accounting to determine the proper water charges for the years 1999 through 2003. At the conclusion of the arbitration the arbitrator found that the Malones had underpaid for that time period and awarded the District approximately $90,000, plus attorney fees and costs. The trial court confirmed the award and entered judgment in the District's favor, and in June 2007 we affirmed that judgment.
In June 2008 the Malones commenced this litigation, seeking damages for alleged overcharges on water delivered under the 1999 agreement. The District demurred to the Malone's cause of action for money had and received, which the court sustained without leave to amend. The District also filed a cross-complaint seeking over $100,000 in alleged undercharges for water delivered to the Malones.
Thereafter, the District filed a motion for summary adjudication on the Malones' claim that they should receive a discount on the water the District provided for free, as it did on the water it paid the District for, because it was an agricultural user. The court granted summary adjudication on that claim, finding the District had no legal or contractual duty to provide a discount on water it provided for free.
At trial, the court adjudicated in the District's favor the Malones' claim the District had improperly calculated certain administrative, maintenance and overhead costs finding that claim was litigated in the prior arbitration proceeding and thus was subject to collateral estoppel. The court also concluded that because the only remaining claims were for an accounting of alleged overcharges and undercharges, the Malones were not entitled to a jury trial.
Following trial, the court awarded the District $43,733 on its cross-complaint for undercharges on water the Malones paid for. The court also awarded the District attorney fees as the prevailing party.
On appeal, the Malones assert the court erred by (1) denying them their constitutional right to a jury trial as their action was for breach of contract; (2) declining to award them prejudgment interest on pumping costs overcharges; (3) determining the District was entitled to attorney fees; (4) summarily adjudicating their claim they should receive a discount on the annual receipt of 300 acre feet of water; (5) finding their claim for administrative, overhead and maintenance charges was barred by collateral estoppel; (6) denying their request for "costs-of-proof" sanctions on a request for admission of fact the District denied; and (7) making an improper finding in its statement of decision on the "Kennedy Tank" credit.
The District also appeals, asserting that the court erred in calculating its claim for undercharges, arguing it differed from the manner in which the arbitrator calculated the Malones' water rate, and thus violated the doctrine of collateral estoppel.
We affirm the judgment.
FACTUAL AND PROCEDURAL BACKGROUND
A. Background
The Malones own approximately 420 acres of agricultural property next to Green Valley Creek in the City of Poway. In the 1980's they filed a lawsuit arising out of the District's construction of a dam on Green Valley Creek creating Lake Ramona. (Hidden Valley Ranch v. Ramona Mun. Water Dist. (Super. Ct. San Diego County, 1988, No. BE543498).) In 1988 the Malones obtained a judgment requiring the District to release up to 550 acre feet of water annually from Lake Ramona into Green Valley Creek.
Under a settlement agreement between the District and the Malones in 1995 (1995 agreement), the District agreed to deliver to the Malones "300 acre feet of water, or such lesser amount as requested by plaintiffs, per annum, measured from January 1 to December 31, without charge and in full satisfaction of plaintiffs' prior and vested riparian and overlying water rights." The 1995 agreement also allowed the Malones to request and pay for water delivered in excess of 300 acre feet at "defendant's rate for untreated water less defendant's cost of pumping to the Kennedy tanks." The rate was calculated by adding the sum of the San Diego County Water Authority (CWA) rate per acre foot, plus the Metropolitan Water District (MWD) rate per acre foot, plus the per acre foot average pumping cost to Lake Ramona, plus the per acre foot general administrative, overhead and maintenance (GA/OH) costs, less a discount for their participation in a drought relief program known as the interim agricultural program (IAWP).
In June 1999 the parties entered into an "amended and restated settlement agreement" (1999 agreement). A dispute arose regarding the rates the District charged the Malones, and the Malones commenced litigation seeking to enforce the 1999 agreement.
B. Litigation/Arbitration
The dispute largely involved interpretation of paragraph 4.d of the 1999 agreement, which governs the Malones' rate for purchased water delivered in the 300 to 550 acre foot range. Paragraph 4.d of the 1999 agreement defines the rate for water in the 300 to 550 acre foot range as follows:
"[D]efendant's published rate for untreated water, which includes the MWD cost of water, the CWA cost of water, pumping costs, and G.A., overhead and maintenance, paid by all untreated water users throughout defendant's service area, less defendant's cost of pumping to the Kennedy tanks or equivalent thereof. [¶] The rate for the purchased water delivered at the Spillway shall consist of the sum of the Metropolitan Water District's per acre foot cost of water, plus the San Diego County Water Authority's per acre foot cost of water, plus the per acre foot average pumping costs to Lake Ramona, plus the per acre foot general administrative, overhead and maintenance costs, less the interruptible agricultural program discount. For illustration purposes, the F.Y. 1994-1995 cost of untreated agricultural water delivered to plaintiffs at the Spillway will be: [¶] MWD Cost of Water $335 [¶] CWA Cost of Water [$]70.00 [¶] Pumping Costs to Lake Ramona [$]50.00 [¶] G.A., overhead, maintenance +[$]143.00 [¶] Subtotal $598 [¶] Less interruptible AG discount -[$]113 [¶] Total $485.00"
Paragraph 4d of the 1999 agreement further provides:
"The rate for purchased water defendant delivers to plaintiffs pursuant to Paragraph 4.b. shall not directly or indirectly include any amount attributable to the Poway Agreement. As used in this Agreement, the term 'pumping costs to Lake Ramona' shall include only the per acre foot average cost defendant incurs in pumping water from the Poway Pump Station into Lake Ramona. Pumping costs, general administrative expenses, overhead and maintenance costs for purchased water defendant delivers to plaintiffs pursuant to Paragraph 4.b. shall not directly or indirectly include any amount attributable to the Poway Agreement."
In response to the Malones' lawsuit, the District filed a demand for arbitration. The District's arbitration demand framed the dispute as a disagreement regarding "the price which [the Malones] are to pay the [District] for water under the terms of [the 1999 agreement]." Stated another way, the issue presented to the arbitrator was "the Malones' rate for purchased water under the 1999 Agreement."
The arbitration took place in January 2004. During the arbitration, the arbitrator determined the methodology for calculating the rate chargeable to the Malones for water delivered by the District between 300 and 550 acre feet and thereafter ordered an accounting pursuant to that methodology. Specifically, the arbitrator directed the District (1) to determine the District's actual charges to the Malones for water provided between 300 and 550 acre feet, and the total amount of payments made by the Malones in response to those charges for the years 1999 through 2003; and (2) to calculate what the District's charges would have been for water provided by the District to the Malones between 300 and 550 acre feet using the following methodology: (i) the per acre foot of water charged by MWD to the District; plus (ii) the per acre foot cost of water charged by CWA to the District; plus (iii) the per acre foot average actual cost incurred by the District in pumping water from Poway Pump Station to Lake Ramona, without regard to the cost of pumping water from any other point to any other point and/or for any other customer(s) of the District, plus (iv) GA/OH costs per acre foot of untreated water charged by the District to its customers for untreated water generally directly and indirectly of any amounts paid by the District to the City or Poway with respect to the "Poway Agreement", less (v) the IAWP discount.
As part of the adjudication of the Malones' water rate, an issue arose as to what items should be included in calculating the GA/OH component of the Malones' water rate. After interpreting various portions of the 1999 Agreement, the arbitrator's January 2004 interim award ordered an accounting at the Malones' request. The stated purpose of the accounting was to determine the price chargeable to the Malones for water delivered in the range of 300 to 550 acre feet for the period of 1999 through 2003. In connection with the GA/OH component of the Malones' water rate, the arbitrator instructed the District to calculate the "[GA/OH] costs per acre foot of untreated water charged by the District to its customers for untreated water generally."
On March 15, 2004, the arbitrator ordered the District to provide by April 16, 2004, additional information regarding its GA/OH expenses. Specifically, the arbitrator directed the District to "determine the total amount of [GA/OH] for the District for each calendar year 1999 through 2003." The arbitrator also asked the District to calculate its GA/OH expenses on a per acre foot basis so that the arbitrator could determine the Malones' portion of GA/OH costs by "dividing the total number of acre feet of treated and untreated water in each calendar year by the total amount of '[GA/OH]' for such calendar year, and then multiplying the resulting figure by the number of acre feet of water in the 300-550 acre foot range provided by the District to Malone in that year." The arbitrator further instructed the District to provide the Malones' counsel "access to District records which reflect those costs, and answer any questions he/they may have concerning those costs."
