Opinion
E065096
04-27-2017
UNIVERSAL-PRODUCTS INTERNATIONAL, LLC, Plaintiff and Respondent, v. OMEGA PRODUCTS INTERNATIONAL, INC., Defendant and Appellant.
Prenovost, Normandin, Bergh & Dawe and Michael G. Dawe for Defendant and Appellant. Lex Opus APC, Eric M. Schiffer and William L. Buus for Plaintiff and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super.Ct.No. CIVRS1302343) OPINION APPEAL from the Superior Court of San Bernardino County. Janet M. Frangie, Affirmed. Prenovost, Normandin, Bergh & Dawe and Michael G. Dawe for Defendant and Appellant. Lex Opus APC, Eric M. Schiffer and William L. Buus for Plaintiff and Respondent.
I
INTRODUCTION
Plaintiff and respondent Universal-Products International, LLC, (Universal) hired defendant Omega Products International, Inc. (Omega) to fabricate and test a pool resurfacing product. When the product began to reemulsify, or soften, Universal sued Omega for breach of contract and related claims. A jury found in favor of Universal and the court awarded a judgment for damages of $470,833. Omega appeals from the judgment.
Omega identifies five issues on appeal. The first two issues involve parol evidence and the agreement to test for reemulsification. Omega contends the trial court wrongly ruled that the testing agreement was not integrated and that Universal could present parol evidence about the meaning of the agreement. In the alternative, Omega contends that no substantial evidence proved the existence of a testing agreement.
In its third appellate issue, Omega submits that it was not bound by statutory implied warranties because it was selling Universal a service, not a product. Omega's fourth argument is that its disclaimer was enforceable as a matter of law. Finally, Omega objects to the admission of testimony about damages offered by Universal's expert forensic accountant.
In its reply brief and at oral argument, Omega focused on the recent California Supreme Court case, People v. Sanchez (2016) 63 Cal.4th 665, holding that an expert on criminal gangs could not rely on "case-specific hearsay."
Based on the applicable standards of review and our comprehensive review of the record, we affirm the judgment.
II
FACTUAL AND PROCEDURAL BACKGROUND
The agreement between Universal and Omega evolved in two stages. Originally, in 2009 and 2010, Universal, or its predecessor, hired Omega to blend and bag, according to Universal's specifications, the product called Premium Plus (Dry) Bond Coat—which is used for pool resurfacing.
Universal is owned by Jim Slatin, John Vinzant, Martin Knight and Edna Corley. --------
In June 2010, some Universal customers complained about the bond coat exhibiting reemulsification and Universal realized that Omega had not been testing the product after fabricating it. Universal and Omega engaged in a sequence of emails in which the parties discussed the reemulsification problem and how it could be solved. Finally, on July 19, 2010, Omega proposed by email that it would conduct three kinds of tests for quality control involving: 1) "water to powder ratio," 2) "foam to foam adhesion," and 3) "skin formation" to measure "open time." One of the significant points of contention is whether Universal was correct in understanding the third test would measure the time it would take for the bond coat to cure.
After July 2010, Universal believed it was paying Omega to perform quality testing for reemulsification of its product. However, Universal and Omega differ on the meaning of the terms "skin formation" and "open time." Omega contends that the "skin formation" test was completed within a relatively short period of time, not exceeding a half hour. It involved mixing a small measure of dry bond coat with water in a Dixie cup to achieve a pancake-batter-like consistency, and within several minutes, testing, by touch, to determine whether a "skin" had formed over the product's surface while the remainder of the product beneath the "skin" retained its pancake-batter-like consistency. Omega's lab manager, Carlos Noriega, used the test to determine the presence of the "polymer" or "acrylic," distinguishing the Premium Plus bond coat from the other two lines of nonacrylic-based bond coat. By contrast, Universal claimed the "skin formation" test was supposed to determine whether the product would reemulsify after it had been applied to a surface, and allowed to dry and harden over a 24- to 48-hour period.
In March 2012, more customers complained that the bond coat was reemulsifying after water was applied. Universal tested the product and confirmed reemulsification was occurring. Omega conducted its own tests and insisted its manufacture was according to Universal's "formulation and specification." In June 2012, Omega terminated its agreements with Universal.
