Opinion
A147029 A147941
04-19-2018
HONORA KELLER, et al., Plaintiffs and Appellants, v. THE BOARD OF TRUSTEES OF CALIFORNIA STATE UNIVERSITY, Defendant and Appellant.
ORDER MODIFYING OPINION AND DENYING REHEARING BY THE COURT:
It is ordered that the opinion filed herein on April 19, 2018, be modified as follows:
On page 4, footnote 4, in the third line, the sentence beginning with "On May 15, 2009," should now read:
Also before the trial court was evidence that on May 15, 2009, the Los Angeles campus forwarded the Chancellor's email about the May 13 fee increase to all students, including subclass representative Kwak.
On page 4, footnote 4, in the seventh line, the sentence beginning with "Kwak paid her fees", should now read:
The trial court noted in its order denying plaintiffs' motion for summary adjudication that Kwak paid her fees in person at the Los Angeles campus, where a sign at the fee-payment window stated that fees were subject to change and she was provided a receipt that stated, "All fees are subject to change."
The petition for rehearing is denied. This modification does not change the judgment. Dated: __________
/s/_________
Acting P.J
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (San Francisco County Super. Ct. No. CGC-09-490977)
INTRODUCTION
Plaintiffs, current and former students at various campuses within the California State University (CSU) system, filed a class action lawsuit against defendant the Board of Trustees of CSU (defendant or Board). Plaintiffs alleged defendant breached its contract with students and violated the covenant of good faith and fair dealing implied in that contract when, having required plaintiffs to pay a mandatory State University Fee (fee) or non-resident tuition for the Fall 2009 academic term at specific lower amounts, it then increased the amount twice—a 10 percent increase in May 2009 and an additional 20 percent increase in July 2009. The trial court denied plaintiffs' motion for summary adjudication on the breach of contract claim and granted summary adjudication for CSU on that cause of action, finding no breach of the implied contracts between CSU and its students.
The case proceeded to a jury trial on plaintiffs' cause of action for breach of the covenant of good faith and fair dealing implied in the contracts. A jury found for CSU, specifically finding that the Board's July 21, 2009 decision to increase the fee and non-resident tuition was not "an objectively unreasonable exercise of its discretion with respect to the purposes and terms of its contract with the students."
Plaintiffs appeal the judgment on their breach of contract claim, contending the court erred in granting summary adjudication for defendant and in denying plaintiffs summary adjudication on this cause of action. They also appeal from the judgment for defendant following trial of their good faith and fair dealing claim. Plaintiffs do not challenge the sufficiency of the evidence supporting the jury verdict, but rather contend only that the court prejudicially erred in excluding evidence of CSU's financial condition after defendant raised the fee and non-resident tuition in July 2009. They also contend the court erred in not further reducing the costs it assessed against the class representatives.
Defendant Board appeals from the trial court's denial of recovery of its expert witness fees in accord with defendant's Code of Civil Procedure section 998 settlement offer.
All statutory references are to the Code of Civil Procedure section, unless otherwise indicated.
Plaintiffs and class representatives are Honora Keller, Samantha Adame, Caitlin Seandel, Vivian Kwak and Xuelian Xie. Plaintiffs filed the action individually and on behalf of a class of similarly situated persons.
We shall affirm.
BACKGROUND
CSU and the 2009 Budget Crisis
CSU is a public university system with 23 campuses and over 400,000 students. As the governing body of CSU, the Board establishes rules applicable to each CSU campus. Among those rules is the requirement that each CSU student pay a mandatory fee (if the student is a California resident) or non-resident tuition for each academic term. In 2009, three campuses required students to pre-pay fees before registering. The remaining 20 campuses charged students fees when they registered, payable by specific deadlines.
CSU labeled as "State University Fees" what is called "tuition" by most colleges and universities.
Before August 2009, neither the Board nor the Chancellor had sent directly to any CSU student a document stating that any increase in fees being considered for Fall 2009 would apply to students who already had a fee or non-resident tuition posted to their accounts. However, as the trial court observed in its summary order, students were warned in the undergraduate application packets for Summer/Fall 2009 and Winter/Spring 2010 that "[t]uition and fees are subject to change by the [Board] without advance notice." Students can view information concerning the amount of fees for the upcoming term in print, on defendant's websites, and on the websites of individual classes. The fee amounts reflected on those sites are identified as the fees that were charged for the preceding academic year. All 19 campuses warned students at various times and in various ways that fees are established by the Board and were subject to change without notice. Warnings were given in catalogs, on various campus websites and on CSU's "Budget Central" webpages, in emails, on campus Twitter accounts, in financial aid materials, at new student orientations, by campus employees working at bursars' or registrars' offices and in other ways.
After this lawsuit was filed, CSU added the following disclaimer to its publications and communications with students: "CSU makes every effort to keep student costs to a minimum. Fees listed in published schedules or student accounts may need to be increased when public funding is inadequate. Therefore, CSU must reserve the right, even after initial fee payments are made, to increase or modify any listed fees, without notice, until the date when instruction for a particular semester or quarter has begun. All CSU listed fees should be regarded as estimates that are subject to change upon approval by The Board of Trustees."
Examples cited by the trial court included the following: The Fullerton campus specifically warned newly-admitted students that fees might increase even after registration: "If a fee change occurs after registration, resulting in an increase in fees, you will be contacted regarding additional fees owed." The Channel Islands campus warned students "Fees are subject to change by the [Board] . . . . The fees listed below will be contingent upon the decision by the Legislature." The cashier's web page warned that "[s]tudents will be billed for any fee increase approved by the Board . . . ." On May 15, 2009, the Los Angeles campus forwarded the Chancellor's email about the May 13 fee increase to all students, including subclass representative Kwak. That email advised that the impending election could result in deep cuts, requiring the Board to consider drastic action, "such as . . . additional student fee increases . . . ." Kwak paid her fees in person at the Los Angeles campus, where a sign at the fee-payment window stated that fees were subject to change and she was provided a receipt that stated, "All fees are subject to change."