On April 16, 2004, the District provided worksheets reflecting its determination of GA/OH costs for the years 1999 through 2002. These worksheets included line items for "Transmission & Distribution" and "Vehicle Maintenance" costs. After receiving the District's worksheets for the years 1999 through 2002, the arbitrator asked the District, by correspondence dated May 6, 2004, about its calculation of "transmission and distribution" and "vehicle maintenance" costs.
On June 4, 2004, the arbitrator informed the parties that he had a "strong inclination to accept the [District's] figures for 'G&A/Overhead'." The arbitrator further opined that he believed "the District has used a reasonable methodology for determining its General and Administrative/Overhead expenses on a calendar year basis."
The arbitrator ruled in late July 2004 that counsel for the parties were to meet to discuss the District's financial documents for the purpose of arriving at "a mutual understanding of GA/OH costs, and the Arbitrator informed the parties in September 2004 that the Malones' counsel was continuing his review of the "information and documentation" provided by the District relating to GA/OH costs, and that the Malones' counsel would inform the District's counsel "whether or not he believes the District has calculated those costs correctly....".
On October 29, 2004, the arbitrator informed the parties that based on the figures in the District's worksheets and his own calculations, he intended to find that the Malones owed the District $90,544.07 for water in the 300 to 550 acre foot range for the years 1999 through 2003.
On November 24, 2004, the arbitrator issued his second interim award. The second interim award confirmed that that Malones underpaid the District for water from 1999 through 2003 in the amount of $90,544.07 and that the GA/OH component in future billings would be calculated "on the same basis as [GA/OH] are calculated by the District for all other of its untreated water customers, " i.e., the same method employed during the arbitration.
In their objections to the second interim award lodged on January 3, 2005, the Malones challenged the inclusion of transmission and distribution and vehicle expenses on the ground that they "receive[] no benefit from these other systems and services." The Malones further asserted that testimony from Mr. Malone showed that the amount of GA/OH chargeable to them under the 1999 Agreement should be interpreted as only $143 per acre foot.
The arbitrator thereafter issued a final award with no material changes. The Malones thereafter sought to correct the award on grounds similar to their prior objections. The Malones again challenged the arbitrator's inclusion of transmission and distribution and vehicle expenses. On March 29, 2005, the arbitrator issued a "Ruling Denying Application to Correct Award." The arbitrator's ruling emphasized that he "determined the proper method of calculating general administrative, overhead, and maintenance charges chargeable by [the District] to Malone under the 1999 Agreement." Specifically, the arbitrator found: "I am the one who determined what was properly included in general administrative, overhead and maintenance, and how general administrative, overhead and maintenance should be calculated...."
The arbitrator further noted that this determination was based on information he ordered the District to provide and that the Malones "made numerous requests over a nine-month period for different types of information and documentation concerning [GA/OH] expenses incurred by [the District]." In addition, the arbitrator expressly rejected the Malones' assertion that the GA/OH component was $143 per acre foot. The arbitrator also stated that he determined "what was properly included in [GA/OH]."
Between January 29, 2004 and November 8, 2004, an accounting regarding the Malones' water rate under the 1999 Agreement took place. The accounting included a determination of the District's GA/OH expenses, pumping costs, and how those expenses should be calculated. Following the accounting, the arbitrator entered an award in the District's favor of $90,544.07 in undercharges for water delivered in the years 1999 to 2003. The award was confirmed by a judgment entered in December 2005, which was affirmed by this court on June 15, 2007.
C. The Instant Action
In June 2008 the Malones filed the instant action, again disputing the water rate charged by the District under the 1999 Agreement. The Malones initially alleged that the District failed to provide them with an IAWP credit for the first 300 acre feet of water delivered without charge dating back to 1995 and that they were overcharged pumping costs on their monthly billings from 2004 through 2007.
In response, the District filed a demurrer as to the Malone's common count for money had and received. The court sustained the demurrer without leave to amend, finding a private party could not sue a public entity on a quasi-contract theory.
The District also filed a cross-complaint, seeking $123,838 in alleged undercharges on water paid for by the Malones.
The District filed a motion for summary adjudication on the grounds that the District had no legal or contractual duty to provide an IAWP credit on water delivered free of charge, the Malones' claim was barred by res judicata and was untimely under the Government Tort Claims act. The court granted summary adjudication on the first two grounds and found the third ground moot.
The Malones' action then focused on the District's water charges, claiming they were overcharged for GA/OH expenses for the years 2004 through 2007. The Malones asserted that the GA/OH component of their water rate should be based on a rate of $143 per acre foot or, alternatively, should not include components for vehicle maintenance or transmission and distribution.
At the time of trial, the Malones' only remaining affirmative claims related to alleged GA/OH overcharges and prejudgment interest on purported pumping cost overcharges on their monthly bills..
In response to the Malones' claims, the District asserted res judicata and collateral estoppel defenses based on the 2004 arbitration proceeding. As stated above, the District also asserted an affirmative cross-claim for alleged underpayments in the amount of $123,838. In defense of the District's underpayment claim, the Malones asserted that the District employed improper accounting practices relating to the IAWP credit and that the amount of underpayments was only $43,733.
Prior to the commencement of trial, the District moved to vacate the setting of the trial as a jury trial and to bifurcate the trial of its res judicata and collateral estoppel defenses. The trial court reserved its ruling on entitlement to a jury trial, but granted the District's motion to bifurcate the trial of the District's defenses.
In the bifurcated trial on the District's defenses, the trial court found that the Malones' affirmative GA/OH overcharge claim was barred by collateral estoppel. At the conclusion of the bifurcated trial, the only remaining claims for trial were the District's underpayment claim, the Malones' offset defense challenging the District's accounting practices, and the Malones' claim for prejudgment interest on pumping cost overcharges.
The court thereafter conducted an accounting trial to determine the amount of money that the Malones should have been charged for water delivered to them between 300 and 550 acre feet for the years 2004 through 2007. Because an accounting was necessary to determine these amounts, the trial court concluded there was no basis for a jury trial. The Malones conceded that if the court found in the District's favor on collateral estoppel, that all that would remain was "perhaps a short court trial on some discrete areas of accounting." At the conclusion of the accounting trial, the trial court determined that the Malones were undercharged in the amount of $43,733. The court entered judgment in the District's favor and awarded attorney fees in the amount of $278,348.40 and costs in the sum of $10,423.76.
DISCUSSION
I. THE MALONES' APPEAL
A. Denial of Jury Trial
The Malones assert that the court erred by failing to empanel a jury because the "gist" of their claim was contractual in nature for which a right to a jury trial is guaranteed. We reject this contention.
1. Standard of review
The issue of whether a party is constitutionally entitled to a jury trial is a question of law that we review de novo. (Jogani v. Superior Court (2008) 165 Cal.App.4th 901, 904.)
2. Analysis
It is well established that "[w]here an accounting is required, the action is equitable." (Van de Kamp v. Bank of America (1988) 204 Cal.App.3d 819, 864.) Moreover, the fact that a party pled their claim as a contract cause of action is not determinative of their right to a jury trial. (Id. at p. 865; De Guere v. Universal City Studios, Inc. (1997) 56 Cal.App.4th 482, 507 (De Guere).)
For example, in De Guere, the gravamen of the complaint was that a television producer had allegedly not been paid the net profits to which he was entitled as a result of improper accounting practices employed by the television studio. (De Guere, supra, 56 Cal.App.4th at p. 488.) Although the television producer sought damages for breach of contract, the Court of Appeal concluded that the producer's claim for damages for breach of contract was not determinative of the right to jury trial. (Id. at p. 507.) Rather, because "the amount of a defendant's liability to the plaintiff will be established by an accounting[, ]" the court in De Guere concluded that the "gist of the action" was for an accounting, for which there is no right to a jury trial. (Id. at pp. 507-508.)
Likewise in this case, the Malones had no right to a jury trial on their claims remaining after the first part of the bifurcated trial.
a. Claim for "undercharges" and "overcharges"
The Malones assert that no accounting was necessary, and thus they were entitled to a jury trial because the parties' cross-actions sought a "sum certain" and an accounting had already been performed by the District as part of it preparation of reconciliation reports, and they "merely dispute the numbers" in those reports.
