Opinion
F046555
5-3-2007
TOM CHAVIRA et al., Plaintiffs and Appellants, v. BEAL PROPERTIES, INC., et al., Defendants and Appellants.
Dowling, Aaron & Keeler, Inc., David J. Weiland, Lynne Thaxter Brown and Keith M. White for Plaintiffs and Appellants. Wild, Carter & Tipton and Steven E. Paganetti for Defendants and Appellants.
NOT TO BE PUBLISHED
INTRODUCTION
These appeals involve a business dispute between defendant franchisors and plaintiff franchisees who operated a convenience store and gas station. The agreements entered by the parties were ambiguous on a number of topics, and most of the disputes are rooted in those ambiguities. Ultimately, the jury determined the corporate defendants had breached their contracts with the franchisees and the individual defendants were liable for fraud. The jury awarded compensatory and punitive damages. The trial court awarded attorney fees.
The defendant franchisors appealed claiming (1) the evidence presented was insufficient to support the jurys special verdicts and (2) the trial court erred by (a) denying their motion for judgment notwithstanding the verdict, (b) denying their motion for new trial, (c) granting plaintiffs leave to amend during trial, (d) denying in part their motion in limine No. 1, and (e) granting plaintiffs motion for attorney fees.
The plaintiff franchisees cross-appealed claiming the trial court erred by reducing the punitive damages from $100,000 to $20,000 as to one individual defendant and from $65,000 to $ 10,000 as to the other individual defendant. The reduced amounts were 1.43 times the amount of compensatory damages awarded on the fraud claims.
We conclude as follows. First, the evidence, although conflicting and capable of supporting different inferences, was sufficient to support the jurys special verdicts. Second, the trial courts rulings on the various motions did not contain reversible error. Third, case law decided after the trial court reduced the awards of punitive damages establishes that the amounts awarded by the jury were not so grossly excessive as to result in the deprivation of property without due process of law.
Accordingly, the jurys award of punitive damages will be reinstated and, as so modified, the judgment will be affirmed.
FACTS
George J. Beal and Ernest O. Beal conduct business through their corporations, defendants Beal Properties, Inc. (BPI) and Johnny Quik Food Stores, Inc. (JQF). JQF owned gas station convenience stores and also acted as a licensor or franchisor of other stores, which third parties operated using the JQF name. BPI was engaged in the development and ownership of gas station convenience store properties. These properties were leased to JQF or to JQF franchisees.
In 1986, Tom and Ramona Chavira began operating a JQF gas station convenience store near Highway 99 in Fresno, California (Store 117). They entered into a lease agreement with the Beals for the real property where Store 117 was located. The Chaviras also entered into a license agreement with JQF giving them the right to market branded products and use the JQF trademark on Store 117. The Chaviras operated Store 117 for approximately 10 years under the lease and license agreements. During that time, they sold ARCO branded gasoline products. While the Chaviras operated as licensees, they maintained and controlled their own business bank account.
In 1996, defendants wanted to convert Store 117 from ARCO to Chevron brand. Ernest Beal sent the Chaviras a two-page memorandum that outlined the benefits and requirements of becoming a JQF franchisee and converting Store 117 to Chevron brand. The memorandum stated the Chaviras would receive $180,814 worth of new equipment and cosmetic changes "at no cost" to them, $4,500 worth of training at the Chevron U.S.A., Inc. (Chevron) training school, and other benefits. In return, the Chaviras would be charged a $1,000 per month franchise fee and would have to pay for certain equipment and make improvements to the stores parking lot and other facilities.
Using documents dated July 16, 1996, the relationship between defendants and the Chaviras was changed from licensor-licensee to franchisor-franchisee. Tom Chavira signed a franchise agreement with JQF. Tom and Ramona Chavira both signed a gasoline sales agreement with BPI. In addition, the Chaviras renewed the lease on Store 117 for five years.
The franchise agreement and the gasoline sales agreement set forth the terms and conditions under which the Chaviras would operate Store 117 and sell gasoline under the Chevron brand. The agreements provided that the Chaviras must sell 180,000 gallons of gasoline each month or pay a shortfall penalty. The agreements also provided that a separate bank account would be set up in BPIs name and daily gasoline sales would be deposited into that account. The franchise agreement stated that Chevron was to be paid for its gasoline out of the account, and on the 10th of each month the Chaviras would receive a check for "all the gross profit less offset for repairs and maintenance, super fund, sale agreement underachievement and sales tax."
Chevron sent billing invoices to BPI for gasoline purchased by BPI and resold to the Chaviras. BPI provided the invoices to the Chaviras. The invoices and other documents relevant to the price BPI charged the Chaviras for gasoline are described in more detail in part II.B., post.
Before the Chaviras signed the franchise and gasoline sales agreements, the Beals gave them a list of the costs for upgrading the image of Store 117 to Chevrons requirements. The document divided the costs between BPI and the Chaviras and showed that BPI would pay $181,114 towards the conversion and the Chaviras would pay $38,200.
Subsequently, the Chaviras signed a promissory note dated February 3, 1997, for the principal amount of $45,550 payable to BPI (not $38,200); this note is sometimes referred to as the "reimage note" because it was related to the expenses of improving the image of Store 117. The promissory note provided for interest to accrue at the rate of 12 percent per year and monthly installment payments of one cent per gallon of gasoline sold at the store.
In connection with the conversion to the Chevron brand, BPI and Chevron entered a dealer supply contract dated August 12, 1996. Among other things, the dealer supply contract provided that BPI would pay for Chevron fuel products at a price established by Chevron.
In addition, BPI and Chevron entered into a written, six-page agreement dated August 23, 1996, related to a $325,000 loan made for the purpose of funding improvements at Store 117. The agreement required BPI to repay the loan by paying Chevron the sum of 2.312 cents for each gallon of gasoline that BPI purchased for resale at Store 117. Chevrons loan to BPI was to be paid over 10 years. To meet this schedule, a minimum of 180,000 gallons of gasoline needed to be sold at Store 117 per month. Other provisions of this agreement between BPI and Chevron are discussed in part II.B.3., post. The parties agree that the Chaviras were not obligated to make any payments on the Chevron loan.
Thus, the gasoline sales agreements imposition of a shortfall penalty if monthly sales of gasoline fell below 180,000 gallons appears to be correlated to BPIs obligation to repay the loan from Chevron.
In 1999, the Chaviras sold their interests in Store 117 to Jess and Brenda Naranjo. While the proposed sale was in escrow, defendants demanded payment of $64,065.77 for unpaid shortfall penalties purportedly due under the gasoline sales agreement. Eventually, the Chaviras paid $22,000 of the demand and the sale of the business was completed. Additional facts concerning the shortfall penalties and the related compromise are discussed in part V., post.
The Naranjos also were plaintiffs in the underlying action but are not parties to this appeal. Defendants and the Naranjos settled their dispute after the jury returned verdicts in favor of the Naranjos.
The Naranjos began to operate Store 117 in June 1999. During the course of operating Store 117, the Naranjos began to have concerns about how the agreements that defined their relationship with defendants were being applied. Eventually, those concerns resulted in this lawsuit.
PROCEEDINGS
The Chaviras, the Naranjos and Akattar Singh filed their original complaint against BPI, JQF and the Beals on June 5, 2001. The complaint set forth claims for breach of contract, fraud, accounting, money had and received, recovery of usurious interest and declaratory relief. The same plaintiffs filed a second amended complaint on November 21, 2001, which included a claim for breach of an implied duty of good faith and fair dealing.
Mr. Singh settled with defendants and is not a party to this appeal.
The Chaviras alleged that BPI and JQF had breached their contracts with the Chaviras by (1) allowing Chevron to take funds from the gasoline sales bank account to pay down BPIs loan from Chevron, (2) failing to provide necessary training and support, (3) failing to pass on to the Chaviras temporary price allowances received by BPI from Chevron, (4) failing to provide the Chaviras with rebates on purchases they made, (5) failing to promptly notify the Chaviras of changes in gas price, thereby putting them at a competitive disadvantage, (6) charging them for capital improvements improperly characterized as repairs and maintenance, and (7) improperly withholding funds for property taxes and administrative fees that were not owed under the contracts.
On December 24, 2002, the superior court granted a motion for summary adjudication that eliminated the Chaviras claims for usury and declaratory relief. The declaratory relief claim and summary adjudication order are discussed in part III., post.
The Chaviras and Naranjos proceeded to a jury trial in March 2004. The parties filed motions in limine. Defendants motion in limine No. 1 was granted in part. The ruling on that motion in limine and its relationship to the 2002 summary adjudication order is the source of one of the errors asserted by defendants in this appeal. (See part III., post.)
During trial, the trial court granted the Chaviras leave to file a fourth amended complaint to include additional allegations related to their fraud and breach of contract claims. Defendants contend this ruling constitutes reversible error. (See part V.E., post.) Defendants were allowed to amend their answer to assert affirmative defenses in specific response to the additional allegations.
On April 29, 2004, the jury returned its special verdicts. JQF was found liable for $3,889 for breach of the franchise agreement and for $4,000 for money had and received. BPI was found liable for $32,000 for breach of the gasoline sales agreement, $ 10,000 for breach of the implied covenant of good faith and fair dealing, and $11,000 for money had and received. George Beal was found liable for fraud in the amount of $14,000. Ernest Beal was found liable for fraud in the amount of $7,000. The jury found against the Chaviras on their claim that BPI had breached the lease agreement.
In special verdict No. 21, the jury found by clear and convincing evidence that JQF, BPI, George Beal, and Ernest Beal have been guilty of oppression, malice, or fraud in the conduct upon which it based its finding of liability on the Chaviras fraud cause of action.
On May 3, 2004, a second trial was held to determine the amount, if any, of punitive damages. The Naranjos and defendants settled their dispute before the second trial started, so only the Chaviras claim for punitive damages was presented to the jury. The jury awarded $100,000 in punitive damages against George Beal and $65,000 against Ernest Beal. No punitive damages were awarded against BPI or JQF.
Defendants moved for judgment notwithstanding the verdict and for a new trial. The trial court denied the motion for judgment notwithstanding the verdict. The trial court determined that the damages awarded against BPI for breach of the implied covenant of good faith and fair dealing were duplicative of the damages awarded for breach of contract. As a result, the trial court required the Chaviras to elect between the two damage awards. In addition, the trial court conditionally granted the motion for a new trial as to punitive damages. The Chaviras were required to choose a new trial or accept a remittitur of punitive damages of $20,000 against George Beal and $10,000 against Ernest Beal. The Chaviras elected to accept the breach of contract damages and the remittitur.
Defendants and the Chaviras filed motions for attorney fees. On September 23, 2004, the trial court ruled on the motions and awarded the Chaviras $144,903.30 in attorney fees against BPI and JQF. The trial court determined BPI was the prevailing party on the claims brought under the lease agreement because the Chaviras did not recover on their claim for a breach of the lease agreement. The trial court awarded $8,209.49 in attorney fees to BPI.
A third amended judgment was entered on October 6, 2004, and notice of entry of judgment was served the next day. Defendants filed a timely notice of appeal. The Chaviras filed a timely notice of cross-appeal for the purpose of contesting the reduction in punitive damages.
DISCUSSION
I. Standards of Review
A. Substantial Evidence
A challenge to the sufficiency of the evidence that supports a verdict is reviewed under the substantial evidence standard. (Orange County Employees Assn. v. County of Orange (1988) 205 Cal.App.3d 1289, 1293.)
A denial of a motion for judgment notwithstanding the verdict is reviewed under the substantial evidence standard. (Sweatman v. Department of Veterans Affairs (2001) 25 Cal.4th 62, 68.)
Under the substantial evidence standard, we accept as true all evidence tending to support the verdict or ruling, including all reasonable inferences from the evidence, and resolve all conflicts in favor of the respondent. (Crawford v. Southern Pacific Co. (1935) 3 Cal.2d 427, 429.)
B. Abuse of Discretion
Generally, a trial courts rulings on motions in limine are reviewed for an abuse of discretion. (E.g., Hernandez v. Paicius (2003) 109 Cal.App.4th 452, 456.) Nevertheless, a motion in limine that bars all evidence of a claim is tantamount to a nonsuit and therefore is reviewed under the substantial evidence standard applied to motions for nonsuit. (Mechanical Contractors Assn. v. Greater Bay Area Assn. (1998) 66 Cal.App.4th 672, 676-677.)
A denial of a motion for new trial is reviewed under an abuse of discretion standard. (Ashcraft v. King (1991) 228 Cal.App.3d 604, 616.)
C. Independent Review
Questions of law raised in connection with these motions are subject to independent appellate review. (Huffman v. City of Poway (2000) 84 Cal.App.4th 975, 993 [in the context of a motion for judgment notwithstanding the verdict, duty of care was a legal question subject to independent review].)
II. The Correct Price of Gasoline
A. Allegations and Contentions
The Chaviras second amended complaint alleged defendants breached their agreements with the Chaviras by failing to pass on to the Chaviras temporary price allowances that defendants received from Chevron. As a result of this failure, the Chaviras claim, defendants charged them too much for the gasoline sold at Store 117. Counsel for the Chaviras asserted during closing argument that the recoverable damages related to the temporary price allowances totaled $ 61,678.
