Opinion
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
APPEALS from a judgment and orders of the Los Angeles Superior Court, Michael L. Stern, Judge. (Case No. B193863, affirmed; Case No. B195663, reversed.), Los Angeles County Super. Ct. No. BC307091
Quinn Emanuel Urquhart Oliver & Hedges, Steven G. Madison and Michael T. Lifrak for Defendants and Appellants Richard E. Hodge, Richard E. Hodge, Inc., and Richard E. Hodge LLP.
Hillel Chodos and Jonathan P. Chodos for Plaintiff and Respondent and Appellant Gary G. Kuist.
Burbidge & Mitchell and Richard D. Burbidge; Weston, Benshoof, Rochefort, Rubalcava & MacCuish, and Andrew M. Gilford for Plaintiff and Respondent Jefferson W. Gross.
Hahn & Hahn, Don Mike Anthony and Todd R. Moore for Defendant and Respondent John C. Bedrosian.
COOPER, P. J.
SUMMARY
This matter involves two consolidated appeals in an action involving a dispute between three former partners of a law firm over the distribution of a $41 million contingency fee received by the firm several years after two attorneys left the firm.
In the first appeal (case no. B193863), a partner, respondent Jefferson Gross, was awarded just over $4 million in compensatory damages after a jury concluded appellants breached an implied oral agreement to pay Gross 10 percent of the contingency fee. Another partner, respondent Gary Kuist, was awarded 11 percent of the contingency fee, or about $4.5 million. Gross and Kuist also received punitive damage awards of approximately $646,000 and $1.3 million, respectively. Appellants - Gross’s and Kuist’s former law partner, Richard E. Hodge; their former partnership, Richard E. Hodge, LLP; and the corporation formed after the partnership was dissolved, Richard E. Hodge, Inc., - assert numerous bases for reversal. They argue reversal is mandated because:
(1) Gross cannot recover under an implied agreement that contradicts the parties’ written partnership agreement;
(2) Kuist’s claims are barred by the terms of the partnership agreement;
(3) The jury made the factually inconsistent findings that the partnership agreement was abandoned as to Gross and later breached as to Kuist;
(4) The trial court made numerous errors regarding California partnership law, including: instructing the jury regarding common law principles abrogated by the Revised Uniform Partnership Act of 1994 (RUPA) (Corp. Code §§ 16100-16962) for partnerships that do not dissolve upon a partner’s dissociation; ruling Gross’s claims were not time-barred; and refusing to permit testimony regarding the value of the contingency fee case at the time Gross left the partnership;
(5) The jury improperly awarded punitive damages because: the record does not support an award for punitive damages; punitive damages were improperly awarded against one defendant who was not sued by Gross and owed no fiduciary duty to Kuist; and the jury rendered an unlawful quotient verdict;
(6) The compensatory damage awards were excessive;
(7) The trial court improperly awarded prejudgment interest;
(8) The trial court erred by permitting the introduction of improper and prejudicial evidence of other legal actions against one defendant, and deprived appellants of a full complement of peremptory challenges.
As to the first appeal, we find no error and affirm.
In the second appeal (case no. B195663), Kuist asserts the trial court erred in awarding costs to a former client, who was dismissed as a defendant early in the litigation after his demurrer to Kuist’s complaint was sustained without leave to amend. Kuist had filed a motion to tax costs, asserting the costs for which the client sought recovery were unwarranted and had not been paid or incurred by him. In accordance with an earlier decision in this action, we conclude reversal of the order awarding costs is required. Kuist must be permitted to depose the client, after which the trial court may reconsider the merits of the motion to tax.
FACTUAL AND PROCEDURAL BACKGROUND OF EACH APPEAL
I. The appeal in the action by Kuist and Gross against the Hodge defendants.
Respondents Gary Kuist and Jefferson Gross filed independent actions against their former law partner, appellant Richard E. Hodge (Hodge), their former law partnership, appellant Richard E. Hodge, LLP (partnership), a corporation controlled by Hodge, appellant Richard E. Hodge, Inc. (collectively, “appellants”), and John Bedrosian, a former client for whom Hodge obtained a huge settlement several years after Kuist and Gross left the partnership. Kuist and Gross claimed they were owed 11 and 10 percent, respectively, of a contingent fee of approximately $41 million Hodge obtained as a result of the Bedrosian settlement. Kuist sued appellants for breach of a written partnership agreement. He also sued appellants and Bedrosian for breach of fiduciary duty, but the claim against Bedrosian was dismissed. In his action, Gross claimed Hodge had abandoned the written partnership agreement and operated under and breached an implied oral agreement. Gross also sued Hodge for breach of fiduciary duty. Appellants denied Kuist and Gross were entitled to any portion of the Bedrosian contingency fee. They also asserted, as an affirmative defense, an offset for monies Kuist and Gross allegedly owed the partnership.
Proceedings following that dismissal are the subject of the consolidated appeal addressed in part II., post. Kuist also sued Gross, but those claims are not at issue.
Our factual recitation is taken from an independent review of the record and the evidence presented at trial viewed most favorably to the successful plaintiffs. (Whiteley v. Philip Morris, Inc. (2004) 117 Cal.App.4th 635, 642, fn. 3.) Because this is an appeal from a judgment following a trial by jury, we recite facts that support the judgment (Schwartzman v. Wilshinsky (1996) 50 Cal.App.4th 619, 626), which tend to be Gross’s and Kuist’s recitation of their discussions, agreements and experiences with appellants. These are the facts recited in the “Factual and Procedural Background” part of this opinion. When a particular issue requires a consideration of all relevant evidence presented, we recite the facts in the discussion part related to that issue.
Kuist and Hodge began practicing law together in 1986. Gross joined the firm, then known as Richard E. Hodge, Inc., as an associate in 1993, the year when Bedrosian v. Tenet Healthcare Corp. (Oct. 28, 2003, B166742) [nonpub. opn.] (Bedrosian action) was filed. The firm was retained to represent Bedrosian in that action on a 25 percent contingency fee basis, after he paid $250,000 in hourly fees. The Bedrosian action was litigated through numerous trial and appellate proceedings over the course of the next 10 years.
On June 30, 1997, Richard E. Hodge, LLP was formed according to a written partnership agreement allocating profits and losses among Hodge (79 percent), Kuist (11 percent) and Gross (10 percent). Hodge controlled the partnership just as he had its predecessor corporation. He took the position he had the authority to fire Kuist or Gross as employees or partners at any time if he “felt they weren’t performing adequately as partners, or as employees . . . .” The assets – including the Bedrosian contingency fee agreement – of Richard E. Hodge, Inc., were transferred to the new partnership. Unbeknownst to Kuist and Gross, Hodge also secretly transferred to the partnership undocumented liabilities that exceeded its assets by at least $1.4 million. Those liabilities related to debts to corporations wholly owned by Hodge. Although Hodge frequently told Gross and Kuist the partnership was losing money, he never disclosed the total amount of liabilities transferred to the partnership, or permitted Gross or Kuist access to the partnership’s financial records.
In violation of the partnership agreement, Hodge failed to discharge personal debts of at least $14 million, and allowed judgments to be entered against him for several million dollars. Hodge caused the partnership to guarantee at least one of those debts, for approximately $634,000, which the creditor attempted to enforce against the partnership. To evade their creditors, Hodge and his wife used partnership accounts to conduct personal business, including paying their mortgage and pet food bills. In addition, Hodge directed Gross and Kuist to devote over $2 million of attorney time representing Hodge, his wife and their personal business entities in actions brought by their creditors. The partnership was never reimbursed for those legal services. Without discussing the matter with his partners, Hodge also caused the partnership to pay his nonattorney wife an annual salary of $150,000, twice the combined annual salaries of Gross and Kuist.
In June 1998, Gross completed and filed an opening brief in the first appeal in the Bedrosian action. Shortly thereafter, Gross left the partnership, moved to Utah, and began working for a Utah law firm where he eventually became a partner. After leaving the partnership, Gross received a final distribution from the partnership’s profit sharing/retirement plan. However, no formal withdrawal documents were prepared by Gross or the partnership, as required by the partnership agreement, the partnership agreement was not amended to indicate Gross had withdrawn, no formal accounting was performed following Gross’s departure, and no discussions took place between Kuist and Hodge regarding the impact of Gross’s departure on the firm.
That appeal was successful and ultimately led to an award of about $163 million in favor of Bedrosian after a second trial and additional appeals.
After Gross left the partnership, Kuist assumed the “laboring oar” on the Bedrosian action during the next two years. On June 1, 2000, after he completed and filed two reply briefs on motions requesting attorney fees of approximately $3 million after Bedrosian had prevailed in a second trial, Kuist was summarily fired by Hodge. Hodge called Kuist into his office, informed him he could no longer afford to pay his salary, and terminated him effective immediately. A day or two later, Kuist proposed to Hodge that he continue to work on Hodge’s cases as an independent contractor or in other capacity and in the same office space. Hodge, however, rejected the proposal and told Kuist to leave the office by the end of the day. Kuist collected unemployment benefits for a time, withdrew his participation in the partnership’s profit-sharing plan, and began work as a sole practitioner. Kuist and Hodge never discussed dissolution, winding up, or Kuist’s withdrawal from or the financial condition of the partnership, and no formal written notice of withdrawal was prepared, as required by the partnership agreement. They also did not discuss the relinquishment of Kuist’s interest in the partnership. Although Kuist was provided K-1 statements for tax purposes, he did not receive a partnership accounting or documentation related to winding up the partnership’s affairs.