However, as did the plaintiff in De Guere, supra, 56 Cal.App.4th at pages 507-508, the Malones asserted three accounting practices employed by the District in the preparation of the reconciliation reports were improper. The Malones disagreed with the manner in which the District applied the IAWP credit to the water component of the reconciliation reports. The parties also disagreed with as to whether the GA/OH component should be divided by calendar year or fiscal year and on the accounting methodology for calculating the average pumping cost. Indeed, during the trial, both parties offered expert testimony from accounting experts who performed an audit and accounting of the district's records. Thus, the gist of the remaining issues raised by the parties at trial regarding the alleged overcharges and undercharges were in the nature of an accounting and the Malones had no right to a jury trial.
The Malones assert that because they pleaded claims for breach of contract, declaratory relief, money had and received, as well as affirmative defenses for fraud, they had a right to a jury trial. This contention is unavailing.
The form of the complaint or a prayer for damages is not controlling: "[T]he complaint purports to seek recovery of damages for breach of contract, in form an action at law in which a right to jury trial ordinarily would exist. [Citations.] [H]owever, [where] the complaint seeks relief which was available only in equity, " a jury trial is not available. (C & K Engineering Contractors v. Amber Steel Co., Inc. (1978) 23 Cal.3d 1, 9-10, italics added.)
b. Prejudgment interest
The Malones assert they were entitled to a jury trial on their claim for prejudgment interest on overpayments for pumping costs on their monthly bills. However, a determination of whether a party is entitled to prejudgment interest under Civil Code section 3287 is made by the judge, not a jury. (North Oakland Medical Clinic v. Rogers (1998) 65 Cal.App.4th 824, 829 ["The trial judge, not the jury, determines a prejudgment interest award on unliquidated damages."].) Accordingly, the Malones were not entitled to have a jury determine their right to prejudgment interest.
c. The Malones' other claims
The Malones assert they were entitled to a jury trial on the claims for the following alleged breaches of contract: the District's failure to "pass on" an IAWP credit on the first 300 acre feet of water received from the District free of charge and the District's inclusion of certain items in calculating GA/OH costs.
However, as will be discussed in more detail, post, the Malones' claim that the District failed to "pass on" the IAWP credit on the first 300 acre feet of water was summarily adjudicated in the District's favor before trial. Further, the Malones' claim that certain items should not have been included in the calculation of GA/OH costs was the subject of the District's collateral estoppel defense, which was determined in the District's favor during the first portion of the bifurcated trial.
As we shall discuss, post, the court did not err in summarily adjudicating the claim related to the IAWP credit on water provided free of charge and did not err in granting the District's motion related to its collateral estoppel and res judicata defenses. Accordingly, the Malones were not entitled to a jury trial on these claims.
The Malones also assert a right to a jury trial on their common count for money had and received. However, as we shall discuss, post, the court properly sustained the District's demurrer to that cause of action.
d. Fraud-based affirmative defenses
The Malones assert that their affirmative defenses of fraud in their answer to the District's cross-complaint gave them the right to a jury trial. Specifically, the Malones asserted in their answer that "the District fraudulently manipulated its figures on its Reconciliation Reports to falsely make it appear that the Malones underpaid on their water bills...." However, as the District points out, at trial the Malones offered no evidence to support this allegation. In their briefing on appeal, the Malones point to no evidence they submitted at trial to support this defense. Thus, the Malones were not entitled to a jury trial on these affirmative defenses.
B. Demurrer to Common Count
The Malones assert the court erred in sustaining the District's demurrer to their common count for money had and received and that if they were allowed to proceed with this claim, they would have had a right to a jury trial on that cause of action. We reject this contention.
1. Background
In their complaint, the Malones asserted a common count for money had and received. In response, the District filed a demurrer, asserting that such quasi-contractual theories could not be asserted against a public entity where there is an express contract that covers the same subject matter. The court sustained the demurrer without leave to amend. In doing so, the court found that "[a] private party cannot sue a public entity on an implied-in-law or quasi contract theory including common counts."
2. Analysis
A common count is an alternate theory of recovery based on a contract that is either "implied in fact" or "implied in law." (Weitzenkorn v. Lesser (1953) 40 Cal.2d 778, 793; see also Lloyd v. Williams (1964) 227 Cal.App.2d 646, 649 [existence of implied contract is "essential to an action on a common count"].)
However, common counts cannot be asserted by a private party against a public entity. As explained by the Court of Appeal in Katsura v. City of San Buenaventura (2007) 155 Cal.App.4th 104, 109-110 (Katsura): "It is settled that 'a private party cannot sue a public entity on an implied-in-law or quasi-contract theory, because such a theory is based on quantum meruit or restitution considerations which are outweighed by the need to protect and limit a public entity's contractual obligations.' [Citations.] [¶] As our Supreme Court stated long ago: '[N]o implied liability to pay upon a quantum meruit could exist where the prohibition of the statute against contracting in any other manner than as prescribed is disregarded.' [Citation.] The reason is simple: ' "The law never implies an agreement against its own restrictions and prohibitions, or [expressed differently], 'the law never implies an obligation to do that which it forbids the party to agree to do.' " ' [Citation.] In other words, contracts that disregard applicable code provisions are beyond the power of the city to make."
Here, by statute, only the District's board of directors has the power to bind the District by contract. (Wat. Code, §§ 71300, 71592.) Any implied contract claim necessarily lacks board approval and thus is unenforceable.
The Malones seek to distinguish the holding in Katsura, as the claim there was for quantum meruit, not money had and received. However, the holding in Katsura was that all implied contracts against public entities are barred because they are not approved by the entity. Moreover, the rule set forth in Katsura has not been limited to quantum meruit claims. (See Poway Royal Mobilehome Owners Assn. v. City of Poway (2007) 149 Cal.App.4th 1460, 1471-1473 [promissory estoppel]; Pasadena Live v. City of Pasadena (2004) 114 Cal.App.4th 1089, 1094 [unjust enrichment].)
The Malones cite Bertone v. San Francisco (1952) 111 Cal.App.2d 579 in support of their claim they may assert a cause of action for money had and received against the District. However, Bertone has no bearing on this issue. There, the plaintiff paid $5,000 to the water department to be held in trust pending a settlement of a disputed assessment. The city and county later refused to return the $5,000, and the plaintiff brought suit, asserting claims for breach of contract and money had and received. The defendant asserted the claim was barred because the plaintiff failed to timely submit a tort claim under the claims presentation requirement of the local charter. The Court of Appeal held that the plaintiff did not need to submit a claim because it sounded in contract, not tort. (Id. at p. 588.) That case did not address the ability to bring an implied contract claim that was not in compliance with the statutory mode of contracting.
The Malones' citation to Utility Audit Co., Inc v. City of Los Angeles (2003) 112 Cal.App.4th 950 also does not support their position. There, the Court of Appeal also held the plaintiff need not comply with the Government Tort Claims Act because the action for money had and received for overcharges of sewer fees sounded in contract, not tort. (Id. at p. 958.)
The court did not err in sustaining the District's demurrer.
C. Denial of Prejudgment Interest
The Malones contend that the court should have awarded them prejudgment interest under Civil Code section 3287, subdivision (a) for loss of use of money that they overpaid for pumping charges. We reject this contention.
1. Standard of review
Whether Civil Code section 3287, subdivision (a) applies to a particular action is a question of law that we review de novo. (Utility Audit Co., Inc. v. City of Los Angeles, supra, 112 Cal.App.4th at p. 956.) However, where the facts are in dispute as to whether damages are "liquidated", so as to entitle a party to prejudgment in interest under that section, we review the court's determination under the substantial evidence standard of review. (SFPP v. Burlington Northern & Santa Fe Ry. Co. (2004) 121 Cal.App.4th 452, 462.)
