Opinion
D075798
06-19-2020
AIRS AROMATICS, LLC, Plaintiff and Respondent, v. CBL DATA RECOVERY TECHNOLOGIES INC., Defendant and Appellant.
Gordon Rees Scully Mansukhani, Richard P. Sybert, Joni B. Flaherty, San Diego, and Patrick J. Mulkern for Defendant and Appellant. Law Offices of Matthew P. Tyson and Matthew P. Tyson, San Diego, for Plaintiff and Respondent.
Certified for Partial Publication.
Pursuant to California Rules of Court, rule 8.1110, this opinion is certified for publication with the exception of parts A, B.1, B.2, and B.3.a of the discussion.
Gordon Rees Scully Mansukhani, Richard P. Sybert, Joni B. Flaherty, San Diego, and Patrick J. Mulkern for Defendant and Appellant.
Law Offices of Matthew P. Tyson and Matthew P. Tyson, San Diego, for Plaintiff and Respondent.
DATO, J. In a prior appeal, we vacated a default judgment entered in favor of plaintiff Airs Aromatics, LLC (Airs), concluding the trial court was without jurisdiction to award damages in excess of that demanded in Airs's complaint for breach of contract. ( Airs Aromatics, LLC v. CBL Data Recovery Technologies, Inc. (2018) 23 Cal.App.5th 1013, 233 Cal.Rptr.3d 656 ( Airs I ).) We gave Airs the option on remand to proceed with a new default prove-up hearing seeking up to $25,000 in damages—i.e., the jurisdictional minimum alleged in its complaint—or amend the complaint to state the full amount of damages sought. Selecting the first option, Airs received a default judgment awarding it $25,000 in damages, $33,849 in prejudgment interest, and $614 in costs. ( Code Civ. Proc., § 585, subd. (b).)
Further undesignated statutory references are to the Code of Civil Procedure.
After the court denied its set-aside motion under section 663a, defendant CBL Data Recovery Technologies, Inc. (CBL) appeals the second default judgment. CBL contends that Airs's failure to serve it with the default prove-up papers or a substitution of counsel form invalidates the judgment. In addition, CBL challenges the amount of damages awarded and the prejudgment interest award. Rejecting each of these contentions, we affirm the judgment.
FACTUAL AND PROCEDURAL BACKGROUND
This action arises out of CBL's alleged breach of a laptop repair service agreement with Airs. Airs alleged that CBL violated the confidentiality provisions of their agreement when it disclosed proprietary fragrance formulas stored on its Toshiba laptop to a competitor. In its complaint, Airs claimed it suffered damages in excess of the $25,000 jurisdictional minimum. During the course of litigation, CBL withdrew its answer and stipulated to a default. The trial court entered default judgment against CBL in the amount of $3,016,802. ( Airs I, supra , 23 Cal.App.5th at p. 1016, 233 Cal.Rptr.3d 656.)
In the prior appeal, we reversed and vacated the default judgment, concluding that by awarding damages in excess of that demanded in the complaint, the default judgment was void. ( Airs I, supra , 23 Cal.App.5th at p. 1020, 233 Cal.Rptr.3d 656.) Vacating the default judgment left CBL's default in place. ( Id. at p. 1025, 233 Cal.Rptr.3d 656.) On remand, Airs had the option to "(1) proceed with a new default prove-up hearing seeking up to $25,000 in damages or, in the alternative (2) amend the complaint to state the full amount of damages it seeks." ( Ibid. ) Airs chose the first option, submitting the same expert witness declaration calculating royalty losses at over $3 million to support a damages award of $25,000. Relying on a choice-of-law provision in the parties' service agreement, Airs also sought prejudgment interest under New York law, calculated at a nine percent rate back to the September 2003 date of the alleged breach. Accepting the evidence submitted by Airs, the trial court entered default judgment in its favor on the papers, awarding Airs $25,000 in damages, $33,849 in prejudgment interest, and $614 in costs.
CBL moved to set aside the default judgment under section 663a, challenging Airs's alleged failure to serve CBL with the notice of default judgment hearing or substitution of counsel form and objecting that the judgment should be offset by amounts CBL had already paid to Airs. CBL also challenged the prejudgment interest award, arguing it was not authorized by Civil Code section 3287 or this court's remittitur directive in Airs I. Finally, CBL suggested Airs's complaint was barred under New York's six-year statute of limitations. Opposing the motion as untimely, Airs attached a declaration attesting to service of the substitution of counsel form.