In 2009, California and CSU faced a budget crisis. In February, the Legislature passed a budget that presumed CSU would implement a 10 percent fee increase. At its May 13, 2009 meeting, the Board, relying on that budget, adopted a fee schedule for the 2009-2010 academic year that included the 10 percent fee increase. The Board passed a further resolution at that meeting that referred to the possibility of further amendments to the fee schedule if required by changes to CSU's state funding. That resolution stated:
"RESOLVED, That the Chancellor is delegated authority to further adopt, amend, or repeal the State University Fee rate increase if such action is required by changes to the 2009-10 Budget Act and that such changes made by the Chancellor are communicated promptly to the Trustees."
Numerous students, including plaintiff and class representative Keller, voiced opposition to the fee increases at the May 13 meeting. The next day, Governor Schwarzenegger imposed approximately $415 million dollars in retroactive cuts to CSU's 2008-2009 budget, cuts made only weeks before the fiscal year ended. Later in May, the Governor released another budget revision further cutting CSU's budget and ultimately proposing to cut CSU's funding by $584 million, which amounted to 20 percent of CSU's operating budget. In June, the state told CSU it did not have enough cash to meet CSU's July payroll and asked CSU to fill the gap from its cash reserves. In July, the Governor declared a fiscal emergency, and Moody's Investors Service downgraded the state's debt and put CSU on watch for a downgrade. In response to the severe cuts to CSU's budget, on July 21, 2009, the Board amended the fee schedule to include an additional 20 percent increase in fees.
Consequently, the Fall semester 2009 fee for full-time students in undergraduate programs was $2,013; it was $2,337 for students in credential programs; and $2,481 for students in graduate and other post-baccalaureate programs (other than GSB students). After the July 21 increase, non-resident tuition for Fall 2009 was $372 per semester class unit and $248 per quarter class unit with a maximum annual amount of $11,160.
Lawsuit
On July 31, 2009, plaintiffs filed an individual and a class action lawsuit against defendant. Plaintiffs sought a preliminary injunction to prevent the fee increases, which the court denied. On January 5, 2011, the court (Hon. John E. Munter) certified a Statewide CSU Student Subclass (student subclass) of approximately 175,000 members who had been enrolled at one of 19 CSU campuses and who were initially charged or required to pay a fee or non-resident tuition for the Fall 2009 term and who were subsequently required to pay additional fee or non-resident tuition amounts for the Fall term. The court also certified a Graduate Business Student Subclass (GBS subclass), but the summary adjudication motion did not involve that GBS subclass. The operative complaint asserted two causes of action on behalf of the student subclass: breach of contract and breach of the covenant of good faith and fair dealing.
The Statewide CSU Student Subclass was defined as: "All students enrolled at one of 19 CSU campuses who: (a) were initially charged or otherwise required to pay a State University Fee, Non-Resident Tuition, or both, for the Fall 2009 term; (b) were subsequently required to pay additional amounts of the State University Fee, Non-Resident Tuition, or both, for the Fall 2009 term excluding any increase caused solely by a student registering for additional class units; (c) were not a resident student awarded an increase in a CalGrant of State University Grant that fully offset or refunded any increase in the student's State University Fee; and (d) were not the recipient of a statutory fee waiver that applied to the State University Fee or Non-Resident Tuition."
The 19 campuses included: Bakersfield, Channel Islands, Chico, Dominguez Hills, Fresno, Fullerton, Humboldt, Long Beach, Los Angeles, California Maritime Academy, Monterey Bay, Northridge, Sacramento, San Bernardino, San Diego, San Francisco, San Jose, San Marcos and Sonoma. At the four campuses not at issue in this litigation, registration and fee collection began after July 21, 2009, so no student was charged a lower fee before the increase.
Summary Adjudication of the Breach of Contract Claim
Judge Munter issued an order authorizing plaintiffs to file a motion for summary adjudication as to all elements of the student subclass's claims for breach of contract, except for damages and the defendant's defenses thereto. On January 27, 2014, following extensive briefing and a hearing on the motion, the court denied plaintiffs' summary adjudication motion. The court first found that each member of the student subclass had an implied-in-fact contract, formed at admission, with defendant. Plaintiffs failed to establish that defendant had breached those contracts by increasing the fee and non-resident tuition for Fall 2009. The court reasoned that the terms of the contract, which included state statutes and regulations, when considered as a whole, were not ambiguous and they foreclosed plaintiffs' theory that the price term became fixed when individual campuses posted specific fees or when students paid those fees.
The case was designated a complex case under California Rules of Court, rule 3.400 et seq.
As an independent basis for its decision, the court stated that if the contracts were ambiguous, plaintiffs would have failed to carry their burden because, in light of the extensive notice of possible fee increases CSU provided to students, "there would be, at minimum, a question of fact in this case regarding how the parties reasonably understood the terms of their implied-in-fact contracts."
Defendant subsequently moved for summary adjudication on the breach of contract claim, with both sides relying, per stipulation, on the oral and written record submitted in connection with plaintiffs' motion, which the trial court had just denied. The trial court granted defendant's motion for the reasons stated in its January 27, 2014 order denying plaintiffs' motion for summary adjudication.
