Opinion
NOT TO BE PUBLISHED
Super. Ct. No. 99AS04202
SIMS, J.In this case involving specific performance of a contract to sell a radio station, the sellers (defendants Royce International Broadcasting Corporation, Royce International Broadcasting Company, and Edward R. Stolz II) appeal from a judgment entered in favor of the buyer (plaintiff Entercom Communications Corporation), awarding compensation incidental to specific performance. Defendants contend the trial court erred in the measure of the compensation.
Plaintiff cross-appeals, contending the trial court abused its discretion in denying plaintiff compensation for lost profits for a “ramp-up period” after transfer of the radio station to plaintiff.
We shall affirm the judgment.
FACTUAL AND PROCEDURAL BACKGROUND
In a prior appeal involving this lawsuit, we affirmed the trial court’s “interlocutory judgment” (which constituted an immediately appealable mandatory injunction) awarding specific performance of a contract for defendants to sell radio station KWOD-FM to plaintiff for $25 million. (Entercom v. Royce, May 5, 2003, C041067 [nonpub. opn.].)
Following remittitur from that appeal, the trial court conducted the second phase of the bifurcated trial, to determine compensation incidental to specific performance under the legal principle that the parties should be placed, as nearly as possible, in the financial position they would have occupied had the contract been performed on the contract date (i.e., the buyer is entitled to a credit against the purchase price for rents and profits from the time the property should have been conveyed and the seller is entitled to receive the value of lost use of the purchase money during the period performance was delayed). (Stratton v. Tejani (1982) 139 Cal.App.3d 204, 212 (Stratton).)
The parties agreed to assume March 1, 2003, as the date of transfer of the station from defendants to plaintiff.
This date was based on an estimate of how long it would take for the transfer to be approved by the Federal Communications Commission (FCC). The actual transfer occurred in May 2003.
On May 16, 2003, the trial court issued a written “RULING ON EQUITABLE ACCOUNTING,” which by its own terms became the statement of decision upon absence of objection. The trial court stated that, because defendants made it impossible to calculate actual profits of the radio station during the period that performance of the contract was delayed, the court would use plaintiff’s evidence of reasonable profits.
The statement of decision included the following:
“The parties stipulated that had the contract been timely performed, [plaintiff] would have owned KWOD since January 1997. [¶] . . . [¶] At trial, [plaintiff] presented evidence to establish that [defendants’] six-year delay in transferring KWOD will cause [plaintiff] to lose $17,290,932 in profits, and the reasonable value of the purchase funds [to defendants] during the delay is $7,629,412. Thus, it is [plaintiff’s] contention that the $25 million purchase price should be reduced by $9,661,520 [the $17.2 million in profits minus the $7.6 million offset] for a net cash purchase price of $15,338,480.
The $17 million figure included about $5.8 million which plaintiff claimed it would lose in profits during a “ramp-up period” after transfer of the station. The trial court’s denial of compensation for the “ramp-up period” is at issue in the cross-appeal.
“[Defendants] put forth evidence of [their] profits and losses for the years 1997 through 2001 based upon [their] actual pretax profit and loss statements. [Citation.] After presenting new adjusted profit and loss statements for the years 2000 and 2001 at trial, [defendants] contend[] that [their] cumulative profits for the years 1997 through 2001 total no more than $2,208,226 []. [Citation.] Therefore, [defendants] contend[] there should be no reduction in the $25 million purchase price. In other words, under [defendants’] accounting, the actual profits lost by [plaintiff] are less than the $7,729,412 offset [plaintiff] is to give to [defendants] in the equitable accounting.
“The equitable accounting phase of this trial should simply focus on the financial records as produced by [defendants] pertaining to the operation of KWOD and all other relevant evidence supporting [plaintiff’s] claim for incidental damages. For reasons explained below, the Court must resort to evidence presented by [plaintiff’s] expert witness, W. Lawrence Patrick, to determine the amount of lost profits [plaintiff] may have suffered during the six-year delay period caused by [defendants] in order to make the necessary adjustments as a matter of equity.
“Mr. Edward Stolz testified on behalf of [defendants] and is president, CEO, and sole shareholder. Mr. Stolz owned and operated broadcasting station KWOD since he founded the business in 1976. Mr. Stolz testified that he himself maintains the financial records for KWOD based on an apparent cash accounting software system he owns whereby he personally enters the deposits and checks he has written based upon bank statements. Defendants’ Exhibits A through E . . . are identified as Profit and Loss Statements for KWOD for the years 1997 through 2001. These statements were personally prepared by Mr. Stolz. He testified that he does not have a set of financial records prepared by a CPA because he is an independent ‘mom and pop’ business even though the 1999 statement reflected an annual gross revenue of close to $1.8 million. No financial statement was produced for any part of the year 2002.
“At face value, [defendants’] Profit and Loss Statements represent a cumulative net profit of $2,208,226 for the years 1997 through 2001. The one-page financial statements for years 1997 and 1998 represent[] the year’s operating revenues and expenses without detail. The two-page financial statements for years 1999, 2000 and 2001 provide a little more detail as to the types of operating expenses incurred, but no information as to the source of revenues earned by KWOD.
“The examination of Mr. Stolz provided no verification as to the accuracy of [defendants’] Profit & Loss Statements. Mr. Stolz appeared to rely totally on his own personal recollection when he was questioned about certain expenses itemized in the financial statements. Although he personally produced the financial operating records for KWOD, Mr. Stolz could not provide explanations or verification to questions surrounding the figures comprising the operating profits and losses. It was brought out that Mr. Stolz prepared the year 2000 Profit & Loss Statement in December of 2001 along with the year 2001 Profit & Loss Statement. It was also brought out that Mr. Stolz revised these statements less than a week before this trial. Clearly by comparison, the year 2000 and 2001 Profit & Loss Statements that were given to [plaintiff] through discovery do not match the revised statements now presented at trial as evidence.