2. Background
In addition to water costs and GA/OH expenses, a component of the Malones' rate for water in the 300 to 550 acre foot range is "average pumping costs to Lake Ramona, " which consists of "the per acre foot average cost [the District] incurs in pumping water from the Poway Pump Station into Lake Ramona." At trial, the District's chief financial officer, David Barnum, testified that the District estimates pumping costs on the Malones' monthly bills, which are "trued up" after the end of the fiscal year during preparation of the reconciliation reports. According to the Malones, the District's estimates were too high and resulted in overpayments to the District that were not corrected until preparation of the reconciliation reports. The Malones asserted at trial they were entitled to prejudgment interest in the amount of $46,984.66 under Civil Code section 3287(a) on the theory they lost the use of funds that otherwise would have been available prior to preparation of the reconciliation reports. The trial court declined to award prejudgment interest, finding that the District could not calculate average actual pumping costs on a monthly basis.
3. Analysis
Civil Code section 3287, subdivision (a) provides in part: "Every person who is entitled to recover damages certain, or capable of being made certain by calculation, and the right to recover which is vested in him upon a particular day, is entitled also to recover interest thereon from that day."
" 'The test for recovery of prejudgment interest under [Civil Code] section 3287, subdivision (a) is whether defendant actually know[s] the amount owed or from reasonably available information could the defendant have computed that amount. [Citation.]' [Citations.] '[Civil Code section 3287] does not authorize prejudgment interest where the amount of damage, as opposed to the determination of liability, "depends upon a judicial determination based upon conflicting evidence and is not ascertainable from truthful data supplied by the claimant to his debtor." [Citations.]' [Citation.] Thus, where the amount of damages cannot be resolved except by verdict or judgment, prejudgment interest is not appropriate." (Wisper Corp. v. Cal. Commerce Bank (1996) 49 Cal.App.4th 948, 960.)
In their opening brief, the Malones only set forth their version of the evidence and omit any reference to facts favoring the District and supporting the trial court's finding that the Malones' pumping cost overcharge claim was not capable of being made certain by calculation. The only evidence cited by the Malones regarding this issue is isolated testimony from their accountant expert witness, Jonathan Atun, that the District can calculate pumping costs on a monthly basis. The Malones ignore the evidence upon which the trial court relied in its ruling, particularly the testimony of David Barnum, the chief financial officer for the District, and Michael Zizzi, the District's accountant expert witness, as well as correspondence from the prior arbitration proceeding. (11 CT 2548:18-22; 11 RT 951:27-952:2, 970:18-971:12; 6 CT 1459.)
Atun prepared a chart reflecting his calculation of the actual SDG&E pumping charges each month during the years 2004 through 2007, as well as the annual average cost. For example, for June 2004 Atun calculated the per acre cost at $63.28, while the annual average for 2004 was $63.05. Mr. Atun, however, admitted that the District would not have known the average annual cost at the time the monthly bills were prepared. This amount would not have been known until after the end of the year. Thus, for example, Atun conceded that in June 2004 the District would not have known that the average cost for 2004 was $63.28. Because the pumping costs chargeable to the Malones consist of "average pumping costs to Lake Ramona, " the trial court properly disregarded Atun's testimony that the District was capable of charging the monthly, unaveraged amount.
In addition, Barnum and Zizzi explained why the District could not accurately calculate the average actual cost of pumping. As the trial court found, the District cannot fully and accurately determine the average pumping cost on a monthly basis because "[b]ills for water and electricity do not cover the same dates, arrive at different times and are sometimes modified due to credits." The trial court also cited to communications during the arbitration proceeding indicating that pumping costs cannot be determined on a monthly basis "because water delivered by the District to Mr. Malone is not necessarily placed in Lake Ramona on the month that it is delivered to Mr. Malone." Accordingly, the trial court's conclusion that the District cannot accurately calculate average pumping costs on a monthly basis is supported by substantial evidence, and the court thus did not err in denying the Malones prejudgment interest.
Because there is substantial evidence to support the court's conclusion that the Malones were not entitled to prejudgment interest because their alleged damages were not liquidated, we need not address the District's argument that Civil Code section 3287, subdivision (a) is not applicable because they did not recover any damages or a pre-lawsuit refund.
D. Attorney Fees
The Malones next assert that the court erroneously awarded the District attorney fees as the prevailing party in the action because they were only entitled to attorney fees if they had submitted the matter to arbitration. This contention is unavailing.
1. Background
Paragraph 8 of the 1999 agreement provides that "[i]n the event of a dispute concerning this Agreement, the parties shall submit the matter to arbitration in accordance with the provisions of this paragraph." Moreover, the last sentence of paragraph 8 states, "In any dispute concerning this Agreement, the party prevailing therein shall be entitled to reasonable costs, expenses and attorneys' fees, including the costs and fees charged by JAMS (or AAA, if applicable) (including the fees of the arbitrator), in addition to any other relief granted." (Italics added.)
However, the parties did not submit this dispute to arbitration. Rather, the Malones filed a complaint, and the District responded with a cross-complaint. Moreover, at trial, in a supplemental trial brief, the Malones asserted they were the prevailing party in the action, "entitling them to an award of attorney's fees under the 1999 [settlement agreement]." The District in turn asserted that it was the prevailing party and entitled to fees under the 1999 settlement agreement. The court ultimately determined that the District was the prevailing party on the contract and awarded them attorney fees in the amount of $278,348.40 and costs in the amount of $10,423.76. At no time prior to the award of attorney fees to the District did the Malones assert that fees could only be awarded if the parties submitted their dispute to arbitration.
2. Analysis
a. Judicial estoppel
The District asserts that the Malones are estopped from asserting the District is not entitled to attorney fees because the parties failed to submit this matter to arbitration, based on the fact the Malones sought attorney fees under the 1999 agreement at trial. The District is correct.
A reviewing court ordinarily will not consider for the first time on appeal claims that could have been but were not presented to the trial court. (See Doers v. Golden Gate Bridge etc. Dist. (1979) 23 Cal.3d 180, 184-185, fn. 1; Brown v. Boren (1999) 74 Cal.App.4th 1303, 1316 ["It is a firmly entrenched principle of appellate practice that litigants must adhere to the theory on which a case was tried. Stated otherwise, a litigant may not change his or her position on appeal and assert a new theory. To permit this change in strategy would be unfair to the trial court and the opposing litigant."]; see also Mattco Forge, Inc. v. Arthur Young & Co. (1997) 52 Cal.App.4th 820, 847 ["[P]arties are not permitted to ' "adopt a new and different theory on appeal." ' "].) It also reflects principles of estoppel and waiver. (Eisenberg et al., Cal. Practice Guide: Civil Appeals and Writs (The Rutter Group 2010) ¶8:229, p. 8-155 (rev. # 1, 2009).)
Indeed, this principle of appellate review has been specifically applied to preclude a party appealing from a ruling concerning the propriety of an award or denial of attorney fees from presenting a new theory for or against the recovery of those fees. (Planned Protective Servs. v. Gorton (1988) 200 Cal.App.3d 1, 12-13 ["While the doctrine [of theory of the case] is applied to matters involving the trial of a case, we find no reason not to apply it to this motion to tax costs."], disapproved on another ground in Martin v. Szeto (2004) 32 Cal.4th 445, 451, fn. 7.) In Planned Protective Services, Inc., the trial court had awarded attorney fees under section 1021.7 for defense of a libel action brought in bad faith. On appeal the appellant attempted for the first time to raise former section 1037, which expressly provided for an award of $100 in attorney fees to defendants prevailing in libel and slander suits. The Court of Appeal applied the doctrine of theory of the case and refused to entertain the issue, explaining, "[Plaintiff] cannot now raise on appeal the applicability of now-repealed section 1037. He invited the error in his motion to tax costs in failing to cite section 1037; his points and authorities referred only to section 1021.7; his counsel's oral argument at the hearing was addressed solely to section 1021.7. [Defendant] responded in like fashion. The trial court was not informed about section 1037." (Planned Protective Servs., supra, at p. 13.)
Likewise in this case, at the trial court level the Malones never asserted that the parties could not recover attorney fees because they did not submit their claims to arbitration. On the contrary, the Malones affirmatively sought fees as the prevailing party under the 1999 agreement. As such, they induced or invited the alleged error and are estopped from raising this issue on appeal. (Norgart v. Upjohn Co. (1999) 21 Cal.4th 383, 403.)
b. Merits
Even if we were to consider this issue on the merits, we would conclude that the court did not err in awarding attorney fees to the District.