The parties then cross-moved for summary adjudication and/or judgment on all remaining claims, including the student subclass's claim for breach of the implied covenant and all claims of the GBS subclass. The trial court granted summary adjudication for defendant on the GBS subclass breach of contract claim and denied the remaining motions on July 24, 2014, sending the breach of implied covenant claims for the student subclass and the GBS subclass to trial. In its order denying summary adjudication on the breach of implied covenant claim, the court identified the triable issues of material fact: "By imposing the July 21, 2009 [State University Fee or the Non-Resident Tuition] did the defendant engage in an objectively unreasonable exercise of its discretion to establish fees? Did the Board establish fees in a manner that violated the reasonable expectations of the class members based on the contracts here at issue?"
Jury Trial of the Implied Covenant of Good Faith and Fair Dealing Cause of Action
The case was reassigned to the Honorable Mary Wiss upon Judge Munter's retirement.
Plaintiffs framed the issue in their opening statement at trial, "The case boils down to one question: Was it reasonable for CSU to decide to increase the fees it would charge its students for 2009 after charging the students a specific price for those classes and after many of those students had already paid." Plaintiffs contended: "The evidence will show that students throughout the CSU system had registered for classes had been told they must pay a specific price by a specific payment deadline, and CSU did not tell them that that price was simply an estimate or that it was not final. [¶] The evidence will show that CSU students expected the price that they were being charged and that they paid for their classes. The May price was final. They thought that was the final price."
Plaintiffs presented testimony from nine students who had attended seven of the 19 campuses in the class. Seven of these witnesses had already paid their fees before being charged for the July fee increase. Plaintiffs' witnesses generally testified that they believed the fee could not be increased once posted and paid. However, plaintiffs' witness Dawn Scavo testified that even after she registered and was charged fees in May 2009, she expected fees might increase "by a small amount." Plaintiff and class representative Keller, who was present at the May Board meeting, testified that she left the meeting understanding that CSU's budget might be cut even further and that she had heard even before July 7 of "the possibility of employee furloughs and course reductions and fee increases."
Defendant presented testimony from students who had attended CSU at the time of the fee increase, including a former class representative, who testified as to their expectations and understandings that fees might be increased and as to activities their campuses took to keep them apprised of the state budget crisis. CSU administrators and witnesses from various campuses presented evidence relating to communications or the lack thereof regarding fees increases, and defense witnesses testified to CSU's finances up to and including July 21, 2009, when the Board imposed the 20 percent increase.
The court instructed the jury on the terms of the implied contract between CSU and its students that was formed at admission, including the following: "[S]tudent fees and tuition must be collected by CSU at the time of registration. Students must pay fees and tuition by such time as is determined by the chancellor," and "the state university fee and the non-resident tuition and all other fees which the Board of Trustees is authorized by law to charge are subject to change without notice."
The jury was also instructed that "[i]n every contract or agreement there is an implied promise of good faith and fair dealing. The implied term of good faith and fair dealing provides that where one party to a contract reserves to itself discretionary power over a term or terms of the contract, the discretionary power must be exercised in an objectively reasonable manner which meets the objectively reasonable expectations of the other party. [¶] The conduct of a party may breach the implied term of good faith and fair dealing even though the expressed terms of the contract are not breached. [¶] The contract between CSU and plaintiffs provides that CSU has the discretion to change the state university fee and non-resident tuition without notice." The jury was instructed that in determining whether CSU's imposition of the fee increase was an objectively unreasonable exercise of its discretion, it should consider "whether CSU set or changed student fees and tuition for Fall 2009 in an objectively unreasonable manner; and . . . whether CSU's imposition of the fee increase deprived plaintiffs of their objectively reasonable expectation arising from the purposes and terms of the contract."
In their closing argument, plaintiffs urged the jury to find for plaintiffs based on students' reasonable expectations. Plaintiffs argued that defendant's actions in increasing the fee for a second time were not objectively reasonable after it had set the May price, published it on the student fee website, and charged the student fees on the student accounts. The decision to raise the fee amount for a second time after setting the May price violated CSU students' reasonable expectations that the May price was the price for Fall 2009.
Defendant argued at closing that it was undisputed that the Board had the authority to establish the amount of the fee and to increase student fees if it believed that was appropriate, and to change those fees without notice. It urged that the Board acted reasonably in light of the budget crisis and CSU's goals (1) to serve as many students as possible with quality instruction and services so that students would continue to receive the education that was the purpose of their contract; (2) to protect jobs; (3) to preserve the university's financial integrity; and (4) to plan beyond the 2009-2010 fiscal year to ensure CSU continued. Defendant argued that "notice . . . does not legally matter to the decision that you are being asked to make. [¶] But, in fact, CSU did tell its students." Defendant maintained the statement that fees are subject to change without notice was contained in numerous documents presented at trial and "CSU communicated with its students in many different ways about the budget crisis and the potential implication of the budget crisis on student fees."
The jury found for defendant, and judgment was entered accordingly. The GBS claims were settled with the court's approval. Defendant submitted its memorandum of costs seeking approximately $500,000 against the four named plaintiffs, including approximately $329,000 in expert witness costs based on its section 998 settlement offer. Plaintiffs moved to strike or tax costs. The court rejected defendant's request for expert witness costs, but awarded $123,134.94 in costs to defendant as the prevailing party.
These timely appeals followed.