In June 2013, Universal filed its complaint against Omega. In the complaint, Universal alleges it hired Omega to fabricate its product as evidenced by purchase orders, invoices, and written communications. Later, in the email exchange dated July 19, 2010, Omega agreed to perform the three quality control tests. In March 2012, Universal discovered Omega had not been conducting the quality control test for reemulsification. Universal further alleged the bond coat failed to cure properly because an expired resin had been used in the blending process.
Omega disputed the contention that it had agreed to test for reemulsification. Otherwise, its primary defense was its reliance on the disclaimer language, stating it was not offering any warranties for its fabrication of the bond coat:
"NO EXPRESSED OR IMPLIED WARRANTIES: There are no warranties of any kind, either promissory or independently imposed by law, whether based on promises, express representations, tacit representations, descriptions or other grounds whatsoever, whether statutory or otherwise, extending beyond the invoiced description of the goods sold. Buyer expressly waives any warranties provided by law, including, but not limited to, warranties of merchantability and fitness for a particular purpose AND Buyer hereby acknowledges that the goods are sold 'As Is'."
III
DISCUSSION
Substantial Evidence Standard of Review
When a trial court's factual determination is attacked on the ground that there is no substantial evidence to sustain it, the power of an appellate court begins and ends with the determination as to whether, on the entire record, there is substantial evidence, contradicted or uncontradicted, which will support the determination. (Bowers v. Bernards (1984) 150 Cal.App.3d 870, 873-874; Bickel v. City of Piedmont (1997) 16 Cal.4th 1040, 1053.) The appellate court must affirm, even if other substantial evidence would have supported a different result. (Bowers, at p. 874; Leung v. Verdugo Hills Hospital (2012) 55 Cal.4th 291, 308.)
Parol Evidence
On appeal, Omega contends that the evidence offered by Universal as to the meaning of the terms "skin formation" and "open time" should have been excluded because the agreement between the parties was fully integrated. Omega also contends that Slatin—Universal's primary witness—was inconsistent in his deposition and trial testimony about the meaning of skin formation and open time. Omega asserts Slatin's inconsistencies undermine any substantial evidence of the existence of an agreement to test for reemulsification.
We hold the trial court properly found that the agreement between Omega and Universal was not fully integrated and the parol evidence rule did not bar testimony about Omega's promise to perform quality control testing for reemulsification. The testing agreement between Universal and Omega was set forth in a brief email exchange that did not constitute a final or complete expression of the agreement between the parties. The trial court correctly ruled that the agreement between the parties was not integrated.
As codified at Code of Civil Procedure section 1856, the parol evidence rule provides that the "[t]erms set forth in a writing intended by the parties as a final expression of their agreement with respect to the terms included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement." Civil Code section 1625 states that "[t]he execution of a contract in writing, whether the law requires it to be written or not, supersedes all the negotiations or stipulations concerning its matter which preceded or accompanied the execution of the instrument." Although the parol evidence rule results in the exclusion of evidence, it is not a rule of evidence but one of substantive law founded upon the principle that when the parties put all the terms of their agreement in writing, the writing itself becomes the agreement. Extrinsic evidence of the agreement's terms is thus irrelevant, and cannot be relied upon. The purpose of the rule is to ensure that the parties' final understanding, deliberately expressed in writing, is not subject to change. (Riverisland Cold Storage, Inc. v. Fresno-Madera Production Credit Assn. (2013) 55 Cal.4th 1169, 1174.)
However, the parol evidence rule "does not exclude other evidence of the circumstances under which the agreement was made or to which it relates . . . or to explain an extrinsic ambiguity or otherwise interpret the terms of the agreement, . . ." (Code Civ. Proc., § 1856, subd. (g).) Hence, parol evidence is admissible to prove a meaning to which the contract terms are reasonably susceptible. (Rosenfeld v. Abraham Joshua Heschel Day School (2014) 226 Cal.App.4th 886, 896.)
Application of the parol evidence rule involves a two-step analysis: (1) "[W]as the writing intended to be an integration, i.e., a complete and final expression of the parties' agreement, precluding any evidence of collateral agreements[?]" (2) "[I]s the agreement susceptible of the meaning contended for by the party offering the evidence?" (Gerdlund v. Electronic Dispensers International (1987) 190 Cal.App.3d 263, 270; Pacific Gas & E. Co. v. G. W. Thomas Drayage etc. Co. (1968) 69 Cal.2d 33, 40; Winet v. Price (1992) 4 Cal.App.4th 1159, 1165.) The court must therefore determine whether the writing is intended by the parties as a final expression of their agreement as to the terms included in the writing, and whether the writing is intended as a complete and exclusive statement of those terms. (Code Civ. Proc., § 1856, subd. (d).) To make that determination, the court looks to the surrounding circumstances and prior negotiations between the parties. (Pacific Gas, at pp. 39-40; Wedeck v. Unocal Corp. (1997) 59 Cal.App.4th 848, 863.)