“On cross-examination, Mr. Stolz could not answer and account for the operating profits for the years 1997, 1998, and 1999 except to say they were reinvested in the company. Mr. Stolz is unable to explain how and where the money was spent on the company or why these expenses were not reflected in his financial records. Although he runs the company, Mr. Stolz has no recollection of or ability to generally answer a question on how much cash the company has on hand today. When questioned about payments for legal fees for professional services and licensing fees to play music in operating KWOD, Mr. Stolz could not clearly explain what revenue source was used to pay the legal fees nor could he explain why the licensing fee . . . was $3,700 in 1999, zero in 2000, and then $233,000 in 2001. Mr. Stolz admits that the company is making payments on his personal residence and company car, although the payments are not reflected on any of the Profit & Loss Statements prepared by him.
“Clearly at issue is the credibility of Mr. Stolz’s testimony and the accuracy of the Profit & Loss Statements personally prepared by him. . . . [¶] The Court had the opportunity to observe Mr. Stolz’s demeanor during his testimony on direct and cross-examination. It is difficult for the Court to believe that [defendants] produced true and accurate financial accounting records as to the operation of KWOD for the years 1997 through 2001. Even days before trial, Mr. Stolz was revising his financial statements for this proceeding. Mr. Stolz was not forthcoming with explanations of the financial records he personally produced. His answers to questions propounded by opposing counsel, as well as his own counsel, were hesitant and evasive as to the financial details for operating KWOD. At other times, he answered he did know [sic] or he lacked the recollection to answer. As the president and CEO of the company running the business operations of KWOD, Mr. Stolz lacks all credibility as to his knowledge of the financial operation as to KWOD to be a competent witness. If this assessment of his credibility is incorrect [sic], then it would appear that Mr. Stolz is attempting to hide or misrepresent pertinent financial information that is critical for the Court in conducting an equitable accounting to determine [plaintiff’s] incidental damages.
“It is apparent to the Court that even [plaintiff] was unable to obtain complete and detailed financial information from [defendants] during the course of discovery in this action. It is incredible that none of the financial statements could be verified by supporting financial records such as a balance sheet, statement of revenues and expenses, the bank statements or bookkeeping ledgers of revenues received, accounts receivable, operating expenses and accounts payable.
“The lack of any supporting financial documents or records in his possession for trial clearly communicated Mr. Stolz’s intent not to offer any more financial information other than what was printed on his Profit & Loss Statements. Many times, Mr. Stolz indicated that he could not answer a specific question without first reviewing his records, which of course, he did not have in court. It is not credible that the Profit & Loss Statements produced by Mr. Stolz fully represented an accurate accounting regarding the financial operations of a million dollar business that employs close to 20 full time and part time employees. Without the benefit of accurate financial records, there is nothing to prevent [defendants] from understating [their] profits from 1997 through 2002.
“[Plaintiff’s] solution for calculating its incidental damages is for the Court to consider the accounting method offered through its expert witness, William Lawrence Patrick. Under the proposed accounting method, [plaintiff] seeks an award compensating it for loss of use of the property measured by the ‘reasonable profits’ [defendants] should have been able to earn in operating radio station KWOD from January 1, 1997 to February 2003. [Citation.] . . .
“Mr. Patrick testified that through an industry rating system, it was possible to determine KWOD’s Arbitron rating which is considered a reliable method for the radio industry to measure a radio station’s market share of listeners. Based on KWOD’s Arbitron rating and revenues generated in 1996, Mr. Patrick opined that KWOD was not performing as well as other similarly situated radio stations as demonstrated by its low revenue to audience index, known as the power ratio. In 1996, KWOD had a power ratio of .5 which was well below the average for stations with similar formats in comparable markets. Mr. Patrick stated this was the lowest power ratio he has seen in about 2,000 radio stations in the past three or four years. He interpreted this low power ratio to mean that KWOD was failing to efficiently obtain its share of revenue in the market when compared to its share of listeners.
“By using the available market data, Mr. Patrick was able to calculate and project the financial performance of KWOD if it had been owned by [plaintiff] as of January 1, 1997. [Citation.] Based on KWOD’s Arbitron rating, Mr. Patrick used market data to project the average market revenue for a Sacramento radio station. [Citation.] Mr. Patrick’s analysis and projections showed that KWOD had the potential to generate more revenue in the present market. By his projections, KWOD would be earning operating incomes of $1,100,432 in 1998, $1,134,881 in 1999, $1,840,517 in 2000, $2,222,517 in 2001, $3,002,256 in 2002, and $585,651 in 2003 for January and February. The cumulative amounts of the yearly operating income total $11,459,968. [Citation.]
“Mr. Patrick’s projection of lost profits over the period of delay appear reasonable when compared to the range of operating income generated by [plaintiff] in operating other rock stations in Sacramento. From 1997 through 2002, [plaintiff’s] KRXQ, which is similar to KWOD, had a cumulative operating income of $15,982,100. [Citation] KSEG, a Sacramento classic rock station owned by [plaintiff], had cumulative operating income of $17,622 [sic] during the same period. [Citation.]
This figure is an obvious clerical error. The reporter’s transcript shows the figure was “a little over $17.6 million.”
“[Trial court rejected plaintiff’s request for additional compensation for a ‘ramp-up period’ after the transfer. This ruling, which we set forth post, is relevant to the cross-appeal.]