DISCUSSION
I. Summary Adjudication for CSU on Breach of Contract Claim
A. Summary Adjudication
As with the grant or denial of summary judgment, a ruling granting or denying summary adjudication is subject to de novo review. (Certain Underwriters at Lloyd's of London v. Superior Court (2001) 24 Cal.4th 945, 972.) "It resolves a pure question of law [citation] namely, whether there is any triable issue as to any material fact and, if not, whether the moving party is entitled to adjudication in his [or her] favor as a matter of law [citation]." (Ibid.; accord, Monticello Ins. Co. v. Essex Ins. Co. (2008) 162 Cal.App.4th 1376, 1385.)
B. Governing law
1. Kashmiri v. Regents
In Kashmiri v. Regents of University of California (2007) 156 Cal.App.4th 809, 823-824 (Kashmiri), we affirmed summary judgment in favor of students challenging the University of California's (UC or university) fee increases in 2003. In doing so, we held that implied-in-fact contracts were created between students and the university when students accepted the university's offer of admission, and that contract law applied to students' claims against the increase in various student fees. (Id. at pp. 823-824 829-830.) We agreed "that educational institutions retain the right to raise the fees when that is specified in their catalogues or other publications as long as the increase is reasonable and does not violate any duty of good faith and fair dealing." (Id. at p. 831.) We also recognized that the university's policy may have been incorporated as a term of the contract. (Id. at p. 830.) However, UC had waived any argument regarding its "unique status based on its constitutionally-derived powers," by failing to raise the issue in the lower court. (Ibid.)
We held that UC "breached its contracts with students attending the spring and summer session in 2003 by raising the educational fees for these terms after the students had received bills specifying the exact amount to be paid." (Kashmiri, supra, 156 Cal.App.4th at p. 815.) We reached that result after determining that the university's general disclaimer was ambiguous in the circumstances and applying established rules of contract interpretation to determine the parties' intent. (Id. at pp. 842, 847.) We reasoned:
We also held UC breached its implied contracts with students when it raised the professional educational fees for continuing students after explicitly promising on its website and in its catalogues that such fees would not be raised for the duration of the student's enrollment in the professional program. (Kashmiri, supra, 156 Cal.App.4th at pp. 815, 816-817.) Under the usual rules of interpretation for contracts, this specific provision referring to the professional degree fees and the promise not to raise it for continuing students trumped the general warning provided on UC's website and in its various publications that fees could be changed without notice. (Id. at pp. 833-834.) No such promise is at issue here.
"Under contract law, the relationship between the students and University is to be interpreted to 'protect the reasonable expectations of the parties' [citation] 'at the time the contract is formed' (Civ. Code, § 1636). Such intent is to be inferred, if possible, solely from the written provisions of the contract. (Id., § 1639.) '[L]anguage in a contract must be interpreted as a whole, and in the circumstances of the case, and cannot be found to be ambiguous in the abstract. [Citation.] Courts will not strain to create an ambiguity where none exists.' (Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 18-19.)
"The interpretation of a contract 'must be fair and reasonable, not leading to absurd conclusions.' [Citation.] 'A contract must receive such an interpretation as will make it lawful, operative, definite, reasonable, and capable of being carried into effect, if it can be done without violating the intention of the parties.' (Civ. Code, § 1643.)
" 'If the contract is capable of more than one reasonable interpretation, it is ambiguous [citations], and it is the court's task to determine the ultimate construction to be placed on the ambiguous language by applying the standard rules of interpretation in order to give effect to the mutual intention of the parties [citation].' 'If the terms of a promise are in any respect ambiguous or uncertain, it must be interpreted in the sense in which the promisor believed, at the time of making it, that the promisee understood it.' (Civ. Code, § 1649.)" (Kashmiri, supra, 156 Cal.App.4th at pp. 842-843.)
We recognized that while courts enforce disclaimers, in the circumstances presented in Kashmiri the general disclaimers that the university had the right to change the fees without notice became ambiguous when examined in the context where the students received bills for the spring and summer terms of 2003 that specified the exact amount charged for the term and the due date for payment. (Kashmiri, supra, 156 Cal.App.4th at p. 847.) We then proceeded to apply principles of contract law to determine the parties' intent, recognizing that "[t]he record [did] not establish that students attending the spring and summer terms in 2003 received any actual notice of any impending increase in the educational fee prior to receiving their bills." (Ibid., italics added.) We also observed that the "record provides no evidence that the students read the websites or followed other announcements in the media regarding the state's budget problems." (Ibid., italics added.)
2. Statutes and Regulations Governing CSU
State statutes and regulations govern the operation of CSU and are incorporated as terms of the implied-in-fact contracts between CSU and its students. (E.g., Edwards v. Arthur Andersen LLP (2008) 44 Cal.4th 937, 954.) These include the following: "The trustees may by rule require all persons to pay fees . . . for services, facilities or materials provided by the trustees to such persons. The trustees may, by rule, provide for the method of collecting such fees . . . ." (Ed. Code, § 89700, subd. (a).)
Defendant has exercised that authority by enacting regulations governing payment of student fees. Section 41800 of the applicable Regulations, expressly provides that students shall pay fees as established by the Board:
All references to Regulations are to Title 5 of the California Code of Regulations, unless otherwise indicated.
"(a) Amount Generally. Students and other persons receiving services, facilities or materials provided by the California State University shall pay fees in accordance with the schedule of fees approved by the Board of Trustees.
"(b) Time of Payment. A student shall pay any tuition or student services fee, or both, in accordance with the schedule of fees by such time as is determined by the Chancellor; provided that for entering students such fees may not be required earlier than the date of the student's admission to the campus. A student shall pay other fees required by the schedule of fees at the time or times as specified in the first sentence of this subdivision, or later as determined by appropriate campus authorities."