At Hodge’s insistence, Kuist took one small case with him when he left the partnership.
By the time Kuist was terminated, the firm had devoted about 5,500 hours of work to the Bedrosian action, approximately half of which were performed by Gross. Hodge had repeatedly told Kuist and Gross that the three of them would all become rich when the Bedrosian contingency fee was received.
In July 2000, without providing notice or an accounting to Kuist or Gross, Hodge transferred all the partnership’s assets to a newly formed corporation with the same name as his former law firm, Richard E. Hodge, Inc. (Hodge, Inc.). Hodge was the sole shareholder of the new corporation.
In 2003, this court issued an opinion modifying and affirming a trial court judgment in favor of Bedrosian for approximately $163 million. The modified judgment ultimately resulted in a settlement and a contingent fee of $40,817,499.54, which Hodge paid to Hodge, Inc., in March 2004. Kuist and Gross each demanded his share of the contingency fee. Appellants denied Kuist and Gross were entitled to any portion of the contingency fee, and refused both demands. This litigation ensued.
A bifurcated jury trial was conducted in July 2006. By special verdict, the jury found Kuist never withdrew from the partnership or waived his right to share in the Bedrosian contingency fee. It further found appellants breached a fiduciary duty to Kuist, and Kuist was entitled to 11 percent of the Bedrosian fee, or $4,489,924.95. The jury also found Gross was entitled to 10 percent of the Bedrosian contingency fee ($4,081,749.95), by virtue of Hodge’s breach of an implied agreement formed after the partnership agreement was abandoned. The jury found appellants failed to prove an offset as to either plaintiff, and clear and convincing evidence demonstrated appellants had engaged in intentional conduct with malice, oppression or fraud. The second phase of the trial proceeded and the jury by special verdict, awarded Kuist and Gross $1,291,517 and $645,833, respectively, in punitive damages against Hodge and Hodge, Inc.
Hodge and Hodge, Inc., challenged the punitive damages award, alleging the jury had rendered an unlawful quotient verdict. Juror declarations were submitted. The trial court concluded the verdict was not improper, and judgment was entered. Appellants moved for judgment notwithstanding the verdict and for a new trial. This appeal followed denial of those motions.
II. The appeal in the action by Kuist against Bedrosian.
Bedrosian’s demurrer to Kuist’s complaint was sustained without leave to amend, and Bedrosian was dismissed from the underlying litigation. Following his dismissal, Bedrosian filed a memorandum to recover approximately $22,000 in costs. The costs included $18,780 representing one-third the cost of a court-ordered accounting and $2,829.77 for one-third the cost of depositions taken. Kuist moved to tax costs. He claimed it was unreasonable for Bedrosian to seek costs because his interests were not implicated in the accounting, and it was Hodge who actually incurred or paid many, if not all, of the costs Bedrosian sought to recover. Kuist also noticed Bedrosian’s deposition in an effort to elicit testimony and other evidence related to items listed in the cost memorandum. Bedrosian moved to quash the deposition notice and sought sanctions in the form of attorney fees expended in bringing the motion to quash. The trial court granted the motion to quash and awarded sanctions. The motion to tax costs was held in abeyance until the case was concluded as to all defendants.
Kuist filed an interim appeal from the order imposing sanctions against him. We found the trial court erred in granting the motion to quash and in imposing sanctions, and reversed the order. (Kuist v. Bedrosian (June 27, 2006,B190718) [nonpub. opn.].) We determined Kuist was entitled to conduct Bedrosian’s deposition to ascertain the truth of Bedrosian’s assertions as to the motion to tax, namely, the disputed question of who incurred or paid the claimed expenses: “by objecting to the memorandum of costs and specifically taking issue with Bedrosian’s factual assertions, [Kuist] placed the items at issue and Bedrosian must show he actually incurred or expended the amounts sought. [Citation.] In that circumstance, limited case law finds it improper for a judge to deny a specific discovery request as a matter of law when the law actually allows such discovery.” (Id. at p. 7, citing Oak Grove School Dist. v. City Title Ins. Co. (1963) 217 Cal.App.2d 678, 710.)
Meanwhile, the trial was completed and judgment in favor of Kuist and Gross against the remaining defendants was entered in July 2006. The Hodge defendants’ post trial motions were denied in mid-September 2006, and their notice of appeal filed on September 18, 2006. On October 13, 2006, Bedrosian renewed his cost memorandum by filing a motion to “finalize costs award.” It is from the grant of that motion that Kuist appeals.
DISCUSSION
I. The appeal in the action by Kuist and Gross against the Hodge defendants.
A. The partnership agreement.
Appellants insist the judgment must be reversed and judgment entered in their favor because neither of Hodge’s former partners is entitled to any portion of the Bedrosian contingency fee received years after their departure from the firm. They claim the “ironclad” partnership agreement precludes a partner who leaves the firm from sharing in its future profits.
The pertinent terms of the June 1997 partnership agreement are:
“Term of Partnership
“1.04. The Partnership commences on June 30, 1997 and continues until dissolved by mutual agreement of the parties or terminated as provided in this Agreement. The Partnership does not automatically dissolve if or when the Partnership changes its status from a limited liability partnership to a general partnership or a professional corporation.
[¶] . . . [¶]
“Partners
“2.01. A Partner is a party to this agreement who has not been separated from the Partnership by death, retirement, withdrawal, a determination of incapacity or disability, and has not been terminated or expelled.
[¶] . . . [¶]
“Profits and Losses
“3.04. Profits of the Partnership shall be net of payments made to the Partners or for the benefit of the Partners on account of salaries, bonuses, and other employee benefits. Such salaries, bonuses, and other employee benefits shall be determined in the sole discretion of the Managing Partner. For the calendar years 1997 through 2002 and thereafter, the net Partnership profits will be divided and the net Partnership losses will be borne by the Partners in the following proportions:
“Name of Partner
Richard E. Hodge
“Share of Profits and Losses
79%
“Name of Partner
Gary G. Kuist
“Share of Profits and Losses
11%
“Name of Partner
Jefferson W. Gross
“Share of Profits and Losses
10%
“Profits of Deceased or Terminated Partner
“3.05. On the . . . withdrawal . . . of a Partner as provided in this Agreement, that Partner’s distributive share of the future Partnership profits and losses will be divided among the remaining Partners in accordance with their percentage interests as specified in Paragraph 3.0[4] of this Agreement.
The partnership agreement mistakenly refers to paragraph 3.05.
[¶] . . . [¶]
“Books
“3.10. Complete and accurate accounts of all Partnership transactions will be kept in proper books and each Partner must enter in those books a full and accurate account of all transactions conducted by that Partner on behalf of the Partnership. The books of account and other Partnership records must, at all times, be kept in the Partnership place of business and each Partner, at all times, has access to, and may inspect and copy, any of them.
[¶] . . . [¶]
“Accountings
“3.12. As soon after December 31 in each year as is reasonably practicable, a complete and accurate accounting will be made of all Partnership receipts and disbursements during the preceding calendar year. The net Partnership profits or losses during that year will be ascertained and credited or debited, as the case may be, on the Partnership books, to the respective Partners in the proportions specified in this Agreement.
“Capital Accounts
“3.13. An individual capital account will be maintained for each Partner. . . .
“Income Accounts
“3.14. An individual income account will be maintained for each Partner. . . .
[¶] . . . [¶]
“Personal Debts
“4.06. Each Partner must pay and discharge his or her own separate obligations as they become due and will protect the other Partners and the Partnership from all costs, claims, and demands relating to his or her personal obligations.
[¶] . . . [¶]
“ARTICLE 5. TERMINATION OF PARTNERSHIP
“Withdrawal of Partner
“5.01. Any Partner may withdraw from the Partnership at the end of any calendar year by giving one month [sic] written notice to the other Partners. On service of this notice:
“(1) The withdrawal automatically becomes effective at the end of the calendar year in which given, unless fifteen days (15) after receiving notice the remaining Partners, by written agreement signed by all of them, elect to dissolve the Partnership and serve written notice of their election on the withdrawing Partner . . . .
“(2) If the remaining Partners do not elect to dissolve the Partnership, the Partnership books will be closed at the end of the calendar year in the usual manner. The withdrawing Partner must then be paid the balance shown in his or her capital and income accounts . . . The net amount payable to the withdrawing Partner will not include any share in uncollected charges received by the Partnership after the effective date of withdrawal . . . .
“Expulsion of a Partner
“5.02. Any Partner may be expelled from the Partnership.
“(1) Expulsion becomes effective on the adoption by the majority vote of the remaining Partners, at a meeting held after five (5) days’ written notice has been given to the expelled Partner, of a written resolution finding that the Partner has:
“(a) Engaged in personal misconduct or a willful breach of this Agreement of such a serious nature as to render the Partner’s continued presence in the Partnership personally or professionally obnoxious or detrimental to the other Partners or the partnership;
“(b) Been expelled, suspended, or otherwise disciplined by . . . the California State Bar . . . .;
“(c) Affected adversely other Partners or the Partnership in a manner . . . which will continue to adversely affect the other partners’ and/or the Partnership’s business and professional interests;
“(d) Resigned from any professional organization under threat of disciplinary action;
“(e) Been convicted . . . of any offense punishable as a felony or involving moral turpitude.