“In relating the performance of the contract back to January 1, 1997, [defendants] must be treated as if [they] had performed in a timely fashion and [are] entitled to receive the value of [their] lost use of the purchase money during the period performance was delayed. [Citation.] [Plaintiff’s] lost profits award of $11,459,968 must therefore be offset by the interest on the purchase money which [defendants] would have received had the contract been performed. [Citation.] The Court should apply equitable considerations to determine the value of the purchase money. [Citation.] . . .
“At trial, [defendants] put on no evidence as to the reasonable value of [their] lost use of the $25 million purchase money during the period performance was delayed. In its Post Trial Brief, [defendants] argue[] that the Court should use as a minimum, the legal rate of 7 percent to calculate the interest on the lost use of the funds. [Plaintiff] suggests that the reasonable value of the purchase fund should be based on the interest that could have been earned in a safe, relatively liquid, prudent investment, such as Treasury Bills. Without further compelling evidence to show that [plaintiff] did in fact derive a greater use of the purchase fund during the period performance was delayed, the Court finds that the prevailing interest rate for Treasury Bills is a proper means to calculate [defendants’] lost use of the purchase funds given the volatility and decline of other investments in recent years.
“Mr. Patrick testified that the reasonable value of the purchase money during the period of delay as calculated using the average annual return rate for T-Bills from 1997 through 2002 is $7,629,412. [Citation.] The Court thus awards this amount to reflect the value of [defendants’] lost use of the $25 million during the delay period.”
The ruling concluded, “[t]he Court awards [plaintiff] $11,459,968 for lost profits caused by the period performance was delayed. . . . [Defendants are] entitled to an offset of $7,629,412 from the profits in the amount of $11,459,968 awarded to [plaintiff]. After applying the offset, [plaintiff] is entitled to a reduction of $3,830,556 from the $25 million purchase price for a net price of $21,169,444 to be paid to [defendants] forthwith.”
On June 18, 2003, the trial court issued a “FINAL JUDGMENT” which was not really final because it expressly reserved the trial court’s jurisdiction to conduct a further accounting for an additional 79-day delay in transfer of the station between March 2003 (the estimated date of transfer) and May 2003 (the actual date of transfer after FCC approval).
On May 25, 2005, we dismissed the appeal and cross-appeal from the “FINAL JUDGMENT,” on the ground there was no final judgment, in that the “FINAL JUDGMENT” stated the trial court retained jurisdiction “to conduct a further accounting after all appeals have been exhausted . . . . Upon motion of either party, the Court shall conduct a further accounting based on the delay in transfer of KWOD-FM to [plaintiff] from March 1, 2003 through May 19, 2003, the value of any assets used or useful in the operation of KWOD-FM that were not transferred to [plaintiff], any expenses or costs incurred by [plaintiff] in the transfer of KWOD-FM that are appropriately chargeable to Defendants, the amount of costs awarded to the prevailing party, and any other adjustments found by the Court to be necessary and proper at the time of the accounting.”
Following the remittitur, plaintiff filed in the trial court a “MOTION TO AMEND ‘FINAL JUDGMENT’ TO PERMIT APPEAL.” Plaintiff argued its motion benefited defendants because the motion constituted a waiver by plaintiff of its right to recover additional damages for the 79 additional days of delay in transfer of the radio station.
Defendants opposed the motion on three grounds: (1) Although plaintiffs waived their right to recover additional amounts for the 79 days of delay, defendants did not waive their accounting claims with respect to that time period; (2) defendants would be requesting interest on $15 million which plaintiff failed to pay; and (3) defendants never stipulated to the interlocutory judgment, and the trial court said it would not issue an interlocutory judgment unless the parties so stipulated.
On December 15, 2005, following a hearing, the trial court granted plaintiff’s motion to amend the judgment and entered an “AMENDED FINAL JUDGMENT,” deleting reference to further proceedings concerning the March to May 2003 delay. The amended judgment also (1) incorporated by reference the interlocutory judgment dated April 30, 2002, as modified on September 13, 2002; and (2) reduced the purchase price from $25 million (as set forth in the interlocutory judgment) to $21,169,44 (a reduction of $3,830,556), pursuant to the trial court’s statement of decision. The judgment authorized defendants to withdraw up to $15 million from the escrow account and stated that, pursuant to the parties’ stipulation, the remaining $10 million in the escrow account was to be held by the escrow agent until further order of the court. The judgment noted the letter of credit posted by plaintiff pursuant to paragraph 8 of the interlocutory judgment was released. The judgment also stated the trial court “retains jurisdiction to make such further orders as may be proper or necessary to effectuate and enforce the provisions of this Judgment.”
Defendants appeal, and plaintiffs cross-appeal.
DISCUSSION
I. The Appeal
A. Appeal from Grant of Motion to Amend Judgment
Defendants argue the trial court erred in granting plaintiff’s motion to amend the judgment. We shall conclude defendants fail to show grounds for reversal.
Defendants argue that, although plaintiff’s motion constituted a waiver of plaintiff’s right to claim further lost profits for the 79-day delay in transfer of the station, defendants did not waive their rights to an “interest” credit for the same 79-day period. Defendants claim the trial court erred in accepting plaintiff’s position that defendant’s “interest” claim could only be an offset against plaintiff’s damages, and since plaintiff waived damages, there was nothing to offset. Defendants argue this position “ignores th[e] fact that the accounting for damages is not examined on a piecemeal basis during the course of time that the seller does not transfer the property and the buyer withholds payment. The said 79 day period is not a distinctly recognizable period whereby [plaintiff] is allowed to state it[ is] not claiming damages for the time period and therefore, [defendants] can also not claim an offset. [Defendants are] entitled to an offset for the lost use of the money for the entire time.”