Section 41901, subdivision (b) of the Regulations addresses the time and amount of payment of non-resident tuition. It provides in relevant part: "The schedule of nonresident tuition fees shall be issued annually by the Chancellor to be effective with the fall term. These amounts, as well as all other fees which the Board of Trustees is authorized by law to charge, are subject to change without notice."
Government Code section 11120, et seq. (Bagley-Keene Open Meeting Act) requires defendant to provide the public with notice of any proposal to increase fees. Defendant did so with respect to the increases here at issue.
C. Analysis
Plaintiffs rely upon Kashmiri, supra, 156 Cal.App.4th 809, to assert that an ambiguity on the price issue was created in their implied contracts when defendant posted and charged a fixed dollar amount on their online student accounts for Fall 2009, without including any language explaining that fees for the Fall 2009 term could still change. Plaintiffs assert that such ambiguity must be construed in their favor. Like the trial court on summary adjudication, we reject these contentions.
Unlike this case, Kashmiri, supra, 156 Cal.App.4th 809, did not involve any statutes or regulations governing the amount and timing of fees incorporated into the terms of the implied contracts. UC had waived any arguments concerning its "unique status based on its constitutionally-derived powers" (id. at p. 830) and there was no discussion of statutes or regulations incorporated as contract terms. In contrast, here Education Code section 89700, subdivision (a) vests the Board with the power and responsibility to require students to pay fees and for the method of collecting fees. The regulations governing payment provide students "shall pay fees in accordance with the schedule of fees approved by" defendant Board (Regulations § 41800, subd. (a)) and "in accordance with the schedule of fees by such time as is determined by the Chancellor." (Id., subd. (b).) The regulation pertaining to the non-resident tuition schedule specifically provides that "[t]hese amounts, as well as all other fees which the Board of Trustees is authorized by law to charge, are subject to change without notice." (Regulations § 41901, subd. (b), italics added.) These regulations have the force and effect of statutory law and make clear that the Board—and not the individual campuses or anyone else—has the legal authority to set and change fees. (Zumwalt v. Trustees of Cal. State Colleges (1973) 33 Cal.App.3d 665, 675 ["Within their scope the codified rules of the college trustees prevail over practices and policies emanating from . . . an individual institution."].) Plaintiffs' theory that the posting of specific fees in their accounts by individual campuses established a binding price term ignores the terms established by the above statute and regulations that students "shall pay" the fees approved by the Board and "at the time" or times determined by the Chancellor. It further ignores the term that fees that the Board "is authorized by law to charge, are subject to change without notice." These provisions are not simply general disclaimers on a website or in a catalogue; they are terms of the implied-in-fact contracts.
We conclude that when the terms of the contracts between the parties are considered as a whole and in the circumstances presented by this case, no ambiguity resulted from the online posting of fees by individual campuses.
Moreover, even if the price provision of the implied contract were determined to be ambiguous, it was still not cause to grant plaintiffs' motion for summary adjudication on the contract. As Judge Munter recognized in his order detailing the alternative basis for denying plaintiffs' and granting defendant's summary adjudication motions, the record here, unlike that in Kashmiri, supra, 156 Cal.App.4th at page 847, "is laced with evidence showing that the students were bombarded with the message that fees are subject to change." This evidence, a small portion of which was referenced by the court's order on summary adjudication and described above, would create a triable controversy as to how the parties reasonably understood the terms of their implied-in-fact contracts on the issue of defendant's right to increase fees after posting in student accounts or payment by students. Moreover, as the trial court stated, the record before the court in the summary adjudication motion here, in contrast to that in Kashmiri, was "replete" with evidence that CSU students read the websites and other information about the budget crisis and its probable impact on increasing their student fees and were actively engaged in those discussions.
We reject plaintiffs' contention that the trial court, in considering the motions for summary adjudication, was bound to interpret any ambiguity in the contract as to price against defendant and in favor of plaintiffs in these circumstances. "Juries are not prohibited from interpreting contracts. Interpretation of a written instrument becomes solely a judicial function only when it is based on the words of the instrument alone, when there is no conflict in the extrinsic evidence, or when a determination was made based on incompetent evidence. [Citations.] But when, as here, ascertaining the intent of the parties at the time the contract was executed depends on the credibility of extrinsic evidence, that credibility determination and the interpretation of the contract are questions of fact that may properly be resolved by the jury. [Citation.]" (City of Hope National Medical Center v. Genentech, Inc. (2008) 43 Cal.4th 375, 395-396, fn. omitted.) Furthermore, "[a] party's conduct occurring between execution of the contract and a dispute about the meaning of the contract's terms may reveal what the parties understood and intended those terms to mean. For this reason, evidence of such conduct . . . is admissible to resolve ambiguities in the contract's language." (Id. at p. 393.)
If the price provision had been determined to be ambiguous, a myriad of evidence would be relevant to how the parties reasonably understood the terms of their implied-in-fact contracts on the issue of defendant's right to change fees after posting or payment by students. This would include what messages were sent to students by CSU and the various campuses regarding the budget crisis and the possibility of fee increases, what methods were used to communicate with students, and whether students received these messages and how they responded.
As it turned out, evidence on these facts and more was introduced at the jury trial for breach of the implied covenant of good faith and fair dealing. The jury's verdict that the Board did not breach the implied covenant in increasing the fee and non-resident tuition—that is, its specific and central finding that the Board's actions were not "objectively unreasonable exercise[s] of its discretion" with respect to the purposes and terms of its contract with the students—in effect answered the question as to the parties' reasonable expectations that Judge Munter had identified as an alternative ground for denying summary adjudication to plaintiffs.
