Opinion
NOT TO BE PUBLISHED
Appeal from a judgment of the Superior Court of Orange County, Super. Ct. No. 03CC05148 Clay M. Smith. Reversed and remanded with directions.
Law Office of Lawrence P. House and Lawrence P. House for Plaintiffs and Appellants.
Jackson Demarco Tidus Petersen & Peckenpaugh, William M. Hensley and Becky Hsiao for Defendants and Appellants.
OPINION
ARONSON, J.
This appeal concerns a financial dispute between a physical therapist and a company she contracted with to provide facilities and management services. The physical therapist sued to recover monies owed, and the management company cross-complained for breach of contract. The parties agreed to a binding reference before a retired superior court judge using an agreed-upon accountant. The accountant determined the management company owed the physical therapist money, but the referee disagreed, awarding the management company money under the terms of the parties’ agreement. For the reasons stated below, we reverse.
FACTUAL AND PROCEDURAL BACKGROUND
In January 2002, physical therapist Sharon Bautista and her professional corporation, Limelight Physical Therapy, Inc. (plaintiff), contracted with Shadow Management, Inc. (defendant) to manage her practice. Under the terms of their “Facilities and Management Services Agreement” (agreement), defendant provided plaintiff with office space, utilities, equipment, supplies, support services and staffing, and marketed her practice, recommended a fee schedule, and arranged for billing and collection of fees.
Shadow’s president, Jacob Von Duering, and an affiliated entity, Affinity Sports Firm, LLC, were also named defendants, but for simplicity we refer to defendants collectively as defendant. For the same reason, we refer to both Bautista and her professional corporation, Limelight Physical Therapy, Inc., as plaintiff.
The agreement required the deposit of all accounts receivable into a practice account, and empowered defendant “to make withdrawals and sign checks for disbursements . . . for the purpose of making payment of any and all Practice Expenses and Management Fees, or to reimburse [defendant] for expenditures made pursuant to” the agreement.
The agreement defined “Practice Expenses” as follows: “Company [defendant] shall pay from Practice Account all costs and expenses reasonably related to the [plaintiff’s] provision of Professional Services and operation of the Practice, including but not limited to office rent and occupancy costs, compensation benefits and employer costs associated with all personnel, general liability and malpractice insurance, equipment lease and maintenance costs, advertising and promotion, support personnel and contracted consultants, physical therapy and office supplies, utilities and all such other direct and indirect expenses reasonably incurred by [defendant] respecting the [plaintiff’s] provision of Professional Services of the Practice . . . .”
The contract provided plaintiff would receive a monthly draw of $5,000, plus bonuses, based on a percentage of net profit per month, as described in an attached income schedule. For example, if the net profit was $5,000, plaintiff received a bonus of 10 percent or $500. If the net profit was $10,000, she received a 14 percent bonus or $1,400.
Under the agreement, defendant received a management fee of 25 percent of the collected revenues. The management fee was based on gross income, i.e., the total of monies received from patients or third party payors as payment for plaintiff’s professional services, less any refunds.
The agreement also provided that if the net collected revenues after payment of practice expenses failed to cover the management fee, the fee amount would accumulate until funds became available in future months. Also, plaintiff agreed to repay any funds defendant advanced to operate the practice; as soon as available and if not paid within 30 days, the amount owed would bear interest at eight percent until repaid.
The agreement required defendant to deliver to plaintiff a report reflecting the financial status for professional services rendered within 60 days of the end of each quarter. Plaintiff had the right to inspect the books. The agreement covered a two-year term, but allowed either party to terminate on 30-days written notice.
On December 12, 2002, plaintiff abruptly left the practice. In April 2003, plaintiff commenced this action, and defendant cross-complained.