In denying CBL's set-aside motion, the court noted it had been filed three days past the jurisdictional deadline. ( Advanced Bldg. Maint. v. State Comp. Ins. Fund (1996) 49 Cal.App.4th 1388, 1393–1394, 57 Cal.Rptr.2d 310 ( Advanced ).) Although it was an "academic" matter given this defect, the court was inclined to agree that Civil Code section 3287 did not authorize an award of prejudgment interest. Based on the nature of Airs's allegations, damages from CBL's wrongful disclosure of confidential information were not readily ascertainable and instead required a judicial assessment of competing evidence. Turning to the other contentions, the court found no service errors given CBL's default (§ 1010) and reasoned that any offset claims did not provide a basis to set aside the judgment. It also concluded that CBL had "lost its right to assert" a statute of limitations defense by defaulting.
DISCUSSION
CBL argues the second default judgment should be vacated as procedurally improper and excessive in amount. We reject both claims.
A. Having Defaulted, CBL Was Entitled To Neither Service Nor Participation in the Default Prove-Up Hearing.
See footnote *, ante .
B. The Default Judgment Is Not Excessive.
CBL next argues the default judgment is excessive because offsets were not applied and there was no basis to award prejudgment interest. It also raises a new argument in its supplemental brief that insufficient evidence supports the $25,000 damages award. We reject each of these claims.
See footnote *, ante .
3. Prejudgment interest
Finally, CBL challenges the default judgment's award of $33,849 in prejudgment interest. We conclude CBL has failed to show that the prejudgment interest award exceeded our remittitur directive or was erroneous under New York law. a. Remittitur directive b. Permissibility of prejudgment interest award
See footnote *, ante .
CBL's opening and reply briefs question Airs's right to recover prejudgment interest under Civil Code section 3287, subdivision (a). CBL argued in its set aside motion—and the trial court was inclined to agree—that Airs was not entitled to prejudgment interest under this statute. Indeed, Civil Code section 3287, subdivision (a) does not permit an award of prejudgment interest where the amount of damage, as opposed to the determination of liability, depends on a judicial determination based on conflicting evidence. ( Duale-Mercedes-Benz USA, LLC (2007) 148 Cal.App.4th 718, 729.) In its respondent's brief, Airs argues that $25,000 in damages exposure was readily ascertainable from the complaint, such that prejudgment interest on that amount could be imposed under Civil Code section 3287, subdivision (a).
Subject to certain exceptions, "[a] 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 the person upon a particular day, is entitled also to recover interest thereon from that day." (Civ. Code, § 3287, subd. (a).) Civil Code section 3287, subdivision (b) permits a discretionary award of prejudgment interest on unliquidated contractual claims, but only for a limited time period and only if the trial court finds that award reasonable in light of the factual circumstances. (Lewis C. Nelson & Sons, Inc. v. Clovis Unified School Dist. (2001) 90 Cal.App.4th 64, 68–69, 108 Cal.Rptr.2d 715 ; North Oakland, supra , 65 Cal.App.4th at pp. 828–829, 76 Cal.Rptr.2d 743 ; see Civ. Code, § 3287, subd. (b).)
The trial court lacked jurisdiction to consider this claim because CBL's set aside motion was untimely. (Advanced, supra , 49 Cal.App.4th at pp. 1393–1394, 57 Cal.Rptr.2d 310 [section 663a sets a jurisdictional deadline that cannot be extended by section 473 for mistake, inadvertence, or excusable neglect].) But the remedy provided by sections 663 and section 663a does not supersede the remedy by appeal. (Rounds, supra , 94 Cal.App.2d 412, 210 P.2d 893 ; Patch, supra , 125 Cal. at p. 241, 57 P. 986 ; see, e.g., Ryan v. Rosenfeld (2017) 3 Cal.5th 124, 130, 218 Cal.Rptr.3d 654, 395 P.3d 689 ["the statutory basis for section 663 motions has a different purpose relative to appeals"].) CBL timely appealed the entry of default judgment. Thus, irrespective of whether the trial court could consider whether the award of prejudgment interest was proper on an untimely set aside motion, we may entertain that issue by direct appeal.