The determination that the Board did not breach its contracts with students does not resolve the question whether it breached the covenant of good faith and fair dealing. (E.g., Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1393-1395 [The covenant is particularly applicable in situations where one party has discretionary power affecting the other party's rights. Such power must be exercised in good faith.]; accord McCaffrey Group, Inc. v. Superior Court (2014) 224 Cal.App.4th 1330, 1352.)
Thus, at the end of the day, despite summary adjudication against them on the breach of contract claim, the student subclass received a trial on the merits on the central issue they identified in their summary adjudication motion—whether Board actions increasing the fees violated their reasonable expectation that the price became fixed upon the May increase. The jury found the answer was no.
II. Exclusion of Evidence of CSU's Financial Condition After July 21, 2009
Plaintiffs raise only one issue on appeal from the trial itself, and that is whether Judge Wiss erred in granting CSU's in limine motion to exclude evidence of CSU's finances during the 2009-2010 academic year, which was after the Board's July 21, 2009 fee increase. There was no error.
Plaintiffs sought to introduce evidence that "CSU ended fiscal year 2009 to 2010 in a financially sound position with revenues that greatly exceeded its expenses and net assets which had significantly increased over the previous year." They sought to show that for the year ending June 30, 2010, CSU's revenues exceeded expenses by $508 million and its unrestricted net assets increased to $1.4 billion, that CSU received approximately $445 million in federal stimulus funds in the fall of 2009, and that it was reimbursed by the state in October 2009 in the amount of $294 million for its July payroll expenditure. They asserted the purpose of this evidence was to show that "CSU's predictions about its financial conditions were unreasonable in light of the events that came to pass very shortly after its decision to raise student fees in July 2009."
Defendant moved in limine to exclude this evidence as irrelevant to whether the fee increase in July was "objectively reasonable," and unduly time intensive and confusing under Evidence Code section 352.
The court granted defendant's motion to exclude the evidence and explained its view at the hearing that the evidence was "complete hindsight." "I think you could say it was reasonable to make this decision on July 21 or to defer it to a later date, or were you expecting further information; but to say, Well, you should have looked and anticipated in October or November that these funds would come in, because then they did, it is complete hindsight and second-guessing what information the board had in front of it on July 21."
"The trial court enjoys 'broad authority' over the admission and exclusion of evidence. [Citation.] We review a trial court's ruling on a motion in limine to exclude evidence for an abuse of discretion. [Citations.] The trial court's authority is particularly broad 'with respect to rulings that turn on the relevance of the proffered evidence.' [Citation.] Furthermore, '[i]t is for the trial court, in its discretion, to determine whether the probative value of relevant evidence is outweighed by a substantial danger of undue prejudice. The appellate court may not interfere with the trial court's determination . . . unless the trial court's determination was beyond the bounds of reason and resulted in a manifest miscarriage of justice.' [Citation.]" (McCoy v. Pacific Maritime Assn. (2013) 216 Cal.App.4th 283, 295-296.)
Plaintiffs contend that the proffered evidence was relevant to whether the Board reasonably assessed CSU's financial position going in to the July 21 meeting. They rely on Acree v. GMAC (2001) 92 Cal.App.4th 385, 394, for the proposition that subsequent evidence is relevant to assessing the reasonableness of an earlier exercise of discretion under the implied covenant. However, in that case the Court of Appeal did not directly discuss the admissibility of hindsight evidence, nor does it refer to the abuse of discretion standard of review. Plaintiffs cite no case suggesting the trial court abused its discretion here.
Plaintiffs also argue the court did not determine the evidence of CSU's post-July 21, 2009 finances was more prejudicial than probative, would lead to undue time consumption or would mislead the jury. (Evid. Code, § 352.) Rather, they contend the sole basis for the court's ruling was relevance, implying we can look only to that basis on review. During the hearing on the motion, the court explained its view that the evidence was not relevant to the "objective reasonableness" of the Board's action at the time it was taken, but in granting the motion to exclude, the court simply stated the motion was "granted." We do not parse the court's reasons for its decision. An evidentiary ruling will be upheld on appeal if it is correct on any theory, even if the trial court did not rely on that theory in making its ruling on the motion in limine. (Lemer v. Boise Cascade, Inc. (1980) 107 Cal.App.3d 1, 10.)
III. Award of Costs Against Class Action Representatives
Following the defense verdict, defendant filed a cost bill seeking recovery of $477,613.25, of which $329,981.44 were expert witness fees in connection with plaintiffs' rejection of defendant's section 998 offer. The trial court struck defendant's claim for expert witness fees on the ground that its section 998 offer was invalid because defendant had not apportioned it among the members of the student subclass. The court also granted certain portions of plaintiffs' motion to tax costs and denied other parts, ultimately awarding defendant $123,134.94 in costs.
Plaintiffs argue the court erred in refusing to exercise its discretion to reduce the cost award against the four named plaintiffs to a "reasonable amount," urging that strong California public policy in support of class actions permits the court to reduce the costs awarded against them as class representatives to an amount proportionate to their stake in the litigation—which in this case was about $300 each. Plaintiffs also contend that the court believed it lacked discretion to consider the equities to determine the "reasonable amount" of costs in a class action. (Cf. Sanford v. Rasnick (2016) 246 Cal.App.4th 1121, 1133 (Sanford) [failure to exercise discretion is an abuse of discretion].) We find no error.
Section 1032 governs the award of costs of trial court litigation. Subdivision (b) states: "Except as otherwise expressly provided by statute, a prevailing party is entitled as a matter of right to recover costs in any action or proceeding." (Italics added.) Subdivision (a)(4) defines "prevailing party" to include "the party with a net monetary recovery, . . . and a defendant as against those plaintiffs who do not recover any relief against that defendant." There is no question defendant was the prevailing party.