The goal of contract interpretation is to ascertain the parties' mutual intent at the time of contracting. (Civ. Code, § 1636.) The mutual intent of the parties is determined by the words used in the agreement, which are to be understood in their ordinary and popular sense. (Civ. Code, § 1644.) " ' "Such intent is to be inferred, if possible, solely from the written provisions of the contract. [Citation.] The 'clear and explicit' meaning of these provisions, interpreted in their 'ordinary and popular sense, ' unless 'used by the parties in a technical sense or a special meaning is given to them by usage' [citation], controls judicial interpretation." ' " (MacKinnon v. Truck Ins. Exchange (2003) 31 Cal.4th 635, 647-648.)
Here, the plain language of the 1999 agreement states that the prevailing party in "any dispute" shall be entitled to their attorney fees and costs. The plain and ordinary meaning of this clause "any dispute" includes disputes filed in the superior court. Black's Law Dictionary (6th ed. 1990), page 472, column 1, defines "dispute" in part as: "The subject of litigation; the matter for which a suit is brought and upon which issue is joined."
There is nothing in the 1999 agreement that limits an attorney fee award to disputes brought through the arbitration process. The absence of such a condition demonstrates the court did not err in awarding fees to the District as the prevailing party. (Helzel v. Superior Court (1981) 123 Cal.App.3d 652, 663 [provisions of a contract will not be construed as conditions precedent in the absence of language plainly requiring such a construction]; Larson v. Thoreson (1953) 116 Cal.App.2d 790, 794 [same].)
E. Summary Adjudication of Claim for IAWP Credit
1. Background
As we have detailed, ante, under the 1995 and 1999 agreements, the District is required to deliver to the Malones up to 300 acre feet of water per annum without charge. Since 1995, the District has purchased the untreated water that it delivers to the Malones from the CWA at a discounted rate because the Malones are agricultural water users under the IAWP. The Malones contend that the District is required to pass on to them the IAWP discount it receives on the water delivered to the Malones for free, and the District's failure to do so constitutes a breach of the 1995 and 1999 agreements.
The District moved for summary adjudication on the grounds that the District had no legal or contractual duty to pass on the amount of the IAWP discount it received on the first 300 acre feet of water delivered to the Malones without charge and that the Malones' IAWP credit claims were barred by res judicata and untimely under the Government Tort Claims Act. The trial court granted summary adjudication in the District's favor on the first two grounds, and found the Government Tort Claims Act defense moot. In doing so, the court found "[t]here is no entitlement to to a discount on water that is not purchased.... The IAWP Certification and Acknowledgement Form signed by the Malones on May 20, 1995, acknowledged that the IAWP is a 'reduced rate' for water 'purchased for agricultural purposes.' " The court also found that under the 1995 and 1999 agreements, the Malones were only entitled to the IAWP discount on water they purchased: ""Nothing in the settlement agreements between the District and the Malones require the District to provide an additional discount on the first 300 acre feet of water provided without charge. Both the 1995 and the 1999 Agreements require the District to provide 300 acre feet of water without charge. The agreements provide that the IAWP discount applies to purchased water." The court also found that this claim was barred by res judicata as it could have been litigated in the prior arbitration proceeding.
2. Standards governing summary adjudication motions
A defendant moving for summary adjudication bears the burden of persuasion to show either (1) one or more elements of the plaintiff's cause of action cannot be established or (2) there is a complete defense to that cause of action. (Code Civ. Proc., § 437c, subds. (o), (p)(2); Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850-851; Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317, 334.) When the motion is based on the assertion of an affirmative defense, the defendant has the initial burden to demonstrate that undisputed facts support each element of the affirmative defense. (Anderson v. Metalclad Insulation Corp. (1999) 72 Cal.App.4th 284, 289.) "The defendant must demonstrate that under no hypothesis is there a material factual issue requiring trial. [Citation.] If the defendant does not meet this burden, the motion must be denied. Only if the defendant meets this burden does 'the burden shift[] to plaintiff to show an issue of fact concerning at least one element of the defense.' " (Id. at pp. 289-290.)
On appeal, we independently review the trial court's decision, considering all of the evidence in the supporting and opposing papers and apply the same standard as the trial court. (Yanowitz v. L'Oreal USA, Inc. (2005) 36 Cal.4th 1028, 1037; Guz v. Bechtel National Inc., supra, 24 Cal.4th at p. 334.) We liberally construe the evidence in support of the opposing party, resolving doubts concerning the evidence in its favor (Yanowitz, at p. 1037; Wiener v. Southcoast Childcare Centers, Inc. (2004) 32 Cal.4th 1138, 1142) and assess whether the evidence would, if credited, permit the trier of fact to find in its favor under the applicable legal standards. (Cf. Aguilar v. Atlantic Richfield Co., supra, 25 Cal.4th at p. 850.) We do not weigh the evidence and inferences, but merely determine whether a reasonable trier of fact could find in the opposing party's favor, and we must reverse the order granting summary judgment when there is some evidence that, if believed, would support judgment in its favor. (Alexander v. Codemasters Group Limited (2002) 104 Cal.App.4th 129, 139.)
3. Analysis
The Malones contend that the District board's resolution implementing the Metropolitan Water District's (MWD) IAWP and an internal District staff memorandum relating to the resolution imposed a duty on the District to pass on the IAWP discount it receives for the first 300 acre feet of water delivered to the Malones free of charge. However, neither the resolution nor the staff memorandum establish such a duty.
The Malones rely on an "Agenda Memo" recommending adoption of the IAWP, which states the District "will pass the complete agricultural discount through to the agricultural users." Public agencies, however, are governed by formal action and not by staff memoranda. Under both state statutory law and the District's Legislative Code, the District's board of directors "shall act only by ordinance, resolution, or motion." (Wat. Code, § 71276; Dist. Legis. Code, § 2.08.070.) In addition, courts cannot give binding effect to a policy memorandum to interpret or amend an ordinance or law. (Garrett v. City of Escondido (S.D.Cal. 2006) 465 F.Supp.2d 1043, 1049-1051.) Therefore, the agenda memo does not impose a duty or obligation on the District to pass on the IAWP discount on the portion of the water delivered to the Malones without charge.
The District has requested we take judicial notice of its Legislative Code and the Malone's second amended complaint filed on April 10, 2010. The Malones do not oppose that request. Accordingly, we grant the District's request for judicial notice.
As to the District's resolution implementing the IAWP, Resolution No. 1106, the Malones cite to a provision directing the District to "comply[] with all terms and conditions of the Program as established by the [MWD] and the [CWA]." Rather than cite to any specific terms of the IAWP, however, the Malones simply refer back to the language in the District staff's agenda memo and contend "[it] was one of the terms and conditions of the MWD Program the District agreed to comply with." (AOB, at pp. 31-32.) As noted. ante, the agenda memo has no binding effect and imposed no duty on the District. The only codification of laws promulgated by MWD that govern the IAWP are set forth in the MWD Administrative Code, section 4900 et seq. The trial court correctly concluded that the District had no duty under the MWD Administrative Code or CWA regulations to pass on any discount to the Malones.
Moreover, the Water Code grants the District final authority to establish different water rates for different classes or conditions of service and provides the District with discretion and flexibility to adjust water rates by contract or for particular customers. (Wat. Code, §§ 71590, 71592, 71613, 71614; Louisiana-Pacific Corp. v. Humboldt Bay Mun. Water Dist. (1982) 137 Cal.App.3d 152, 161.) Pursuant to this discretion, the Malones' water rate is thus governed by the 1995 and 1999 agreements.
Paragraph 4 of the 1995 and 1999 agreements governs the rate the Malones are to pay for water delivered by the District. Paragraph 4 of the 1995 agreement provides in relevant part:
"a. [The District] agrees to deliver to [the Malones] 300 acre feet of water, ... per annum, ... without charge.... [¶] b. [The District] also agrees to make available for purchase by and delivery to [the Malones] an additional minimum amount of 250 acre feet of water per annum... [to] be available, measured, and billed in the same manner as any other of [the District's] agricultural customers using similar untreated water. [¶] c. [The Malones] further agree to consider purchasing from [the District] additional water if they are able to purchase more than 250 acre feet, or obtain the delivery of more than 550 acre feet. [¶] d.... ¶ The rate for the purchased water... shall consist of the sum of the Metropolitan Water District's per acre foot cost of water, plus the San Diego County Water Authority's per acre foot cost of water, plus the per acre foot average pumping costs to Lake Ramona, plus the per acre foot general administrative, overhead and maintenance costs, less the interruptible agricultural program discount." (Italics added.)