Defendants cite no authority whatsoever under this heading of their brief. We therefore need not consider this argument. (Kim v. Sumitomo Bank (1993) 17 Cal.App.4th 974, 979.)
Under the same heading, defendants argue the trial court erroneously denied defendants’ request (raised in their opposition to plaintiff’s motion to amend the judgment) for the court to delete from the judgment the statement incorporating by reference the interlocutory judgment and instead to set forth the language of the interlocutory judgment. Defendants argue, without citation of authority, that plaintiff’s motion to amend the judgment “opened the door” for defendants to raise this unrelated issue in their opposition. They say they are “not attempting to change the court[’]s ruling on specific performance, or the affirmation of this specific performance order by this court of appeal. However, since [defendants’ principal] Mr. Stolz did not consent to the Interlocutory [Judgment], there should be no reference in the AMENDED FINAL JUDGMENT incorporating the Interlocutory Judgment into the Final Judgment [because the trial court assertedly said it would not enter an interlocutory judgment except by stipulation]. Instead [defendants] maintain[] that the Amended Final Judgment should not make any reference to an Interlocutory Judgment, but should simply contain the language of the Interlocutory Judgment.”
The trial court did not comment on this matter in granting the motion to amend the judgment. Even assuming for the sake of argument that the matter was properly raised in the opposition, it was without merit. We affirmed the interlocutory judgment in Entercom Communications Corp. v. Royce International Broadcasting Corp., (May 5, 2003, C041067 [nonpub. opn.])--an opinion which has long since been final and binding on defendants. It does not matter whether or not defendants stipulated to it. Though it is not necessary to go further, we cannot help but observe defendants fail to show any possible prejudice.
We conclude defendants fail to show any grounds for reversal based on the trial court’s granting of plaintiff’s motion to amend the judgment.
B. Calculation of Award
Defendants contend the trial court prejudicially erred or abused its discretion in awarding prejudgment interest and in setting the amount of compensation for lost profits and lost use of purchase money. We disagree.
1. Standard of Review
The parties disagree on the standard of review. Plaintiff argues defendants fail to show the trial court abused its discretion. Defendants argue the appropriate standard is de novo review, because their contention is that the trial court committed legal error in awarding “idealized” lost profits, which is not a proper measure of compensation incidental to specific performance.
The trial court’s ruling on equitable accounting incidental to specific performance is reviewed for abuse of discretion (De Anza Enterprises v. Johnson (2002) 104 Cal.App.4th 1307, 1315), but discretion is delimited by the applicable legal standards, a departure from which constitutes abuse of discretion. (City of Sacramento v. Drew (1989) 207 Cal.App.3d 1287, 1297-1298.)
In De Anza Enterprises, supra, 104 Cal.App.4th 1307, the trial court ordered specific performance of a joint venture agreement allowing the plaintiff to purchase the defendant’s interest in property owned by them as part of the joint venture. (Id. at p. 1310.) The trial court determined the contract did not specify a purchase price or date of fixing value. The trial court set the purchase price following appraisal by a special master, rejecting plaintiff’s argument that the value should be determined as of an earlier date (the contract date of performance or the “dissolution” date of the parties’ relationship). (Id. at p. 1312.) The Sixth Appellate District affirmed the trial court’s decision, holding (1) independent review yielded the same conclusion as the trial court regarding the interpretation of the contract (that the parties intended to fix the purchase price by mutual agreement or appraisal, leaving the date of valuation to follow as a matter of course), and (2) the trial court did not abuse its discretion in rejecting the buyer’s request for an earlier valuation date. (Id. at pp. 1315, 1318, 1322 [equitable rulings to adjust the equities were matters for the exercise of the trial court’s sound discretion, which would not be overturned absent a showing of abuse].)
Similarly, Stratton, supra, 139 Cal.App.3d 204, held (1) the trial court erred in charging the buyers with both reasonable monthly rental (for the time they were in possession of the property) plus interest on the purchase price, but (2) the trial court was not required to equate the reasonable value of the use of money with interest at the legal rate but should on remand compute the values in a manner reflecting application of equitable considerations. (Id. at p. 213 [appellate court deferred to trial court for proper exercise of discretion in permitting introduction of relevant evidence for equitable accounting].)
Thus, the trial court in this case had discretion to adjust the equities, subject to legal standards. Defendants’ only argument is that the trial court violated legal standards. Therefore, in order for defendants to prevail on appeal, they must show the law prohibited the trial court from adopting plaintiff’s measure of compensation. Regardless of who bore the burden in the trial court, the appellant bears the burden on appeal to show the judgment is wrong. (Guthrey v. State of California (1998) 63 Cal.App.4th 1108, 1115-1116.) As we shall see, they fail to meet this burden.
2. Lost Profits
Defendants contend California law does not permit the buyer in a specific performance case to receive compensation for lost profits it claims it would have received by managing the property better than the seller. Defendants claim the trial court erred in awarding such “idealized” profits rather than (a) defendants’ actual profits or (b) profits that defendants (not plaintiff) could have reasonably earned. We shall conclude defendants fail to show grounds for reversal.
