Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Los Angeles County, Joanne O’Donnell, Judge. Los Angeles County Super. Ct. No. BC354507
Wellman & Warren, Scott W. Wellman and Stuart Miller for Cross-defendants and Appellants.
The Eroen Law Firm and Robert C. Eroen for Cross-complainant and Respondent.
EPSTEIN, P.J.
The buyers of a podiatry practice appeal from a judgment awarding damages to the seller for breach of contract and conversion. They challenge the court’s finding of conversion and its award of both attorney fees and punitive damages. We find no error and affirm the judgment.
FACTUAL AND PROCEDURAL SUMMARY
William J. Meditz was a podiatrist and owner of a podiatry practice known as Dr. Bill’s Foot Clinic. Dr. Meditz died in July 2005, and Andrew Devlin was appointed executor of his estate. In October 2005, Devlin, on behalf of the estate, entered into an asset purchase agreement (the agreement) with Foot & Ankle Doctors, Inc. and podiatrists David Dardashti and Farshid Nejad (collectively appellants). The agreement provided for the sale of “all of the properties, equipment and other assets of the Podiatry Practice” for the price of $57,000, to be paid in 24 monthly installments beginning three months after the close of the sale. Appellants were to assume a computer lease agreement with U.S. Bancorp, and were to enter into a new lease for the premises. The agreement was signed by Dr. Dardashti on behalf of Foot & Ankle Doctors, Inc. and by Dr. Dardashti and Dr. Nejad as individuals.
Although the arrangement with U.S. Bancorp was referred to as a lease, it actually was a note which covered the financing of the computer hardware and the Alteer software license.
Appellants made no payments to the estate, nor did they make any payments toward the computer lease or software license agreement. Appellants terminated the agreement in a letter from their attorney, David Azema, to Andrew Devlin. Appellants’ position was that the estate and Dr. Meditz’s office manager had failed to provide assistance to them as required under the agreement and that the estate had failed to transfer the computer lease with U.S. Bancorp and the software license with a company called Alteer, which would provide access to patient records. According to Dr. Nejad, after appellants canceled the agreement, they placed the computer systems and the medical equipment from Dr. Meditz’s office in storage.
Appellants filed this action against Andrew Devlin as executor of the Estate of William J. Meditz for breach of contract and fraud. The second amended complaint, which is the charging pleading, added the office manager as a defendant. Devlin filed a cross-complaint against appellants for breach of contract, conversion, fraud, and unjust enrichment.
After a bench trial, the court found against appellants on their complaint. On the cross-complaint, the court found appellants had breached the contract, and that after the breach, they had continued to utilize the property that was the subject of the agreement, and thus had converted it. The court awarded $34,679 in contractual damages based on the value of the Alteer software agreement and the U.S. Bancorp computer lease, and $57,000 in damages for conversion based on the value of the computer equipment, furniture and fixtures, medical equipment, goodwill, and patient records. The court imposed punitive damages based on the conversion, and awarded attorney fees pursuant to a provision of the agreement. This is a timely appeal from the judgment.
DISCUSSION
I
Appellants claim that recovery for conversion was barred by the finding of breach of contract. “‘[T]he same wrongful act may constitute both a breach of contract and an invasion of an interest protected by the law of torts.’” (Erlich v. Menezes (1999) 21 Cal.4th 543, 551.) In this case, the breach of contract is based on conduct and resulting harm up to the date of breach, and the conversion is based on appellants’ retention of property after that date.
“In an action for breach of contract, the measure of damages is ‘the amount which will compensate the party aggrieved for all the detriment proximately caused thereby, or which, in the ordinary course of things, would be likely to result therefrom’ (Civ. Code, § 3300), provided the damages are ‘clearly ascertainable in both their nature and origin’ (Civ. Code, § 3301).” (Erlich v. Menezes, supra, 21 Cal.4th at p. 550.) The court found that appellants had breached the agreement when they failed to make any monthly payments to the estate for purchase of the practice, to U.S. Bancorp for the computer lease, or to Alteer for the software license. The court found the estate suffered damages for each of these breaches.