Section 1033.5, subdivision (c) provides in part that: "(1) Costs are allowable if incurred, whether or not paid. [¶] (2) Allowable costs shall be reasonably necessary to the conduct of the litigation rather than merely convenient or beneficial to its preparation. [¶] (3) Allowable costs shall be reasonable in amount."
In awarding costs to defendants, the trial court recognized the case was "vigorously litigated from its inception in 2009 by experienced and competent counsel," and summarized the motions, cross motions, extensive discovery, witness lists and exhibits, thorough trial preparation and the conduct of trial. It observed, "[t]he costs incurred are consequently high, and recoverable costs likely represent a fraction of the expense incurred by both sides."
The court rejected plaintiffs' contentions that it was unfair to impose costs on class representatives because they bear all the risk for only a fraction of the benefit and that imposing costs on class representatives could create conflicts of interest between class representatives and absent class members. The court correctly recognized that under the mandatory cost provision of section 1032, subdivision (b) it had no discretion to deny CSU's costs "in its entirety." (See In re Tobacco Cases II (2015) 240 Cal.App.4th 779, 805-807 [looking to the words of the statute, when a party falls squarely within one of the four situations enumerated in the definition of "prevailing party," the court has no discretion to allow costs or not.]) At the same time, the court exercised its discretion over the amount awarded both by taxing defendant's costs and by assessing the record before it and concluding that plaintiffs had failed to provide sufficient evidence of their individual financial circumstances to warrant denying or reducing costs on that basis. (See § 1033.5, subd. (c)(3); Roman v. BRE Properties, Inc. (2015) 237 Cal.App.4th 1040, 1063 [in determining reasonable costs, trial court has discretion to consider the financial circumstances of the losing plaintiff].)
Plaintiffs have failed to provide authority that a court abuses its discretion in refusing to limit recoverable costs in a class action to either the named plaintiffs' maximum potential recovery or to the amount of costs incurred defending against individual claims. In refusing to require absent class members to shoulder a proportionate share of costs, California authority has recognized that it may be appropriate to hold class representatives responsible for costs that may outstrip their personal potential recovery. " 'While imposition of the entire cost burden on the named plaintiffs may have a chilling effect on the willingness of plaintiffs to bring class action suits, this effect easily may be outweighed by the potential recovery. All potential litigants [i.e., the representative plaintiffs] must weigh costs of suit against likelihood of success and possible recovery before deciding to file suit. Those who choose to take the risks of litigation should be the ones who bear the cost when they are unsuccessful, not those who did not make the choice.' (Van de Kamp v. Bank of America, [(1988)] 204 Cal.App.3d [819,] 869.)" (Earley v. Superior Court (2000) 79 Cal.App.4th 1420, 1433-1434.) Plaintiffs' arguments to the contrary are more properly addressed to the Legislature.
The trial court understood it had discretion to reduce the cost award to defendants, and did so, and we find no error.
DEFENDANT BOARD'S CROSS APPEAL
IV. Denial of Expert Witness Fees After Section 998 Offer
Defendant made a section 998 offer to plaintiffs in the amount of $4 million. After it prevailed at trial, defendant sought postoffer costs for the services of its expert witnesses, an award which the trial court has discretion to grant. (§ 998, subd. (c)(1).) The trial court declined to award these postoffer costs on the ground that the 998 offer was invalid because it was not apportioned among the members of the student subclass. The written section 998 offer stated: "[CSU] hereby offers to pay the Statewide CSU Student Subclass (collectively 'Plaintiff') the sum total of $4,000,000.00 in settlement of this matter. . . ." The issue on appeal is whether the court erred in concluding the section 998 offer was invalid. We conclude there was no error.
"If an offer made by a defendant is not accepted and the plaintiff fails to obtain a more favorable judgment or award, the plaintiff shall not recover his or her postoffer costs and shall pay the defendant's costs from the time of the offer. In addition, in any action or proceeding other than an eminent domain action, the court or arbitrator, in its discretion, may require the plaintiff to pay a reasonable sum to cover postoffer costs of the services of expert witnesses, who are not regular employees of any party, actually incurred and reasonably necessary in either, or both, preparation for trial or arbitration, or during trial or arbitration, of the case by the defendant." (§ 998, subd. (c)(1).)
In Sanford, supra, 246 Cal.App.4th 1121, we recognized that, " 'In interpreting section 998, this court has placed squarely on the offering party the burden of demonstrating that the offer is a valid one under section 998. [Citation.] The corollary to this rule is that a section 998 offer must be strictly construed in favor of the party sought to be subjected to its operation. [Citation.] Further, while the statute contemplates that an offer made pursuant to its terms may properly include nonmonetary terms and conditions, the offer itself must, nonetheless, be unconditional. [Citation.] Thus, for example, an offer to two or more parties, which is contingent upon all parties' acceptance, is not a valid offer under the statute. [Citations.] Finally, our Supreme Court has held that the legislative purpose of section 998 is generally better served by "bright line rules" that can be applied to these statutory settlement offers—at least with respect to the application of contractual principles in determining the validity and enforceability of a settlement agreement. [Citations.]' (Fn. omitted.) (See also Taing v. Johnson Scaffolding Co. (1992) 9 Cal.App.4th 579, 585 ['[t]he burden of assuring that the offer complies with section 998 falls on the offeror']; Chen v. Interinsurance Exchange of Auto. Club (2008) 164 Cal.App.4th 117, 122 ['we interpret against [the offeror] any ambiguity in the [section 998] offer'].)" (Sanford at pp. 1129-1130, quoting Barella v. Exchange Bank (2000) 84 Cal.App.4th 793, 799-800.)