In May 2004, the parties agreed to resolve their dispute by a “binding” general reference. On May 28, 2004, defendant’s attorney recited the reference agreement on the record. The parties agreed to “a binding reference before [referee] Luis Cardenas] . . . . The reference will have an accounting to determine the financial aspects of the case, with an agreed upon forensic accountant.” All causes of action other than breach of contract and conversion were dismissed with prejudice. The parties also agreed that “[t]he parties to whom monies are owed as determined by the accountant and [the referee] will be entitled to recover attorney fees and costs, with the amount to be determined by [the referee]. Issues related to contract interpretation, if any, will be determined by [the referee]. Other than production of documents to the accountant and [the referee] and the gathering of those documents as necessary, there will be no further discovery in the action, although [the referee] will have the ability to require testimony as he sees fit.” The parties also agreed the referee would follow California law and the referee’s award or determination would constitute a judgment, enforceable under Code of Civil Procedure section 664.6.
All statutory references are to the Code of Civil Procedure, unless otherwise indicated.
The accountant submitted a report to the referee in October 2005 concluding defendant owed plaintiff $82,590.07. Plaintiff suggested the referee simply award this amount but defendant questioned the accountant’s conclusions. After determining the accountant had conducted the accounting without a copy of the agreement, the parties agreed to have the referee establish a protocol to assist the accountant make adjustments to her initial report.
In January 2006, the referee established the protocol for addressing the accountant’s initial report. The referee directed defendant’s lawyer to provide documentation supporting defendant’s claim that “unknown” income identified by the accountant, deposited into defendant’s account in 2002, were loans from defendant’s personnel to the practice. The referee also requested defendant to provide support that income received in 2003 was not attributable to plaintiff, and to justify the $53,848 defendants spent in 2002, and the $58,905 spent in 2003. The referee requested defendant submit documentary support for plaintiff’s expenses in 2002 totaling $27,167, which would allow the accountant to “determine if these were legitimate disbursements.” The referee directed the accountant to reexamine the income and disbursements based on any supplemental materials. He also instructed the accountant that defendant was “entitled to all ‘costs and expenses’ as defined in section 4.6 of the contract,” and allowed “25% of all funds collected (from patients or third parties on behalf of patients) on behalf of [plaintiff], as defined in 5.1 of the contract (except refunds).” The referee noted it could not “find any language in the agreement allowing [plaintiff] to pay [practice] expenses from her personal bank accounts.”
In April 2006, the accountant submitted a revised report reflecting defendant owed plaintiff $65,367.84. Following another telephone conference, the referee directed the accountant to proceed with a final report. In her final report of June 26, 2006, the accountant concluded defendant owed plaintiff $96,384.90.
Defendant objected to the accountant’s final report, arguing she failed to follow the referee’s protocol in several respects. For year 2002, defendant complained the accountant failed to credit defendant with $40,462.81 advanced for start-up costs and $21,569.42 paid for consulting and legal fees necessary to start plaintiff’s professional corporation. These expenses totaled $62,032.23. Defendants argued total expenses for 2002 were $277,324.47 and it had received $224,728.48; therefore, plaintiff owed $52,595.99, plus eight percent interest on advanced sums.
For 2003, defendant argued plaintiff was not entitled to recovery of any monies received by defendant after December 12, 2002, the date plaintiff left the practice, because of her “unprofessional conduct.” It also asserted “no fees are owed to either party” and the “stipulation [for reference] was for any accounting while the parties were in business, not after the breach.” Defendant noted it immediately hired a new physical therapist to replace plaintiff and paid the resulting expenses. It asserted that if plaintiff were entitled to fees, she also owed expenses, and that plaintiff owed $25,749.13 for 2003 (income of $115,930.46 minus expenses of $141,679.73).
The parties argued their respective positions to the referee during a telephone hearing on July 12. On July 16, the referee submitted his “Decision and Judgment,” and on September 25, 2006, issued an “Amended Decision and Judgment.” The referee determined plaintiff owed the defendants $52,596, plus $83,325 in attorney fees. In October 2006, the trial court entered judgment conforming to the referee’s decision.