Paragraph 4 of the 1999 agreement similarly provides in part:
"a. [The District] agrees to deliver to [the Malones] 300 acre feet of water, ... per annum, ... without charge. [¶] b. [The District] also agrees to make available for purchase by and delivery to [the Malones] an additional minimum amount of 250 acre feet of water per annum... [to] be available, measured, and billed in accordance with paragraph 4.d. below...." [¶] c. [The Malones] further agree to consider purchasing from [the District] additional water if they are able to purchase more than 250 acre feet, or obtain the delivery of more than 550 acre feet. [The District] shall at [its] sole discretion establish the rate for additional purchased water.... [¶] d.... ¶ The rate for the purchased water... shall consist of the sum of the Metropolitan Water District's per acre foot cost of water, plus the San Diego County Water Authority's per acre foot cost of water, plus the per acre foot average pumping costs to Lake Ramona, plus the per acre foot general administrative, overhead and maintenance costs, less the interruptible agricultural program discount." (Italics added.)
Thus, under the clear terms of the 1995 and 1999 agreements, the IAWP discount only applies to "purchased" water, not the first 300 acre feet delivered to the Malones free of charge.
The Malones assert that the first 300 acre feet of water delivered to them by the District constitutes "purchased water" to which they are entitled to a discount because the water is "purchased" by the District from the CWA. This argument is directly contrary to the terms of the 1995 and 1999 agreements. Because the District purchases the first 300 acre feet of water it provides to the Malones from the CWA does not make that water "purchased water" under paragraph 4.d of the agreements. Paragraph 4.d of both agreements clearly refers to water purchased by the Malones over 300 acre feet. Paragraph 4.b provides that the District would make available for purchase and delivery a minimum of 250 acre feet to be billed in accordance with paragraph 4.d. There is no such provision in paragraph 4.a, which pertains to the "free" water. Indeed, paragraph 4 is devoid of any terms that would permit the Malones to receive a discount simply because the water that is delivered to them is purchased by the District.
Next, the Malones assert they are purchasers of the "free water" because they "prepaid" the District for the water with "consideration" by agreeing to reductions in delivery under the IAWP and giving up their adjudicated water rights as part of the 1995 agreement. However, the 1995 and 1999 agreements do not contain any provision indicating that the Malones prepaid the District for the first 300 acre feet of water delivered to them.
Additionally, a settlement agreement is an exchange of consideration mutually bargained for by the parties. (See Rest.2d Contracts, § 71(1)(2).) The 1995 and 1999 agreements constitute an exchange of valuable consideration by both the District and the Malones, not a prepayment by the Malones. Moreover, the 1999 agreement contains a mutual release and waiver of Civil Code section 1542, which bars the Malones from now contending that water delivered "without charge" is in fact prepaid and subject to a discount.
The Malones contend the District agreed to pay them for the amount of any discount that it achieves for purchasing the water that it delivers to them for free by executing IAWP certifications. The monthly IAWP certifications executed by the District certify that the total amount of IAWP water purchased by the District from CWA is in fact used for agricultural purposes. The Malones concede that the District did "pass on" the discounted rate for agricultural water delivered and charged to the Malones in the range of 300 to 550 acre feet. The certifications are merely intended to ensure the District charged agricultural water users a discounted rate instead of regular water rates and do not impose a duty on the District to provide a discount to the Malones for free water.
The Malones also cite to "evidence presented at trial" that they assert showed that the District's AG credit payments to the Malones are a "fiction" because the water purchased by the District is not delivered to the Malones in the same month. They contend the District is receiving a "windfall" because it stores the water it purchases for at least a year before delivering the water to the Malones. This argument, however, was not made in the Malones opposition to the summary adjudication motion, and therefore we must disregard it: " '[T]he appellate court must consider only those facts before the trial court, disregarding any new allegations on appeal. [Citation.] Thus, possible theories that were not fully developed or factually presented to the trial court cannot create a "triable issue" on appeal.' " (DiCola v. White Brothers Performance Products, Inc. (2008) 158 Cal.App.4th 666, 676.)
In sum, the court did not err in summarily adjudicating the Malones' claim they were entitled to the IWAP discount on the first 300 acre feet of water they receive free of charge.
F. Dismissal of GA/OH Components Claim Based upon Collateral Estoppel
1. Background
Under the 1999 agreement, one of the components of the Malones' rate for purchased water in the 300 to 550 acre foot range is the District's GA/OH costs. At trial, the Malones asserted that the District's GA/OH calculation included improper components and should have been limited to an indexed rate of $143 per acre foot. The Malones asserted that GA/OH should not include "Transmission & Distribution" or "Vehicle Maintenance" costs.
As discussed, ante, during the bifurcated trial of the District's defenses, the District moved to dismiss this claim on the basis that it was barred by the doctrines of collateral estoppel and res judicata, as it was litigated during the arbitration proceeding. The court agreed, finding the Malones were collaterally estopped from "relitigating their rate for purchased water under the 1999 Agreement, including but not limited to the manner in which the District's [GA/OH] costs are calculated."
2. Analysis
Collateral estoppel requires that the following five elements be met: (1) "the issue sought to be precluded from relitigation must be identical to that decided in a former proceeding[;]" (2) "this issue must have been actually litigated in the former proceeding[;]" (3) "it must have been necessarily decided in the former proceeding[;]" (4) "the decision in the former proceeding must be final and on the merits[;]" and (5) "the party against whom preclusion is sought must be the same as, or in privity with, the party to the former proceeding." (Lucido v. Superior Court (1990) 51 Cal.3d 335, 341.)
As discussed in greater detail in the factual and procedural background section of this opinion, this issue was actually litigated in the arbitration proceeding. The issue before the arbitrator was broadly framed as "the Malones' rate for purchased water under the 1999 Agreement." The arbitrator ordered an accounting, which included calculating the "[GA/OH]... costs for untreated water generally...." The arbitrator directed the District to "determine the total amount of [GA/OH] for the District for each calendar year 1999 through 2003." The arbitrator also ordered the District to provide counsel for the Malones "access to District records which reflect these costs, and answer any questions he/they may have concerning those costs." Thereafter, the District provided worksheets reflecting the GA/OH costs for those years, including line items for "Transmission & Distribution" and "Vehicle Maintenance." After receiving the worksheets, the arbitrator raised questions concerning the District's calculation of those specific line items.
In June 2004 the arbitrator informed the parties that he had a "strong inclination to accept the [District's] figures for 'G&A/Overhead'...." In issuing his second interim award, the arbitrator found that the GA/OH component of future billings would be calculated in the same manner as "for all other of its untreated water customers." Thereafter, the Malones lodged objections to the second interim award, specifically objecting to the District's inclusion of transmission and distribution and vehicle expenses, arguing they "receive[] no benefit these other systems and services, " the exact claim the Malones sought to raise in this action.
Thereafter, the arbitrator issued his final award. The Malones applied to correct the award, again asserting, among other issues, the District improperly included transmission and distribution and vehicle expenses, and again asserting that they received no benefit from these items. The arbitrator denied the application to correct the award. In that ruling the arbitrator stated that he determined "what was properly included in the [GA/OH]...."
From the foregoing record of the arbitration proceedings it is clear that the issue of whether the District properly included transmission and distribution and vehicle expenses in its GA/OH expenses was actually litigated in that proceeding, and thus the Malones are collaterally estopped from relitigating that issue in this action.
The Malones also assert that the issues in this action and the prior action are not identical because the arbitrator did not address the calculation of GA/OH in a breach of contract context. However, collateral estoppel does not require an identity of causes of action. (Lockwood v. Superior Court (1984) 160 Cal.App.3d 667, 671.) Rather, the identity of issues element of collateral estoppel depends on what issues were adjudicated, not the nature of the proceeding. (Lumpkin v. Jordan (1996) 49 Cal.App.4th 1223, 1231; Estate of Griswold (2001) 25 Cal.4th 904, 922.) Accordingly, whether or not the Arbitrator's findings were made in the context of a breach of contract action is immaterial.