Because of the statute of limitations, these damages were calculated only back to June 1997. On appeal, the Chaviras brief asserts the evidence showed damages related to the failure to pass along temporary price allowances of approximately $ 101,000 to $102,000. This assertion fails to reflect the application of the statute of limitations to their claim.
The dispute over the correct price of the gasoline focuses on a credit of 2.312 cents per gallon that appears on the invoices Chevron sent to BPI. The parties disagree on the proper characterization of the 2.312 cents per gallon credit.
On the one hand, the Chaviras contend the 2.312 cents per gallon credit was a temporary price allowance that reduced the price Chevron charged BPI and, therefore, should have reduced the price of gasoline that BPI charged them. Defendants argue, on the other hand, that Chevron gave BPI the 2.312 cents per gallon credit for the reduction of a separate loan, and the credit had nothing to do with the price of gasoline charged to the Chaviras.
B. Documents
None of the documents admitted into evidence states explicitly how the 2.312 cents per gallon credit should be characterized. Consequently, the proper characterization of the 2.312 cents per gallon credit involved a question of interpretation that was presented to the jury.
1. Agreements
Paragraphs 2, 3, and 5 of the gasoline sales agreement between BPI and the Chaviras contain provisions that are relevant to this question. Paragraph 2 provided that the Chaviras would "deposit daily gasoline sales into seperate [sic] bank account set up in the name of BPI" and that BPI would "pay all gasoline orders to gasoline company out of this account." Paragraph 3 addressed the amount of money the Chaviras were to receive from gasoline sales: "Franchisee will receive a check by the 10th of each month for all the gross profit less offset for repairs and maintenance, sale agreement underachievement." The gasoline sales agreement did not define the term "gross profit" and did not state directly what price would be charged to the Chaviras for gasoline.
The parties have not cited any sources that define "gross profit." We note that Blacks Law Dictionary (8th ed. 2004) at page 1246 defines it as "[t]otal sales revenue less the cost of the goods sold, no adjustment being made for additional expenses and taxes." Using this definition, the dispute in this case concerns the correct "cost of [gasoline] sold."
George Beal was asked during trial what he told the Chaviras before they signed the gasoline sales agreement. He answered: "We reviewed the sales agreement and I told the Chaviras that we were selling the gasoline to them at cost, and we were not charging the normal four to five cents a gallon distributor mark up."
Paragraph 5 of the gasoline sales agreement provided: "Franchisee agrees to operate under and be bound to the terms and conditions of the gasoline sales agreement between BPI and Chevron, for a period of 10 years, a copy of which is attached hereto as Exhibit `A." George Beal testified that the agreement between BPI and Chevron referenced in the gasoline sales agreement was the dealer supply contract dated August 12, 1996.
The dealer supply contract stated that the "prices [BPI] shall pay Chevron for Chevron motor fuels hereunder shall be Chevrons prices to [BPI], as established by Chevron from time to time, for the particular product, grade, quantity and type of delivery involved."
Based on the provisions of the gasoline sales agreement and the dealer supply contract, the Chaviras argue that the proper price they were to pay for gasoline "was the price Chevron established." More specifically, the Chaviras assert that the parties understanding was that "the price Chevron charged for gasoline, as shown on the invoices [defendants] gave the CHAVIRAS, is the price the CHAVIRAS were supposed to pay."
This assertion by the Chaviras is consistent with the testimony of the accountant who actually calculated the price the Chaviras were charged for gasoline. Richard Shatto was an accountant employed by JQF and, among other things, he handled the franchise gas accounts for BPI. His duties included calculating gross profit at the end of each month and writing individual checks to the franchise gas stores, such as Store 117. He testified that (1) the price BPI charged its franchisees for gasoline was the price that Chevron charged BPI and (2) he used the invoices from Chevron to determine what the franchisees were charged for gasoline.
Accordingly, defendants appear to agree with the Chaviras on two fundamental points. First, the correct price for the gasoline sold to the Chaviras was the price Chevron charged BPI. Second, the Chevron invoices are helpful in determining that price. For instance, defendants reply brief asserted that "the Chaviras were charged the exact same amount BPI was charged per gallon by Chevron as set forth in the Chevron invoice sent to BPI and provided to Chaviras." The parties do not agree on the proper interpretation of those invoices.
2. Invoices
The relevant columns of the Chevron invoices had the following headings: (1) Kind, (2) Product Description, (3) Tax Rates Included in Price, which was divided into separate columns titled Federal, State and Local, (4) Quantity, (5) Price, and (6) Amount.
The June 4, 1999, invoice (admitted into evidence as exhibit 339) included a line item for a product described as Chevron Plus with the corresponding entries of .1840 for federal tax, . 1800 for state tax, 2,084 for quantity, 1.2015 for price, and 2,503.93 for amount. Immediately below this line of entries were two more line items. The first of the line items included an entry of "INVESTMENT ADJUSTMENT" in the product description column, an entry of .02312 in the price column, and an entry of 48.18 — in the amount column. The second of the line items included an entry of "CA OIL SPILL PREVENTION SURCHARGE" in the product description column, an entry of . 00095 in the price column, and an entry of 1.98 in the amount column.
The figure in the amount column can be produced by multiplying 2.312 cents per gallon times 2,084 gallons. The result is $48.18208, which was rounded off on the invoice and made into a negative number.
Lower on the invoice was a line item for 6,676 gallons of a product described as Chevron unleaded. This line item contained entries that paralleled the entries for Chevron Plus. The entry in the price column was 1.1515. This line item also was followed by line items for an investment adjustment and for an oil spill prevention surcharge. The investment adjustment had an entry of .02312 in the price column, and an entry of 154.35 — in the amount column.
I.e., 2.312 cents per gallon multiplied by 6,676 gallons equals $154.34912.
Below the entries related to the unleaded gasoline were line items described as "NOTE ACCOUNT," "LEAD POISONING PREVENTION FEE" and "CA PREPAID SALES TAX." The note account line item had an entry of .02312 in the price column, and an entry of 202.53 in the amount column. This positive amount exactly cancelled out the two negative amounts entered as investment adjustments earlier in the invoice.
I.e., 202.53 = 48.18 + 154.35.
3. Chevron-BPI loan agreement of August 23, 1996
Chevron and BPI entered a six-page agreement dated August 23, 1996, related to a $325,000 loan made for the purpose of funding improvements at Store 117. The agreement provided that the loan balance would accrue interest at the rate of 9.25 percent per annum. The repayment provisions of the agreement stated in part:
"Until the Loan has been paid in full, [BPI] shall pay to Chevron the sum of $0.02312 for each gallon of Chevron brand gasoline that [BPI] purchases from Chevron for resale at the Premises in addition to the purchase price for such gasoline. The applicable Loan payment amounts shall be included in Chevrons invoices to [BPI] for gasoline deliveries. The total amount of the Loan payments that Chevron collects from [BPI] during a calendar month shall be applied against the Loan at the end of such month."
This sentence identifies BPIs "purchase price for such gasoline" as the amount BPI paid Chevron minus the 2.312 cents per gallon loan payment included on each invoice. Thus, for purposes of the August 23, 1996, agreement between Chevron and BPI, the "purchase price" of gasoline necessarily included any discounts and credits reflected on the invoices, which is consistent with the Chaviras position and the jurys findings.
George Beal was asked to read the foregoing repayment provision during trial. He was then asked if, based on his communications with Chevron, he had "an understanding as to how that was going to work regarding the [2.312] cents per gallon of gas sold to [BPI]?" Mr. Beal answered: "Yes, they would credit on an invoice." He then indicated that this credit was reflected on the invoice that had been marked as exhibit 339.
The loan agreement made no mention of Chevron granting BPI a loan credit of the type mentioned in Mr. Beals testimony or, alternatively, of Chevron providing BPI a "temporary price allowance." Thus, the agreement identified the 2.312 cents per gallon charge on the invoices as a loan payment and did not state what the 2.312 cents per gallon credit was.
The charge was described on the invoice by the entry NOTE ACCOUNT in the product description column.
The credits were described on the invoice by the entry INVESTMENT ADJUSTMENT in the product description column.
The loan agreement did, however, contain a provision that addressed gasoline prices. Paragraph 7 of the agreement started with the heading "Gasoline Prices" and stated in full:
"[BPI] understands and acknowledges that the prices [BPI] will be required to pay Chevron for gasoline (including any discounts that Chevron may grant to [BPI]) are subject to continuous review and may be changed by Chevron at any time (including reducing or withdrawing any such discounts), and that [BPI]s obligation to repay the Loan under the terms of this agreement shall not be affected by any such price changes." (Italics added.)
This provision does not state an unambiguous formula for determining the true price that BPI would pay for gasoline. Nevertheless, it does show that from Chevrons perspective the price of gasoline reflected reductions for "any discounts" that Chevron provided to its dealers. (See fn. 8, ante.)
4. Documents not introduced
The issues that arise from the documentary evidence can be brought into sharper focus if we note some of the topics that were not addressed explicitly in the documents introduced into evidence during the trial. On the one hand, the Chaviras did not introduce any letter or other document from Chevron that stated Chevron was providing a temporary price allowance for Store 117. On the other hand, defendants did not introduce any document that explicitly stated defendants would receive a "loan credit" of 2.312 cents per gallon of gasoline sold at Store 117.
Defendants argue that "the Chaviras did not introduce any evidence there was any [temporary price allowance] ever provided by Chevron at the location of [Store 117.]" This statement ignores the circumstantial evidence presented.
Consequently, the jury was asked to weigh the testimony, draw inferences from that testimony and the documentary evidence, and determine whether the invoice credit of 2.312 cents per gallon was either a temporary price allowance or a loan credit unrelated to price.
C. Conflicting Interpretations of the 2.312 Cents Per Gallon Credit
During trial, the Chaviras supported their interpretation of the 2.312 cents per gallon credit as a temporary price allowance by introducing the deposition testimony of Noushad Hyder. Mr. Hyder is an employee of Chevron who was familiar with the documents between Chevron and BPI that related to Store 117 and another store located on West Shaw Avenue in Fresno.
Mr. Hyder testified about loans that Chevron entered with dealers for the purpose of reimaging stores—that is, loans that provide funds to change the brand of a store to Chevron and bring the facility in line with Chevron standards. He also testified about temporary price allowances provided by Chevron to dealers.
Mr. Hyder testified that Chevron addressed the competition in a given market by giving an allowance or discount on top of the dealer buying price. Chevron used the term "temporary price allowance." The amount of the temporary price allowance was based on the marketplace and potential volume.
Mr. Hyder testified that Chevron provided BPI with a temporary price allowance of 2.401 cents per gallon for the store on West Shaw Avenue and thought BPI received a temporary price allowance of 2.312 cents for a store on South Clovis Avenue. The temporary price allowance for the store on West Shaw Avenue was reflected in a March 10, 2002, letter from Chevron to BPI, which was admitted as exhibit 307 at trial.
A Chevron invoice dated April 21, 2002, for the store on West Shaw Avenue contained line items described as investment adjustments and a line item described as note account. These descriptions are the same as descriptions used on Chevron invoices for Store 117. The investment adjustment and note account line items on the April 21, 2002, invoice included entries in the price column of .02401. When asked to explain the negative amounts on the invoice that corresponded to the description "investment adjustment," Mr. Hyder replied, "that is our TPA, temporary price allowance." He also testified the entry described as note account was "their loan pay back or loan payment." Mr. Hyder stated that, in this particular invoice, the loan payment was equal to the temporary price allowance. He pointed out that market conditions could change, Chevron could eliminate the temporary price allowance, and the dealer still was obligated to repay the loan.
There are many parallels between the April 21, 2002, invoice for the store on West Shaw Avenue and the invoices for Store 117. They all contain negative amounts corresponding to the description "investment adjustment" and offsetting positive amounts corresponding to the description "note account." These parallels and the other evidence presented about temporary price allowances and the repayment of Chevron loans provide substantial evidence from which the jury reasonably could infer that BPI received a temporary price allowance on the gasoline sold at Store 117.
We recognize that (1) the Chaviras did not introduce a letter from Chevron stating a temporary price allowance was being provided to Store 117, (2) Mr. Hyder did not testify explicitly that the credit on the Chevron invoices for Store 117 was a temporary price allowance, and (3) George Beal testified there was no temporary price allowance and that the credit on the invoices was a loan credit.
Specifically, Mr. Hyder testified that he did not know whether Chevron extended a temporary price allowance to Store 117.
But, as a court of review, we must conclude that the jury did not believe George Beals testimony about his understanding of the 2.312 cents per gallon credit. We are required to apply the substantial evidence rule and view the evidence in the light most favorable to the verdicts. (Kephart v. Genuity, Inc. (2006) 136 Cal.App.4th 280, 291.) Also, findings concerning the credibility of a witness fall within the exclusive province of the jury. (Bradley v. Perrodin (2003) 106 Cal.App.4th 1153, 1166.)
It follows that the jury did not believe Mr. Shattos testimony that the credits listed as investment adjustments on the invoices were not temporary price allowances because his understanding was based on what George Beal told him.
Further, the absence of direct evidence, either in the form of a letter or testimony by Mr. Hyder, showing a temporary price allowance existed is not dispositive of the issue. Clearly a credit of 2.312 cents per gallon existed—only its characterization was disputed. The circumstantial evidence was sufficient for the jury to find by inference that the 2.312 cents per gallon credit reduced the true price of the gasoline and therefore should have been passed along to the Chaviras.