Observing that Airs sought and apparently received prejudgment interest under New York law based on a choice-of-law provision in the parties' service agreement, we requested supplemental briefing as to whether the availability of prejudgment interest was properly analyzed under New York rather than California law. In its supplemental brief, Airs argues that because the parties agreed that New York law would govern their agreement, New York law was properly applied to award prejudgment interest. CBL curiously sidesteps the question. The issue of what law governs the issue prejudgment interest in this case presents a question of law, subject to de novo review. (See Brown v. Grimes (2011) 192 Cal.App.4th 265, 274.) As we explain, Airs is correct that New York law applies. California courts apply the principles in section 187 of the Restatement Second of Conflict of Laws (Second Restatement), "which reflect a strong policy favoring enforcement" of arm's-length contractual choice-of-law provisions. ( Nedlloyd Lines B.V. v. Superior Court (1992) 3 Cal.4th 459, 465, accord Pitzer College v. Indian Harbor Ins. Co. (2019) 8 Cal.5th 93, 100.) Sections 186 to 207 of the Second Restatement cover the "Validity of Contracts and the Rights Created Thereby." Section 187 of the Second Restatement which California courts follow, lies within the "General Principles" subheading. A different section under the "Particular Issues" subheading addresses the precise question here. Where parties validly choose a state's law "to govern their contractual rights and duties" under section 187, that state's substantive law will govern the "measure of recovery for a breach of contract." (Rest.2d Conf. of Laws, § 207.) In turn, the "measure of recovery" includes a determination of "whether plaintiff can recover interest, and, if so, the rate, upon damages awarded him for the period between the breach of contract and the rendition of judgment." (Id. , § 207, com. e.)
As one federal court explained in synthesizing the Second Restatement's sections 187 and 207, "where the parties have validly chosen a state's law to govern the interpretation of their contract, that same law will determine the award of prejudgment interest." ( Granite Ridge Energy, LLC v. Allianz Global Risk U.S. Ins. Co. (S.D.N.Y. 2013) 979 F.Supp.2d 385, 393 ( Granite Ridge ); Rest.2d Conf. of Laws, §§ 187, 207.) Although the dispute in Granite Ridge was centered in New Hampshire, New York law governed the calculation of prejudgment interest because the parties had agreed that their insurance policies would be "interpreted" according to New York law. ( Granite Ridge Energy , at p. 393.)
California courts have not previously addressed whether to follow the Second Restatement's section 207. But this court has previously applied another section lying within the same "Particular Issues" subheading. (See Mencor Enterprises, Inc. v. Hets Equities Corp. (1987) 190 Cal.App.3d 432, 436 [applying Rest.2d Conf. of Laws, § 203].) Bearing in mind that "California usually follows the Restatement in every substantive field" (1 Witkin, Summary of Cal. Law (11th ed. 2019) Contracts, § 62), we apply the Second Restatement's section 207 to the choice of law question before us.
The service agreement between Airs and CBL contained this choice-of-law clause: "The parties agree that this agreement shall be construed and the relations of the parties shall be determined in accordance with the laws of the state of New York ...." Accordingly, New York law governs Airs's recovery of prejudgment interest. ( Granite Ridge, supra , 979 F.Supp.2d at p. 393 ; Rest.2d Conf. of Laws, § 207 & com. e.) Under section 5001(a) of the New York Civil Practice Law and Rules (N.Y. CPLR), prejudgment interest "shall be recovered upon a sum awarded because of a breach of performance of a contract." By its plain language, this statute mandates an award of prejudgment interest to a prevailing plaintiff in a breach of contract action. ( J. D'Addario & Co., Inc. v. Embassy Indus., Inc. (N.Y. 2012) 980 N.E.2d 940, 942.) "There is no requirement that the breaching party obtain some benefit from the wronged party's money for statutory interest to be paid." ( Ibid. ) Instead, the purpose of prejudgment interest is to make the aggrieved party whole by making the breaching party compensate it for its loss of use of the money. ( Id. at pp. 942–943.)