A judgment of specific performance entitles a plaintiff to receive the full performance of the contract with the defendants. (Stratton, supra, 139 Cal.App.3d 204, 212.) “[B]ecause execution of that judgment will occur at a date substantially after the date of performance provided by the contract, financial adjustments must be made to relate their performance back to the contract date. [Citation.] First, when a buyer is deprived of possession of the property pending resolution of the dispute and the seller receives rents and profits, the buyer is entitled to a credit against the purchase price for the rents and profits from the time the property should have been conveyed to him. [Fn. and citations omitted.] ‘The concept of this monetary award to the buyer is not to give the buyer damages for the seller’s breach of contract. Rather, it is designed to relate the performance back to the contract date of performance and to adjust the equities between the parties because of the delayed performance by the seller.’ [Citation.] Second, a seller also must be treated as if he had performed in a timely fashion and is entitled to receive the value of his lost use of the purchase money during the period performance was delayed. [Citation.] These adjustments are ‘“more like an accounting between the parties than like an assessment of damages.”’ [Citation.]” (Id. at p. 212, citing Ellis v. Mihelis (1963) 60 Cal.2d 206, 219-220; see also, Annot. Special or Consequential Damages Recoverable, on Account of Delay in Delivering Possession, by Purchaser of Real Property Awarded Specific Performance (1982) 11 A.L.R.4th 892.)
We need not address the out-of-state cases cited by the parties.
Defendants argue the trial court could award plaintiff only the actual profits defendants received from their operation of the radio station (not “idealized” profits plaintiff could have earned with its more aggressive management). Defendants cite Stratton, supra, 139 Cal.App.3d at p. 212, that “when . . . the seller receives rents and profits, the buyer is entitled to a credit against the purchase price for the rents and profits . . . .” Defendants also cite Ellis v. Mihelis, supra, 60 Cal.2d at page 220, where the trial court awarded the buyer the profits of the ranching operations on the land that was the subject of specific performance.
Defendants claim these cases stand for the proposition that an award cannot be based on the buyer’s claim that he would have done a better job at managing the property and therefore would have earned more profits than the seller. However, the cited cases do not stand for that proposition, because in those cases there were no disputes about the amount of the profits. Cases are not authority for propositions not therein considered. (Santisas v. Goodin (1998) 17 Cal.4th 599, 620.)
Here, “actual” profits were not an option, due to defendants’ concealment of their actual profits (as found by the trial court).
Where there are no actual profits, the court may award reasonable profits. (Meyer v. Benko (1976) 55 Cal.App.3d 937, 946 [value of lost use of non-income-producing house could be properly measured by its fair rental value].) This reasonableness standard is obviously and necessarily appropriate where the seller earned actual profits but has made it impossible for the court to ascertain the amount of actual profits.
The question is: Have defendants shown that the law requires the trial court to measure reasonableness by defendants’ lesser abilities, rather than plaintiff’s abilities as demonstrated by evidence of plaintiff’s operation of other radio stations in the Sacramento area? We shall see defendants have not supported their interpretation of the law.
When defendants in their appellate brief eventually acknowledge the trial court’s finding (that actual profits were unknown due to defendants’ concealment/misrepresentation), defendants say they accept the trial court’s factual findings but maintain the court should have calculated the award based on reasonable profits defendants (not plaintiff) could have made while continuing to operate the station as a little “mom and pop” business, i.e., reasonable profits operating the station “as is.”
Defendants say the evidence provided a basis for calculating reasonable profits defendants could have earned operating the radio station “as is.” However, as a factual matter, the cited evidence does not support defendants’ position. Defendants cite the testimony of plaintiff’s expert who merely said he “assumed” profits would be “well under a million dollars” under defendants’ stewardship. Defendants also cite their evidence (Stolz’s testimony) that their profit and loss statements showed income of $469,000 for 1995 and “a million” for 1996. However, defendants forget the trial court found their profit and loss statements useless.
More fundamentally, as a legal matter, defendants fail to cite any legal authority requiring the trial court to adopt their standard of reasonable profits. They claim the trial court’s use of plaintiff’s figures of what it could have earned constituted special contract damages requiring a showing of foreseeability, i.e., that such damages were reasonably within the contemplation of the parties at the time the contract was made.
However, the cases cited by defendants are inapposite because the “special damages” were matters beyond basic loss of use of the property. (E.g., Stratton, supra, 139 Cal.App.3d at p. 214 [in addition to the accounting of equitable adjustments, the trial court had discretion to compensate for some mortgage interest differential if the mortgage interest rate increased during the time performance was delayed].) The basic equitable adjustment for lost profits and loss of use of the purchase money does not require proof of foreseeability. “The rule that compensation incident to a decree of specific performance is different in kind than damages for breach of contract, and that the right of recovery is predicated on equitable principles of accounting, is reflected in holdings that a defaulting seller is entitled to offsetting credit against compensation awarded to a successful plaintiff purchaser. These offsets are allowed notwithstanding the absence of purchaser’s knowledge that they are being accrued for the defaulting seller’s benefit during the delay period solely caused by his failure to convey title.” (Bravo v. Buelow (1985) 168 Cal.App.3d 208, 214, italics omitted.)
Defendants cite no cases characterizing basic loss of use of the property as special damages requiring application of contract principles concerning foreseeable contemplation of the parties at the time the contract was made.
Thus, defendants cite Hutton v. Gliksberg (1982) 128 Cal.App.3d 240, which held the trial court was empowered to grant compensation to the buyer of an apartment building, incidental to specific performance, for the differential in interest rates between the time the contract was supposed to be performed and the time of judgment. (Id. at pp. 247-251.) It was within the contemplation of the parties that if the sellers delayed performance, the buyers could be subjected to a higher interest rate. (Id. at p. 251.) The appellate court observed, however, that this interest differential was a different kind of compensation than loss of use. “[T]he only compensation which traditionally has been awarded involves . . . adjustments relating to the loss of use of the property or purchase money during the period required to pursue the specific performance remedy.” (Id. at p. 248.) The interest differential was recoverable because “[i]n a world of change, equitable remedies have been expanded to meet increasing complexities. Equity is not bound by rigid precedent, but has the flexibility to adjust the remedy in order to do right and justice. [Citations.]” (Id. at p. 249.)