To support its position, Omega argues that Universal admitted that the written agreement between the parties was integrated. However, Omega mischaracterizes the evidence because Universal never expressly admitted that any agreement, or the email exchange of July 19, 2010, was a final expression of the agreement between the parties. Instead, in discovery responses, Universal stated the following: "In or about early 2010, [Universal] hired and paid [Omega] to manufacture, or 'blend,' its products, including its Premium Plus Bond Coat product, in accordance with certain formulas. These transactions are evidenced by purchase orders, invoices and written communications in the possession of Omega Products. A few months after Universal Products hired Omega Products to blend its products, on or about July 19, 2010, Omega Products agreed in writing to perform quality control testing on the blended products to ensure, among other things, that they cured properly. For that quality control testing, Omega Products charged, and Universal Products paid, an increased price. Documents evidencing Omega Products' agreement to perform such quality control testing on the blended products and the prices Omega Products charged Universal Products for the blending and testing of those products are being produced concomitantly with the service of this response, and have been attached to the Amended Complaint filed in this action as Exhibit 'A'." Exhibit A is the email exchange of July 19, 2010, and two Omega price quotations dated July 22, 2010. Contrary to Omega's claim, Universal did not admit the existence of an integrated written agreement. Instead, Universal consistently described an agreement composed of a collection of purchase orders, invoices, and written communications, including emails and quotations.
Furthermore, the fact of a writing does not, by itself, create a presumption of integration as Omega asserts. Instead, the cases cited by Omega only stand for the proposition that, a writing "supersedes all the negotiations or stipulations concerning its matter which preceded or accompanied the execution of the instrument." (Civ. Code, § 1625; Wagner v. Glendale Adventist Medical Center (1989) 216 Cal.App.3d 1379, 1385; Malmstrom v. Kaiser Alum. & Chem. Corp. (1986) 187 Cal.App.3d 299, 314.) But resolving the question about whether a writing supersedes previous agreements does not resolve the issue of integration. (Malmstrom, at p. 314.)
Most importantly, Omega failed to show, as a question of law, that any evidence presented by Universal at trial directly contradicted the writings comprising the agreement between the parties. (Alling v. Universal Manufacturing Corp. (1992) 5 Cal.App.4th 1412, 1434-1435.) Instead, Universal offered evidence to interpret the terms "skin formation" and "open time," which do not have an ordinary agreed meaning. The introduction of that evidence was entirely proper under Code of Civil Procedure section 1856, subdivision (g), because the parol evidence rule did not apply. The trial court's finding, therefore, that the email agreement was not fully integrated—such that the parol evidence rule did not apply—was correct whether it was subject to independent review (id. at p. 1434) or supported by substantial evidence. Omega's claim to the contrary lacks merit.
Substantial Evidence of Failure to Perform Reemulsification Test
Omega argues on appeal that Universal did not present substantial evidence to support the jury's finding that Omega agreed to perform a reemulsification test on Universal's bond coat product but breached its agreement to do so. Omega repeatedly evokes the purported inconsistencies between Slatin's deposition and his trial testimony. We disagree Slatin was inconsistent and we conclude a significant amount of evidence supports the jury's finding.
When Slatin of Universal first contacted Lutz Lamparter at Omega, he advised Lamparter that Universal wanted Omega to blend a plaster "scratch coat" to be applied to swimming pool bases over which a finish coat would be applied. In June 2010, a customer complained to Universal about the bond coat product reemulsifying. Universal realized there was no quality control testing protocol for the production of the bond coat product. Slatin and Lamparter both testified they discussed testing the product for "bond." Slatin also testified that, during that conversation, Lamparter told him the product would be tested for reemulsification as part of the "skin formation" test, which would take at least 24 hours.
On July 19, 2010, the parties exchanged emails, in which Omega proposed to conduct the three quality control tests on the blended product. In his email, Lamparter stated that the "skin formation" test "will give you information about your open time for the product." Lamparter did not testify about what he meant by "skin formation" or "open time." However, Carlos Noriega of Omega explained at trial that the phrase "skin formation" meant the short period of time it would take for a skin to form at the top of the mixed product.