Accordingly, we reject defendants argument regarding the sufficiency of the evidence to support the special verdicts insofar as that argument concerns the temporary price allowance.
D. Leave to File the Fourth Amended Complaint
Defendants contend the trial court erred by granting the Chaviras leave to file a fourth amended complaint during the trial. The fourth amended complaint repeated the allegation that defendants breached their agreements with the Chaviras by failing to pass on the temporary price allowance that defendants received from Chevron and thereby overcharged the Chaviras for gasoline. The fourth amended complaint expanded the allegations regarding temporary price allowances by adding the following new allegations:
"BPI and Chaviras reached an understanding concerning the price Chaviras would pay for the purchased Chevron gas. The understanding was the Chaviras would purchase Chevron gasoline at the price established by Chevron for a particular product, grade, quantity, and type of delivery involved including any discount or temporary price allowance granted by Chevron. This understanding was oral, and was either: (a) an oral term or modification of the agreement; (b) a separate oral agreement between BPI and Chaviras; and/or (c) an oral agreement to substitute a term omitted from the written agreement." (Boldface omitted, underscoring in original.)
Defendants argued that the amendment materially prejudiced their defense because the Chaviras previously had based their claims on the written agreements between the parties. Defendants also contend "the offer to conform to proof flies in the face of the actual evidence because the CHAVIRAS admitted there was no agreement to receive a TPA and no one told them they would receive a TPA."
We conclude that the inclusion of the allegations regarding the oral nature of the understanding reached by the parties concerning the price of gasoline and temporary price allowances was not unduly prejudicial to defendants. Defendants correctly observed that there was no testimony of an explicit oral understanding that specifically addressed temporary price allowances. Therefore, we will not infer that the jurys finding against defendants was based on an explicit oral agreement regarding temporary price allowances. The other portion of the allegations about price—that is, the more general allegation that the "Chaviras would purchase Chevron gasoline at the price established by Chevron"—also was not prejudicial to defendants because they agreed with it. Specifically, George Beal testified that he told the Chaviras they would be sold gasoline "at cost," which is reasonably interpreted to mean at the price Chevron charged BPI.
Defendants narrowly focused on the lack of an explicit written or oral agreement to pass along temporary price allowances and overlooked the broader issue that was the basis for the jury finding against them: how to interpret defendants documents to determine the price that the Chaviras would pay for gasoline. The jury, in accordance with the instructions given, reached an objectively reasonable interpretation of the ambiguous provisions when it found that the true price of gasoline was reduced by the 2.312 cents per gallon credit Chevron gave to BPI.
In summary, the allegations regarding the price of gasoline that were added by the fourth amended complaint did not unduly prejudice defendants.
III. Upcharges and Motion in Limine No. 1
A. Trial Courts Ruling and Claims of Error
Defendants motion in limine No. 1 sought to exclude evidence on issues that had been adjudicated previously.
The final ruling on defendants motion in limine No. 1 granted the motion in part and denied it in part. The ruling referenced the December 2002 order granting a motion for summary adjudication and stated that the Chaviras "are precluded thereby from introducing evidence asserting the Naranjo/Chavira note was usurious, from introducing evidence that the Naranjo/Chavira note was not paid off not later than July 2000, from introducing evidence that plaintiffs had any obligation to pay the BPI/Chevron indebtedness, and from introducing any evidence with respect to `upcharges, it appearing to the court that [the summary adjudication order] expressly found for the defendants as to those issues."
1. Contentions of the parties
Defendants contend this ruling was too narrow and that, under the doctrine of issue preclusion by collateral estoppel, the ruling should have excluded any evidence regarding temporary price allowances.
The Chaviras counter that the ruling on the motion in limine does not contain reversible error because defendants wrongly equate "upcharges" with temporary price allowances. They contend "[t]he original and every amended complaint filed in this action have distinguished between `upcharges and TPAs, and the CHAVIRAS have alleged from the inception of this case they are entitled to the TPAs offered by Chevron, but [defendants] did not pass the TPAs on to them."
2. Issue presented
The parties arguments thus present this court with the following question: are upcharges and temporary price allowances the same thing for purposes of (1) the claims set forth in the Chaviras pleadings and (2) the December 2002 summary adjudication order? (See generally Rodgers v. Sargent Controls & Aerospace (2006) 136 Cal.App.4th 82, 89-90 [identity of issues is requirement for issue preclusion by collateral estoppel].)
This question can be answered only by interpreting the Chaviras pleadings and the December 2002 summary adjudication order. In effect, defendants are arguing that the trial court misconstrued the pleadings and the summary adjudication order when it partially denied their motion in limine No. 1.
B. Upcharges Are Not the Same as Temporary Price Allowances
We start our analysis of this issue by examining the words used in the second amended complaint, which was the pleading in effect when the December 2002 order granted summary adjudication as to the declaratory relief cause of action. Most inquiries into the interpretation of written words begin with an examination of the words used. (E.g., Coburn v. Sievert (2005) 133 Cal.App.4th 1483, 1494 [statutory interpretation "starts by examining the actual words of the statute"]; Titan Group, Inc. v. Sonoma Valley County Sanitation Dist. (1985) 164 Cal.App.3d 1122, 1127 [words of contracts manifest parties objective intent].)
In paragraph 14 of the second amended complaint, by including the following parenthetical, the Chaviras specifically addressed what they meant when they used the term "upcharge": "(hereinafter the Chevron/BPI loan pertaining to the Chaviras station will be referred to as `Chevron Loan and the payments deducted from any Plaintiffs invoices for the Chevron Loan or any similar loan shall be referred to as `upcharges)." Thus, for purposes of the Chaviras second amended complaint, "upcharges" were defined as (1) a payment (2) deducted from the Chaviras or the Naranjos invoices (3) for a particular type of loan.
Paragraph 19 of the second amended complaint alleged defendants committed eight types of breach of their contracts with the Chaviras. Paragraph 19a alleged defendants allowed Chevron to deduct an "upcharge" of 2.312 cents per gallon and credit that upcharge to defendants account. Paragraph 19d alleged defendants failed to pass on to the Chaviras the temporary price allowances defendants received from Chevron.
Similarly, paragraph 15 of the first amended complaint filed on August 31, 2001, differentiated between breaches that involved upcharges and breaches that involved temporary price allowances.
The Chaviras declaratory relief cause of action was set forth in paragraphs 94 through 97 of the second amended complaint. Paragraph 95 alleged "that [the Chaviras] have not assumed any obligations under BPIs Chevron Loan; whereas [defendants] dispute this contention and contend that [the Chaviras] must continue paying the Reimage notes, the shortfall penalties, and the invoice `upcharges of $0.02312 (or in the case of Singh, $ 0.02401) per gallon." Paragraph 96 stated that the Chaviras "desire judicial determination of their rights and duties, and a declaration ... that [the Chaviras] have not assumed any obligations under BPIs Chevron loans."
The allegations in the declaratory relief cause of action are consistent with the definition of "upcharges" that the Chaviras created in paragraph 14 of the second amended complaint. "Upcharges" are payments for loans, and the Chaviras sought an order declaring that they were not obligated to pay on those loans.
The contents of the Chaviras pleadings clearly demonstrate that the Chaviras used the term "upcharges" and the term "temporary price allowances" to describe different wrongs allegedly committed by defendants.
Under the wrongful upcharge theory, the Chaviras asserted that the money could not be taken from them and applied to a loan that Chevron made with BPI because they never agreed to make payments on the loan. Restated in the terms used on the Chevron invoices, the Chaviras contended they were not obligated to pay the positive amounts the Chevron invoices described as "NOTE ACCOUNT."
The motion for summary adjudication was granted because defendants agreed with this contention. Defendants argued there was no actual present controversy because they also took the position "that the [Chaviras] did not assume any obligation to pay BPIs debt to Chevron."
In contrast, under their theory concerning temporary price allowances, the Chaviras asserted that too much money was taken from their account to pay for gasoline, and the true price of gasoline must reflect temporary price allowances from Chevron. Restated in the words used in the Chevron invoices, the Chaviras asserted that the negative amounts described on the invoices as "INVESTMENT ADJUSTMENT" were in fact temporary price allowances that reduced the true price of gasoline.
Accordingly, the terms "upcharges" and "temporary price allowances" were used in connection with different legal theories that related to different line items on the invoices. This distinction is valid even though (1) each of the line items was calculated using the same figure of 2.312 cents per gallon and (2) the total amount of the invoices investment adjustments cancelled out the amount for the invoices note account line item.
The reason the Chaviras alleged these different legal theories is apparent. If the Chaviras proved the investment adjustments on the invoice were in fact temporary price allowances and should have reduced the amount they were charged for gasoline, defendants might have countered by asserting that the Chaviras were responsible for paying down the loan made by Chevron—that is, they were responsible for paying the note account entry on each Chevron invoice. To address this possibility, the Chaviras included their declaratory relief cause of action. Defendants eliminated this possibility when they definitively asserted in the declarations that supported their motion for summary adjudication that the Chaviras were not responsible for paying down the loan made by Chevron. As a result, the Chaviras declaratory relief cause of action became unnecessary and it was properly eliminated by the December 2002 summary adjudication order. Consequently, the dispute was focused on the proper characterization of the negative entries listed on the Chevron invoices as investment adjustments and the relationship of those entries to the true price Chevron was charging BPI for gasoline.
To further illustrate that they used the terms "upcharges" and "temporary price allowances" to mean different things, the Chaviras response brief includes 36 references to the record which show how the terms were used in their pleadings. That brief also observes that the December 2002 summary adjudication order did not mention temporary price allowances, much less purport to adjudicate any issue relating to them.
Defendants reply brief does not address the Chaviras position that the pleadings demonstrate upcharges and temporary price allowances are different things. In short, defendants have not shown that their conflicting interpretation is correct.
Defendants interpretation of the trial courts order denying leave to file a third amended complaint also fails to address the fact that upcharges related to a different invoice line item than temporary price allowances. Thus, we need not analyze that order separately.
In summary, we conclude the trial court correctly interpreted the pleadings and summary adjudication order when it ruled on defendants motion in limine No. 1.
IV. Claims of Error Related to $325,000 Loan
Defendants raise two claims of error related to the $325,000 loan between BPI and Chevron. First, they argue that the trial court improperly overruled their objection and allowed the Chaviras to introduce evidence regarding the existence of the loan and the concealment of that loan from the Chaviras. Second, defendants argue that counsel for the Chaviras made references to the loan during closing argument even though the trial court granted "the Defendants Motion to Preclude Reference to the Chevron Loan as a basis for any claim during closing argument."
Defendants brief did not support this assertion with a citation to the record where this motion was made or where the trial court granted such a motion. (Cal. Rules of Court, rule 8.204(a)(1)(C).)
A. Admission of Evidence
As background for this discussion, we note that the trial court ruled that the Chaviras could not present a theory of recovery that claimed they paid "upcharges." As a result of this ruling, the Chaviras were prevented from claiming the loan payments were a separate item of damages that they should recover. The ruling makes sense for the reason that, if the Chaviras had been able to recover the loan payments as a separate item of damages, there would have been the risk of double recovery because the Chaviras were allowed to claim damages from the failure to pass along temporary price allowances. This background information illustrates why the loan payments could not be the basis for a separate claim of damages.
Defendants interpret the trial courts ruling expansively, an interpretation which they have not established is justified. Precluding the Chaviras from claiming damages based on the loan payments does not mean that the Chaviras were prohibited from making any references to the loan.
Evidence about the existence of the Chevron loan was relevant to the claims which the Chaviras were allowed to pursue. (Evid. Code, § 350.) Among other things, the evidence helped the jury understand the relationship between Chevron and defendants as a whole and provided the context necessary for the jury to evaluate the line item entries on the Chevron invoices described as "INVESTMENT ADJUSTMENT" and "NOTE ACCOUNT." For example, information about defendants relationship with Chevron and the entries on the Chevron invoices was essential to the jurys assessment of George Beals testimony that the negative line item entries on the invoices were loan credits and not temporary price allowances.
Furthermore, because of the close relationship between the loan payments and the temporary price allowances, evidence that defendants kept information about the existence of the loan from the Chaviras was relevant to the false representation claim regarding the temporary price allowances. For instance, if the Chaviras had learned about the loan and the way it was being paid, they might have sought clarification of the payment mechanism and learned more about the nature of the credits that subsequently were set forth on the Chevron invoices. Thus, we reject defendants contention that evidence of the loan did not have any bearing on the claims asserted in the Chaviras pleadings.
In summary, information about the Chevron loan was admissible as relevant evidence. (Evid. Code, §§ 350, 351.)
Defendants claim prejudice resulted from (1) the introduction of evidence about the loan and (2) references to the loan and its concealment made by the Chaviras attorney during closing argument. Defendants, however, have not shown that the introduction of the evidence, by itself, was prejudicial or that its admission into evidence resulted in a miscarriage of justice. (Evid. Code, §§ 352 [prejudice], 353, subd. (b) [miscarriage of justice].) Therefore, admission of the evidence cannot be grounds for reversal. Consequently, we proceed to defendants argument regarding attorney misconduct during closing argument.