[¶] . . . [¶]
“Continuation of Partnership
“5.05. The withdrawal . . . of any Partner does not dissolve the Partnership business, except as expressly provided in this Agreement. [A] withdrawing . . . Partner . . . has [no] claim against the Partnership or the remaining Partners except for payments expressly provided in this Agreement to be paid to them. . . .
“Dissolution
“5.06. On dissolution of the Partnership other than by reason of the withdrawal . . . of a Partner, all Partnership assets . . . will be liquidated and the proceeds distributed in the manner specified in [former] Corporations Code section 15040(b).
[¶] . . . [¶]
“Notices
“6.02. Any notices permitted or required by law or by this Agreement must be in writing and will be deemed duly given when personally delivered to the Partner to whom they are addressed or, in lieu of personal delivery, when deposited in the United States mail, first-class postage prepaid, certified, addressed to the Partner at the office of the Partnership.
“Amendments
“6.03. No amendment to this Agreement is valid unless made in writing and signed by all of the Partners.”
B. The written agreement between Gross and Hodge was abandoned and replaced by an implied partnership agreement that appellants breached.
Appellants contend the judgment in Gross’s favor must be reversed because it is based on an implied oral agreement that improperly modifies the written partnership agreement. The inaccurate predicate underlying appellants’ argument rests on the unexamined and unsubstantiated premise that the verdict in favor of Gross was grounded in an improperly amended partnership agreement. It was not. By special verdict, the jury found Gross “prove[d] by a preponderance of the evidence that the written Partnership Agreement was abandoned” [and]“that Hodge breached an implied agreement to pay Gross ten percent (10%) of the Bedrosian contingent fee.” The record supports that conclusion.
The record does not reflect the partnership agreement was merely modified. Rather, the jury found a novation. A “[n]ovation is the substitution of a new obligation for an existing one.” (Civ. Code, § 1530.) The substitution of a new obligation is by agreement and is done with the intent to extinguish the parties’ old obligation. (Civ. Code, §§ 1530, 1531; Wells Fargo Bank v. Bank of America (1995) 32 Cal.App.4th 424, 431 (Wells Fargo).) When a novation occurs, the old agreement is “ ‘entirely abrogated or extinguished,’ ” and “the rights and duties of the parties must be governed by the new agreement alone.” (Alexander v. Angel (1951) 37 Cal.2d 856, 862 (Alexander); Wells Fargo, supra, 32 Cal.App.4th at p. 431.)
A novation is governed by the general rules of contract formation. (Civ. Code, § 1532.) To satisfy the intent requirement, the parties must intend to extinguish, rather than merely modify, the original agreement. (Alexander, supra, 37 Cal.2d at p. 860; Wells Fargo, supra, 32 Cal.App.4th at p. 432 [assignment of lease constituted novation because original lease provided lessee would be “ ‘relieved of all liability accruing under this lease from and after the date of any assignment’ ”].) Consideration is usually required. (Wells Fargo, supra, 32 Cal.App.4th at p. 432; Manfre v. Sharp (1930) 210 C. 479, 481.) But no particular form of agreement is necessary. A novation may be written, oral or implied from conduct, even where the original contract was in writing. (Producers Fruit Co. v. Goddard (1925) 75 Cal.App. 737, 755; Tucker v. Schumacher (1949) 90 Cal.App.2d 71, 74; Porter Pin Co. v. Sakin (1952) 112 Cal.App.2d 760, 762 [conduct may form basis of novation without an express agreement].) Whether the necessary elements are present is a factual determination, reviewed for substantial evidence. (Wade v. Diamond A Cattle Co. (1975) 44 Cal.App.3d 453, 457; Boeken v. Philip Morris, Inc. (2005) 127 Cal.App.4th 1640, 1658 .)
Appellants argue that no evidence supports a finding the parties intended a novation. While evidence supporting novation is not overwhelming, it need not be. Sufficient evidence would permit the jury to reasonably infer an intention to substitute a new obligation for an existing one. The partnership agreement obligated Hodge, as managing partner, to discharge and oversee the partnership’s general management and administrative responsibilities. Evidence offered at trial showed that, from the moment the partnership agreement was executed, Hodge essentially ignored those obligations. As Gross describes it, Hodge treated “the partnership as his personal fiefdom without regard to the written agreement.”
Specifically, evidence indicated that, in violation of sections 3.10 through 3.14 of the partnership agreement, Hodge neglected to maintain accurate partnership books and records, failed to maintain income and capital accounts for his partners, and refused Gross access to partnership records, even after he requested it. Hodge also failed to discharge his personal debts, as required by section 4.06 of the partnership agreement, and allowed judgments totaling several million dollars to be entered against him. Bank of America attempted to enforce a judgment for $634,000 against the partnership which had guaranteed Hodge’s personal debts without his partners’ knowledge and in violation of the partnership agreement. Evidence also indicates Hodge and his wife regularly used the firm’s business accounts for personal matters. Gross testified that no partner meetings were ever conducted to discuss the partnership’s financial condition, he was specifically denied access to partnership records, and he never received or reviewed any books of account.
In addition, Hodge, who assigned all the work at the firm, directed Gross and Kuist to devote over $2 million worth of attorney time representing Hodge, his wife and their business entities against claims asserted by their creditors. The partnership was not reimbursed for those services. Hodge, again without informing his partners, also arranged for the partnership pay his wife, a nonlawyer receiving a social security disability income, an annual salary of $150,000, which exceeded the combined salaries of Kuist and Gross. Hodge also caused the partnership to enter into a sublease and pay $30,000 per month for offices housing three attorneys. However, liability for the primary lease, which belonged to an entity owned and controlled by Hodge and which he had personally guaranteed, was specifically excluded from liabilities the partnership agreed to assume. Moreover, when Gross left for Utah, Hodge unilaterally appropriated Gross’s 10 percent partnership interest for himself. This occurred, even though, if Gross had actually withdrawn from the partnership as Hodge claimed, section 3.05 of the partnership agreement required that Gross’s partnership interest be divided pro rata among the two remaining partners.
Evidence also supports Gross’s intention to abandon the partnership agreement. Although Gross testified he received a little more information after becoming a partner than he had as an associate, his relationship with the firm remained largely unchanged. Before and after the partnership agreement was executed, Gross conducted himself as and was always treated by Hodge as an employee, not as a co-equal partner. “[W]here the subsequent conduct of parties is inconsistent with and clearly contrary to provisions of the written agreement, the parties’ modification setting aside the written provisions will be implied.” (Diamond Woodworks, Inc. v. Argonaut Ins. Co. (2003) 109 Cal.App.4th 1020, 1038 (Diamond Woodworks), disapproved on other grounds by Simon v. San Paolo U.S. Holding Co., Inc. (2005) 35 Cal.4th 1159, 1182-1183.) Sufficient evidence permitted the jury to find Gross and Hodge did not conduct themselves as copartners, and Hodge never intended to be bound by the terms of the written partnership agreement.
Substantial evidence also supports the finding that a new implied partnership agreement existed. The contingency fee agreement in the Bedrosian case was viewed by all concerned as the partnership’s most significant asset. Hodge repeatedly assured Gross and Kuist that the Bedrosian case represented a tremendous opportunity for the three of them, and said they would be rich if the case “hit the jackpot.” Over the course of 11 years, the partnership invested thousands of hours of attorney time and overhead in the case, and the matter eventually paid off handsomely. Between 1993 and 1998, Gross devoted approximately 2,500 hours to the Bedrosian case, which represented about 36 percent of the total firm time spent on the matter. Even after moving to Utah, Gross continued to assist Kuist and consult on matters related to Bedrosian. Gross claimed Hodge held out the Bedrosian contingency fee as a carrot to motivate Gross and Kuist to continue defending his personal collection actions. Gross testified he devoted a substantial portion of his billable time – for which the partnership was never paid – to Hodge’s personal litigation matters in reliance on Hodge’s repeated assurances that he would receive 10 percent of any contingency fee eventually realized in the Bedrosian case. This is sufficient consideration for Hodge’s promise to pay.
Even if it were insufficient consideration, Hodge is mistaken that the implied agreement must fail for that reason. Where, as here, “parties mutually dispense[] with the subject requirements of the contract by quid pro quo conduct antithetical to the written terms of the contract . . . [n]o additional consideration [is] needed.” (Diamond Woodworks, supra, 109 Cal.App.4th at pp. 1038-1039, italics omitted.)
The evidence supports the jury’s findings that Gross proved the written partnership agreement was abandoned and was replaced by an oral implied partnership agreement by which Hodge agreed – but then refused – to pay Gross 10 percent of the Bedrosian contingent fee.
C. Kuist’s claims.
By a preponderance of evidence, the jury found that (1) appellants failed to prove “Kuist withdrew from his partnership interest in Richard E. Hodge, LLP at any time before the Bedrosian contingent fee was received;” (2) Kuist “is entitled to share in the Bedrosian contingent fee;” and (3) “[appellants] breached a fiduciary duty to Kuist by not paying him a share of the Bedrosian contingent fee.” By clear and convincing evidence, the jury also found appellants failed to prove Kuist “waived any right to share in the Bedrosian contingent fee.” Appellants insist the verdict in favor of Kuist cannot stand because undisputed evidence shows Kuist withdrew from the partnership. Even if Kuist was terminated or expelled, appellants maintain that any recovery is barred by the terms of the partnership agreement. Moreover, appellants assert their claim of breach is inconsistent with the jury’s finding that the partnership agreement was abandoned.