The Malones cite Kemp Bros. Construction, Inc. v. Titan Electric Corp. (2007) 146 Cal.App.4th 1474 (Kemp)in support of their position that they are not collaterally estopped from relitigating this issue in the present action. Their reliance on that case is misplaced. In Kemp, the issues in the subcontractor substitution hearing and the subsequent breach of contract action were distinct. The issue during the substitution hearing was whether the prime contractor on a school project had statutory grounds to substitute a new subcontractor under the Subletting and Subcontracting Fair Practices Act (Pub. Contract Code, § 4100 et seq.). (Kemp, supra, at pp. 1479-1480.) The hearing officer's determination made no mention of any rights or obligations under the subcontract, and the hearing officer could have found grounds for the substitution which did not constitute a breach of the subcontract. (Id. at p. 1483.)
In contrast to Kemp, the issues in this action and the arbitration proceeding are identical. In the arbitration, the arbitrator determined the Malones' water rate under the 1999 agreement, including, but not limited to the proper method of calculating the GA/OH component and what items should be included in this calculation. In the underlying action, the Malones specifically sought to relitigate the GA/OH component of their water rate. Accordingly, the trial court properly found the Malones collaterally estopped from relitigating this issue.
The Malones next assert that public policy considerations preclude the application of collateral estoppel on the GA/OH issue because "there was limited judicial review of the prior arbitration decision." This theory was not raised in the trial court and thus we need not consider it on this appeal. (People ex rel. Dept. of Transportation v. Superior Court (2003) 105 Cal.App.4th 39, 46.) Even if we were to consider this contention, it is unavailing.
Although most applications of collateral estoppel or res judicata involve prior judicial decisions, claims preclusion applies to arbitration awards as well. (See, e.g., Lyons v. Security Pacific Nat. Bank (1995) 40 Cal.App.4th 1001, 1015–1016; Thibodeau v. Crum (1992) 4 Cal.App.4th 749, 755; Lehto v. Underground Constr. Co. (1977) 69 Cal.App.3d 933, 939.) Cases have uniformly concluded that findings made during arbitrations may be given collateral estoppel effect in a subsequent lawsuit. (See, e.g., Gordon v. G.R.O.U.P., Inc. (1996) 49 Cal.App.4th 998, 1010 [uninsured motorist arbitration]; Sartor v. Superior Court (1982) 136 Cal.App.3d 322, 327–328 [commercial arbitration].)
The reason for giving preclusive effect to arbitration findings is that "'[a]rbitration is a voluntary procedure for settling disputes, leading to a final determination of the rights of the parties. The policy of the law is to favor arbitration, and every reasonable intendment is indulged to give effect to such proceedings. [Citation.] Once a valid award is made by the arbitrator, it is conclusive on matters of fact and law and all matters in the award are thereafter res judicata.' [Citations.] A contrary rule would defeat the expectations of the parties to a private arbitration. '"Even in the absence of an explicit agreement, conclusiveness is expected; the essence of the arbitration process is that an arbitral award shall put the dispute to rest." ' " (Kelly v. Vons Companies, Inc. (1998) 67 Cal.App.4th 1329, 1336.)
The main case relied on by the Malones for application of the public policy exception is Vandenberg v. Superior Court (1999) 21 Cal.4th 815 (Vandenberg). In Vandenberg, property owners (the Boyds) sued a former lessee (Vandenberg) for contamination of soils and groundwater underlying the property. (Id. at p. 825.) As part of a settlement agreement, the Boyds released all claims against Vandenberg except for their claim for breach of the lease agreement, which the parties agreed to resolve through arbitration or trial. (Id. at p. 826.)
Following arbitration, the arbitrator ruled in the Boyds' favor, and Vandenberg subsequently sued several of his liability insurers for failure to defend. (Vandenberg, supra, 21 Cal.4th at p. 826.) Although they were not parties to the arbitration, two of the liability insurers asserted that Vandenberg was collaterally estopped from relitigating one of the issues decided during the arbitration. (Id. at pp. 826-827.) Under what is known as "nonmutual collateral estoppel, " a nonparty to a prior proceeding may "take advantage, in a later unrelated matter, of findings made against his current adversary in the earlier proceeding." (Id. at pp. 828-829.)
After considering various public policy arguments, the Court concluded that fairness mandated that collateral estoppel could not be invoked by a nonparty to the prior arbitration. (Vandenberg, supra, 21 Cal.4th at p. 834.) The Court stressed that "a particular danger of injustice arises when collateral estoppel is invoked by a nonparty to the prior litigation" (id. at p. 829) and that California's statutory scheme for private arbitration nowhere specifies that a private arbitration award is binding in favor of nonparties in the absence of such an agreement. (Id. at p. 830.)
Thus, Vandenberg has no application to this action as it is expressly limited to the ability of nonparties to an arbitration to assert collateral estoppel as a shield in subsequent litigation. Indeed, in its decision, the California Supreme Court emphasized that its holding was "narrowly circumscribed" and "do[es] not address the circumstances, if any, in which a private arbitration award may have 'issue preclusive' effect in subsequent litigation between the same parties on different causes of action." (Vandenberg, supra, 21 Cal.4th at p. 824, fn. 2, italics omitted.) Because the instant action involves the same parties as the arbitration, Vandenberg is inapposite, and collateral estoppel was properly invoked. (Grinham v. Fielder (2002) 99 Cal.App.4th 1049, 1054 [distinguishing Vandenberg on the ground that the party asserting collateral estoppel "participated in the arbitration completely" and "presented testimony and raised legal arguments" on the claim subject to issue preclusion.)
In their reply brief, the Malones cite the Restatement Second of Judgments, section 28, which provides: "Although an issue is actually litigated and determined by a valid and final judgment, and the determination is essential to the judgment, relitigation of the issue in a subsequent action between the parties is not precluded in the following circumstances: [¶] (1) The party against whom preclusion is sought could not, as a matter of law, have obtained review of the judgment in the initial action...."
However, the Malones ignore the Restatement Second of Judgments, section 84, subdivision (1), which provides in part: "[A] valid and final award by arbitration has the same effects under rules of res judicata, subject to the same exceptions and qualifications, as a judgment of a court."
Accordingly, we affirm the trial court's ruling that the Malones were collaterally estopped from relitigating their water rate under the 1999 agreement and the manner in which GA/OH costs are calculated.
G. Denial of Costs-of-Proof Sanctions
The Malones assert that the court erred in denying their motion for "costs-of-proof" sanctions for their Request for Admission (RFA) No. 21. We reject this contention.
1. Background
In September 2008 the Malones propounded RFA No. 21, which asked the District to admit the following: "Since at least 1999, the District has not given the Plaintiffs the full AG discount it receives from CWA for all the water it delivers to Hidden Valley Ranch." The District responded by objecting to the RFA and denied it as framed.
Following trial, the Malones claimed entitlement to sanctions in the amount of $180,190 because the court found the District diluted the full value of the Malones' IAWP credits on water in the 300 to 550 acre foot range for the years 2004-2007 by spreading the discount to all untreated water users.
The court denied the Malones' request. The court first found that neither the Malones nor the District knew about any dilution issue for IAWP credits at the time the RFA was propounded. The court also found that the District reasonably construed that RFA to be referencing the free water that was delivered to the Malones, and the District reasonably believed it would prevail (and did prevail) in demonstrating there was no legal duty to discount free water. The court also noted that the District was calculating the credits consistent with how the arbitrator did.
2. Analysis
Code of Civil Procedure section 2033.420 provides:
"(a) If a party fails to admit the genuineness of any document or the truth of any matter when requested to do so under this chapter, and if the party requesting that admission thereafter proves the genuineness of that document or the truth of that matter, the party requesting the admission may move the court for an order requiring the party to whom the request was directed to pay the reasonable expenses incurred in making that proof, including reasonable attorney's fees. [¶] (b) The court shall make this order unless it finds any of the following: [¶] (1) An objection to the request was sustained or a response to it was waived under Section 2033.290. [¶] (2) The admission sought was of no substantial importance. (3) The party failing to make the admission had reasonable ground to believe that that party would prevail on the matter. [¶] (4) There was other good reason for the failure to admit." (Italics added.)