DISCUSSION
Plaintiff argues the referee exceeded his authority under the parties’ reference agreement by performing “accounting” functions rather than “legal” functions and erroneously deviating from the accountant’s calculations and conclusions. She argues the referee erroneously allocated monies to defendants that duplicated sums already accounted for by the accountant, and ignored undisputed evidence she was entitled to 75 percent of monies attributable to her efforts and received by defendant after she left the practice in December 2002 ($86,947.85 of $115,930.46).
General Reference Under Section 638 et seq.
The parties agree this is an appeal from a judgment after a general reference. Section 638 provides that a “referee may be appointed upon the agreement of the parties . . . [¶] (a) To hear and determine any or all of the issues in an action or proceeding, whether of fact or of law, and to report a statement of decision.” Under a consensual general reference pursuant to section 638, the decision of the referee “upon the whole issue must stand as the decision of the court, and upon filing of the statement of decision with the clerk of the court, or with the judge where there is no clerk, judgment may be entered thereon in the same manner as if the action had been tried by the court.” (§ 644, subd. (a).)
As we noted in Old Republic Ins. Co. v. St. Paul Fire & Marine Ins. Co. (1996) 45 Cal.App.4th 631, “‘In a consensual general reference on all issues, the general referee’s decision “stands as the decision of the court.”’ [Citation.] ‘The decision of the referee . . . may be excepted to and reviewed in like manner as if made by the court.’ [Citation.] . . . The judgment based on a decision of the referee is appealable in the same manner as if it were a judgment of the court.” (Id. at p. 637.)
The Statement of Decision Failed to Set Forth the Legal and Factual Basis Supporting the Judgment
Plaintiff argues the referee erroneously awarded defendant duplicate amounts for the year 2002. More specifically, plaintiff argues the referee’s award of $62,032 in costs and expenses constituted a double recovery because the accountant already had considered and listed this amount elsewhere in her report. Defendant invokes the doctrine of implied factual findings, which requires us to infer the referee made the necessary factual findings to support the judgment. Defendant’s argument hinges on its contention plaintiff failed to request a statement of decision.
The doctrine of implied findings is “based on our Supreme Court’s statutory construction of section 634 and provides that a ‘party must state any objection to the statement [of decision] in order to avoid an implied finding on appeal in favor of the prevailing party. . . . [I]f a party does not bring such deficiencies to the trial court’s attention, that party waives the right to claim on appeal that the statement was deficient . . . and hence the appellate court will imply findings to support the judgment.’ (In re Marriage of Arceneaux (1990) 51 Cal.3d 1130, 1133-1134, fn. omitted.)” (SFPP, L.P. v. Burlington Northern & Santa Fe Ry. Co. (2004) 121 Cal.App.4th 452, 462.) “Litigants must . . . bring ambiguities and omissions in the statement of decision’s factual findings to the trial court’s attention — or suffer the consequences.” (Fladeboe v. American Isuzu Motors Inc. (2007) 150 Cal.App.4th 42, 59.) Section 634 states in relevant part: “When a statement of decision does not resolve a controverted issue, or if the statement is ambiguous and the record shows that the omission or ambiguity was brought to the attention of the trial court . . . prior to entry of judgment . . ., it shall not be inferred on appeal . . . that the trial court decided in favor of the prevailing party as to those facts or on that issue.”
Here, the referee as fact finder issued what amounted to a statement of decision. Plaintiff lodged objections to the referee’s decision and proposed judgment with the trial court, which rejected plaintiff’s arguments and entered judgment. By bringing her “claimed deficiencies . . . to the attention of the superior court after the statement of decision was served . . . and before the judgment was entered” (SFPP, L.P. v. Burlington Northern & Santa Fe Ry. Co., supra, 121 Cal.App.4th at p. 466), plaintiff prevented the application of the doctrine of implied findings. Accordingly, we may not simply infer the lower court made all factual findings necessary to support the judgment.