1. Kuist did not withdraw and was not expelled from the partnership.
The partnership agreement permits a partner to “withdraw” at the end of any calendar year by providing notice to the other partners. (Partnership Agreement, § 5.01.) Withdrawal is a voluntary act. A partner may also be involuntarily “expelled” for cause if a majority of the partners meet certain procedural requirements and adopt a resolution finding the partner engaged in specified misconduct. (Partnership Agreement, § 5.02(1)(a)-(e).) The circumstances surrounding Kuist’s departure from the firm demonstrate he was neither an expelled nor a withdrawing partner.
Appellants do not claim Kuist was involuntarily “expelled” from the partnership for cause. Rather, Hodge testified he told Kuist only that “the monetary pressures had grown so great on the firm that [he] just simply could not longer afford to pay his salary and [he] was going to have to change [their] relationship and terminate [Kuist’s] employment.”
Evidence that Kuist voluntarily withdrew from the partnership is equally weak. He testified he never intended to or took action to indicate his intent to relinquish his partnership interest, and never wrote anything akin to a “notice of withdrawal.” No year-end accounting was provided to Kuist after his alleged withdrawal in 2000, as required by the partnership agreement, nor did Hodge ever offer to buy out Kuist’s partnership interest. Rather, Hodge summarily fired Kuist in June 2000. As managing partner, Hodge was authorized to unilaterally terminate employees. However, Kuist’s sudden deprivation of his regular salary, by no choice or misdeed of his own, did not affect his right to a share of partnership property to which he was entitled as a partner whose partnership interest had not terminated. Nothing in the partnership agreement vests a partner with the right or ability to terminate another partner’s interests under the agreement “at will,” viz., without cause or notice and without compensation for his share of the business property or income. Thus, the determinative issue is whether Kuist, terminated by Hodge and thereby effectively prevented from performing further services on behalf of the partnership, retained a financial interest in partnership assets. We conclude he did.
2. The partnership dissolved but did not terminate on Kuist’s departure.
Once Kuist departed, the partnership was effectively dissolved because only Hodge remained. One cannot partner with oneself. (Corp. Code, § 16101, subd. (9) [“ ‘Partnership’ means an association of two or more persons to carry on as coowners a business for profit . . . .”].) However, a dissolved partnership is not necessarily a terminated partnership. Dissolution operates prospectively with respect to future transactions. As to past or unfinished business, the partnership continues until all pre-existing business is completed or wound up. (Corp. Code, §§ 16802, subd. (a), 16803, subd. (c); Cotten v. Perishable Air Conditioners (1941) 18 Cal.2d 575, 577; Jewel v. Boxer (1984) 156 Cal.App.3d 171, 176 (Jewel).) Once the firm’s unfinished business is completed, the dissolved partnership terminates. (Corp. Code, § 16802, subd. (a).)
To determine the partnership business that remains “unfinished,” we must look to circumstances at the time of dissolution. (Rosenfeld, Meyer & Susman v. Cohen (1983) 146 Cal.App.3d 200, 217-218 (Rosenfeld, Meyer), disapproved on other grounds, Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 521, fn. 10.) Under Rosenfeld, Meyer, the unfinished business of a law partnership is any business covered by retainer agreements between the firm and its clients for the performance of partnership services that existed at the time of dissolution. (Rosenfeld, Meyer, supra, 146 Cal.App.3d at p. 217.) Unfinished business includes matters in progress but not completed when the firm is dissolved, regardless of whether the firm was retained to handle the matters on an hourly or a contingency fee basis. (Rothman v. Dolin (1993) 20 Cal.App.4th 755, 759.) Following dissolution, a partner may take new business for himself, even if the business comes from a client of the dissolved partnership. However, the partner cannot take for himself business in existence during the term of partnership. (Rosenfeld, Meyer, supra, 146 Cal.App.3d at p. 220.) Nor may a partner dissolve a partnership in order to benefit himself without fully compensating his copartners for their share of a prospective business opportunity. In short, a business opportunity may not be appropriated by one partner to the detriment of another. (Everest Investors 8 v. McNeil Partners (2003) 114 Cal.App.4th 411, 425, rev. denied.)
Partners liquidating of the affairs of the partnership retain a duty of care and remain fiduciaries of their former partners until the winding up is complete. The duties are outlined in Corporations Code section 16404, subdivisions (b) and (c). They include the ability and obligation to maintain the partnership business as a going concern for a reasonable time in order to prosecute or defend matters, settle or close partnership business, account to the partnership for property and benefits derived in the wind up, and distribute partnership assets. (Corp. Code, §§ 16404, subds. (b)(1) & (2), 16803, subd. (c).) Absent an agreement to the contrary, partnership assets include attorney fees received by the partnership for cases in progress at dissolution. The fees must be shared among all partners in accordance with the ownership interest of each, regardless of which partner performs the services for winding up purposes. (Jewel, supra, 156 Cal.App.3d at p. 176.)
The pending Bedrosian action was unfinished business of the partnership that dissolved when Hodge ousted Kuist in 2000. (See Corp. Code, § 16801, subd. (1) [partnership is dissolved by express will to dissolve and wind up of at least half the number of partners].) The fact that the Bedrosian litigation would continue through the trial and appellate courts for several additional years before it resolved could not have been foreseen any more clearly than the circuitous route traveled during the case’s first seven years. Thus, absent a provision to the contrary in the partnership agreement, Kuist was entitled to a proportionate share of the Bedrosian contingency fee, once realized. (See Corp. Code, § 16103, subd. (a) [with limited exceptions, statutory rules govern where partnership agreement does not provide otherwise].)
3. The partnership agreement does not bar Kuist’s recovery.
We conclude that Kuist’s expectation that he would share in any fee from the Bedrosian action that would eventually materialize was not barred by the partnership agreement for two reasons. First, Kuist neither withdrew nor was expelled from the partnership. Accordingly, the provisions of the partnership agreement on which Hodge relies - the sums due and financial rights of a withdrawing or expelled partner after he leaves - do not apply. (See Partnership Agreement, §§ 5.01(2), 3.05 & 5.05.) Second, even if Kuist did withdraw, he would not be barred from recovering his share of the Bedrosian fee because the partnership agreement does not expressly refer to contingency fee cases or unfinished business. As Hodge admitted at trial, unearned contingency fees are not “uncollected charges,” as the term is employed in section 5.01(2) of the partnership agreement, i.e., sums “charged” or already “billed” to a client, but not yet collected by the partnership. A contingency fee is not a future profit as that term is used in the partnership agreement. Rather, it is a security interest in the eventual proceeds of an unfinished litigation matter pending at the time of a partner’s departure. (Isrin v. Superior Court (1965) 63 Cal.2d 153, 158.) If the parties intended to deny a withdrawing partner the right to share in pending contingency fee cases, it was necessary to precisely state that intent. Contractual waivers between fiduciaries must be clear. (Cf. Vai v. Bank of America (1961) 56 Cal.2d 329, 349, 351.) By clear and convincing evidence, the jury found Hodge failed to prove Kuist “waived any right to share in the Bedrosian contingent fee.” That conclusion finds ample support in the record.
4. The special verdict is not fatally inconsistent.
Appellants insist the judgment cannot stand because the jury’s factual findings that the partnership agreement was abandoned as to Gross and later breached as to Kuist are fundamentally at odds.
“Inconsistent verdicts are ‘ “against the law,” ’ and the proper remedy is a new trial.” (Shaw v. Hughes Aircraft Co. (2000) 83 Cal.App.4th 1336, 1344; Code Civ. Proc., § 657, subd. (6).) A factfinder may not make inconsistent factual determinations based on the same evidence. (City of San Diego v. D.R. Horton San Diego Holding Co., Inc. (2005) 126 Cal.App.4th 668, 682.) The standard of review for a special verdict is de novo. (Id. at p. 678.) Moreover, unlike the review of a general verdict, when a special verdict is involved, we do not imply findings in favor of the prevailing party. By its nature, a special verdict has “recognized pitfalls” because it requires the jury to resolve all controverted issues in a case, unlike a general verdict which implies findings on all issues in a party’s favor. Because no presumption favors upholding a special verdict, appellate courts may not attempt to reconcile inconsistent questions and choose between inconsistent answers in a special verdict. (Id. at pp. 679, 682.) On the surface, the jury’s findings that the partnership agreement was both abandoned and breached appear at odds with one another. Upon review, however, those conclusions are not fundamentally inconsistent or irreconcilable.
The jury was specifically instructed to “decide the case of each [party] as if it were a separate lawsuit,” and was advised that Gross and Kuist were each “entitled to separate consideration of their own claims.” On the one hand, with respect to Gross’s claim, the jury necessarily found Hodge and Gross mutually intended to abandon the written partnership agreement and replace it with an implied agreement. On the other hand, with respect to Kuist’s claim, the jury necessarily did not find, nor was asked to find, that Kuist and Hodge shared a similar mutual intent to abandon the written partnership agreement. Indeed, the jury found the opposite, that is, the agreement was enforceable as between Hodge and Kuist. Although both Gross and Kuist ultimately sought the same recovery – the fruits of the partnership’s unfinished business and damages for breaches of fiduciary duty – they pursued those remedies according to independent, yet consistent, contractual theories. The findings in the special verdict are therefore not inconsistent.