B. Misconduct During Closing Argument
During closing argument, counsel for the Chaviras said that "ultimately [the Chaviras] finally found out that there was this big Chevron loan that was a big surprise to everybody." Counsel for defendants immediately objected and the trial court sustained the objection. Counsel for the Chaviras asked for a sidebar and stated "that was the issue I talked about this morning." The trial court replied that it believed it had sustained the objection of counsel for defendants during the morning and advised the Chaviras counsel to proceed to another topic.
Later in closing argument, counsel for the Chaviras referred to the fraud claims and stated:
"[W]e have heard throughout this trial lots of testimony about promises, statements, conversations, discussions, so on, and so on, and so on. Failure to make disclosures, I am not going to detail them, because I think the evidence is pretty clear about those, but the Chaviras believe that those particular promises, lack of disclosure, omissions, whatever, however you describe them, resulted in them signing agreements that they might not have agreed to had they known everything in advance, and that they have been damaged by that."
Defendants contend that this vague argument, which does not identify with specificity the fraudulent acts or who committed them, left the jury with a general undefined fraud claim and allowed the jury to find fraud based on the nondisclosure of the Chevron loan and the extreme surprise when it was discovered. Defendants further contend the reference to the Chevron loan coupled with the vague references to fraud were attorney misconduct that caused irregularities in the proceedings.
In ruling on the motion for new trial, the trial court addressed the contention that counsel for the Chaviras acted improperly during closing argument: "[T]he objection to the alleged improper argument was sustained at trial, no further mention was made of the facts during the argument, which was lengthy, and the court cannot find that any prejudice resulted to the defendants from any alleged improper argument."
Appellate courts recognize that the trial judge is in a better position to determine if attorney misconduct caused or contributed to a verdict. (West v. Johnson & Johnson Products, Inc. (1985) 174 Cal.App.3d 831, 863.) Consequently, a trial courts determination regarding an assertion of counsel misconduct will not be disturbed on appeal unless it is plainly wrong. (Ibid.) In this case, the trial courts determination is not plainly wrong; there is sufficient evidence in the record to support the verdicts rendered against defendants, and it does not appear that defendants were prejudiced by the statement made during closing argument. In short, our review of the appellate record leads us to conclude that there is no reasonable probability a result more favorable to defendants would have been reached in the absence of the statements by counsel for the Chaviras. (See Soule v. General Motors Corp. (1994) 8 Cal.4th 548, 574 [standard for reversible error in civil case].)
V. Compromise Regarding Shortfall Penalty
Paragraph 1 of the gasoline sales agreement provided that, if the Chaviras did not sell 180,000 gallons of gasoline during a month, the gross profits they were paid would be reduced. The Chaviras alleged that defendants breached the gasoline sales agreement by overcharging them for shortfall penalties. This particular breach is asserted in paragraph 21i of the fourth amended complaint.
The operative contractual language provided that "[i]f 180,000 gallons are not sold, Franchisee will lose 1% of gasoline gross profit for each gallon of gasoline under the target of 180,000 gallons." Defendants acknowledge that the language is ambiguous. Its proper interpretation is not an issue raised in this appeal; we must infer that the jury resolved the ambiguity in favor of the Chaviras.
The Chaviras alleged defendants demanded payment of $64,065.77 for unpaid shortfall penalties and that the correct amount owed was approximately $850. The Chaviras further alleged that they paid defendants $22,000, but disputed the amount. In accordance with these allegations, counsel for the Chaviras asserted during closing argument that the Chaviras were entitled to recover $21,150 under the gasoline sales agreement as a result of being overcharged for shortfall penalties.
In response to the fourth amended complaint, defendants amended their answer to assert additional affirmative defenses. Defendants alleged that the dispute over the shortfall penalties was compromised and the payment of $22,000 constituted an accord and satisfaction of that dispute.
The disputes surrounding the $22,000 payment resulted in the jury being instructed on the affirmative defense of accord and satisfaction as well as undue influence and duress. The instructions defined one type of duress as the unlawful detention of the property of a party. (See Civ. Code, § 1569, subd. 2 [duress defined to include unlawful detention of property].)
A. Challenges Raised on Appeal
Defendants challenge the inclusion of the claim concerning shortfall penalties on two grounds. First, defendants contend the trial court erred in allowing the Chaviras to file the fourth amended complaint, which set forth a new breach of contract claim regarding the shortfall penalties. Second, defendants contend that their motion for judgment notwithstanding the verdict or their motion for new trial should have been granted because the evidence showed the dispute regarding the shortfall penalties was resolved when the parties agreed that defendants would be paid $22,000 from the escrow.
The Chaviras view the evidence differently. They contend that they did not agree to a compromise that released all of their claims regarding the shortfall penalties. The Chaviras assert that they agreed to have $22,000 paid to defendants from the escrow so that the sale of their business to the Naranjos could be completed.
Defendants assert in their reply brief that the Chaviras "negotiated an unequivocal compromise of the amount without any statement there was not a compromise." Defendants further contend that the assertion that the Chaviras "could not close the escrow was false because George Beal had signed all necessary documents to close the escrow prior to resolution of this dispute."
B. Evidence Presented
Tom Chavira testified during direct examination that the dispute over the shortfall penalties almost killed the sale of the franchise to the Naranjos because George Beal told him that if the matter was not taken care of, he would sign no papers. Tom Chavira also testified that George Beals signature was necessary to complete the sale.
"Q How did you finally settle on a figure that got it resolved?
"[Tom Chavira:] Well, after me and my wife talked, and we were so frustrated and tired, I told her, Ill take care of it, Ill talk to George and see what we can do. And I offered him 22,000, and he accepted it, and he signed all the paperwork."
Tom Chavira also testified that he felt at the time that he had no choice in the matter because "we wanted to sell."
Roland Roos, an accountant acting for the Chaviras, testified that there was some urgency to close the escrow because the buyers, the Naranjos, had a commitment from a lender that would expire and then the Naranjos would have to renegotiate the terms and conditions of the loan. As a result, there was pressure to get the transaction completed while that lending commitment remained in effect.
Defendants support their competing version of the facts by referring to the testimony of George Beal, Ramona Chavira, and Mr. Roos.
During trial, George Beal was asked whether the closing of the escrow was held up as a result of the negotiations regarding the shortfall penalty. He answered: "I dont believe so." He then was asked if he was willing to allow the sale to take place if the shortfall penalty issue was not resolved. He answered: "I believe I had already signed all of the assignment agreements."
Ramona Chavira was asked if the demand for $64,000 was "ultimately settled in some way" and she answered: "Yes, it was." She also testified that exhibit 217 had the number "22,000" handwritten and circled on it. When asked if that was the number "you ultimately settled on," she answered: "Yes, it was." Mrs. Chavira testified that she went with her husband and accountant the day the number was negotiated, but that she did not participate in the negotiations. She also testified that she and her husband "had to settle in order to sell our store" and, otherwise, the Beals would not approve the sale.
Exhibit 217 is included in the clerks transcript. It is a letter dated April 27, 1999, from BPI to First American Title Company which states: "BPI puts a payment demand into escrow per the attached Gasoline Sales Contract." The letter lists amounts for 1997, 1998 and 1999 that total $64,065.77. The letter was signed by George Beal. Below and to the right of the typed total of $64,065.77 was a handwritten "22,000.00" with a date of "6-7-1999" underneath it. The number and date are enclosed in a single handwritten circle. Based on exhibit 217, defendants contend "the compromise was documented in writing."
Mr. Roos testified that he attended a meeting where there were negotiations over the amount of the shortfall penalties. When asked if "there was a compromise of 22,000 that was reached" at that meeting, Mr. Roos answered: "Yes, sir."
C. Scope of Compromise
The evidence referenced by defendants does not support their contention that an "unequivocal compromise" was reached. Defendants have not referred to any evidence that defines the scope of the compromise or settlement. They have referred only to questions or answers from the trial transcript in which the word "compromise," "settled" or "settlement" was used. How far the compromise extended was not addressed and, thus, remained unclear. (See Butler v. Vons Companies Inc. (2006) 140 Cal.App.4th 943, 947-950 [written release agreement was ambiguous as to its scope].)
For instance, was the compromise reached only for purposes of moving forward the transactions connected with the escrow? In that event, either party would have been able to subsequently raise a claim regarding the shortfall penalties. Defendants have referred to no testimony or documents that clearly communicated to the Chaviras that defendants were accepting the $22,000 payment for the purpose of fully extinguishing any further obligation of the Chaviras to pay shortfall penalties. (Civ. Code, §§ 1521 [accord defined], 1523 [satisfaction defined].) Thus, it is not clear the parties mutually intended their compromise to mean that either defendants or the Chaviras released all claims they had regarding the shortfall penalties.
The ambiguous nature of what exactly was compromised cannot be resolved by referring to the letter marked as exhibit 217. Neither the typed text nor the handwriting on that letter defines the scope of the issues compromised. (See fn. 17, ante.)
Defendants indirectly acknowledge the ambiguity of the compromise by asserting that the Chaviras never made any statement that there was not a compromise. Defendants appear to contend that, as a court of review, we must infer that the parties intended the compromise to be broadly interpreted as a release of the Chaviras claim because the Chaviras did not express (orally or in writing) their understanding of the scope of the compromise. Defendants cite no authority for the proposition that this court must draw such an inference as a matter of law. One reason that we decline to draw the inference as a matter of law is that defendants have not explained how doing so could be reconciled with their burden of proving the elements of an accord and satisfaction.
In summary, viewing the evidence in the light most favorable to the special verdicts, we must conclude that the jury found the "compromise" reached did not extend to the Chaviras claim that they were charged too much in shortfall penalties.
D. Delays in Closing the Escrow
An alternate ground for concluding that an accord and satisfaction did not extinguish the Chaviras claim regarding the shortfall penalties is that the jury found the compromise was entered under duress.
Under the rules of appellate procedure and the applicable standard of review, we cannot accept defendants factual assertion that "George Beal had signed all necessary documents to close the escrow prior to resolution of this dispute" and therefore the Chaviras contention that they could not close the escrow was false. In making this contention, defendants incorrectly viewed the evidence in the light most favorable to themselves instead of the light most favorable to the Chaviras.
Tom Chavira testified that George Beal refused to sign the papers necessary to complete the escrow until the dispute concerning the shortfall penalties was resolved. This testimony directly conflicts with the testimony of George Beal. It is well established that this court must presume that the jury evaluated the conflicting evidence and resolved that conflict in favor of the Chaviras. (See Crawford v. Southern Pacific Co., supra, 3 Cal.2d at p. 429 [evidentiary conflicts must be resolved to uphold the verdict].) Accordingly, we cannot accept defendants version of the facts regarding the close of escrow.
As a result, we must presume the jury found that the Chaviras did not enter a binding accord and satisfaction because the Chaviras did not freely consent to any compromise. (Civ. Code, § 1565, subd. 1.) Apparent consent is not free when obtained through duress. (Civ. Code, § 1567, subd. 1.) Duress includes the unlawful detention of a persons property. (Civ. Code, § 1569, subd. 2.) In this case, the evidence is sufficient to show that defendants did not have a lawful right to shortfall penalties of the magnitude demanded. Therefore, we presume that the jury interpreted the shortfall penalty provision in favor of the Chaviras and determined defendants demand was unjustified—that is, it was based on an unlawful interpretation of the contract. Accordingly, the evidence is sufficient to support a finding that duress prevented any purported accord and satisfaction from binding the Chaviras.
E. Leave to Amend
Defendants contend the trial court erred by granting leave to amend during trial that allowed the Chaviras to assert the claim regarding the shortfall penalties. "Amendment of a pleading may even be allowed at the time of trial, absent a showing of prejudice to the adverse party. [Citation.]" (United Farm Workers of America v. Agricultural Labor Relations Bd. (1985) 37 Cal.3d 912, 915.)
Defendants have not attempted to show on appeal how allowing the Chaviras to assert a breach of contract claim regarding the shortfall penalties caused them prejudice. Their appellate briefs only address prejudice related to the additional allegations concerning the temporary price allowance. Therefore, we conclude that the trial court did not commit reversible error by allowing the Chaviras to pursue a breach of contract claim regarding the shortfall penalties.
VI. Toner and Accounting Fees
Both the second and fourth amended complaints alleged that defendants breached their agreements with the Chaviras by improperly withholding funds for administrative fees that the Chaviras did not owe.
During trial, the Chaviras presented evidence that BPI withdrew money from the bank account established for gasoline sales to cover accounting fees and toner expense. Paragraph 3 of the gasoline sales agreement stated that the Chaviras would be paid gross profits less repairs, maintenance, and sales underachievement, but it did not mention deductions for accounting fees or toner.
The total amount of withdrawals for accounting fees and toner that the Chaviras claimed as damages during closing argument was $3,889. This amount was calculated back to June 1997. The Chaviras were not permitted to recover damages for withdrawals before June 1997 because of the four-year statute of limitations. (See Code Civ. Proc., § 337, subd. 1 [four-year limitation period applies to claims based on written contracts].)
The jury was instructed that the "Chaviras are not entitled to be awarded damages arising from breach of contract incurred prior to June 5, 1997." The complaint was filed on June 5, 2001.
Defendants challenge the jurys finding that the gasoline sales agreement was breached by arguing, among other things, that the evidence presented does not support a finding that the withdrawals for accounting fees and toner breached the contract.