Defendants also cite Smith v. Schrader (1926) 80 Cal.App. 478, where the issue was not loss of use of the withheld property, but recovery of increased rent paid by the buyers for other premises after the seller refused to perform the agreement to convey real property. (Id. at pp. 488-493 [judgment awarding damages for increased rents paid by the plaintiffs must be set aside on the ground that the damages have been based upon remote and collateral matters, and not upon anything relative to usable values, that is, the rents, issues, and profits of the premises to be sold by the defendant].)
Defendants also cite Christensen v. Slawter (1959) 173 Cal.App.2d 325 (Christensen), which does not help defendants at all. Christensen was an action for damages for delay in conveying real property, but the court considered specific performance rules applicable. (Id. at pp. 328, 333.) The appellate court said the specific performance rule--charging the seller with rents and profits or fair rental value of the property during the period of delay--“conforms very closely to the provisions found in Civil Code, section 3334, which fixes the measure of damages for the wrongful occupation of real property.” (Christensen, supra, at p. 333.) Civil Code section 3334, subdivision (b)(1), provides that, subject to exceptions, “the value of the use of the property shall be the greater of the reasonable rental value of that property or the benefits obtained by the person wrongfully occupying the property by reason of that wrongful occupation.” Defendants say this is an “excellent point,” but they fail to explain how it helps their case. Christensen upheld an award of damages for increased construction costs and interference with the construction schedule where the seller knew the buyer was a building contractor who was buying the land to build homes for resale. (Id. at pp. 329, 335.) Defendants say Christensen establishes the rule that, in order to recover special damages above and beyond lost rent/profits retained by the seller, the buyer must plead and prove special damages reasonably within the contemplation of the parties at the time the contract was made. However, defendants fail to show how that rule applies here, where plaintiff sought only lost profits.
It appears defendants assume that the difference between the amount of profits defendants could reasonably earn, and the amount of profits plaintiff could reasonably earn, constituted special damages. However, none of defendants’ cited authorities stands for that proposition. Rather, defendants conjure the proposition from their unsupported assumption that the term “lost profits” necessarily means profits retained by defendants. We have already seen this assumption is incorrect and indeed would contravene the fairness goal of equity by allowing defendants to benefit from their concealment of their actual profits. “Compensation as an incident to specific performance need not be limited by contract concepts of foreseeability, so long as said compensation is reasonable.” (Bravo v. Buelow, supra, 168 Cal.App.3d at p. 215 [buyer was entitled to compensation for increased costs of intended construction of home occasioned by seller’s delay in conveying title].)
We conclude loss of use of property is not an element of special damages, but rather the basic adjustment of the equities subject to a reasonableness standard. We reject defendants’ distortion of the law and need not address defendants’ arguments about whether or not plaintiff’s “ideal profit potential” was reasonably within the contemplation of the parties. Defendants fail to show any reversible error in the trial court’s measurement of lost profits.
3. Lost Use of Purchase Money
Defendants contend the trial court erred in using the Treasury bill (T-bill) rate to calculate the lost use of the purchase money (to be used as a credit to offset lost profits). Defendants argue the trial court should have used the legal interest rate of seven percent set forth in California Constitution, article XV, section 1. Defendants fail to show grounds for reversal.
California Constitution, article XV, section 1, states: “The rate of interest upon the loan or forbearance of any money, good, or things in action, or on accounts after demand, shall be 7 percent per annum but it shall be competent for the parties . . . to contract in writing [for a rate not exceeding 10 percent in specified situations].”
In making the equitable determination of the lost use of purchase money, “the trial court is not required to equate the reasonable value of the use of money with interest at the legal rate.” (Stratton, supra, 139 Cal.App.3d at p. 213.) Stratton, which involved buyers who had possession of the property during litigation pursuant to a lease with option to buy, said that computing the value to the buyers of their retained purchase funds and to the sellers of their lost purchase money “should reflect the application of equitable considerations and not an award of legal damages.” (Ibid.)
When it came time in this litigation for plaintiff to post the $25 million, plaintiff had the cash on hand. The only evidence regarding the value of lost use of the purchase money came from plaintiff’s expert, who testified, “We are assuming, in trying to make the sales balance here, that just like the profits that [plaintiff] would have made would then be invested at risk-free rated, T-bill rated [sic], I’ve assumed that [defendants] would have invested the $25 million, the full $25 million, no taxes, no brokerage fees, no any other deduction, the full $25 million, that [they] would have had the benefit -- the company would have had the benefit of that, and would have invested it at T-bill rates also.” The expert indicated T-bill interest rates fluctuated, noting the rate was 4.85 percent in 1998 and 5.85 percent in 2000.
The trial court said in its statement of decision:
“At trial, [defendants] put on no evidence as to the reasonable value of [their] lost use of the $25 million purchase money during the period performance was delayed. In its Post Trial Brief, [defendants] argue[] that the Court should use as a minimum, the legal rate of 7 percent to calculate the interest on the lost use of the funds. [Plaintiff] suggests that the reasonable value of the purchase fund should be based on the interest that could have been earned in a safe, relatively liquid, prudent investment, such as Treasury Bills. Without further compelling evidence to show that [plaintiff] did in fact derive a greater use of the purchase fund during the period performance was delayed, the Court finds that the prevailing interest rate for Treasury Bills is a proper means to calculate [defendants’] lost use of the purchase funds given the volatility and decline of other investments in recent years.”
We therefore reject plaintiff’s suggestion that defendants have forfeited their challenge to the interest rate by failing to raise it in the trial court.