The court also found appellants had converted the assets of the practice. “Conversion is the wrongful exercise of dominion over the property of another. The elements of a conversion claim are: (1) the plaintiff’s ownership or right to possession of the property; (2) the defendant’s conversion by a wrongful act or disposition of property rights; and (3) damages. Conversion is a strict liability tort. The foundation of the action rests neither in the knowledge nor the intent of the defendant. Instead, the tort consists in the breach of an absolute duty; the act of conversion itself is tortious.” (Burlesci v. Petersen (1998) 68 Cal.App.4th 1062, 1066.)
In this case, appellants purported to cancel the agreement by letter dated December 22, 2005. In that letter, appellants’ counsel advised that his client “has been required to arrange for an alternative computer software program and computers, to process its billing.” Counsel also asserted Devlin was in breach of other material terms of the purchasing agreement, and concluded: “As such, my client has canceled the Purchase Agreement and is excused from performing thereunder.”
Dr. Nejad testified in deposition that about a week after the purchase, “we just couldn’t use the system anymore because they [Alteer] told us not to.” Exhibit 36, a document labeled “Login History Detail Information,” showed use of the system from the time of Dr. Meditz’s death through September 2007. There were numerous entries after the December 2005 letter of cancellation. Asked about this information, Dr. Nejad testified that appellants only used the computer system for faxes, and not for billing and charting.
John Tangredi, Chief Operating Officer of Alteer, was asked whether the Login History Detail Information indicated use of the system merely to retrieve faxes. He replied, “The variable computers and the number and times of the log-ins would be-would indicate normal system use.” He was asked if that was “[c]onsistent with a physician going from one exam room to another exam room, logging in a computer and off a computer and looking at patient charts? Things of that nature?” Mr. Tangredi replied, “Correct.” These logins demonstrate that appellants retained and used the computer hardware and software which were the subject of the agreement after the agreement was terminated.
Dr. Nejad admitted that no payments were made to the estate, no payments were made to U.S. Bancorp, and no payments were made to Alteer. He also admitted that appellants did not attempt to return the estate’s property-including the computers, software, and medical equipment-at any time after cancellation of the agreement. Appellants came into possession of the assets lawfully, pursuant to the terms of the agreement. But their retention and use of the estate’s assets after they cancelled the agreement was unlawful and constituted a conversion. The evidence supports the court’s conclusion that appellants not only breached the agreement, but then converted the estate’s assets.
II
Appellants also claim much of the property was not sufficiently tangible to be subject to conversion. In Fremont Indemnity Co. v. Fremont General Corp. (2007) 148 Cal.App.4th 97, the court examined the application of a conversion action to intangible personal property. “We recognize that the common law of conversion, which developed initially as a remedy for the dispossession or other loss of chattel [citation], may be inappropriate for some modern intangible personal property, the unauthorized use of which can take many forms. In some circumstances, newer economic torts have developed that may better take into account the nature and uses of intangible property, the interests at stake, and the appropriate measure of damages. On the other hand, if the law of conversion can be adapted to particular types of intangible property and will not displace other, more suitable law, it may be appropriate to do so.” (148 Cal.App.4th at p. 124, citing Payne v. Elliot (1880) 54 Cal. 339, 340-342; see also Hernandez v. Lopez (2009) 180 Cal.App.4th 932, 940.)
Applying these principles to the question before it, the court held that the misappropriation of intangible net operating losses were sufficiently definite and certain. “The misappropriation of a net operating loss without compensation in the manner alleged in the complaint, causing damage to [plaintiff] as alleged, is comparable to the misappropriation of tangible personal property or shares of stock for purposes relevant here. We see no sound basis in reason to allow recovery in tort for one, but not the other.” (Fremont Indemnity Co. v. Fremont General Corp., supra, 148 Cal.App.4th at p. 125.)