Defendants assert the evidence established the following facts: (1) the "accounting fees and toner fees were charged to all franchisees including the Chaviras who were aware of the fees from 1996"; (2) the fees were incurred in connection with BPIs responsibility to calculate monthly gross profit, managing the bank account, and paying Chevron; (3) the Chaviras never told BPI that the charges for accounting fees and toner were inappropriate; and (4) the first time BPI learned that the Chaviras objected to the charges was when the lawsuit was filed.
Defendants contend that these facts and the fact that the Chaviras did not object to the charges for a period of more than four years clearly demonstrated that the Chaviras waived any right to allege a breach of contract regarding the charges. The trial court instructed the jury as follows:
"Beal Properties, Inc., claims it could charge toner fees and accounting fees to plaintiffs Chavira, because plaintiffs Chavira gave up their right not to be charged for these obligations. This is called a waiver. To succeed, Beal Properties, Inc., must prove both of the following by clear and convincing evidence:
"That plaintiffs Chavira, knew Beal Properties, Inc., was charging for toner and accounting fees.
"And, 2. That plaintiffs Chavira freely and knowingly gave up their right to contest those charges.
"A waiver maybe [sic] oral or written, or may arise from conduct that shows that plaintiffs Chavira gave up that right.
"If Beal Properties, Inc., proves that plaintiffs Chavira gave up their right, Beal Properties, Inc., may collect for toner and accounting fees."
Defendants have not challenged this jury instruction. Generally, waiver of a contractual right is a question of fact, the resolution of which is binding on an appellate court. (Platt Pacific, Inc. v. Andelson (1993) 6 Cal.4th 307, 319.) Where only one inference may be drawn reasonably from the facts, however, the issue is one of law that a reviewing court may decide. (St. Agnes Medical Center v. PacifiCare of California (2003) 31 Cal.4th 1187, 1196 [reviewing court determined no waiver of contractual arbitration clause and reversed superior court].)
Defendants cite two cases in support of their argument that, as a matter of law, the Chaviras waived any breach of contract claim concerning the accounting fees and toner charges. (Rubin v. Los Angeles Fed. Sav. & Loan Assn. (1984) 159 Cal.App.3d 292, 298 [finding of waiver upheld on appeal]; A.B.C. Distributing Co. v. Distillers Distributing Corp. (1957) 154 Cal.App.2d 175, 187 (ABC Distributing) [nonsuit upheld on appeal].)
As pertinent here, Rubin simply holds that a waiver may result from conduct that, according to its natural import, is inconsistent with the intent to enforce the right in question. (Rubin v. Los Angeles Fed. Sav. & Loan Assn., supra, 159 Cal.App.3d at p. 298.) The case involves the appellate affirmance of a finding of waiver, and it adds little to the discussion of our obligations in reviewing a jury verdict.
In ABC Distributing, a distributor sued a supplier of liquor products for breach of contract based on an alleged implied covenant that prohibited the supplier from appointing other distributors in a particular territory. (ABC Distributing, supra, 154 Cal.App.2d at p. 186.) The trial court granted nonsuit. The Court of Appeal affirmed on two alternate grounds. First, the court ruled there was no basis for concluding that a prohibition against appointing another distributor should be implied in the contract. (Ibid.) Second, even if the covenant was implied, the court stated the "plaintiff waived such alleged breaches of contract by continued performance on its part without any claim of breach by defendant." (Id. at p. 187.)
The holding and rationale of ABC Distributing does not compel a ruling in favor of defendants on the waiver issue.
First, a partys continued performance of a contract without raising a breach of contract claim is not, by itself, enough to find as a matter of law that the claim was waived. The court in ABC Distributing did not purport to create such a bright-line rule of law. Nor will we create a rule of law that knowledge of the alleged breach coupled with continued performance of the contract requires a finding of waiver arising from conduct. Such a mandatory rule of law would be a serious intrusion on the Legislatures choice regarding the statute of limitations applicable to contract claims. If such a rule is to be created, it should come from the Legislature.
Second, the present case is factually distinguishable from ABC Distributing. Here, the breach allegedly waived by the Chaviras was relatively minor when compared to the breach alleged in ABC Distributing. Also, the party alleging the breach is not the party advocating the more obscure interpretation of the contractual language. The jury may have inferred that the Chaviras held onto the right until other circumstances arose that made pursuing the claim worth the effort and, therefore, did not "freely and knowingly g[i]ve up their right to contest those charges."
In summary, we cannot conclude that the jury could draw only one reasonable inference from the evidence presented. Therefore, we will not truncate the applicable four-year statute of limitations by disturbing the jurys implied finding of fact that the Chaviras did not waive their claim concerning charges for accounting fees and toner.
VII. Fraud Verdicts Against the Beals
Defendants argue that the evidence introduced was insufficient to establish a claim of fraud against either George or Ernest Beal.
During closing argument, counsel for the Chaviras asserted that they had established fraud with respect to (1) the price of gasoline and the failure to pass along the temporary price allowances, (2) improper withdrawals from the bank account for accounting fees and toner, (3) improper charges for common area expenses, and (4) improper charges for property tax. When reviewing special verdict No. 13, counsel for the Chaviras argued to the jury that George Beals false representations to the Chaviras damaged them in the amount of $67,369. When reviewing special verdict No. 14, counsel for the Chaviras argued to the jury that Ernest Beals false representations damaged the Chaviras in the same amount.
The trial court instructed the jury that the Chaviras had asserted claims against George and Ernest Beal for false representations and set forth the elements necessary to establish such a claim. The trial court also instructed the jury that the Chaviras "claim they were harmed because [BPI]; George Beal; or Ernest Beal concealed certain information" and set forth the elements of a claim concerning the intentional failure to disclose important information.
A. Elements of Fraud
The elements of an actionable fraud consist of (a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or "scienter"); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage. (Lovejoy v. AT&T Corp. (2001) 92 Cal.App.4th 85, 93.)
In this case, the jury was instructed that the Chaviras fraud claims included both claims of false representation and concealment. The trial courts instructions regarding punitive damages reiterated both theories: "Fraud means that a defendant intentionally misrepresented or concealed a material fact, and did so, intended to deprive the Chaviras of property or of a legal right, or otherwise to cause the Chaviras injury."
B. George Beal and Special Verdict No. 13
George Beal testified that before the gasoline sales agreement was signed, "[w]e reviewed the sales agreement and I told the Chaviras that we were selling the gasoline to them at cost, and we were not charging the normal four to five cents a gallon distributor mark up."
As discussed earlier, the evidence was sufficient to show that the 2.312 cents per gallon credit was a temporary price allowance, that defendants therefore did not sell gasoline to the Chaviras at cost, and that George Beals statement that the Chaviras would be sold gasoline at cost was false. Furthermore, the evidence was sufficient to support the inference that George Beals statement about selling gasoline at cost was made without the intention of providing the Chaviras gasoline at its true cost to BPI. In other words, the jury could have inferred George Beal had no intention of passing along the 2.312 cents per gallon credit to the Chaviras at the time he represented that the Chaviras would be sold gasoline at cost.
The statement was made immediately before the gasoline sales agreement was signed. Therefore, the jury could reasonably infer that it was made with the intent to induce reliance by causing the Chaviras to sign the gasoline sales agreement. In addition, the jury could reasonably infer that the Chaviras justifiably relied on the statement when they signed the gasoline sales agreement. As to the element of damages, that was adequately shown by the fact that the Chaviras did not receive the 2.312 cents per gallon credit.
In summary, we conclude that the evidence was sufficient to establish all of the elements required for the fraud claim asserted against George Beal.
C. Ernest Beal and Special Verdict No. 14
As discussed earlier, Ernest Beal disclosed important facts to the Chaviras in a two-page memorandum that listed the benefits of converting Store 117 to Chevron brand. One possible basis for the fraud verdict against Ernest Beal is that he intentionally failed to disclose important facts and acted with the intent to deceive the Chaviras. In particular, Ernest Beal failed to disclose that the 2.312 cents per gallon credit that BPI received from Chevron would not be passed on to the Chaviras. His concealment of this fact acted in conjunction with George Beals false representation about selling gasoline to the Chaviras "at cost" and his own representation about improvements related to the Chevron conversion that would be made at no cost.
Defendants argued concealment cannot support the special verdict against Ernest Beal because (1) that theory was not included in the fourth amended complaint and (2) Ernest Beal was not a fiduciary of the Chaviras and thus had no duty to disclose important facts to them. We reject these arguments.
First, the jury necessarily decided the case in accordance with the instructions given, not the allegations in the pleadings. The jury instructions included the elements for a claim concerning the intentional concealment of important information. The first element was that BPI, "George Beal[] or Ernest Beal disclosed some facts to the Chaviras, but intentionally failed to disclose other important facts, making the disclosure deceptive." Thus, special verdict No. 14 is consistent with the jury instructions and the evidence presented. The superior court did not commit error by allowing the special verdict to stand.
Second, defendants argument that Ernest Beal was not required to disclose any facts to the Chaviras is not consistent with the instructions given to the jury or with California law. (See Civ. Code, § 1710, subd. 3 [deceit includes suppression of a fact that makes other information communicated misleading].)
A persons subjective state of mind is rarely subject to direct proof. (Knight v. City of Capitola (1992) 4 Cal.App.4th 918, 932.) Usually, the trier of fact will be required to draw inferences about a persons knowledge and intent from circumstantial evidence. (Ibid.)
In this case, we conclude that the evidence regarding what the Beals said and did not say to the Chaviras is sufficient for the jury to find that Ernest and George Beal acted together to deceive the Chaviras about the true price of Chevron gasoline. Accordingly, we will not reverse special verdict No. 14.
VIII. Duplicative Damages
Defendants argue that the jury awarded excessive damages by awarding the same damages twice. They contend the Chaviras "should be required to elect between the Breach of Contract measure of damages in the amount of $32,000.00 or the amount of Fraud damage in the amount of $14,000.00."
The jury found BPI liable for (1) $32,000 for breach of the gasoline sales agreement, (2) $10,000 for breach of the implied covenant of good faith and fair dealing, and (3) $11,000 for money had and received. It also found George Beal was liable for fraud in the amount of $14,000. When the trial court ruled on defendants motion for new trial, it agreed in part with the election of remedies argument and concluded that the $10,000 damages awarded against BPI for breach of the implied covenant of good faith and fair dealing duplicated in part the $32,000 damages awarded for breach of contract. Consequently, the trial court required the Chaviras to elect between the two damage awards.
A plaintiff is entitled to recover an item of damages once. (Tavaglione v. Billings (1993) 4 Cal.4th 1150, 1159.) For example, in DuBarry Internat., Inc. v. Southwest Forest Industries, Inc. (1991) 231 Cal.App.3d 552, the plaintiff sought to recover lost commissions under a breach of contract claim and a bad faith denial of contract claim. In that case, the only item of damages claimed was lost commissions and the jury asked and was told that lost commissions, even if awarded on the special verdict concerning breach of contract, were included in the damages that could be awarded under the tort claim. (Id. at pp. 564-565.) Consequently, the Court of Appeal was able to determine, as a matter of law, that the jurys award of damages on the breach of contract claim was duplicative of the damages it awarded on the bad faith denial of contract claim. (Id. at p. 565.)
Unlike the court in DuBarry, we cannot conclude that the $14,000 award of fraud damages and the $32,000 award of damages against BPI for breach of the gasoline sales agreement were duplicative as a matter of law.
In closing arguments, counsel for the Chaviras requested damages in the total amount of $86,717 for BPIs breach of the gasoline sales agreement. This amount comprised $61,678 relating to the temporary price allowance, $3,889 relating to charges for toner and accounting fees, and $21,150 in wrongly charged shortfall penalties. Under the fraud claims, counsel requested damages totaling $67,369, which were based on the temporary price allowance and charges for toner, accounting fees, property taxes ($1,200) and common area expenses ($602).
The amount awarded the Chaviras as compensatory damages under all of the special verdicts totaled $81,889. The trial courts ruling regarding $10,000 awarded for breach of the implied covenant of good faith and fair dealing effectively reduced this total to $71,889. The total amount of compensatory damages awarded does not exceed the total requested by counsel for the Chaviras in closing argument. It appears that the jury may have allocated part of the damages concerning the temporary price allowance to the breach of contract claim and a different part to the fraud claims. Consequently, we cannot conclude as a matter of law that duplicative damages were awarded by the jury.
We note that on appeal defendants have not requested a new trial on the issue of compensatory damages. In particular, defendants have not argued that the special verdicts contained an ambiguity that justifies a new trial as to the amount of damages. Accordingly, our analysis is limited to whether we can determine that the awards actually were duplicative.
IX. Attorney Fees Award
A. Motion for Attorney Fees and Order
On July 14, 2004, the Chaviras filed a motion for attorney fees requesting a total of $217,354.96. The Chaviras asserted that they were prevailing parties entitled to attorney fees pursuant to the terms of written agreements with defendants. (Civ. Code, § 1717.) A declaration of the Chaviras lead attorney stated that the amount of attorney fees requested was calculated as follows:
"1) Fees were split in thirds for the period when we represented the CHAVIRAS, the Naranjos, and Mr. Singh; 2) after Singhs settlement, fees were split evenly between the CHAVIRAS and the Naranjos; and 3) after the Naranjo settlement, all fees were generally attributed to the CHAVIRAS. However, whenever possible, fees were allocated according to the party for whom they were performed, i.e., the preparation of the various settlement documents and/or dismissals. Attached as Exhibit F is a summary of our allocation."