Moreover, even if Gross and Kuist sought recovery under the same contract, it is not necessarily inconsistent for a jury to find a contract was both breached and abandoned, so long as no party obtained a dual recovery based on those findings. (C. Norman Peterson Co. v. Container Corp. of America (1985) 172 Cal.App.3d 628, 642-643.) The cases on which appellants rely, in which courts found theories of breach and abandonment incompatible, primarily involve situations where the court is concerned with preventing a plaintiff from obtaining double damages by recovering restitution through rescission and additional damages by alleging breach of contract. (See, e.g., Paularena v. Superior Court (1965) 231 Cal.App.2d 906, 915 [same plaintiff may not recover damages on the theory the contract exists and also on the theory the contract has ended]; Akin v. Certain Underwriters at Lloyd’s London (2006) 140 Cal.App.4th 291, 298 [in insurance action, action for breach of contract entitles insured to payment of policy benefits, while in action for rescission, parties are treated as though policy never existed and plaintiff may recover only the premiums he paid and whatever else is necessary to restore him to status quo ante].) The special verdict did not produce a double recovery. Kuist and Gross sought and recovered only the partnership interest each claimed he lost by virtue of Hodge’s conduct.
Finally, to the extent the wording of the special verdict may have confused the jury, the doctrine of invited error requires that its findings must stand. Under that doctrine, a party whose conduct induces the commission of error is estopped from asserting it as a ground for reversal. Similarly, an appellant may waive his right to attack the error by expressly or impliedly agreeing at trial to the ruling or procedure with which he takes issue on appeal. (Mesecher v. County of San Diego (1992) 9 Cal.App.4th 1677, 1685-1686.) The record indicates appellants did not object or propose any changes to the special verdict form. “It is incumbent upon counsel to propose a special verdict that does not mislead a jury into bringing in an improper special verdict.” (Myers Building Industries, Ltd. v. Interface Technology, Inc. (1993) 13 Cal.App.4th 949, 960, fn. 8; see also Electronic Equipment Express, Inc. v. Donald H. Seiler & Co. (1981) 122 Cal.App.3d 834, 857-858 [“where the record is devoid of any showing that appellants objected to the special verdict questions, any inherent error therein is waived”].)
D. The trial court’s alleged errors regarding California partnership law.
1. RUPA’s buyout rule does not apply to the circumstances of Gross’s departure.
The unfinished business rule provides that a contingent fee case pending at the time of a law partnership’s dissolution constitutes “unfinished business” of the partnership. If the contingent fee is later realized, the partners of the dissolved partnership have a property interest in the fee equal to their respective interests in the defunct firm. The rule applies even though the work necessary to realize the contingent fee is performed only by one or a few members of the former firm, although counsel is substituted and a new compensation agreement is executed postdissolution, and irrespective of the nature of the compensation agreement with the client. (Rosenfeld, Meyer, supra, 146 Cal.App.3d at pp. 216-220; see also Jewel, supra, 156 Cal.App.3d at pp. 174, 178; Fox v. Abrams (1985) 163 Cal.App.3d 610, 614-617; Rothman v. Dolin, supra, 20 Cal.App.4th at pp. 757-759; Grossman v. Davis (1994) 28 Cal.App.4th 1833, 1835.) Appellants insist that, as to a partnership like this one, that did not dissolve after Gross’s dissociation, the rule was impliedly revoked or abrogated by RUPA.
Gross dissociated from the partnership when he moved to Utah. Appellants insist that, under RUPA, a dissociating partner of a firm that does not dissolve upon his departure is entitled only to a buyout of his partnership interest when he leaves, based on the market value of his interest at the time of departure, as though the partnership had dissolved and its business had wound up. (Corp. Code, §§ 16701, subds. (a) & (b), 16807.) Appellants’ argument is premised on an Official Comment to RUPA, which states: “after a partner’s dissociation, the partner’s interest in the partnership must be purchased pursuant to the buyout rules . . . unless there is a dissolution and a winding up of the partnership business . . . . Thus, a partner’s dissociation will always result in either a buyout . . . or a dissolution and winding up of the business.” (6 West’s U. Laws Ann., Part 1 (2001), U. Partnership Act (1997) & Commentaries, com. 1 to § 603, p. 172, emphasis omitted.) Thus, appellants insist RUPA impliedly abrogated the unfinished business rule in cases where the partnership continues as an ongoing concern, by providing that a dissociating partner has no remedy other than a buyout of his interest when he leaves.
Appellants’ focus on rules applicable to partners dissociating from ongoing partnerships is misplaced. Gross could not have dissociated from an ongoing partnership because, once he left, his implied partnership with Hodge, which existed independently of Hodge’s partnership with Kuist, was effectively dissolved. The RUPA provisions concerning “dissociated partners” are designed to allow remaining partners to carry on after a partner leaves. However, they apply only when the affected partner leaves behind a viable partnership comprised of at least two co-owners. Gross could not dissociate from a continuing partnership because the implied partnership ceased to exist without him. For good reason, RUPA does not address how one partner can carry on a partnership business. By definition, a partnership cannot exist absent the “association of two or more persons to carry on as coowners a business for profit . . . .” (Corp. Code, §§ 16101, subd. (9), 16202.) RUPA’s buyout rule does not apply. Rather, where a partner’s dissociation necessarily effectuates a dissolution of the partnership, the partnership is wound up, the unfinished business is completed, and the partners share in the profits after the winding up is complete. (See Corp. Code, § 16701.5, subd. (a) [“Section 16701 shall not apply to any dissociation that occurs within 90 days prior to a dissolution under Section 16801” (which, in turn, provides that dissolution and wind up is required in a partnership at will if at least half of the partners express a will to dissolve)].) In such a case, as here, the partnership is wound up, the unfinished business is completed and the partners share in the proceeds after the wind up is complete. (Corp. Code, § 16807, subd. (a); see also 6 West’s U. Laws Ann., supra, at p. 172 [“after a partner’s dissociation, the partner’s interest . . . must be purchased pursuant to the buyout rules . . . unless there is a dissolution and a winding up of the partnership business” (italics added)].)
The discussion regarding the inapplicability to Gross’s claims of RUPA obviates the need to address Hodge’s contention that the court erred by giving an “unfinished business” instruction because the only remedy [for Gross] was a buyout.
2. Gross’s claims are not time-barred.
Appellants’ argument that Gross’s action is time-barred is premised on the mistaken assumption that his claims are governed by RUPA, and the statute of limitations began to run when he would have been entitled to a buyout in 1998.
RUPA does not govern the circumstances of Gross’s departure. The Bedrosian contingency fee, which was no more than the attorneys’ security interest in the proceeds of the Bedrosian litigation (Isrin v. Superior Court, supra, 63 Cal.2d at pp. 158-159), was not earned until 2003 or paid until March 2004. This action for breach of an implied agreement to pay Gross 10 percent of that fee was timely filed in late 2003.
3. The jury was properly instructed as to the “unfinished business” rule.
According to instruction No. 20, the jury was told:
“If a contingent fee is realized after a partner has left the partnership, he may have a financial interest in the contingent fee as the unfinished business of the partnership. Unfinished business is the work in process of the partnership at the time of the partner’s departure.
“The language of the written partnership agreement in this case does not contain express reference to the right of a former partner to unfinished business. The jury must determine whether a former partner retained a financial interest in the partnership after he departed the partnership, and, if so, the percentage of his respective interest in any unfinished business of the partnership or other payment under the agreement.”
Appellants insists that giving instruction No. 20 was erroneous because (1) it is inconsistent with pleadings filed by Gross and Kuist stating that neither partner withdrew from the partnership and the partnership was never dissolved; and (2) the written partnership agreement does address unfinished business. Neither assertion has merit.
First, our concern is not with the pleadings but with the facts established at trial. As to the implied partnership agreement between Hodge and Gross, the partnership ceased to exist after Gross left for Utah, and only the winding up of pending business remained. The Bedrosian contingency fee case was unfinished business of the implied partnership. The jury concluded, and we agree, that Kuist never voluntarily withdrew, and no viable partnership remained under the partnership agreement after he was fired and prevented from performing further partnership services. When that event occurred, the partnership dissolved, and Hodge was required to wind up its work.
Second, appellants assert the instruction was erroneous because the partnership agreement addresses unfinished business and provides that a departing partner has no right to future profits. As to Gross, this argument is irrelevant because the written partnership agreement was abandoned. As to Kuist, we do not agree that sections 3.05, 5.01 and 5.05 of the partnership agreement clearly address unfinished business. Moreover, not only do those sections fail to expressly reference a departed partner’s right to unfinished business, they do not apply because Kuist was not expelled from the partnership and did not die, withdraw, become incapacitated, or retire. For this reason, appellants’ reliance on Heller v. Pillsbury Madison & Sutro (1996) 50 Cal.App.4th 1367, is misplaced. That case involved an appeal from the dismissal of an expelled partner’s action for a formal accounting under the Uniform Partnership Act (former Corp. Code, § 15022). The law firm’s partnership agreement did not provide for an accounting. Instead, it detailed an expelled partner’s compensation rights, stating an “ ‘expelled . . . [p]artner shall have no right to any payment of any kind or nature whatsoever,’ ” beyond his agreed capital contribution and 10 percent of the amount distributed to him in the year preceding his expulsion. (Heller v. Pillsbury Madison & Sutro, supra, 50 Cal.App.4th at p. 1391, fn. 13.) The trial court dismissed the accounting action. The appellate court affirmed the dismissal on the ground the parties expressly contracted for terms not set forth in the Uniform Partnership Act. That element is lacking here. The agreement at issue precludes departing partners from recovering future profits in future business opportunities. It does not specifically address the partners’ rights with respect to pending unfinished business or contingency fees. The court consequently did not err in instructing the jury and permitting the jury to decide whether a departing partner retained a financial interest in pending matters after he left and, if so, the amount of that interest.