We review a court's ruling on a motion for "costs-of-proof" sanctions under the deferential abuse of discretion standard of review. (American Federation of State, County & Municipal Employees v. Metropolitan Water Dist. (2005) 126 Cal.App.4th 247, 267.) Under this standard, " ' "unless a clear case of abuse is shown and unless there has been a miscarriage of justice a reviewing court will not substitute its opinion and thereby divest the trial court of its discretionary power." ' " (Blank v. Kirwan (1985) 39 Cal.3d 311, 331.)
Here, the court did not abuse its discretion in denying the Malones' motion for costs-of-proof sanctions. The Malones' original complaint made no allegation relating to dilution of the IAWP credit for purchased water in the 300 to 550 acre foot range. Further, as the Malones admit, they themselves did not discover the dilution issue until their expert did. The Malones do not specify the date that this was discovered. Accordingly, the court did not abuse its discretion in denying the Malones' motion for costs-of-proof sanctions as the District had a reasonable basis to believe it would prevail on that issue.
H. Kennedy Tank Credit
The Malones assert that the findings in the statement of decision relating to the District's monthly billing of pumping costs and the District's posttrial removal of a Kennedy Tank credit from the Malones' monthly bills was in error. This contention is unavailing.
One of the principal controverted issues in the trial court was how the Malones were to be charged on their monthly bills for pumping costs. In his revised final award, the arbitrator found that the amount chargeable to the Malones for pumping costs was "the per acre foot average cost the District incurs in pumping the water for which it is billing Malone from the Poway Pumping Station into Lake Ramona." The arbitrator found the Malones were not responsible for any electricity costs beyond pumping untreated water into Lake Ramona, such as the cost to pump untreated water from Lake Ramona to the Kennedy Tank.
As described above, Barnum testified at trial that the District was incapable of determining actual average pumping costs on a monthly basis and could only charge the Malones estimated pumping costs on their monthly bills. In an effort to comply with the arbitrator's instructions, the monthly pumping costs charged to the Malones consisted of the standard electricity rate charged to all District customers, less a "Kennedy Tank Pumping Credit." Barnum explained that this monthly credit was a "unique calculation" that only the Malones receive.
The Malones, however, objected to the District's billing method and claimed the District was capable of charging the Malones actual pumping costs on a monthly basis. The trial court disagreed with the Malones and determined that pumping costs could only be estimated on the Malones' monthly bills. The trial court, however, noted that the District's method of estimating pumping costs was not sufficiently precise enough. In this regard, the trial court found that instead of applying a Kennedy Tank credit to the District's standard electricity rate on the Malones' monthly bills, the District should use the average cost from the prior year in future billings.
The Malones contend the trial court's factual finding in the statement of decision as to how the District billed pumping costs is "improper" and "not supported by the evidence at trial." (AOB, at p. 42.) Contrary to the Malones' assertion, not only did Barnum testify as to how the District billed the Malones for pumping costs, but Barnum's testimony was uncontroverted. The Malones do not cite any conflicting evidence in the record.
The Malones object to the statement of decision on the basis that "the District is now using this language to stop providing any further Kennedy Tank credits on the Malones' account." At the hearing on the Malones' objections to the statement of decision, the Malones' counsel argued that "[the Malones] are entitled to a Kennedy Tank Credit over and above anything else, " that "[i]t wasn't part of a method for calculating pumping costs, " and that the District was improperly relying on the court's decision to remove the Kennedy Tank credit. The Malones' counsel further stated that "[n]obody testified that the District can remove the Kennedy Tank Credit. That's a separate issue." The trial court disagreed, stating: "No. But that's how you get to the amount of the pumping cost." The court further stated:
"The Court: We're not going to relitigate it. It's very clear to me, when we were in trial, how it was done. Your experts agreed. So follow their methodology. And, meanwhile, each month, use the amount that was determined from the year before. That's how I viewed it.
"Mr. Corrales [The Malones' counsel]: That's how I understand it. Yes.
"Ms. Woo: Basically, I understand that as well. This is the monthly billing. So in the future we're not going to bill the electricity rate less Kennedy Tank Credit, but, instead, we're going to use the amount from the prior year?
"The Court: That's what I viewed it as."
Based on the foregoing record it is clear that the trial court concluded that the Malones were no longer to receive a Kennedy Tank credit on their monthly bills, because this method of calculation was not precise enough. Rather, the Malones' monthly pumping cost charges are to consist of the average cost from the prior year. When this number is reconciled at the end of the year, under the arbitrator's ruling, all that is required is that the Malones not be charged electricity costs relating to the transmission of water from Lake Ramona to the Kennedy Tank.
II. THE DISTRICT'S APPEAL
In its appeal, the District asserts that the court erred in the manner that it calculated the value of the Malones' agricultural credit for its participation in the IAWP because it differed from the manner in which the arbitrator calculated that item, and thus the Malones were barred by the doctrine of collateral estoppel from asserting a different methodology at trial. We reject this contention.
A. Background
At trial on its cross-complaint, the District asserted that the Malones were undercharged in the amount of $123,838 based upon an audit conducted by its expert, Michael Zizzi. The Malones' expert in turned opined that the Malones were undercharged $43,733.
The Malones' amount was based upon their contention that the District erred in the manner it calculated their IAWP credit. Specifically, they asserted that the District diluted the credit and made it less valuable because the District passed the credit on to all users of untreated water, regardless of whether they participated in the program as the Malones did. The District in turn argued that because this methodology was used by the arbitrator, it had collateral estoppel or res judicata effect, and that methodology thus should continue.
The court found in its statement of decision that collateral estoppel or res judicata did not apply because during the arbitration "no questions or discussions occurred regarding whether the agricultural discount should be applied to all untreated water users when calculating water costs. No one raised the issue as to whether they were all participants in the interruptible AG program. No one discussed the issue of dilution and the arbitrator did not address it. It appears to be more of an oversight than a finding by the arbitrator, particularly as the Court has heard no serious explanation from the District as to why it would be appropriate under the 1999 agreement to apply the discount to all users and thereby dilute the value to plaintiffs." Thus, the court found the Malones had underpaid the District $43,733.
2. Analysis
As discussed above, one element of the doctrine of collateral estoppel is that this issue sought to be precluded in a subsequent proceeding must have been actually litigated and decided in the prior proceeding. (Lucido v. Superior Court, supra, 51 Cal.3d at p. 341.)
As the court detailed in its statement of decision, the issue of the dilution of the Malones' IAWP credit was never raised by the parties, nor decided by the arbitrator.
The District claims the issue was litigated because it was "encompassed by the overall issue before the Arbitrator regarding the Malones' water rate under the 1999 Agreement." However, the specific issue of whether the District was diluting the value of the Malones' IAWP credit was not. This is to be compared with the calculation of GA/OH expenses. As the court noted in its statement of decision, in contrast to the IAWP credit issue, that "issue was plainly identified. Discovery occurred. The arbitrator made inquiry about it. Objections were raised. The Arbitrator addressed them. The issue was decided."
The District also notes that the Malones have filed a legal malpractice action against their former counsel in the arbitration proceeding, alleging the former counsel was negligent in failing to hire a forensic accountant. However, this fact is irrelevant to a determination of the IAWP credit issue. The Malones' former counsel was not a party to the arbitration proceeding and was not in privity with the Malones in that proceeding. Thus, that counsel's performance in that proceeding has no impact on the collateral estoppel analysis.
Finally, even if collateral estoppel applied to the IAWP credit issue, we would decline to impose it in this case, based upon the exception for instances where an injustice would result. (7 Witkin, Cal. Procedure (5th ed. 2008) Judgment, § 443, pp. 1097-1098.) For example, one Court of Appeal refused to apply collateral estoppel to interpretation of an indemnity agreement where it would make a stipulated judgment for $2,601 conclusive on liability for over $79,284. (United States Fire Ins. Co. v. Johansen (1969) 270 Cal.App.2d 824, 834, 836-837.)
Here, the District does not dispute that their calculation of the IAWP credit diluted its value to the Malones. Nor do they dispute that correctly applied, the Malones were undercharged $43,733, not the $123,838 they sought to charge the Malones under their improper application of the IAWP credit. Application of collateral estoppel in this case would result in a windfall to the District of monies they concede they are not entitled to.
DISPOSITION
The judgment is affirmed. The parties shall bear their own costs on appeal.
WE CONCUR: O'ROURKE, J. AARON, J.