Exhibit F was a table that showed how the totals on 24 invoices were divided among the Chaviras, the Naranjos, and Mr. Singh. The invoices totaled $493,436.25, of which $202,185.46 was attributed to the Naranjos, $214,752.46 was attributed to the Chaviras, and $76,498.53 was attributed to Mr. Singh.
The trial court granted the Chaviras motion for attorney fees, reduced the requested amount by one-third, and awarded them $144,903.30 against BPI and JQF. The award was apportioned evenly between BPI and JQF.
B. Lodestar Approach
An award of reasonable attorney fees under a contractual provision and Civil Code section 1717 ordinarily begins with the lodestar approach—that is, the number of hours reasonably expended is multiplied by the reasonable hourly rate. (PLCM Group, Inc. v. Drexler (2000) 22 Cal.4th 1084, 1095.) The amount of attorney fees awarded in accordance with Civil Code section 1717 is a matter committed to the discretion of the trial court. (PLCM Group, Inc. v. Drexler, supra, at p. 1096.)
C. Errors Asserted on Appeal
On appeal, defendants contend the trial court abused its discretion in three ways when it made the attorney fee award. First, according to defendants, the award "included an allocation of $20,210.50 for defense of the Cross-Complaint against non-moving party Naranjo." Second, defendants argue, the award included "fees for Keith White, a second unnecessary attorney who had minimum participation in the actual Jury Trial in the amount of $65,934.00." Third, defendants contend, the contract claims against BPI and JQF represented only 10 percent of the case as to each entity. Defendants argue that each entity should be liable for only 10 percent of the reasonably incurred attorney fees related to the Chaviras claims. Based on these three assertions of error, defendants conclude that the "total amount of the attorneys fee award should have reasonably been $26,222.00."
The calculations that incorporate defendants three arguments are as follows: ($217,354.96 - [$20,210.50 + $65,934.00]) × 10% × 2 = $26,242.09.
1. Fees related to cross-complaint against the Naranjos
Defendants supported their factual assertion that the attorney fee award included $20,210.50 for the time the Chaviras attorneys spent defending the cross-complaint against the Naranjos with the following reference to the clerks transcript: "(C.T. 5276-5277; 5286-5331; 5339-5382)."
The first reference is to the declaration of defendants attorney submitted in opposition to the motion for attorney fees. Paragraph 7 of that declaration asserts the fee request fails to consider that the Naranjos "previously claimed they incurred attorneys fees in the amount of $40,421.00 in the defense of the cross-claims filed by JQF." The declaration further asserts that one half of that amount apparently was, but should not have been, included in calculation of the fees requested in the motion here.
Defendants second and third references to the clerks transcripts are to blocks of pages that contain billing records submitted by the law firm that represented the Chaviras, the Naranjos, and Mr. Singh in the lawsuit. Defendants, however, made no attempt to specifically identify billing entries that related only to the Naranjos defense of the cross-complaint.
An appellant has the burden on appeal of demonstrating that the trial court abused its discretion. (E.g., In re Conservatorship of Ben C. (2006) 137 Cal.App.4th 689, 697.) Part of an appellants burden includes supporting factual assertions by providing appropriate references to the record. (Cal. Rules of Court, rule 8.204(a)(1)(C) [former rule 14(a)(1)(C)]; Byars v. SCME Mortgage Bankers, Inc. (2003) 109 Cal.App.4th 1134, 1140-1141.) Specifically, rule 8.204(a)(1)(C) of the California Rules of Court provides that each appellate brief must "[s]upport any reference to a matter in the record by a citation to the volume and page number of the record where the matter appears." The Court of Appeal has interpreted this language to require exact page references. (E.g., Bernard v. Hartford Fire Ins. Co. (1991) 226 Cal.App.3d 1203, 1205.) Block page references present difficulties because the appellate court is unable to evaluate which facts contained on those pages support the partys position. (Ibid.) In this appeal, defendants two block references that covered 90 pages of billing records did not identify any entry that defendants contend concerned the Naranjos defense of the cross-complaint and was included in the attorney fees request.
Consequently, defendants failed to demonstrate that (1) the Naranjos incurred $40,421 in attorney fees defending the cross-complaint or (2) the trial court in fact included those fees in the award made to the Chaviras. Thus, we reject this ground as a basis for concluding the trial court abused its discretion.
2. Keith Whites time incurred during trial
Defendants opposed the motion for attorney fees by asserting that the Chaviras had two attorneys participate in the trial and that the time incurred by attorney Keith White was duplicative and unnecessary. The Chaviras responded to defendants opposition paper by filing a supplement declaration of their lead counsel that provided some details about the role of Mr. White in the litigation and at trial.
The trial courts ruling on the motion for attorney fees necessarily included the implied findings that (1) the number of hours Mr. White incurred in the litigation was reasonable and (2) the hourly rate charged for his time was reasonable. In effect, defendants have challenged the trial courts factual finding that the number of hours Mr. White incurred was reasonable.
Mr. Whites billing rate ranged from $165 to $195 per hour over the course of the litigation.
The California Supreme Court has stated that the value of legal services performed in a case is a matter in which the trial court has its own expertise. (PLCM Group, Inc. v. Drexler, supra, 22 Cal.4th at p. 1096.) "`The "experienced trial judge is the best judge of the value of professional services rendered in his court, and while his judgment is of course subject to review, it will not be disturbed unless the appellate court is convinced that it is clearly wrong[.]"" (Id. at p. 1095.)
In this case, the trial court observed first hand the performance of the Chaviras attorneys during the trial and, as a result, was in the best position to determine whether Mr. Whites participation in the trial was a reasonable expenditure of attorney time. Furthermore, the declarations presented by the Chaviras provided additional support for the finding that Mr. Whites efforts had independent value to the efficient presentation of their case—that is, that his efforts were not merely duplicative of the efforts of lead trial counsel.
Therefore, we will not disturb the determination of the trial court as to the value of professional services rendered in court during the course of the trial because we are not convinced that determination is "clearly wrong." (PLCM Group, Inc. v. Drexler, supra, 22 Cal.4th at p. 1095.)
3. Apportionment based on the Chaviras limited success
Defendants argue that the trial court should have used an apportionment analysis and reduced the amount of attorney fees awarded because the Chaviras were successful on only a portion of their suit. Defendants cite Sokolow v. County of San Mateo (1989) 213 Cal.App.3d 231 (Sokolow) to support this argument.
The trial court did apportion one third of the fees to the claims against the Beals and determined they were not bound contractually to pay those attorney fees. That apportionment has not been challenged in this appeal.
In Sokolow, the Court of Appeal determined the plaintiffs were prevailing parties for purposes of attorney fees under 42 United States Code section 1988 and Code of Civil Procedure section 1021.5, Californias codified private attorney general doctrine. (Sokolow, supra, 213 Cal.App.3d at p. 247.) Based on this determination, the Court of Appeal reversed the trial courts denial of attorney fees. The Court of Appeal also concluded that, under the federal and state statutes, "a reduced fee award is appropriate when a claimant achieves only limited success." (Sokolow, supra, at p. 249.) As a result, it remanded the matter for the trial court to determine the amount of the award. Sokolow stands for the proposition that a superior court has the discretion to reduce the attorney fees awarded under Code of Civil Procedure section 1021.5 where a party has prevailed on only one or some of its claims. It does not stand for the proposition that a reduction is mandatory.
Furthermore, unlike this appeal, the Sokolow case did not involve a claim for contractual attorney fees under Civil Code section 1717. This distinction, by itself, is not a sufficient ground for rejecting defendants argument for the reduction of a fee award based on limited success. It does, however, warrant restating the argument in terms of the principles used to analyze requests for contractual attorney fees under Civil Code section 1717.
The public policies underlying the award of attorney fees under Code of Civil Procedure section 1021.5 are different from those underlying a fee award under Civil Code section 1717 and a contractual attorney fees provision. For example, a purpose underlying Code of Civil Procedure section 1021.5 is to encourage private citizens to institute litigation to vindicate important public rights. (Graham v. DaimlerChrysler Corp. (2004) 34 Cal.4th 553, 565.) The different public policy goals affect how the basic lodestar approach is applied to implement each statute. Therefore, care should be exercised when taking a principle developed under one attorney fees statute and using it when analyzing a request brought under a different statute.
a. Principles applicable to contractual attorney fee awards
Generally, a trial court determines the amount of a contractual attorney fee award by first applying the lodestar approach and then considering all of the circumstances of the case to determine if the lodestar amount is more than a reasonable amount. (PLCM Group, Inc. v. Drexler, supra, 22 Cal.4th at pp. 1095-1096.) If the amount is more than reasonable, the trial court shall reduce the amount to a reasonable figure. (Id. at p. 1096.)
The circumstances relevant to determining whether the lodestar amount is more than reasonable include the nature of the litigation, its difficulty, the amount in dispute, the skill required to handle the litigation, the skill actually employed, the attention given, and the success or failure. (PLCM Group, Inc. v. Drexler, supra, 22 Cal.4th at p. 1096.) Thus, a prevailing partys relative success or failure in the litigation (which was a basis for defendants apportionment argument) is one of several factors used to determine if the lodestar amount is more than reasonable when awarding contractual attorney fees.
b. Application of principles to facts of this case
Defendants apportionment argument seems to contain two different aspects. The first suggests that only attorney fees related to the contract claims should have been awarded. The trial court explicitly rejected the separation of fees related to the contract claims from those related to the noncontract claims. This approach was explained by the following statement in the order granting attorney fees: "The broad language of the attorneys fees provision would also include tort claims, so [the Chaviras] may recover attorneys fees for the prosecution of any tort claims against BPI. [Citations.]" This approach is supported by Santisas v. Goodin (1998) 17 Cal.4th 599, in which the California Supreme Court acknowledged that a broadly phrased attorney fee provision may support an award to the prevailing party where both contractual and tort claims are alleged. (Id. at p. 608.) Therefore, we conclude the trial court did not err when it failed to reduce the lodestar amount to reflect only the time spent on the contract claims.
The second aspect of defendants apportionment argument is based on the failure of the Chaviras to recover the full amount of damages they sought. For example, during closing argument, counsel for the Chaviras requested that the jury to find JQF liable for damages totaling $45,806. The jury awarded only $ 7,889 against JQF. With respect to BPI, counsel for the Chaviras asked the jury to award $88,644 in damages and the jury awarded $ 53,000, which the trial court reduced to $43,000.
Defendants have cited no cases in which an appellate court reversed a trial court for not reducing the lodestar amount to reflect the prevailing partys failure to recover the full amount of damages sought. Here, the Chaviras claimed approximately $ 134,000 in damages against BPI and JQF and recovered $50,889, or approximately 38 percent of the damages requested in closing argument. Comparing the $50,889 recovered against BPI and JQF to (1) the $134,000 of damages requested by the Chaviras or (2) the $144,903.30 of attorney fees awarded does not establish that the award is so out of proportion that the trial court abused its discretion. In other words, we cannot conclude that the amount of attorney fees awarded is unreasonable as a matter of law or "clearly wrong." (PLCM Group, Inc. v. Drexler, supra, 22 Cal.4th at p. 1095.)
X. Punitive Damages and Due Process Limitations
A. Facts and Proceedings
Special verdict No. 21 asked the jury if it found "by clear and convincing evidence that (a) Johnny Quik Food Stores, Inc.; (b) Beal Properties, Inc.; (c) George Beal; and (d) Ernest Beal have been guilty of oppression, malice, or fraud in the conduct upon which you base[d] your finding of liability on Plaintiffs Chaviras fraud cause of action?" The jury answered "yes" as to all four defendants.
Special verdict No. 21 was answered by the jury when it decided the issues of liability on the various causes of action and the corresponding amounts of compensatory damages. The amount of punitive damages was determined in a second trial.
At the second trial, the only witnesses called were George and Ernest Beal. Counsel for the Chaviras asked them questions about their financial condition and the financial condition of the corporate defendants, BPI and JQF. Counsel for defendants did not ask any questions of the Beals.
The personal net worth figures presented for the Beals did not include their ownership interests in BPI and JQF.
The financial statements of Ernest Beal showed his personal net worth was approximately $2,512,000, and his annual income was approximately $233,600. George Beals personal net worth as of December 31, 2003, was $1,193,740. His financial statements showed his annual income for 2002 as $ 171,000 and for 2003 as $198,000.
The Chaviras appellate briefing describes this number as "just under $2 million."
As of December 31, 2003, the net worth of BPI was $3,839,811 and the net worth of JQF was $160,799.
During closing argument, counsel for the Chaviras observed that the cumulative net worth of the Beals and the two corporations was $7,706,893. He asserted, "we think something no less than four percent of their net value is what needs to, needs to come out of this punitive damage phase. And thats about $150,000 a piece."
The jury was instructed that it must decide the amount, if any, of the punitive damages to be awarded the Chaviras and that it was not required to award any punitive damages. As to BPI and JQF, the jury chose this option and awarded no punitive damages. The jury awarded the Chaviras $100,000 in punitive damages against George Beal and $65,000 in punitive damages against Ernest Beal. The combined total of these punitive damages represents approximately 2.1 percent of the combined personal and business net worth of George and Ernest Beal.