Appellants point to section 2.01 of the partnership agreement, which defines a “partner” as a party to the agreement who has not been “terminated,” to support their claim Kuist withdrew. But nowhere does the partnership agreement give a partner the ability or right to deprive another partner of his ownership interest at will or without cause. Kuist was terminated as an employee. That termination did not affect his ownership interest in the partnership’s assets at the time he was forced out.
The conclusion that RUPA’s buyout provision does not apply to the circumstances of Gross’s departure makes it unnecessary to resolve appellants’ claim that the court erred in excluding evidence regarding valuation of the Bedrosian action at the time Gross left.
E. Punitive damages.
1. The record supports the punitive damages awards.
Appellants insist their conduct did not involve “oppression, fraud, or malice,” and falls short of meeting the clear and convincing evidentiary standard necessary to sustain an award of punitive damages. According to appellants, Hodge placed the contested portion of the Bedrosian fee, shortly after receiving it, in trust pending the outcome of this litigation; Gross’s and Kuist’s claims are predicated on Hodge’s conduct after receiving the Bedrosian fee in March 2004 and the filing of this action, which is protected by the litigation privilege; and courts typically refuse to grant punitive damages in business disputes which sound in contract.
For the first time in their reply brief, appellants take issue with the amount of the punitive damages award. Issues raised for the first time in a reply brief are not considered. (Shade Foods, Inc. v. Innovative Products Sales & Marketing, Inc. (2000) 78 Cal.App.4th 847, 894, fn. 10; Reichardt v. Hoffman (1997) 52 Cal.App.4th 754, 764.)
Punitive damages are available “where it is proven by clear and convincing evidence that the defendant has been guilty of oppression, fraud, or malice.” (Civ. Code, § 3294, subd. (a).) A punitive damages award must be upheld if supported by substantial evidence. “As in other cases involving the issue of substantial evidence, we are bound to ‘consider the evidence in the light most favorable to the prevailing party, giving him the benefit of every reasonable inference, and resolving conflicts in support of the judgment.’ [Citation.] But since the [trier of fact’s] findings were subject to a heightened burden of proof, we must review the record in support of these findings in light of that burden. In other words, we must inquire whether the record contains ‘substantial evidence to support a determination by clear and convincing evidence . . . .’ [Citation.]” (Shade Foods, Inc. v. Innovative Products Sales & Marketing, Inc., supra, 78 Cal.App.4th at p. 891, italics omitted.) We conclude it does.
First, appellants assert the jury lacked evidence to award punitive damages because Hodge acted in good faith by promptly placing the disputed portion of the Bedrosian fee in a trust account pending the outcome of this action. In fact, the existence of the litigation reserve account – which Hodge did not establish until nine months after receiving the Bedrosian fee – was not revealed to the jury when it was asked to decide whether appellants had engaged in conduct tantamount to oppression, fraud or malice. The jury did not learn of the existence of the trust account until after it decided that punitive damages were in order. Appellants may not assert that the jury failed to consider evidence they chose not to present to nullify its conclusion.
Second, appellants argue that the litigation privilege bars an award of punitive damages. They assert the sole basis for the claims is conduct in which they engaged after Hodge received, but refused to distribute, the Bedrosian fee. This assertion rests principally on Gross’s and Kuist’s counsel’s argument that Hodge had created “a lot of fancy legal arguments and a lot of litigation,” and “we have been at this for almost three years. You can imagine the time and the effort and the energy.” Again, appellants rely on conduct and information presented to the jury only during the second phase of trial. Thus, the statements could not have influenced the jury’s decision as to whether appellants’ conduct was sufficiently repugnant to warrant consideration of punitive damages.
Moreover, appellants’ failure to object to the attorneys’ statements when made constitutes a waiver of the issue on appeal. (Children’s Hospital & Medical Center v. Bontá (2002) 97 Cal.App.4th 740, 776-777.) A party ordinarily cannot complain on appeal about an attorney’s misconduct at trial unless the party timely objected to the misconduct and requested a jury admonishment. (Whitfield v. Roth (1974) 10 Cal.3d 874, 891-892.) These requirements allow the trial court an opportunity to remedy the misconduct and avoid the necessity of a retrial. A timely objection may prevent further misconduct, and an admonition to the jury to disregard the offending matter may eliminate the potential prejudice. (Cassim v. Allstate Ins. Co. (2004) 33 Cal.4th 780, 794-795; Horn v. Atchinson T. & S. F. Ry. Co. (1964) 61 Cal.2d 602, 610.) The failure to timely object and request an admonition waives a claim of error unless the misconduct was so prejudicial that it could not be cured by an admonition (People v. Cunningham (2001) 25 Cal.4th 926, 1000-1001; Whitfield v. Roth, supra, 10 Cal.3d at p. 892), or unless an objection or request for admonition would have been futile (People v. Hill (1998) 17 Cal.4th 800, 820). Attorney misconduct is incurable only in extreme cases. (Horn v. Atchinson T. & S. F. Ry. Co., supra, at p. 610; see, e.g., Simmons v. Southern Pac. Transportation Co. (1976) 62 Cal.App.3d 341, 351-355.) Appellants did not object to counsel’s statements during closing argument, nor do they claim an objection or request for admonition would have been futile. Certainly, the statements are not so egregious or persistent to support the conclusion that an admonition would have been ineffective or the effect of misconduct incurable. We therefore conclude appellants’ failure to object and request an admonition precludes our consideration of the point on appeal.
The record amply supports the jury’s findings and trial court’s conclusion that appellants engaged in conduct warranting imposition of punitive damages. Specifically, in denying appellants’ motion for judgment notwithstanding the verdict, the trial court noted that substantial evidence permitted the jury to find “the partnership was never concluded properly,” and Hodge “motivated by . . . any one of the factors that are taken into consideration for punitive damages, took advantage of the situation for his own benefit,” in “a conscious, deliberative manner.”
2. The punitive damages awards in favor of Gross and Kuist against Richard E. Hodge, Inc., were proper.
The jury awarded Gross approximately $646,000 in punitive damages against Hodge, Inc. Appellants insist the award must be set aside because Gross never sued Hodge, Inc. They also argue that a $1.3 million punitive damages award in favor of Kuist and against Hodge, Inc., is similarly infirm because the corporation Hodge formed after dissolving the partnership never owed Kuist a fiduciary duty.
We reject appellants’ assertion that a punitive damages award in Gross’s favor was improper. At trial, Hodge, Inc., stipulated that all three defendants would be identified in the jury instructions as “Hodge.” Thus, when the jury was instructed on the elements of each claim, the instructions encompassed all defendants. The stipulation carried through to the special verdict form to enable the jury to find that Hodge, Inc., breached a fiduciary duty as to both Gross and Kuist and engaged in conduct warranting punitive damages. Because of findings against the three defendants in the first phase of trial, appellants insisted the special verdict also identify each defendant as a party against whom a punitive damage award could be imposed. In closing argument, appellants urged the jury to consider each defendant separately when deciding if punitive damages were in order and, if so, the amount of damages. Having acquiesced in the inclusion of Hodge, Inc. as a party subject to liability for punitive damages as to Gross, appellants cannot now complain and seek reversal on that basis. Appellants also did not object to the special verdict form. As a result, they must live with it. (See Jensen v. BMW of North America, Inc. (1995) 35 Cal.App.4th 112, 131, [objection to a special verdict form must be made before the jury is discharged or it is waived].) The doctrine of invited error precludes a party from seeking reversal on appeal based on an alleged error induced by his own conduct. (Norgart v. Upjohn Co. (1999) 21 Cal.4th 383, 403; see also Fransen v. Washington (1964) 229 Cal.App.2d 570, 574 [“If the form of a verdict is defective the complaining party must object in the lower court, since the failure to so object results in a waiver of any defect of form]”.)
We also reject appellants’ assertion that the record cannot support an award of punitive damages in favor of Kuist and against Hodge, Inc. The assertion is predicated on our conclusion in a previous decision in a related appeal, Kuist v. Bedrosian, supra, B187848, that Bedrosian owed no fiduciary duty to Kuist, and could not aid and abet Hodge to create such a duty. Here, in contrast to the circumstances of that action, Hodge, Inc., is not a third party. Ample evidence reveals that, under the sole control of Hodge, the three defendants were one in the same, and Hodge simply transferred the partnership’s assets, which he had treated as his own and which included the Bedrosian contingency fee contract, to the new corporation. Under the circumstances, liability may be imposed on a theory of alter ego. (Baize v. Eastridge Companies, LLC (2006) 142 Cal.App.4th 293, 302 [corporation may be liable for debts of shareholders, and vice versa, when there is an identity between the two, coupled with an unjust use of the corporate form]; Kohn v. Kohn (1950) 95 Cal.App.2d 708, 719.) Ample evidence therefore permitted the jury to find Hodge used both entity defendants as “instrumentalit[ies] for his intended misappropriation.”
3. There is no quotient verdict.
Appellants contend the jury engaged in misconduct by returning a “quotient verdict” as to punitive damages. They argue that, when the jurors failed to reach an initial agreement on the amount of punitive damages, they took the average of their individual views as the jury’s verdict and accepted that figure without further deliberation as to its fairness. We conclude otherwise.