Since the issue presents no disputed facts, we review the interpretation of a section 998 offer and its application de novo. (Sanford, supra, 246 Cal.App.4th at p. 1130.) Like the court below, we assume, without deciding, that section 998 applies to class actions.
The general rule is that a section 998 offer to multiple plaintiffs is valid only if it is expressly apportioned between them and not conditioned on acceptance by all of them. (Nelson v. Pearson Ford Co. (2010) 186 Cal.App.4th 983, 1025 (Nelson), disapproved on other grounds in Raceway Ford Cases (2016) 2 Cal.5th 161, 180; Meissner v. Paulson (1989) 212 Cal.App.3d 785, 791 (Meissner).) The Meissner court reasoned that an unallocated offer to multiple plaintiffs is invalid under section 998 because a party receiving a joint unallocated offer may not be able to prove that he or she obtained a more favorable result at trial. (Id. at p. 790.) However, Meissner did not rest its decision on that ground, focusing instead on the fact that the defendant's offer required both plaintiffs to consent to settlement and to determine between themselves the apportionment. (Id. at p. 791; see Gonzalez v. Lew (2018) 20 Cal.App.5th 156, 162 (Gonzalez).) Although the trial court determined that as between the Meisner plaintiffs, defendants could show that one, United Pacific, received a less favorable result, the Court of Appeal nevertheless found the offer invalid as to both. "[N]either party could accept without the consent of the other party. The offer inherently necessitated agreement between the parties as to apportionment between them. Although in this case we can say United Pacific received less than it would have under the offer, permitting such application of section 998 would introduce great uncertainty into this area of the law. Plaintiffs would be required to second-guess all joint offers to determine whether a failure to reach agreement with coplaintiffs would cause a risk of section 998 costs against them. We believe the Legislature did not intend to place this burden on offerees. To enforce the purpose of section 998, we find as a matter of law only an offer made to a single plaintiff, without need for allocation or acceptance by other plaintiffs, qualifies as a valid offer under section 998. Accordingly, we shall reverse the award of costs to defendants under section 998." (Id. at p. 791.)
Cases after Meissner, supra, 212 Cal.App.3d 785, recognize the general rule, but have refused to apply it mechanically to offers that do not raise the issues identified in Meissner. As explained recently in Gonzalez, "where several plaintiffs receiving a settlement offer have a unity of interest in the subject of the litigation, an unallocated joint settlement offer to them may be valid under section 998." (Gonzalez, supra, 20 Cal.App.5th at p. 163.) Gonzalez gave as examples of such unity of interest, injury to spouses' community property or a wrongful death cause of action. (Ibid.)
Defendant relies upon McDaniel v. Asuncion (2013) 214 Cal.App.4th 1201. There the court held that plaintiffs in a wrongful death action have such a unity of interest where the decedent's heirs must join together in a single action and the jury will award a single lump sum for all recoverable damages. (Id. at p. 1206.) Defendant contends McDaniel is controlling, arguing the class action here is like a wrongful death action in that the student subclass has a unity of interest in the subject of the litigation. However, McDaniel itself recognized its wrongful death action was "atypical" for purposes of evaluating a section 998 offer to multiple plaintiffs. (Ibid.)
As the trial court recognized here, defendant's failure to apportion its offer was "particularly problematic" because the amount of damages sought on behalf of the approximately 170,000 student subclass members differed. As plaintiffs point out, the differences were based on the category of student (whether undergraduate, graduate or teaching credential), the number of credits for which a class member was enrolled, and whether the student paid the fee or the non-resident tuition (which was charged per course unit, rather than per semester or quarter). In fact, the jury was given a verdict form including separate questions for the fee and non-resident tuition.
Defendant argued the settlement offer could be easily allocated based on the trial testimony of plaintiffs' damages expert. This approach underscores that defendant's lump sum section 998 offer was not made without the need for allocation, and that it was not a valid offer. (See Meissner, supra, 212 Cal.App.3d at p. 791.) As the trial court observed, "Because the subclass members did not know how much each of them was entitled to under CSU's lump sum offer, they could not have " 'assess[ed] the benefit of the defendant's offer compared to the likely judgment.' [Citation.]"
Nelson, supra, 186 Cal.App.4th 983—the only case cited by the parties that analyzes section 998 in the context of a class action lawsuit—does not support defendant's argument. Nelson recognized the general rule that an unallocated section 998 offer to multiple plaintiffs was invalid and held the section 998 offer there was invalid because it was a "lump-sum offer to multiple classes, which are the equivalent of separate parties." (Id. at p. 1025.) In Nelson, a single class representative refused an unallocated section 998 offer to two classes, and the appellate court concluded it would be impossible to determine whether either class received a less favorable result at trial than it would have received under the offer. (Id. at p. 1026.) The court analyzed the issue as though each class were a separate party. (Ibid.) Defendant seizes on Nelson's equating separate classes with separate parties to argue its unallocated offer to the student class was in effect a single offer to a single party. But here the facts are different. There are differing damages among class members and four class representatives, with the potential for disagreement among them as to whether to accept the offer.
Defendant failed to establish that the section 998 offer was valid, and the court did not err in denying defendant the costs of its expert witnesses.
DISPOSITION
The judgment is affirmed. The parties shall bear their own costs on appeal.
/s/_________
Miller, J. We concur: /s/_________
Richman, Acting P.J. /s/_________
Stewart, J.