The accountant concluded that in year 2002, defendant had received excess funds of $9,436.24. Exhibit A to the accountant’s report was a summary of cash flows. In the chart, under the heading “operating income,” the accountant listed as “adjustments for payments from [defendant’s Union Bank account number 5031]” the amount of $40,462.81. Below, under the heading “Due to [defendant],” the same amount is listed in parentheses, i.e., “(40,462.81).” The accountant handled the sum of $21,569.42 for “prior period transactions” in the same manner. Defendant asserted in briefing to the referee that it advanced the $40,462.81 for plaintiff’s practice start-up costs and the $21,569.42 was for consulting and legal fees necessary to start plaintiff’s professional corporation. The total was $62,032.23.
In his written decision, the referee concluded “[Defendant] is entitled to ‘. . . all costs and expenses reasonably related to the . . . operation of the Practice . . . and all such other direct and indirect expenses reasonably incurred . . . .’ [¶] Defendants are entitled to $40,463.00 and $21,569.00 for ‘costs and expenses’ under § 4.6 of the contract. These amounts are verified by the accountant but were not credited to [defendant] as required by the terms of the agreement for the year 2002.” The referee calculated the final award of $52,596 by adding $62,032 to defendant’s side of the ledger and subtracting $9,436, but failed to explain the factual basis for this conclusion.
Plaintiff objected to the referee’s decision and proposed judgment, asserting the referee erred by awarding expenses that already had been addressed in the accountant’s summary: “In that regard, the accountant’s summary clearly observes that she had either included and properly credited [defendant] with those expenses, or that the expenses claimed by [defendant] were not capable of being credited to [defendant] because [defendant] could produce no evidence [italics substituted for bold face] supporting” its “claim that the expenses were attributable to anything connected with” plaintiff.
Plaintiff’s lengthy objection emphasized that Exhibit C to the accountant’s report showed these “adjustments” were for “items paid from account #5031 –– already accounted for.” Plaintiff referred to the accountant’s notes that “All invoices from [defendant] to [plaintiff] are presented as ‘Exhibit C’. I have made adjustments to the total of the invoices provided due to payments that were already made directly from [defendant] that have already been accounted for, duplicate invoices, prior period invoices and management fees which have already been accounted for.”
It is unclear whether the accountant credited defendant with the $40,463 and $21,569 it claimed plaintiff owed as start up expenses. As noted above, the referee’s determination the accountant did not credit these amounts to defendant is not supported by factual findings or otherwise explained in his statement of decision. This was a significant omission or ambiguity on an important, contested issue. “Reversal of a judgment because crucial findings are omitted or are ambiguous does not automatically require a new trial: Where it is undisputed that the trial judge heard all relevant evidence relating to the omitted issue, the appellate court may simply direct the trial judge to provide a sufficient statement of decision.” (Wegner et al., Cal. Practice Guide: Civil Trials and Evidence (The Rutter Group 2007) ¶ 16:217, pp. 16-49-16-50; Gordon v. Wolfe (1986) 179 Cal.App.3d 162 [appellate court reversed judgment and remanded with directions to trial court to prepare a statement of decision breaking down a lump sum damages figure into specific categories of damages].) We reverse the judgment and remand to the trial court directing it to direct the referee to determine, based on the record, whether the accountant disallowed defendant’s costs of $62,032, and if so, to prepare a statement of decision that explains the legal and factual bases for his decision. If the referee determines that its earlier judgment did grant defendant a double recovery of these expenses, the referee shall revise the judgment and the statement of decision accordingly.