Slatin testified that he understood, based on conversations with Lamparter, that the phrase "open time" meant the time it would take the bond coat to cure before a finish coat could be applied, from 24 to 48 hours. Omega repeatedly asserts that Slatin's testimony contradicted his earlier deposition testimony and cites the effort to impeach him. Having read these portions of Omega's cross-examination of Slatin, we agree there is confusion in the questions and the responses but we do not perceive Slatin contradicted himself.
Furthermore, John Vinzant and Martin Knight, both experienced in the pool plastering industry, agreed to Slatin's definition of "open time," as distinguished from "pot life," which represents the length of time an applicator has to apply the product to a pool base. Both Vinzant and Knight contradicted Noriega by testifying that, if mixed product sat for a little while, a "skin" would not form on the top of it and, instead, the product would simply harden. The jurors were provided with a demonstration of this effect. In light of their verdict, the jurors apparently concluded that Universal's evidence was more credible than Omega's on the issue of an agreement to test for reemulsification. Substantial evidence supports the jury's determination.
Substantial Evidence of an Agreement for Purchase of Goods
Omega next argues that it provided a service, rather than a product, to Universal, thus avoiding liability for breach of the implied warranties of merchantability and fitness. The trial court denied a motion for directed verdict on that issue. On appeal, Omega claims that "[t]he uncontested evidence compelled the conclusion that Omega provided a 'service.'"
We reject Omega's argument that the correct standard of review is de novo. The 10 cases cited by Omega are factually distinct and mainly involve professional services, not a fabricated product.
Furthermore, the jury's finding that the primary purpose of the agreement between Universal and Omega was for the purchase of goods, as that term is defined and understood pursuant to Article 2 of the California Uniform Commercial Code, was supported by substantial evidence. Pursuant to Article 2, the term "goods" includes all things that are movable at the time they are identified in the contract for sale. (Cal. U. Com. Code, § 2105, subd. (1).) It specifically includes specially manufactured goods and future goods. (Cal. U. Com. Code, § 2105, subds. (1), (2).)
At trial, Universal presented evidence that Omega used materials from its own suppliers to blend a product and Universal purchased the blended, tested product. Although Omega did blend the product, that product was a movable, physical object sold to Universal. The jury was instructed that, in order to prevail on its claims of implied warranties of merchantability and fitness for a particular purpose, Universal had to prove that the primary purpose of the contract was that Universal acquire ownership or use of a product—and not to obtain a service. The decision about whether Universal purchased "goods" from Omega within the meaning of Article 2 was therefore properly a jury decision. Omega has not met its burden to show that no substantial evidence supports the jury's factual finding that the primary purpose was for the purchase of a good. (Foreman & Clark Corp. v. Fallon (1971) 3 Cal.3d 875, 881.)
The Disclaimer of Implied Warranty
Omega next argues that Universal was legally bound by the "Terms and Conditions" on the reverse side of the delivery documents which sought to disclaim any implied warranties to Universal. The trial court, however, reviewed the specific disclaimer and found it was not conspicuous, thereby ruling that it was invalid and unenforceable. The trial court's finding was supported by substantial evidence and should not be disturbed on appeal. Again, we reject Omega's argument that an independent standard of review applies.
No warranty, express or implied, can be disclaimed unless a seller clearly limits its liability. (Hauter v. Zogarts (1975) 14 Cal.3d 104, 119.) California Uniform Commercial Code section 2316, subdivision (2) provides that an exclusion of the implied warranty of merchantability "must mention merchantability and in case of a writing must be conspicuous" and that an exclusion of the implied warranty of fitness for a particular purpose "must be by a writing and conspicuous." Whether a term is "conspicuous" or not is a decision by the court. (Cal. U. Com. Code, § 1201, subd. (10).) "Conspicuous" is defined as being "so written, displayed, or presented that a reasonable person against whom it is to operate ought to have noticed it," considering the headings, surrounding text, lettering size, font, and color. (Cal. U. Com. Code, § 1201, subd. (10)).