Defendants asserted in their motion for new trial that the punitive damages awarded against George Beal ($100,000) and Ernest Beal ($65,000) were excessive because those awards were more than seven and nine times the $14,000 and $7,000 in compensatory damages awarded for fraud. Defendants motion was filed on July 13, 2004, and cited State Farm Mut. Auto Ins. Co. v. Campbell (2003) 538 U.S. 408 (State Farm), Textron Financial Corp. v. National Union Fire Ins. Co. (2004) 118 Cal.App.4th 1061 (Textron), and Diamond Woodworks, Inc. v. Argonaut Ins. Co. (2003) 109 Cal.App.4th 1020 (Diamond Woodworks). Based on these cases, defendants requested the trial court to "reduce the amount of punitive damages to no more than four times the amount of compensatory damages awarded" for fraud.
We have set forth the date of the motion and the two California Court of Appeal decisions because the motion and those cases predated the California Supreme Courts June 2005 decision in Simon v. San Paolo U.S. Holding Co., Inc. (2005) 35 Cal.4th 1159 (Simon). In that decision, the court disagreed with the statement in Diamond Woodworks that a four-to-one ratio between punitive damages and compensatory damages usually represents the outer constitutional limit. (Simon, at pp. 1182-1183.) The decision in Textron also is erroneous because it reduced an award of punitive damages based on the outer constitutional limit set forth in Diamond Woodworks. (Textron, supra, 118 Cal.App.4th at pp. 1083-1084.)
The trial court conditionally granted the motion for new trial as to punitive damages and stated a new trial would not be held if the Chaviras consented to a reduction in the award to $20,000 against George Beal and $10,000 against Ernest Beal. The trial courts ratio of punitive damages to the compensatory damages awarded on the fraud causes of action was approximately 1.43 to 1 for each defendant. The Chaviras consented to the reduction rather than retry the issue and now challenge the reduction in a cross-appeal.
B. History of Due Process Limitations on Punitive Damages
Section 1 of the Fourteenth Amendment to the United States Constitution provides that no state shall "deprive any person of ... property, without due process of law ...." The procedural and substantive limitations that the federal due process clause imposes on awards of punitive damage are recent developments of constitutional law. Before applying those limitations to this case, we briefly review some of the important cases of the United States Supreme Court, the California Supreme Court, and this court. A timeline of these cases helps explain why the trial court may have reached its decision and why we reverse the trial court and reinstate the punitive damages awarded by the jury.
§ June 1989: The United States Supreme Court first suggested that punitive damages awards might be subject to due process constraints. (Ferris-Browning Industries v. Kelco Disposal (1989) 492 U.S. 257, 276, fn. 22.) In a state law antitrust case where the jury awarded $51,000 in actual damages and $6 million in punitive damages, the court concluded that the excessive fines clause of the Eighth Amendment did not apply.
§ March 1991: The United States Supreme Court began imposing due process limitations on awards of punitive damages. (Pacific Mut. Life Ins. Co. v. Haslip (1991) 499 U.S. 1.) The court considered (1) the jury instructions given in the case, (2) the established posttrial procedures under which a jurys award of punitive damages were scrutinized by trial courts in Alabama, and (3) the review undertaken by the Alabama Supreme Court, which included applying detailed substantive standards to the punitive damages award. (Id. at pp. 19-22.) The court determined that the defendant had the full benefit of these three levels of procedural protections and that the punitive damages awarded by the jury did not violate the due process clause. (Id. at pp. 23-24.) In carefully ambiguous language, the court also stated that the award of punitive damages, which was over four times the amount of compensatory damages, "does not cross the line into the area of constitutional impropriety." (Pacific Mut. Life Ins. Co. v. Haslip, supra, at p. 24.) In short, this decision emphasized the requirements of procedural due process but also foreshadowed the courts development of limitations under substantive due process.
Although the decision seemed to focus on the procedural protections that limit the fact finders discretion in awarding punitive damages, this and other language suggested that the United States Supreme Court might have looked at the amount itself and determined the award in substance (as opposed to the procedures used to determine and uphold the award) comported with due process limitations.
At the time, the idea that substantive limitations on punitive damage awards were embedded in the due process clause was controversial because it was associated with "economic due process" and the resurrection of Lochner v. New York (1905) 198 U.S. 45. (See generally Note, Resurrecting Economic Rights: The Doctrine of Economic Due Process Reconsidered (1990) 103 Harv. L.Rev. 1363, 1367 [stating economic due process was dead by 1937].) Some commentators still note this concern. (Krotoszynski, Expropriatory Intent: Defining the Proper Boundaries of Substantive Due Process and the Takings Clause (2002) 80 N.C. L.Rev. 713, 717 ["Supreme Courts willingness to police the limits of punitive damages awarded under state tort law strongly suggests that, at least in some circumstances, the ghost of economic due process continues to haunt ..."].)
§ June 1993: In a plurality opinion, the United States Supreme Court stated, for the first time, the substantive limitation beyond which awards of punitive damages may not go without violating the due process clause. (TXO Production Corp. v. Alliance Resources Corp. (1993) 509 U.S. 443, 453-454.) The opinion states that an award of punitive damages may be so "grossly excessive" that it amounts to a deprivation of property in violation of the due process clause. (Id. at pp. 454-455.) Under the particular circumstances of that case, the court determined that (1) the procedures followed by the trial court complied with due process requirements and (2) the $10 million award of punitive damages was not grossly excessive even though the compensatory damages awarded were $ 19,000.
One aspect of the TXO Production Corp. opinion that is significant to the scope of the present appeal is the courts observation that a state law requirement that punitive damages be "reasonable" does not necessarily create the same boundary as the due process prohibition against "grossly excessive" punitive damages. (TXO Production Corp. v. Alliance Resources Corp., supra, 509 U.S. at p. 458, fn. 24.) As a result, it is possible that a state law standard might be more restrictive than the "grossly excessive" standard that protects a defendants right to substantive due process.
The scope of this appeal only concerns the federal due process limitations and we do not address state law issues of "excessiveness." (See part X.C.1., post.)
§ June 1994: The United States Supreme Court considered an amendment to Oregons Constitution that prohibited judicial review of punitive damages awards unless there was no evidence to support the award. (Honda Motor Co. v. Oberg (1994) 512 U.S. 415.) The court concluded the amendment violated the due process clause.
§ May 1996: For the first time, the United States Supreme Court invalidated an award of punitive damages on the ground it was grossly excessive and violated the defendants due process rights. (BMW of North America, Inc. v. Gore (1996) 517 U.S. 559 (BMW).) The court identified three guideposts for assessing whether the magnitude of an award of punitive damages is grossly excessive under the due process clause. (Id. at pp. 574-575.) Those guideposts were (1) the degree of reprehensibility of the conduct, (2) the reasonableness of the relationship between the compensatory damages and the punitive damages, and (3) the sanctions imposed by the state for comparable misconduct. (Ibid.)
In BMW, a car company failed to advise customers about predelivery repairs to the vehicles they purchased. The jury awarded the plaintiff $4,000 in compensatory damages and $4 million in punitive damages, or a ratio of 1,000 to 1. The Alabama Supreme Court reduced the award to $2 million, or a ratio of 500 to 1. The United States Supreme Court reversed the punitive damages award and remanded the matter to the state court to determine whether a new trial was needed or whether the Alabama Supreme Court could independently determine the proper amount of the award. (BMW, supra, 517 U.S. at p. 586.)
§ May 2001: The United States Supreme Court addressed the proper standard of review for determining the constitutionality of an award of punitive damages made by a federal district court. (Cooper Industries, Inc. v. Leatherman Tool Group, Inc. (2001) 532 U.S. 424.) The court determined that a de novo standard of review was required, vacated an award of punitive damages that was 90 times the compensatory damages awarded, and remanded to the Ninth Circuit Court of Appeals to apply a de novo standard of review and determine the amount of the award.
The Ninth Circuit reduced the award to a constitutional maximum of $500,000, which reflected a ratio of 10 to 1. (Leatherman Tool Group, Inc. v. Cooper Industries, Inc. (2002) 285 F.3d 1146.) The plaintiff was a manufacturer of a multipurpose tool that brought a false advertising claim against a competitor that had passed off photographs of the plaintiffs product as its own. (Id. at p. 1147.)
§ April 2003: The United States Supreme Court applied the three guideposts identified in BMW and, for the second time, determined that an award of punitive damages was grossly excessive. (State Farm, supra, 538 U.S. 408.) In that case, the plaintiffs recovered $1 million in compensatory damages and $145 million in punitive damages against an automobile liability insurance company that acted in bad faith when it failed to settle a case for policy limits. (Id. at p. 415.) The United States Supreme Court determined the $145 million punitive damages award was an irrational and arbitrary deprivation of property and remanded the case to the Utah courts for a proper determination of punitive damages. (State Farm, at p. 429.)
Notwithstanding the United States Supreme Courts suggestion that an award at or near the amount of compensatory damages was justified by the BMW guideposts, the Utah Supreme Court determined the insurers actions were so egregious as to justify a punitive damages award nine times greater than the amount of compensatory and special damages. (Campbell v. State Farm Mut. Auto. Ins. Co. (Utah 2004) 98 P.3d 409, 420.)
§ November 2003: The Fifth Appellate District, on remand from the United States Supreme Court, applied the guideposts identified in BMW in light of the subsequent explanation provided in the State Farm decision. (Romo v. Ford Motor Co. (2003) 113 Cal.App.4th 738 (Romo II.) In Romo II, three members of a family were killed and others were injured when a Ford Bronco was involved in a rollover accident. The plaintiffs brought a products liability action against the vehicles manufacturer and the jury awarded nearly $5 million in compensatory damages and $290 million in punitive damages. (Id. at p. 744.) Applying the guideposts from BMW and State Farm, this court independently determined that an award of $23,723,287 was constitutionally reasonable, which produced a ratio between punitive and compensatory damages of approximately five to one. (Romo II, supra, at p. 763.) Procedurally, we stated that if the plaintiffs declined remittitur, the award of punitive damages would be reversed and the matter remanded for a new trial on the amount of punitive damages only. (Id. at p. 764.)
In May 2003, the United States Supreme Court vacated the judgment that contained the jurys punitive damages award that this court had reinstated in Romo v. Ford Motor Co. (2002) 99 Cal.App.4th 1115 and remanded the case to us for further consideration in light of State Farm. (Ford Motor Co. v. Romo (2003) 538 U.S. 1028.)
§ September 2004: In this case, the trial court issued its order conditionally granting defendants motion for a new trial on the issue of the amount of punitive damages.
§ June 2005: The California Supreme Court issued its first two decisions applying the guideposts and principles set forth in the BMW and State Farm decisions. (Simon, supra, 35 Cal.4th 1159; Johnson v. Ford Motor Co. (2005) 35 Cal.4th 1191.)
In Simon, the plaintiff unsuccessfully attempted to buy an office building from the defendant and sued for promissory fraud when the transaction was not completed. (Simon, supra, 35 Cal.4th at p. 1166.) The jury awarded the plaintiff $5,000 in compensatory damages and $1.7 million in punitive damages. (Ibid.) The California Supreme Court determined (1) the award of punitive damages exceeded the federal due process limitations set forth in BMW and State Farm, (2) appellate courts must conduct an independent review when assessing excessiveness under the federal due process clause, and (3) the maximum award constitutionally permissible was $50,000, which reflected a 10-to-1 ratio between punitive and compensatory damages. (Simon, supra, at pp. 1187-1188, 1189.)
In Johnson v. Ford Motor Co., supra, 35 Cal.4th 1191, the California Supreme Court reversed this courts reduction of a punitive damage award to three times the compensatory award based on its determination that this court may have misapplied two of the guideposts from BMW and State Farm and may have underweighted the states interest in punishing and deterring wrongful corporate practice. (Johnson v. Ford Motor Co., supra, 35 Cal.4th at p. 1213.) In that case, the manufacturer fraudulently had concealed material facts by failing to provide the vehicles purchaser with a warranty buyback notice required by Californias lemon law and had adopted a customer response program designed to short-circuit lemon law claims whenever plausible. (Johnson v. Ford Motor Co., supra, 35 Cal.4th at p. 1200.)
§ December 2005: After remand from the California Supreme Court to determine the constitutional maximum of the punitive damages award, this court determined that punitive damages of $175,000, or just less than 10 times the compensatory award, was sufficient to vindicate Californias legitimate interest in punishing the misconduct and deterring its repetition. (Johnson v. Ford Motor Co. (2005) 135 Cal.App.4th 137, 150.)
C. Standard of Review
The first dispute between the parties relating to punitive damages concerns the appropriate standard of review.
Defendants refer to the general rules contained in Code of Civil Procedure sections 657 and 662.5 that apply to orders granting new trials on the ground of excessive damages and argue the trial courts order should be reversed "only if there is no substantial basis in the record" for the order.
In contrast, the Chaviras argue that the decision to award punitive damages and the decision as to the amount of that award are exclusively the function of the trier of fact. They further argue that the trial court should not substitute its judgment for the jurys unless it can find as a matter of law that the award was "grossly excessive."
To determine the correct standard of review, we must first define the scope of issues subject to review in this appeal. This involves identifying the grounds on which defendants challenged the awards of punitive damages.