Plaintiff also argues the referee, by “reallocation” of the accountant’s numbers, “exceeded the authority granted him under the reference agreement . . . .” We disagree. Interpretation of the parties’ agreement was a legal question for the court, not an accounting decision, and is subject to our de novo review. (Founding Members of the Newport Beach Country Club v. Newport Beach Country Club, Inc. (2003) 109 Cal.App.4th 944, 955 (Founding Members).) Based on our review of the agreement, we conclude the referee had the power under the agreement to determine whether amounts (i.e., start-up costs for the practice or costs to set up plaintiff’s professional corporation) expended by defendant were costs and expenses requiring an offset against operating income. We note plaintiff does not argue here these costs, if incurred, do not qualify as costs under section 4.6 on the parties’ contract.
The Referee Erred in Failing to Determine Whether Plaintiff Was Entitled to Revenue Defendant Received in 2003
The accountant found defendant had deposited about $116,000 into its account between January and December 2003. Plaintiff argued this money resulted from services she rendered in 2002 and therefore the referee should have awarded her a substantial portion of these fees. The referee declined to do so, however, because plaintiff terminated the agreement in December 2002. The referee concluded it was impossible to implement the provisions of the contract after the plaintiff left the premises and therefore the “intent of the parties to share the burden of expenses and profits” was “shattered.” The referee asserted that a “reasonable interpretation of the contract is to determine it was breached beyond repair in late 2002 and neither party has a claim for 2003.”
We are not bound by the referee’s interpretation of the contract. On review, the appellate court independently construes the writing where, as here, the parties did not introduce extrinsic evidence on the meaning of the contract. (Founding Members, supra, 109 Cal.App.4th at p. 955.) We look to the words of the contract to determine the objective intent of the parties and do not consider the subjective intent or undisclosed understanding of the parties. (Id. at p. 956.)
Based on our review of the contract, we conclude the referee erred as a matter of law. The issue is not, as the referee believed, whether plaintiff breached the contract; rather, it is whether the approximately $116,000 deposited into defendant’s account was money plaintiff earned from rendering services during the contract. The referee based his decision on section 6.3 of the agreement (Effects of Termination), which provided that upon termination of the agreement, “neither party shall have any further obligations . . . except for . . . obligations accruing prior to the date of termination . . . and . . . obligations, promises, or covenants set forth herein or in those collateral agreements of even date herewith that are expressly made to extend beyond the Term, including, without limitation, indemnities, non-compete and fees which provisions shall survive the expiration or termination of this Agreement.” (Italics added.) Thus, the agreement expressly provides for the parties to honor any obligations arising before termination of the contract. Here, defendant’s contractual obligation required it to collect revenues plaintiff received for her services and distribute these monies under the terms specified. The referee erroneously failed to determine whether defendant complied with this requirement when it concluded termination of the contract ended all contractual obligations, which encompassed those obligations “accruing prior to the date of termination.”
Defendant argues plaintiff breached the agreement and defendant was “discharged from any further obligations.” While defendant was discharged from further performance under the agreement (i.e., managing plaintiff’s practice etc.), this did not permit defendant to retain monies plaintiff earned while the contract remained in effect. Plaintiff was entitled under the agreement to all monies over and above defendant’s management fee, after expenses incurred in 2002 or otherwise attributable to plaintiff under the agreement. To allow defendants to retain all income attributable to plaintiff’s services received in 2003 without allocating amounts under the terms of the contract provides defendant with an undeserved windfall amounting to unjust enrichment.
DISPOSITION
The judgment is reversed and the trial court is directed to refer the matter to the referee to prepare an amended decision explaining the legal and factual bases for his decision to award defendant $52,596 for year 2002, including an explanation of how he determined the accountant disallowed defendant’s costs of $62,032. If the referee determines that its earlier judgment did grant defendant a double recovery of these expenses, the referee shall revise the judgment and the statement of decision accordingly. The referee’s finding plaintiff had no claim for monies received after December 12, 2002, is vacated and the trial court is directed to ascertain and award any sums due plaintiff, consistent with the views expressed herein. The referee shall reconsider the attorney fees award, if necessary. Plaintiff is entitled to her costs of appeal.
WE CONCUR: MOORE, ACTING P. J., FYBEL, J.