A chance or quotient verdict occurs when jurors agree to average their views. (Fredrics v. Paige (1994) 29 Cal.App.4th 1642, 1646; Chronakis v. Windsor (1993) 14 Cal.App.4th 1058, 1064.) A quotient verdict is illegal and subject to impeachment by juror declarations. (Code Civ. Proc., § 657, subd. (2).) A quotient verdict is invalid if the jury agrees in advance to accept a quotient or an average without further deliberations or consideration of its fairness. (Bardessono v. Michels (1970) 3 Cal.3d 780, 795; Lara v. Nevitt (2004) 123 Cal.App.4th 454, 462.) But, if the jury reaches a verdict by adding up the damages favored by each juror and dividing that sum by 12, and if it does not agree to be bound by the figure, it is not a quotient verdict. (Iwekaogwu v. City of Los Angeles (1999) 75 Cal.App.4th 803, 819 [it is not misconduct for jurors to use an average as a basis for further consideration and deliberation].) Absent a prior agreement to be bound, the deliberative process is not subverted and no jury misconduct occurs.
Appellants’ motion for new trial, which asserted the jury reached a quotient verdict was supported by statements in declarations of five jurors: According to jury foreperson Peter Gin:
“[d]uring the deliberations . . ., each juror suggested an amount for the punitive damages that he or she thought was appropriate for Kuist and Gross, respectively. The amounts awarded for Kuist varied from $0 to $10 million with $3 million being the most popular choice. I attempted several times to convince the jurors to agree on one consensus value for each plaintiff. Ultimately, the jurors decided the mean value of our numbers was sufficiently close to the mode of $3 million and we then calculated the average for Kuist, and divided by two to calculate the damages as to Richard E. Hodge and Richard E. Hodge, Inc. The jurors awarded Gross approximately half of what was awarded to Kuist.”
Four additional substantively identical juror declarations stated that, after agreeing to and following the process described by Gin, the jurors “had no further vote or deliberations.”
In the declaration Gin signed, he deleted the words “we had no further vote or discussions” from the draft declaration prepared for him by appellants’ counsel.
In opposition to appellants’ motion, Kuist and Gross submitted declarations from three other regular jurors and an alternate juror who had observed deliberations. The declarants confirmed that, after the jury was unable to reach consensus on the amount of punitive damages, it agreed to add the jurors’ figures and divide by 12. However, according to two juror declarations, after an average was calculated, juror Shahadi asked if everyone was satisfied with the figure and suggested or called for a vote. Gin either ignored the juror’s suggestion, or told the group it need not vote on the figure. Shahadi asked the jurors to speak up if anyone had any problem with the figure. No juror said anything, and the jury accepted the figure. An alternate juror, Vincenza Blank, declared that, after the average was calculated, he observed “a short discussion among the jurors and all expressed agreement and satisfaction that the method used was the only way to arrive at a figure and that both the approach and the final numbers were fair.” Blank also “distinctly recall[ed] that . . . one of the individuals who had initially voted not to award punitive damages, expressed agreement that the award had been fairly reached and that he concurred with the verdict.”
Appellants insist the elements of a quotient verdict are satisfied because, after the jury calculated the average, further discussion on the subject was cursory at best, and “hardly a ‘vote’ or consideration of the fairness of the amount as is required to avoid a finding of a quotient verdict.” The trial court disagreed. In denying the motion for new trial, the court noted it had considered all the declarations and concluded the jurors “summarized their views and differences, and they divided by 12 apparently. But then they affirmed their conclusion by going around the room and voting on it. And [the court] think[s] that’s the critical point . . . .”
“Just as with live testimony, it [is] for the trial court to consider the [juror] declarations and counterdeclarations, assess credibility, and determine the facts.” (Fredrics v. Paige, supra, 29 Cal.App.4th at p. 1647.) Where a substantial conflict in the facts is shown, the trial court’s determination of the controverted facts will not be disturbed on appeal. (Ibid.) We will not interfere with the trial court’s ruling on a motion for new trial absent a manifest and unmistakable abuse of discretion. (Ibid.) In this case, substantial evidence supports the trial court’s conclusion, and we will not disturb it. Appellants have not established a quotient verdict.
F. The damages awarded were not excessive.
1. Compensatory damages.
Appellants insist reversal is mandated because the compensatory damage awards to Kuist and Gross exceed the proper measure for breach of contract damages, and give Hodge’s former partners an “unearned bonanza” because the partnership agreement provides them with interests in the firm’s net profits, not straight revenue or fees. They also contend it was Gross’s and Kuist’s burden to prove the amount of profit, if any, to which each was entitled. Appellants are mistaken.
The unfinished business rule applies in this case. The rule provides that the partner who completes a dissolved firm’s unfinished business is entitled to reimbursement for “reasonable overhead expenses (excluding partners’ salaries) attributable to the production of postdissolution partnership income.” (Jewel, supra, 156 Cal.App.3d at p. 180.)
Appellants would be entitled to a reasonable offset against the former partners’ share of the Bedrosian fee, if supported by the evidence. As a general rule, while the non breaching party is entitled to recover the benefit of his bargain as damages, or the amount he would have received had the contract been performed (Civ. Code, § 3300), the party cannot, except where expressly provided by statute, recover a greater amount in damages for breach of an obligation than he could have obtained by full performance on both sides. (Civ. Code, § 3358; Brandon & Tibbs v. George Kevorkian Accountancy Corp. (1990) 226 Cal.App.3d 442, 468; see also Wickman v. Opper (1961) 188 Cal.App.2d 129, 133 [“[An injured party] is entitled to the benefit of his bargain, but may not recover more than he would have received by full performance. [Citation.] As a consequence, he may not recover payments or expenses which he would have made or incurred if the contract had been performed”].) Gross and Kuist do not dispute appellants’ entitlement to reasonable offsets.
But the burden to prove offset rests with appellants. (See Textron Financial Corp. v. National Union Fire Ins. Co. (2004) 118 Cal.App.4th 1061, 1077; Mashon v. Haddock (1961) 190 Cal.App.2d 151, 166 [liquidating member of partnership acts as trustee for other partner and burden to establish accounts and to show that expenditures made were proper disbursements is on trustee].) The jury specifically found appellants failed to meet this burden. The record supports its conclusion. Appellants failed to offer direct evidence of overhead expenses incurred in winding up the partnership or in the Bedrosian action after Gross’s and Kuist’s departures. The only indirect evidence presented was that Hodge spent $60,000 on an incomplete court-ordered accounting. Appellants offered evidence to establish the partnership operated at a loss from 1997-2000. However, substantial contrary evidence was introduced showing that those records were false and that Hodge improperly charged the partnership for thousands, if not millions, of dollars for personal expenses, an exorbitant salary for his wife, and unsubstantiated debt charges and legal work that Kuist and Gross performed on firm time on Hodge’s personal matters.
In sum, appellants endeavored to paint a portrait of a law firm in which they acted above board, using partnership accounts only to repay debts owed to Hodge on millions of dollars in loans he made to a partnership that consistently operated at a loss. But Kuist and Gross introduced contrary evidence – which the jury clearly credited – showing the partnership was profitable. Substantial evidence supports the jury’s conclusion. While appellants are correct that, under the terms of the partnership agreement, Kuist was entitled only to 11 percent of any net profit the firm realized from the Bedrosian action (Partnership Agreement, § 3.04), they were required to prove any claimed offsets. Appellants failed to satisfy this burden. (See Rosenfeld, Meyer & Susman v. Cohen (1987) 191 Cal.App.3d 1035, 1051-1052 [former partners entitled to use gross income to calculate their share of fee income received postdissolution for projects negotiated by firm predissolution where it was found that remaining partners deliberately established methods of accounting designed to make it difficult to differentiate between pre and postdissolution fees].) In any event, appellants’ “net profit” argument does not apply to Gross, for whom the implied partnership agreement simply provides for a straight 10 percent cut of the Bedrosian fee.
We also reject appellants’ assertion they did not waive the opportunity to object to the form of the special verdict placing the burden of proof on this point on them by failing to raise it below. “If the form of a verdict is defective the complaining party must object in the lower court, since the failure to so object results in a waiver of any defect of form.” (Fransen v. Washington, supra, 229 Cal.App.2d at p. 574; accord Stanford v. Richmond Chase Co. (1954) 43 Cal.2d 287, 295.) Appellants did not object to the special verdict form, nor raise the issue in a motion for new trial. Now they are stuck with it. (Jensen v. BMW of North America, Inc., supra, 35 Cal.App.4th at p. 131.)
2. Prejudgment interest was properly awarded.
Appellants claim it was error to award prejudgment interest from March 1, 2004, when Hodge received but did not distribute the Bedrosian contingency fee, to July 25, 2006, when judgment was entered. They insist the amount of liability was not known or knowable when Gross’s and Kuist’s claims were made. The trial court correctly found otherwise.