On appeal, defendants acknowledge Stratton, supra, 139 Cal.App.3d at page 213, said, “the trial court is not required to equate the reasonable value of the use of money with interest at the legal rate.” Despite the fact that this authority is fatal to defendants’ claim, they make an inconsequential argument that Stratton did not prohibit use of the legal rate, and cases cited in Stratton applied the legal rate. Defendants expend an inordinate amount of space discussing cases where the legal rate was applied, but where there was no dispute about the rate itself. Defendants argue Stratton cannot overrule California Supreme Court authority which applied the legal rate. However, cases are not authority for propositions not therein considered. (Santisas v. Goodin, supra, 17 Cal.4th at p. 620.) Thus, the fact that the legal rate was applied in other cases does not require its application in this case. We disregard the argument in defendants’ reply brief, unsupported by authority, that Stratton should be interpreted as authorizing interest greater than the legal rate, but not less than the legal rate. Defendants fail to address the trial court’s comment regarding volatility of investments in recent years.
Defendants argue we should decline to follow Stratton because of the overwhelming complexity in trying to prove what a party earned or could have earned, which may require a trial court to pass judgment on whether money was invested wisely. No such complexity appears in this case.
Defendants complain there was no evidence that plaintiff actually invested the retained funds in T-bills. Defendants claim Stratton requires proof of what the buyer actually earned on the retained funds. They argue the evidence shows plaintiff did very well for itself during the time period in question, using its financial resources to grow rapidly in the lucrative radio industry.
However, defendants did not establish this theory in the trial court and cannot raise it for the first time on appeal. (Richmond v. Dart Industries, Inc. (1987) 196 Cal.App.3d 869, 874 [party cannot change theory of case on appeal].) Their failure to develop this theory in the trial court leaves the record undeveloped on the amount of interest actually received by plaintiff. The trial court expressly noted there was no evidence that plaintiff actually derived more than the T-bill rate.
Defendants argue we should import the prudent investor rule from eminent domain cases, because the goal in both types of cases is to fully compensate for lost use of funds. However, even assuming for the sake of argument that the prudent investor rule should apply, the statement of decision indicates plaintiff viewed T-bills as a prudent investment, and defendants cite no evidence to the contrary. Defendants merely claim “[t]he notion that [defendants] would have, or should have, sat on $25 million at [the T-bill] rate . . . borders on the absurd.” Defendants cite no evidence, and the notion is not absurd on its face.
Defendants fail to show any grounds for reversal based on lost use of the purchase money.
4. Prejudgment Interest
Defendants contend the trial court erred by including prejudgment interest on plaintiff’s award, because interest was not authorized by Civil Code section 3287. Plaintiff responds in part that defendants (1) forfeited this issue by failing to raise it in the trial court, and (2) fail to cite to the record to support their assertion of the amount of prejudgment interest. Defendants concede in their reply brief that (1) they did not raise the issue in the trial court, and (2) they gave the wrong figure in their opening brief. They nevertheless maintain that the matter is an issue of law on undisputed facts and may therefore be considered for the first time on appeal. We conclude defendants have forfeited the issue and in any event fail to show prejudicial error.
Civil Code section 3287 provides in part: “(a) Every person who is entitled to recover damages certain, or capable of being made certain by calculation, and the right to recover which is vested in him upon a particular day, is entitled also to recover interest thereon from that day, except during such time as the debtor is prevented by law, or by the act of the creditor from paying the debt. . . . [¶] (b) Every person who is entitled under any judgment to receive damages based upon a cause of action in contract where the claim was unliquidated, may also recover interest thereon from a date prior to the entry of judgment as the court may, in its discretion, fix, but in no event earlier than the date the action was filed.”
In arguing against forfeiture, defendants cite an inapposite case where the appellate court addressed for the first time on appeal the interpretation of a statute governing attorney fees. (Collins v. Dept. of Transportation (2003) 114 Cal.App.4th 859, 865.) Here, even assuming Civil Code section 3287 controls, the issue is not merely one of law because, as defendants acknowledge, Civil Code section 3287, subdivision (b) (fn. 7, ante), gives the trial court discretion to award some prejudgment interest. Defendants argue that subdivision was not “invoked,” and the trial court never exercised its discretion under this subdivision. However, this is why defendants should have raised the matter in the trial court--to give the opportunity for the discretion to be invoked and exercised.
In any event, defendants fail to show Civil Code section 3287 necessarily controls this equitable accounting. Though not cited by the parties, we said in a specific performance case (McCowen v. Pew (1912) 18 Cal.App. 482): “In equitable actions, it is true, the rule of law as to interest is generally followed; ‘but interest is sometimes allowed by courts of equity in the exercise of a sound discretion, when it would not be recoverable at law. . . .’ [Citation.]” (Id. at p. 485.)
Defendants cite Chesapeake Industries, Inc. v. Togova Enterprises, Inc. (1983) 149 Cal.App.3d 901, which--in the course of interpreting Civil Code section 3287 in an action for accounting under a lease agreement--said the court should award prejudgment interest only if the defendant knew the amount owed or from reasonably available information could have computed that amount. (Id. at p. 907.) However, Chesapeake also said, “we do not foreclose the possibility of prejudgment interest in an accounting action where equity demands such an award.” (Id. at p. 909.)
Defendants fail to show an award was inequitable in this case.
At the end of their discussion of prejudgment interest, defendants complain the interest calculation included compound interest, which is impermissible unless authorized by statute or by stipulation of the parties. We agree with plaintiff that defendants have forfeited this contention by failing to raise it in the trial court. The assertion in defendants’ reply brief--that the matter may be raised for the first time on appeal as a pure question of law--is undermined by plaintiff’s observation that compound interest was also awarded to defendants and by defendant’s cited authority that compound interest is permissible in some circumstances, e.g., where the parties so stipulate.