It is well settled in California that a provision disclaiming implied warranties is ineffectual unless the buyer assented to the provision or was charged with notice of the disclaimer before the bargain was completed. (Dorman v. International Harvester Co. (1975) 46 Cal.App.3d 11, 17.) In order to have a valid disclaimer provision, it must be in clear and distinct language and prominently set forth in large, bold print in such position as to compel notice. (Id. at p. 18.) In this instance, the court reviewed the disclaimer provision and found that its position did not compel notice even though Universal's representatives may have signed and initialed the subject documents. Although the recipient of the goods would typically sign a delivery form, the alleged warranty disclaimer provision appears only on the reverse side of that delivery form and is printed in small, faded lettering that is difficult to read. Because the signature line is situated on the front and not the reverse side of the form, the alleged warranty disclaimer is not positioned, displayed or presented in such a way that a reasonable person signing the form should have noticed it. Similarly, the instruction at the bottom of the front side to "see terms and conditions of sale on back" is in very small lettering and not conspicuous at all. Nothing about the presentation of that subject phrase emphasizes its importance. Universal's agents and employees could not have been reasonably expected to notice the disclaimer and the trial court properly held it was inconspicuous and invalid.
Substantial evidence also supported the jury's finding that no prior dealings between the parties disclaimed any implied warranties. Slatin and Edna Corley both testified they were not made aware that the disclaimer provision was printed on the reverse side of the delivery forms. Even Lamparter, Omega's plant manager, had never read the disclaimer before this action was brought.
Omega also argued that Universal should be bound by the provisions contained in prior credit applications. However, those credit applications were rejected and were irrelevant because mutual assent or consent is required for the formation of a contract. (Vita Planning & Landscape Architecture, Inc. v. HKS Architects, Inc. (2015) 240 Cal.App.4th 763, 771-772.) Furthermore, the trial court sustained Universal's objections to admitting the rejected credit application because the application was actually in the name of a company called AVI dba Universal Coatings Systems, not Universal, and corporate entities are presumed to have separate corporate existences. (Las Palmas Associates v. Las Palmas Center Associates (1991) 235 Cal.App.3d 1220, 1249; Laird v. Capital Cities/ABC, Inc. (1998) 68 Cal.App.4th 727, 737.)
The credit application which was made in the name of Universal, exhibit 259, was admitted into evidence. At Omega's request, the court read an instruction to the jury that Omega had to prove "the parties' prior dealings, course of performance, estoppel or usage of trade had eliminated any implied representations." In spite of exhibit 259, however, the jury found against Omega on this point based upon the substantial evidence that Universal's representatives did not know about the disclaimer or have any understanding that it applied between Universal and Omega. Therefore, we reject Omega's argument on appeal about its disclaimer of any implied warranty.
Universal's Damages Expert
Omega strenuously urges the trial court abused its discretion and erred in allowing the expert testimony of Universal's forensic expert, Henry Kahrs. In spite of multiple objections from Omega, Kahrs estimated that Universal's damages for lost profits were between $407,751 and $620,122. Kahrs testified that he reviewed deposition testimony and Universal's financial records and consulted with Universal. Kahrs identified 16 customers—the "Lost Sixteen"—who stopped doing business with Universal because of product problems. The court overruled Omega's repeated hearsay objections.
On appeal, Omega particularly challenges Kahrs's testimony about the Lost Sixteen, whom he identified as not doing business with Universal because of reemulsification problems. Of course, Omega was free to cross-examine Kahrs, call rebuttal witnesses, and argue to the jury that Kahrs's opinions should be disregarded. However, Omega must demonstrate on appeal that the trial court's discretion in admitting Kahrs's expert testimony exceeded the bounds of reason under the circumstances. (People v. Stamps (2016) 3 Cal.App.5th 988, 994, citing Sargon Enterprises, Inc. v. University of Southern California (2012) 55 Cal.4th 747, 753.)
"[T]rial courts were and are charged with an important gatekeeping 'duty' to exclude expert testimony when necessary to prevent unreliable evidence and insupportable reasoning from coming before the jury." (People v. Stamps, supra, 3 Cal.App.5th at p. 994; Sargon Enterprises, Inc. v. University of Southern California, supra, 55 Cal.4th at p. 753.) An expert witness may give testimony in the form of an opinion if (1) the witness is qualified to testify as an expert, (2) the expert witness' testimony is related to a subject matter that is sufficiently beyond common experience, (3) the expert's opinion would assist the trier of fact, (4) the expert witness' testimony is based on matters perceived by or made known to the expert, and (5) the expert witness' testimony is based on matters reasonably relied upon by experts in forming such opinions. (Evid. Code, § 801.)