In our case, appellants depreciated the property supposedly placed in storage. They provided definite and detailed values for the converted property in the depreciation schedule they filed with the 2006 federal income tax return for Foot & Ankle Doctors, Inc. This schedule included the “cost or other basis” for computer equipment, medical equipment, furniture and fixtures, goodwill, and patient records, all of which were part of the purchase agreement. This tax return supports the finding that appellants exercised dominion and control over all of the listed assets that were the subject of the purchase agreement, despite the fact that appellants terminated the agreement in December 2005. The court properly adopted these values to determine there had been a conversion of both tangible and intangible assets.
We find no basis for appellants’ argument that the finding of conversion was irrational. The court found that appellants failed to meet their obligations under the agreement; these obligations included the assumption of the U.S. Bancorp and Alteer leases. The court also found that after appellants terminated the agreement, they wrongfully retained and used assets they had obtained under the agreement. These were separate wrongs. The court carefully avoided duplicative damages, limiting the contract damages to the unpaid obligations on the two leases, and limiting conversion damages to the value of the computer equipment, furniture and fixtures, medical equipment, goodwill, and patient records. This was rational and amply supported by the evidence.
III
Appellants claim the court allowed the estate to reap an impermissible double remedy. They acknowledge there was no double recovery as to the compensatory damages, but claim the award of attorney fees under the contract and punitive damages for conversion constituted an improper double recovery.
The agreement provided: “If either Buyer or Seller brings any suit or other proceedings with respect to the subject matter or the enforcement of this Agreement, the prevailing party (as determined by the court, agency or other authority before which such suit or proceeding is commenced), in addition to such other relief as may be awarded, shall be entitled to recover reasonable attorneys’ fees, expenses and costs of investigation actually incurred.” Appellants’ complaint and the estate’s cross-complaint were both actions on the contract. The court found that appellants breached the contract by failing to make payments to the estate under the agreement and failing to assume the estate’s obligations on the U.S. Bancorp and Alteer leases. The estate was the prevailing party on both the complaint and cross-complaint, and was thus entitled to its attorney fees.
The estate also was awarded punitive damages on the conversion cause of action. As we have explained, this was a separate wrong, which occurred after the contract was breached, when appellants retained and used the assets of the estate. The punitive damages were based only on the conversion claim, not the breach of contract. There was no improper duplication of damages.
IV
Appellants’ final claim is that the award of punitive damages was excessive. The compensatory damages for conversion were $57,000, and the court awarded $142,500 in punitive damages. Appellants argue that a punitive damage award that is 2 1/2 times the amount of compensatory damages is excessive.
The United States Supreme Court provided guideposts for review of punitive damages awards in State Farm Mutual Automobile Insurance Co. v. Campbell (2003) 538 U.S. 408. The court was reluctant to provide a bright-line ratio which a punitive damages award cannot exceed, but observed that “Single-digit multipliers are more likely to comport with due process, while still achieving the State’s goals of deterrence and retribution, than awards with ratios in range of 500 to 1....” (Id. at p. 425.) The court also noted that a higher ratio might be necessary where a particularly egregious act has resulted in a small amount of economic damages. Similarly, a lesser ratio, perhaps equal to the amount of compensatory damages, might be appropriate when compensatory damages are large. (Ibid.)
In this case, appellants engaged in a pattern of trickery and deceit, retaining the assets obtained under the agreement long after terminating that agreement, while claiming that these same assets were unusable, or were placed into storage for safekeeping. This conduct is sufficient to support an award of punitive damages. Nor is amount excessive. The compensatory damages were relatively modest ($57,000), and the ratio of punitive damages also was modest (2 1/2 to 1). This is well within the range that satisfies due process.
DISPOSITION
The judgment is affirmed. Respondent to have its costs on appeal.
We concur: WILLHITE, J. MANELLA, J.