New York sets statutory interest at a nine percent annual rate. ( N.Y. CPLR § 5004 ; compare Civ. Code, § 3289, subd. (b) [California's 10 percent statutory rate].) "Interest shall be computed from the earliest ascertainable date the cause of action existed, except that interest upon damages incurred thereafter shall be computed from the date incurred. Where such damages were incurred at various times, interest shall be computed upon each item from the date it was incurred or upon all of the damages from a single reasonable intermediate date." ( N.Y. CPLR § 5001(b).)
Airs sued CBL for breach of contract. "In breach of contract cases, prejudgment interest is awarded from the date of the breach." ( Bison Capital Corp. v. ATP Oil & Gas Corp. (S.D.N.Y. 2012) 884 F.Supp.2d 57, 59–60 [construing N.Y. CPLR § 5001 ].) Thus Airs requested nine percent annual interest from September 3, 2003, the date CBL allegedly breached the confidentiality provisions in the parties' laptop repair service agreement by disclosing proprietary fragrance formulas stored on the laptop to Airs's direct competitor. As Airs's proffer showed, CBL admitted that it had disclosed those formulas to a former employee and competitor in September 2003. In awarding Airs $33,849 in prejudgment interest at a nine percent rate, the court impliedly accepted the calculations offered by Airs.
Nowhere in its briefs does CBL suggest that prejudgment interest should have been calculated from a different date. Nor does it argue the court made a mathematical error in calculating the award. Instead, it faults the court for not stating the date from which interest accrued on the face of the judgment. Under N.Y. CPLR section 5001(c), the accrual date for prejudgment interest "shall be specified in the verdict, report or decision." Airs also highlights the omission and asks us to correct the judgment nunc pro tunc to indicate the date from which prejudgment interest was computed. Both parties are mistaken. New York's statutory requirement that a judgment must indicate the date from which prejudgment interest is computed reflects a procedural , rather than a substantive, rule. "It is well established that while the courts generally enforce the substantive rights created by the laws of other jurisdictions, the procedural matters are governed by the law of the forum [citations]." ( World Wide Imports, Inc. v. Bartel (1983) 145 Cal.App.3d 1006, 1012 [distinguishing "the mode of procedure by which a legal right is enforced" from "the substantive law which gives or declares the right"]; see Rest.2d Conf. of Laws, § 122 ["A court usually applies its own local law rules prescribing how litigation shall be conducted even when it applies the local law rules of another state to resolve other issues in the case."], accord Central Laborers' Pension Fund v. McAfee, Inc. (2017) 17 Cal.App.5th 292, 345–346.) Because the New York statute does not dictate the form of judgment that must be entered by a California court, no correction is necessary.
Counsel for CBL claimed for the first time at oral argument that under New York law, in the event of a default, prejudgment interest on an award of damages is calculated from the date the default was entered, not the date of the alleged breach. Were we to reach this eleventh-hour contention, counsel did not cite, nor have we found, any support for that claim. Based on our review, even in the context of a default judgment, courts compute prejudgment interest under New York law from the date the breach occurred. (See Mister Softee, Inc. v. Tsirkos (S.D.N.Y. Nov. 23, 2015 No. 14-CV-1975-LTS-RLE), 2015 WL 7458619, *2–3, *7, 2015 U.S.Dist.Lexis 158290, *5–*6, *18 ; Continental Cas. Co. v. Contest Promotions NY, LLC (E.D.N.Y. Mar. 28, 2016 No. 15-CV-501(MKB)), 2016 WL 1255726 *6–7, 2016 U.S.Dist.Lexis 40782 *18.)
In summary, New York law was properly applied to the calculation of prejudgment interest based on the choice-of-law provision in the parties' agreement. Pursuant to New York law, Airs was entitled to prejudgment interest from the date of CBL's breach at a nine percent annual rate. Accepting Airs's proffer that the breach occurred on September 3, 2003, the court awarded Airs $33,849 in prejudgment interest. CBL has not shown any error in this award. Although New York law also requires a judgment to specify the date from which prejudgment interest is calculated ( N.Y. CPLR § 5001(c) ), that procedural requirement does not apply to the form of a judgment entered by a California court. Thus, we find no error in the prejudgment interest award.
DISPOSITION
The judgment is affirmed. Airs is entitled to recover its costs on appeal.
WE CONCUR:
AARON, Acting P. J.
IRION, J.