Evidence is relevant if it has "any tendency" to prove or disprove a disputed fact. (Collins v. Navistar, Inc. (2013) 214 Cal.App.4th 1486, 1513.) Here Omega did not object to Kahrs's qualifications to testify at trial as to the calculation of lost profits. Omega did argue in a motion in limine that Universal did not possess an adequate fiscal history upon which a forensic accountant could base any opinion as to lost profits. However, under Evidence Code section 801, an expert witness may properly base his opinion on matters that he perceived before the hearing, regardless of whether the evidence is admissible, if the evidence is of a type that experts reasonably rely upon in forming such opinions. (Evid. Code, § 801, subd. (b); People v. Stamps, supra, 3 Cal.App.5th at p. 996.)
Contrary to Omega's contention, Universal did experience two years of business operations in 2010, 2011, and 2012 before the subject product failures, which formed part of the basis of Kahrs's opinion of Universal's lost profits. Kahrs also relied upon Universal's financial records, such as customer invoice summaries, profit and loss statements, and balance sheets, generated both before and after the product failures. Kahrs's opinion was based upon the type of financial records which forensic accountants reasonably rely upon in forming opinions as to lost profits. An expert's lost profits calculation may be based upon "past volume of business" or any "other provable data relevant to the probable future sales." (Grupe v. Glick (1945) 26 Cal.2d 680, 692; Sargon Enterprises, Inc. v. University of Southern California, supra, 55 Cal.4th at pp. 778-781.) Under Evidence Code section 801, subdivision (b), the trial court could determine that Universal's financial data—both before and after the product failures—constituted an adequate basis for Kahrs's opinion as to Universal's lost profits.
Omega's attacks on Kahrs's methodology to calculate Universal's lost profits are not a proper basis for excluding such expert testimony. Omega could—and did—cross-examine Kahr about his opinion, or could rebut Kahrs's expert opinion with its own expert. As the California Supreme Court recently observed, "courts must . . . be cautious in excluding expert testimony" and they should not choose "between competing expert opinions." (Sargon Enterprises, Inc. v. University of Southern California, supra, 55 Cal.4th at p. 772.) Furthermore: "The trial court's preliminary determination whether the expert opinion is founded on sound logic is not a decision on its persuasiveness. The court must not weigh an opinion's probative value or substitute its own opinion for the expert's opinion. Rather, the court must simply determine whether the matter relied on can provide a reasonable basis for the opinion or whether that opinion is based on a leap of logic or conjecture." (Ibid.)
An expert witness may give opinions that are based on assumed facts supported by evidence. (People v. Wilson (1944) 25 Cal.2d 341; Hyatt v. Sierra Boat Co. (1978) 79 Cal.App.3d 325, 339; People v. Becker (1949) 94 Cal.App.2d 434, 444; Evid. Code, § 805: "[t]estimony in the form of an opinion that is otherwise admissible is not objectionable because it embraces the ultimate issue to be decided by the trier of fact.") Accordingly, any assumptions which served as a basis for Kahrs's opinion are proper under the circumstances. Omega has failed to show that the trial court abused its discretion in admitting his testimony. Because Kahrs's opinion possessed an adequate basis upon which to present his expert opinion and because Omega was given the opportunity to present competing expert testimony at trial, it was proper for the jury to make a decision as to the amount of Universal's lost profits.
Omega also seeks to reverse the jury's findings and the judgment on the basis that there was conflicting evidence presented at trial that Omega's conduct was a substantial factor in causing Universal's damages. Universal, however, presented evidence that it was conducting business in a small industry in which rumors and information about product failures spread rather quickly. Universal also presented evidence that, shortly after the product failures, several customers stopped doing business with Universal and that orders slowed. Kahrs observed this drop in business while reviewing Universal's customer invoices and financial records. Therefore, in light of this evidence and the reasonable inferences to be drawn, it cannot be said that the court abused its discretion in allowing Kahrs to testify as to these points; especially since they were corroborated by Universal's other trial witnesses.