Civil Code section 3287, subdivision (a) governs cases involving liquidated damages. It requires a court to “award prejudgment interest upon request, from the first day there exists both a breach and a liquidated claim.” (North Oakland Medical Clinic v. Rogers (1998) 65 Cal.App.4th 824, 828.) Subdivision (b) of Civil Code section 3287, concerning unliquidated contract damages claims, gives trial courts discretion to award prejudgment interest from the date of the filing of suit or a later date. (Id. at pp. 828-829.) Prejudgment interest is “a proper measure of the loss of use” of money. (Munson v. Linnick (1967) 255 Cal.App.2d 589, 596, overruled on other grounds in Babb v. Superior Court (1971) 3 Cal.3d 841, 842.) A party is entitled to “damages certain, or capable of being made certain by calculation, and the right to recover which is vested in [the party] upon a particular day, is entitled also to recover interest thereon from that day . . . .” (Civ. Code, § 3287, subd. (a); see American Federation of Labor v. Unemployment Ins. Appeals Bd. (1996) 13 Cal.4th 1017, 1029-1043.) Even unresolved disputes as to setoffs or counterclaims, or slight differences between the amount of money claimed and the amount awarded, do not preclude an award of prejudgment interest. (General Insurance Co. v. Commerce Hyatt House (1970) 5 Cal.App.3d 460, 474-475.)
The trial court did not err by awarding prejudgment interest. It found “the amount . . . owing was ascertainable at the time of the filing, and it was clear that . . . it was the 40 million 800-odd-thousand dollars.” The fact that Gross and Kuist had not “specifically alleged [the] amount doesn’t change the circumstances.” Nor does the fact “[t]hat it was not clear what the offsets were . . . change the circumstances. In fact, it never became clear what the offsets, if any, were.” Accordingly, the trial court found appellants’ assertion that their offset claim rendered the damages unascertainable was “a non issue at the beginning” and, indeed, “turned out to be a non issue as established.” That conclusion was correct. Generally speaking, “where the amount of a claim under a contract is certain and liquidated, or is ascertainable but is reduced by reason of the existence of an unliquidated setoff . . ., interest is properly allowed on the balance found to be due from the time it became due.” (Muller v. Barnes (1956) 139 Cal.App.2d 847, 850 [internal quotations omitted]; see also General Insurance Co. v. Commerce Hyatt House, supra, 5 Cal.App.3d at pp. 474-475 [unresolved disputes as to setoffs or counterclaims do not preclude an award of prejudgment interest].) Moreover, where a defendant has the means and information to calculate the amount of an offset reasonably available, the amount is not uncertain. (See Cassinos v. Union Oil Co. (1993) 14 Cal.App.4th 1770, 1789; Stein v. Southern Cal. Edison Co. (1992) 7 Cal.App.4th 565, 573 [prejudgment interest is authorized if damages can be resolved by account].)
E. The court did not err by admitting evidence of other actions against Hodge.
Appellants urge reversal and grant of a new trial on the ground the trial court committed error by permitting Kuist and Gross to make repeated “prejudicial and irrelevant” references to other lawsuits and judgments against Hodge arousing out of a failed redevelopment project near Lake Tahoe. We find no error. The limited information admitted at trial, while potentially prejudicial, was not irrelevant to matters at issue. Appellants have not met their burden of showing that admission of the disputed evidence constituted “a clear case of abuse” resulting in a manifest “miscarriage of justice.” (Blank v. Kirwan (1985) 39 Cal.3d 311, 331.)
First, the trial court strictly limited the presentation of evidence of other lawsuits. Gross and Kuist were not permitted to explore details of the lawsuits, but only to show the nature of the cases and the amount of time they devoted to defending cases for which Hodge never reimbursed the partnership. The evidence was relevant to Gross’s and Kuist’s rebuttal of appellants’ assertions that the partnership lost money every year, and that Hodge alone bore those losses. The evidence showed that, at Hodge’s direction, Gross and Kuist were required to devote about $2 million worth of time defending creditor claims against Hodge, which Hodge failed to reflect in partnership records. In addition, evidence showed large amounts in the partnership’s accounting allegedly attributable to partnership business were, in fact, the personal expenses of Hodge and his wife, funneled through the firm’s accounts in order to avoid creditors. Nor does the record support Hodge’s claim that Kuist and Gross, as the attorneys who had represented him, his wife and their entities, violated their ethical duties by revealing confidential information. The record reveals that the limited information presented to the jury regarding the attorneys’ representation was a matter of public record in the creditor lawsuits.
Second, appellants have not shown they were unduly prejudiced by the court’s admission of evidence of other actions involving Hodge. Relevant evidence is not unduly prejudicial because its admission might hurt a party’s case. (Smalley v. Baty (2005) 128 Cal.App.4th 977, 985.) To meet its burden of demonstrating undue prejudice, the party objecting to otherwise relevant evidence must show it is “ ‘so prejudicial as to render the defendant’s trial fundamentally unfair.’ ” (People v. Jablonski (2006) 37 Cal.4th 774, 805.) The trial court did not err in admitting evidence of other actions or judgments against Hodge.
Appellants’ remaining contentions of error were considered and found without merit. Appellants cannot complain they were deprived of a fair trial by having been denied eight peremptory challenges when they failed to exhaust the six challenges they did receive. “ ‘[E]xhaustion of peremptory challenges is a “condition precedent” to an appeal based on the composition of a jury.’ ” (Burns v. 20th Century Ins. Co. (1992) 9 Cal.App.4th 1666, 1672-1673.) Appellants’ reliance on People v. Box (1984) 152 Cal.App.3d 461 (Box) is misplaced. In that murder case, the defendant claimed he was entitled to 26 challenges, and was given only 10 (of which he exercised 9). He did not use his last challenge because he needed at least 10 more to make a difference, and feared he might be stuck with a worse jury if he exercised his last challenge than by settling for the jury as currently constituted. (Id. at p. 465.)
II. The appeal in the action by Kuist versus Bedrosian.
This action illustrates the danger of progressive appeals and multiple intermediate rulings. As noted in an earlier opinion, appeals filed before entry of final judgment in the main action present the danger of running afoul of the one final judgment rule “ ‘designed to prevent oppressive and costly piecemeal disposition and multiple appeals in a single action . . . .’ ” (Kuist v. Bedrosian, supra, B190718 at p. 4, citing Tinsley v. Palo Alto Unified School Dist. (1979) 91 Cal.App.3d 871, 880.) In that opinion, we reversed the trial court’s order and remanded the matter to afford Kuist an opportunity to conduct discovery, in order to furnish the trial court an adequate evidentiary basis to rule on the motion to tax. However, while the merits of that appeal were considered, the matter proceeded in the trial court. It ruled on Kuist’s motion to tax and awarded costs to Bedrosian based on the same declarations and evidence initially presented. The trial court abused its discretion in ruling on the motion to tax and resolving evidentiary conflicts without permitting Kuist to conduct Bedrosian’s deposition and document production.
We reject Kuist’s assertion the trial court lacked jurisdiction to consider the cost bill. The memorandum of costs was submitted timely. Notice of entry of Bedrosian’s dismissal was given on November 14, 2005, and his cost bill was submitted four days later. It was the trial court that held that motion in abeyance until final resolution of the action as to all defendants. Bedrosian was not required to file a new memorandum of costs upon completion of the action as to the remaining parties. The judgment as against him remained unchanged. Rather, he simply resubmitted the same materials to return the court’s attention to a collateral matter over which it retained jurisdiction.
The tenuous nature of the evidence on which Bedrosian relies is illustrated by conflicting factual assertions in this action and the related action that is the subject of the consolidated appeal. In this memorandum of costs, Bedrosian claims he paid or incurred approximately one-third, or about $19,000, of the $60,000 cost of the court-ordered accounting of the partnership prepared in the action by Kuist and Gross against the Hodge defendants. However, in that action, the Hodge defendants claimed they incurred the cost of and sought offset for the entire $60,000 fee for the accounting. Both assertions cannot be true.
The order awarding costs must be reversed. The matter will be remanded with instructions to the trial court to permit Kuist to conduct Bedrosian’s deposition on issues raised in the motion to tax, and to reconsider the merits of that motion once discovery is complete.
DISPOSITION
The judgment in the action by Gross and Kuist against Richard E. Hodge, Richard E. Hodge, Inc., and Richard E. Hodge, LLP is affirmed. Kuist and Gross are to recover their costs of appeal.
The order awarding costs appealed from in the action by Kuist against Bedrosian is reversed. The trial court is directed to permit Kuist to conduct a deposition of Bedrosian and to reconsider Kuist’s motion to tax costs in light of evidence revealed or obtained during discovery. Kuist and Bedrosian are to bear their own costs of appeal.
We concur: FLIER, J., EGERTON, J.
Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.
Appellants’ reliance on Morris v. McCauley’s Quality Transmission Service (1976) 60 Cal.App.3d 964, is also misplaced. Morris involved a personal injury action by a child and her guardian for medical expenses incurred on the child’s behalf. The jury returned inconsistent verdicts in favor of the guardian but against the child. The guardian’s action for expenses incurred on the child’s behalf was completely derivative of the child’s, and necessarily implied the defendant was negligent. The irreconcilable verdict in favor of the defendant and against the child necessarily implied the defendant had not been negligent. As a result, it could not stand. (Id. at p. 970.) Neither Gross’s nor Kuist’s case is derivative of the other’s. Each stands alone. Appellants recognized as much by agreeing the jury should be instructed to consider their cases independently.
The circumstances of Box, which is an exception to the general rule (see People v. Coleman (1988) 46 Cal.3d 749, 770-771, fn. 14), are markedly different from those here. Box was a murder case involving liberty interests not implicated here, in which the defendant was deprived of over 60 percent of the peremptory challenges to which he was entitled. Appellants’ waived the right to claim error by failing to exhaust their full complement of peremptory challenges.
Finally, our conclusions on the issues above dispense with the need to address appellants’ assertion they are entitled to a new trial on the cross-complaint.