We conclude defendants fail to show any grounds for reversal of the judgment.
II. The Cross-Appeal
Plaintiff’s cross-appeal contends the trial court abused its discretion by denying plaintiff its projected lost profits for a four-year “ramp-up” period after transfer of the radio station to plaintiff. The ramp-up period reflected that it would take plaintiff some time to correct the inefficient manner in which defendants operated the station before plaintiff would fully realize a reasonable profit. We shall conclude the cross-appeal is without merit.
The trial court’s written ruling stated:
“[Plaintiff] further requested an additional award of $5,830,946 as incidental damages caused by the delay to obtain KWOD. This amount represents future losses [plaintiff] expects to experience for the next four years after it actually acquires KWOD. [Plaintiff’s] rationale is that it will take about four years to bring KWOD’s financial performance up to a level where it would have been had [plaintiff] owned KWOD since 1997. In the Court’s view, [plaintiff] appears to be seeking breach of contract damages for the loss of its bargain to own and operate KWOD as of January 1997. The request for future lost profits is no different than a demand for damages to compensate the aggrieved party for all the detriment proximately caused by the period of delay. (See Civ. Code, § 3300.) It is not necessary for the Court to award [plaintiff] an additional $5,830,946 to make it whole as the Court does not view the claim of lost future profits to be damages incident to specific performance. In this proceeding for an equitable accounting, the Court finds no guiding principle to suggest it should award [plaintiff] an amount to cover its future lost profits due to the ramp-up operation of KWOD.”
Civil Code section 3300 states: “For the breach of an obligation arising from contract, the measure of damages, except where otherwise expressly provided by this code, 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.”
Plaintiff voluntarily reduced its claim for lost profits for the years after the transfer of the radio station was supposed to happen (January 1997), in acknowledgement that it would have taken plaintiff some time to correct the inefficient manner in which defendants had operated the radio station. Plaintiff calls this a “hypothetical” ramp-up period. Plaintiff argues the trial court, by refusing to award post-transfer lost profits, forced plaintiff to endure two ramp-up periods--the hypothetical ramp-up period and the “actual” ramp-up period that would occur after actual transfer of the station in 2003.
According to plaintiff, the trial court did not exercise discretion but erroneously believed it lacked the discretion to make an award for events after the property was delivered to plaintiff. Plaintiff cites authority that the overlap of these damages with contract damages does not necessarily preclude their award. Plaintiff claims the trial court implicitly rewrote Civil Code section 3300 because the statute, unlike the court’s ruling, does not refer to “the period of delay” in performance of the contract.
However, the trial court’s ruling does not necessarily reflect legal error or an erroneous belief that the court lacked discretion.
In any event, plaintiff fails to show any reason for reversal. In the 2003 trial, plaintiff asked the trial court to award compensation for future projected losses for 2003 through 2006. The general purpose of equitable accounting incidental to specific performance is to relate the performance ordered by the court back to the date of performance provided by the contract. (Stratton, supra, 139 Cal.App.3d at p. 212.) Here, the court-ordered performance (transfer of the radio station) occurred in 2003. Post-transfer projected losses do not appear to be within the spirit of the equitable accounting.
Certainly, post-transfer losses may be appropriate where caused by the defendant’s delay. (E.g., Bravo, supra, 168 Cal.App.3d at pp. 212-216 [buyer was entitled to compensation for increased costs of intended construction of a home occasioned by seller’s delay in conveying title]; Stratton, supra, 139 Cal.App.3d at p. 214 [buyers were entitled to interest differential damages if they were obligated to pay a higher interest rate on their mortgage due to the seller’s delay].)
Here, plaintiff argues the ramp-up period was caused by defendants’ delay because “[h]ad [defendants] performed the contract in a timely manner, [plaintiff] would have earned more in 2003, 2004, 2005 and 2006 [i.e., post-transfer] than it will earn now as a result of [defendants’] refusal to perform the contract.” However, the ramp-up period was not caused by defendants’ delay. The ramp-up period would occur no matter when the radio station was transferred. Plaintiff does not contend or cite evidence that the ramp-up period was more costly in 2003 than it would have been in 1997. Thus, plaintiff’s cross-appeal is not assisted by the cited cases allowing post-transfer losses caused by the seller’s delay.
We recognize plaintiff believes it is being forced to endure two ramp-up periods, because it already reduced its claim for pre-transfer profits in recognition that it would not have realized full profits had defendants timely transferred the station in 1997 pursuant to the contract. However, plaintiff assumes it was required by law to reduce its claim for pre-transfer profits. Maybe plaintiff was indeed required to do so, but plaintiff fails to demonstrate this point in its cross-appeal.
In this appeal and cross-appeal, we are not called upon to determine whether the pre-transfer reduction was appropriate. Had defendants not hidden their actual profits, lost profits could have been calculated based on actual lost profits. In that case, no ramp-up period would be involved, because the profits would be based on continued operation of the station by the same parties who had been operating it all along. That plaintiff chose to factor in a ramp-up period in its calculation of reasonable pre-transfer profits was plaintiff’s decision. Plaintiff does not now contend its method was erroneous. In any case, if error occurred, it was invited error.
Plaintiff fails to show any merit to its cross-appeal. We need not address defendants’ argument that awarding “ramp-up” compensation to plaintiff would result in a loss to defendants in the nature of a forfeiture.
DISPOSITION
The judgment is affirmed. The parties shall bear their own costs. (Cal. Rules of Court, rule 8.276(a)(4).)
We concur: SCOTLAND, P.J., CANTIL-SAKAUYE, J.