As the Supreme Court noted in Sargon: "The lost profit inquiry is always speculative to some degree. Inevitably, there will always be an element of uncertainty. Courts must not be too quick to exclude expert evidence as speculative merely because the expert cannot say with absolute certainty what the profits would have been. Courts must not eviscerate the possibility of recovering lost profits by too broadly defining what is too speculative. A reasonable certainty only is required, not absolute certainty." (Sargon Enterprises, Inc. v. University of Southern California, supra, 55 Cal.4th at p. 775.) Instead: "'Where the fact of damages is certain, the amount of damages need not be calculated with absolute certainty. [Citations.] The law requires only that some reasonable basis of computation of damages be used, and the damages may be computed even if the result reached is an approximation. [Citation.] This is especially true where . . . it is the wrongful acts of the defendant that have created the difficulty in proving the amount of loss of profits [citation] or where it is the wrongful acts of the defendant that have caused the other party to not realize a profit to which that party is entitled.' [Citation.]" (Id. at pp. 774-775.)
In this case, Kahrs made a reasonable computation of Universal's damages and, as a result, it was proper to allow him to testify. The jury was free to credit Universal's evidence or not but admitting Kahrs's expert testimony was not an abuse of discretion.
Lastly, the financial records were properly authenticated and admitted into evidence. Omega argues that Universal's financial statements should not have been admitted because they contained inadmissible hearsay. However, Evidence Code section 1271 provides a business record is not made inadmissible by the hearsay rule when offered to prove the occurrence or existence of the act, condition or event recorded, provided all of the following foundational requirements are met: (1) the writing was made in the "regular course of business"; (2) the writing was made at or near the time of the act, condition or event recorded; (3) the record's custodian "or other qualified witness" testifies as to its identity and mode of preparation; and, (4) the sources of information on which the record is based and method and time of the record's preparation are "such as to indicate its trustworthiness." (Evid. Code, § 1271.)
In order to show that the record was prepared in the "regular course of business," (1) the record must be of a type customarily kept by the business involved and, (2) the entry must have been by someone with firsthand knowledge of the act, condition or event recorded or be based upon information obtained from someone who had a business duty to observe and report the facts recorded as part of his or her employment. (Taylor v. Centennial Bowl, Inc. (1966) 65 Cal.2d 114, 126; Prato-Morrison v. Doe (2002) 103 Cal.App.4th 222, 229-230.) Additionally, printed representations of computer information are presumed to be accurate depictions of the computer information they purport to represent, and it is unnecessary to establish the reliability of the computer system itself. (Evid. Code, § 1552, subd. (a); Ampex Corp v. Cargle (2005) 128 Cal.App.4th 1569, 1573, fn. 2.) To that end, the custodian or other qualified witness who vouches for the record's authenticity must be knowledgeable about the identity of the record and its mode of preparation, but need not necessarily be the person who observed or recorded the act or event or even be identifiable. (Grail Semiconductor, Inc. v. Mitsubishi Electric & Electronics USA, Inc. (2014) 225 Cal.App.4th 786, 797-798; Jazayeri v. Mao (2009) 174 Cal.App.4th 301, 320-324; People v. Williams (1973) 36 Cal.App.3d 262, 275.)
As required by Evidence Code section 1271, Corley of Universal testified to all these elements. She testified she is Universal's treasurer, responsible for Universal's financial recordkeeping; that the subject financial records were prepared and kept in the ordinary course of Universal's business; and that the underlying data was entered into Universal's computer system. She testified the documents from which the entered data was derived—checks received and invoices paid—demonstrated the trustworthiness of the records. Finally, she testified that the trial exhibits were true and correct printouts of the information stored on the computer system. Corley properly testified she had knowledge of the record's mode of preparation. Any objection was properly overruled and Kahrs's opinion, based upon review of Universal's records, was properly submitted to the jury and not error or an abuse of discretion. Crawford, Sargon, Sanchez, and Stamps
In its appellate reply brief and in oral argument, Omega focused its argument on the recent case of People v. Sanchez, supra, 63 Cal.App.4th 665, and contends Kahrs's testimony was inadmissible as "case-specific hearsay." We disagree.
An example of case-specific hearsay, as described in Sanchez, was the use of field investigation (FI) cards to show expert evidence of gang membership. However, in support of his expert opinion on lost profits, Kahrs was entitled to explain to the jury the "matter" upon which he relied, even if that matter would ordinarily be inadmissible. (Evid. Code, § 801; People v. Sanchez, supra, 63 Cal.App.4th at p. 679.) Expert testimony may be premised on material that is not admitted into evidence so long as it is material of a type that is reasonably relied upon by experts in the particular field in forming their opinions. (Sanchez, at p. 685.)