1. Issues subject to review
Defendants asserted that the awards were "excessive." They did not challenge the procedures that led to the jurys determinations. For instance, defendants did not contend error based on the jury instructions, the forms of special verdicts used, or the evidence introduced at the separate trial on the amount of punitive damages. Therefore, issues of procedural due process have not been raised.
See generally Note, Californias Punitive Damages Law: Continuing to Punish and Deter Despite State Farm v. Campbell (2006) 57 Hastings L.J. 827. This article discusses the procedural and substantive aspects of the United States Supreme Courts due process analysis and overviews the "considerable procedural protections California punitive damages law provides." (Id. at pp. 832-833.)
The excessiveness of the awards could have been raised as a violation of (1) the substantive due process protections afforded by the Fourteenth Amendment, (2) the states common law governing punitive damages, or (3) both. (See Simon, supra, 35 Cal.4th at p. 1172, fn. 2 [distinction between excessiveness as an issue of state law and excessiveness as an issue under federal due process clause is discussed in context of applicable standard of review]; Issacharoff & Sharkey, Emerging Issues in Class Action Law: Backdoor Federalization (2006) 53 UCLA L.Rev. 1353, 1424, fn. 290 [noting possibility that different standard of review could be applied to challenges based on state law].)
Based on our review of the documents and arguments presented to the trial court, we are satisfied that defendants only asserted that the punitive damage award violated substantive due process. Issues of state law were not raised.
In particular, defendants memorandum of points and authorities in support of their motion for new trial contained three paragraphs under the heading that asserted the punitive damages awarded were excessive. Those three paragraphs do not discuss the three criteria set forth inNeal v. Farmers Ins. Exchange (1978) 21 Cal.3d 910 that are used to determine whether a punitive damages award is excessive for purposes of state law. Instead, defendants cited State Farm and the Fourth Appellate Districts opinions in Textron and Diamond Woodworks for the proposition that a punitive damages award exceeding a four-to-one ratio would not comport with due process. As a result, defendants requested the trial court to "reduce the amount of punitive damages to no more than four times the amount of compensatory damages awarded."
Those three factors are (1) the reprehensibility of the defendants acts, (2) the amount of the compensatory damages award and its proportion to the punitive damages award, and (3) the financial condition of the defendant. (Neal v. Farmers Ins. Exchange, supra, 21 Cal.3d at p. 928.) All three factors must be analyzed when asserting "excessiveness" on state law grounds. (Adams v. Murakami (1991) 54 Cal.3d 105, 111.) In this case, defendants moving papers did not address the third state law factor.
The Chaviras opposition to the motion for new trial addressed only the constitutionality of the punitive damages awards in arguing that the punitive damages were not excessive.
Based on the moving and opposition papers, we conclude that the only excessiveness argument raised below was rooted in federal due process.
2. Independent review of constitutionality
Because the only issue raised concerns the constitutionality of the punitive damages awards, we are required to conduct an independent review and reach a determination of the maximum constitutional award. (Simon, supra, 35 Cal.4th at pp. 1187-1188; see Cooper Industries, Inc. v. Leatherman Tool Group, Inc., supra, 532 U.S. at p. 436.) We note that remittitur for a new trial on punitive damages is not an appropriate procedural option in the circumstances presented in this appeal. As stated by the California Supreme Court, once an appellate court has determined the constitutional maximum, a new trial would be futile. (Simon, supra, at p. 1188.)
D. Evaluation of the Awards Under Constitutional Guideposts
When conducting an independent review of the constitutionality of an award of punitive damages, we evaluate the award in light of the three guideposts set forth in BMW and refined in State Farm: "(1) the degree of reprehensibility of the defendants misconduct; (2) the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and (3) the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases." (State Farm, supra, 538 U.S. at p. 418, citing BMW, supra, 517 U.S. at p. 575.)
1. Reprehensibility
The United States Supreme Court has required that courts "determine the reprehensibility of a defendant by considering whether: the harm caused was physical as opposed to economic; the tortious conduct evinced an indifference to or a reckless disregard of the health or safety of others; the target of the conduct had financial vulnerability; the conduct involved repeated actions or was an isolated incident; and the harm was the result of intentional malice, trickery, or deceit, or mere accident." (State Farm, supra, 538 U.S. at p. 419.)
Here, as in Simon, the first two subfactors are inapplicable because defendants fraudulent acts caused only economic damages and did not show a lack of concern for the health and safety of others. (Simon, supra, 35 Cal.4th at p. 1180.) The Chaviras concur in this view.
Our independent review of the third subfactor leads us to conclude that the Chaviras were financially vulnerable in some ways. They were dependent upon Store 117 for their livelihood. Their interests in Store 117 were derived entirely from their business relationship with defendants. In that relationship, defendants held the dominant position. Stated in terms used by the California Supreme Court in Simon, defendants had "leverage" over the Chaviras. (Simon, supra, 35 Cal.4th at p. 1180.)
This leverage resulted from defendants superior financial resources combined with the structure of the relationship itself. One aspect of the structure is set forth in the gasoline sales agreement. That written contract provided for the establishment of a bank account in BPIs name and gave defendants exclusive control over the funds deposited in the account. Using this structure, defendants were able to extract money from the Chaviras for items that had not been authorized by the express terms of their contracts, such as accounting fees and toner charges. Another illustration of defendants use of their leverage is reflected in George Beals refusal to sign and deliver documents into escrow until the shortfall penalty dispute was resolved to his satisfaction.
Accordingly, we conclude that the degree of reprehensibility of the misconduct of the Beals was greater than that of the defendant in Simon. There, the defendant had limited leverage over the plaintiff in the proposed real estate transaction because neither party needed to complete the sale of the office building, the subject of the defendants false promise to sell. (Simon, supra, 35 Cal.4th at p. 1180.) As a result, the California Supreme Court regarded financial vulnerability as a neutral factor in that case.
With respect to the fourth subfactor, whether defendants conduct should be characterized as "repeated" or "isolated" is subject to debate. One could argue that the false representations that formed the basis for the fraud claims were only uttered once. Alternatively, one could argue that the deceptive conduct continued over a long period of time. For instance, from the time of the conversion of Store 117 to Chevron brand until the Chaviras sold their business to the Naranjos, BPI did not sell gasoline to the Chaviras at BPIs cost, which was contrary to the representation made by George Beal prior to the Chaviras signing the gasoline sales agreement. Thus, it could be argued that the continuing nature of the business relationship allowed the Beals to reap the benefits of their false representations over a long period of time by their continuing failure to live up to their representations, including the statement that gasoline would be sold to the Chaviras at cost. We conclude that the continuing nature of the business relationship distinguishes this case from Simon and supports the view that the reprehensibility of the misconduct was greater in this case than in Simon. (Simon, supra, 35 Cal.4th at p. 1180.)
We do not consider defendants conduct towards the Naranjos or Mr. Singh in analyzing this subfactor. Our ultimate conclusions regarding reprehensibility and the constitutionality of the awards can stand without looking beyond the Beals misconduct towards the Chaviras.
With respect to the fifth subfactor, the jury explicitly found that the Beals "have been guilty of oppression, malice, or fraud in the conduct upon which you base your finding of liability on Plaintiffs Chaviras fraud cause of action[.]" The jury found that George and Ernest Beal each "ma[d]e a false representation of an important fact to Plaintiffs Chavira[.]" Therefore, like the misrepresentations by the defendant in Simon, the Beals intentional misconduct adds to the overall reprehensibility of their acts. (Simon, supra, 35 Cal.4th at p. 1181.)
In summary, three of the five subfactors relevant to reprehensibility are present in this case. Therefore, in the universe of cases warranting punitive damages under California law, the fraudulent misrepresentations that were the basis for the Chaviras fraud claims have to be regarded as somewhere in the midrange of the reprehensibility scale. (Cf. Simon, supra, 35 Cal.4th at p. 1181 ["relatively low culpability" based on the five subfactors].)
2. Ratio of punitive damages to compensatory damages
The California Supreme Court has interpreted the State Farm decision to establish a presumption that ratios between the punitive damages award to the plaintiffs actual or potential compensatory damages significantly greater than 9 or 10 to 1 are constitutionally invalid absent special justification. (Simon, supra, 35 Cal.4th at p. 1182.) Here, the jurys awards of punitive damages were under the 10-to-1 ratio and therefore the presumption of invalidity does not apply.
Conversely, we may not presume the punitive damages awards were valid simply because the multiplier was below 10. (Simon, supra, 35 Cal.4th at p. 1182.) The California Supreme Court has stated that lesser ratios are appropriate where "the compensatory damages are substantial or already contain a punitive element." (Ibid.)
On appeal, defendants have quoted from Diamond Woodworks, supra, 109 Cal.App.4th at page 1055 for the proposition that the jurys awards were excessive because they exceeded a four-to-one ratio. In so doing, defendants have overlooked the California Supreme Courts express disagreement with the view stated in Diamond Woodworks that, in the usual case, four times the compensatory damages is the outer constitutional limit for punitive damages. (Simon, supra, 35 Cal.4th at pp. 1182-1183.)
The Simon decision was published more than one year before defendants filed their brief quoting from Diamond Woodworks.
In this case, the compensatory damages awarded for fraud were small in both a relative sense and an absolute sense. Furthermore, the damages awarded the Chaviras for fraud, or under the other theories of relief, did not contain a punitive element.
The trial court, operating without the benefit of the Simon decision, appeared to use "the minimal amount of damages assessed against the individual defendants" as a basis for reducing the punitive damages. If this approach actually was used, it would constitute legal error because small compensatory awards justify a larger, not smaller, ratio. (Simon, supra, 35 Cal.4th at pp. 1182-1183.)
Thus, our independent review of the ratio of punitive damages to the compensatory damages actually awarded for fraud leads us to conclude that the jurys award of punitive damages was not grossly excessive under the second guidepost set forth in BMW and State Farm. The multipliers of 7.14 and 9.29 are less than the multiplier of 10 used by the California Supreme Court in a case involving promissory fraud where the compensatory award was small ($5,000) and did not include a punitive element. (Simon, supra, 35 Cal.4th at p. 1189.)
3. Comparable civil penalties
As observed by the California Supreme Court, the third guidepost is less useful in situations involving fraud in a business situation. (Simon, supra, 35 Cal.4th at pp. 1183-1184.) The duties breached by the fraud are not closely parallel to statutory duties for which a specific statutory civil penalty is provided. (Id. at p. 1184.)
Based on the conclusion reached in Simon, it follows that this guidepost does not preclude the application of a 10-to-1 ratio in situations involving fraud in a business transaction. Consequently, this guidepost does not lead us to conclude that the punitive damages awarded in this case were grossly excessive under the federal due process clause.
4. Role of defendants financial condition
California has a legitimate interest in deterring conduct harmful to its residents, and punitive damages awards are an available means of deterring harmful conduct. (Simon, supra, 35 Cal.4th at p. 1185.) A defendants financial condition is relevant to the level of punishment needed to vindicate the states interests. (Ibid.) Consequently, an appellate court reviewing the constitutionality of a jurys punitive damages award may consider the defendants financial condition. (Id. at p. 1186.)
In Simon, the California Supreme Court did not "attempt to delineate the relationship between wealth and the BMW/State Farm guideposts under all circumstances." (Simon, supra, 35 Cal.4th at p. 1186.) The California Supreme Court did indicate that the reprehensibility guidepost was related to the states interest in deterrence—the more reprehensible the conduct the greater the states interest in deterring it. (Id. at p. 1187.)
In this case, George Beals personal (i.e., nonbusiness) net worth was shown to be approximately $1.2 million. Adding in half of the net worth of BPI and JQF, his total net worth would be approximately $3.2 million. Thus, the $100,000 punitive damages awarded by the jury constitutes slightly more than 3 percent of his total net worth.
Ernest Beals personal net worth plus half of the net worth of BPI and JQF totaled approximately $4.5 million. Thus, the $ 65,000 punitive damages awarded by the jury constitutes about 1.4 percent of his total net worth.
The Chaviras opposition to defendants motion for new trial asserted that "the financial documents admitted into evidenced [sic] showed that Ernest Beal lost approximately $ 140,000 last year raising quarter horses, yet the jury awarded only $65,000.00 against Ernest Beal. Punitive damages of less than one-half a defendants hobby-related losses should not offend the Constitutional principles of due process."
Defendants have not argued that (1) the foregoing amounts are inconsistent with the states legitimate interest in deterrence or (2) that their wealth was used by the jury as a substitute for reprehensibility. (See Simon, supra, 35 Cal.4th at p. 1186.)
We conclude that the jurys awards were rationally related to the wealth of the individual defendants and were not grossly excessive in relation to the states interest in punishment and deterrence. Thus, we cannot conclude that the awards entered the zone of arbitrariness and thereby violated the federal due process clause. (BMW, supra, 517 U.S. at p. 568.)
In summary, the jurys award of punitive damages did not exceed the constitutional maximum. Therefore, the judgment will be modified to reinstate the jurys award of punitive damages.
DISPOSITION
The superior courts order conditionally granting defendants motion for new trial on the issue of punitive damages is vacated. The superior court is directed to modify the final judgment by reinstating the jurys awards of punitive damages. In all other respects, the judgment is affirmed. The Chaviras shall recover their costs on appeal.
We Concur:
LEVY, Acting P.J.
CORNELL, J.