Our analysis of this issue relies on a sequence of four cases: Crawford, Sargon, Sanchez, and Stamps. Sargon, a post-Crawford case, retained the rules for expert evidence in a civil case involving lost profits. The Stamps court explains why Sanchez does not apply in this case, which also involves damages for lost profits:
"Sanchez dealt with a gang expert's testimony subject to a challenge under Crawford v. Washington (2004) 541 U.S. 36, 124 S.Ct. 1354, 158 L.Ed.2d 177 (Crawford), but in the course of analyzing the confrontation clause issue the Supreme Court found occasion to revisit, and essentially to revamp, state law hearsay rules relating to expert testimony generally. (Sanchez, supra, 63 Cal.4th at pp. 674-686.) It is this non-Crawford aspect of Sanchez that comes into play here. [Fn. omitted.] Insofar as pertinent to this case, the significance of Sanchez was not left open to doubt. The court specifically 'adopt[ed] the following rule: When any expert relates to the jury case-specific out-of-court statements, and treats the content of those statements as true and accurate to support the expert's opinion, the statements are hearsay. It cannot logically be maintained that the statements are not being admitted for their truth.' (Sanchez, at p. 686.)
"Incorporated within the Sanchez rule is what appears to be a new litmus test for admissibility of expert testimony incorporating hearsay as the basis for the expert's opinion: it depends on whether the matter the prosecution seeks to elicit is 'case-specific hearsay' or, instead, part of the 'general background information' acquired by the expert through out-of-court statements as part of the development of his or her expertise. (Sanchez, supra, 63 Cal.4th at p. 678.) Though most jurists may find this a novel approach, the Supreme Court took pains to explain that the rule announced in Sanchez in fact 'restores the traditional distinction between an expert's testimony regarding background information and case-specific facts' that had existed at common law and in the early California cases. (Id. at p. 685.) . . .
"After Sanchez, reliability is no longer the sole touchstone of admissibility where expert testimony to hearsay is at issue. Admissibility—at least where 'case specific hearsay' is concerned—is now more cut-and-dried: If it is a case-specific fact and the witness has no personal knowledge of it, if no hearsay exception applies, and if the expert treats the fact as true, the expert simply may not testify about it. (Sanchez, supra, 63 Cal.4th at pp. 684-686.) . . . If the hearsay relied upon by the expert is not case-specific, as we read Sanchez, the evidence still is admitted for its truth (id. at pp. 685-686), and is therefore hearsay, but we tolerate its admission due to the latitude we accord experts, as a matter of practicality, in explaining the basis for their opinions (id. at p. 676). Where general background hearsay is concerned, the expert may testify about it so long as it is reliable and of a type generally relied upon by experts in the field, again subject to the court's gatekeeping duty under Sargon. (Sanchez, supra, at pp. 676-679, 685; Evid. Code, §§ 801, 802.)" (People v. Stamps, supra, 3 Cal.App.5th at pp. 995-996.)
In the present case, we are not persuaded that the expert testimony involved inadmissible hearsay. As we have already discussed at length at pages 17-22, in the course of developing his expert opinion, Khars employed the usual forensic methods of experts in his field. In order to make a determination about whether Universal had suffered lost profits, he reviewed the company's business records and consulted directly with the company's owners and employees about how the business had been affected, including loss of some customers. He used that information to formulate his opinion. He did not relate "to the jury case-specific out-of-court statements" admitted for their truth. (People v. Sanchez, supra, 63 Cal.App.4th at p. 686.) Instead, the information he obtained about Universal was part of the general background information acquired to develop his expertise. (Id. at p. 678.) To apply Sanchez as Omega proposes would have the practical effect of eliminating most expert testimony about economic damages. Instead, we conclude, as did the court in Stamps, that an expert may testify about general background hearsay as a basis for his opinion, subject to the trial court's gatekeeping duty. (People v. Stamps, supra, 3 Cal.App.4th at p. 996.) Khars's testimony was admissible under Crawford, Sargon, Sanchez, and Stamps. As properly admitted, Khars's opinion was then subject to evaluation by the jury concerning its weight and credibility.
IV
DISPOSITION
Substantial evidence supports the trial court's rulings, the jury's findings, and the judgment. We affirm. Universal, the prevailing party, shall recover its costs on appeal.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
CODRINGTON
J. We concur: HOLLENHORST
Acting P. J. MILER
J.