Opinion
B191764
4-22-2008
QUICK PICK EXPRESS, LLC, Plaintiff and Respondent, v. QUICK PICK EXPRESS, INC., et al., Defendants and Appellants. KATHY JAVOR, et al., Cross-Complainants and Respondents, v. CHARLES J. STOS, et al., Cross-Defendants and Appellants.
Jeffer, Mangels, Butler & Marmaro, Neil C. Erickson; Greines, Martin, Stein & Richland, Robin Meadow and Barbara W. Ravitz for Defendants, Cross-Respondents and Appellants. Ervin, Cohen & Jessup, Barry MacNaughton, Eric W. Cheung, and Allan B. Cooper for Plaintiff, Cross-Defendants and Appellants.
NOT TO BE PUBLISHED
This appeal involves the sale of the assets of a business, Quick Pick Express, Inc. (hereafter Inc.). The purchaser of the assets, Quick Pick Express, LLC (hereafter LLC), sued Inc. and its owners, Kathy and Thomas Javor, alleging that the Javors misrepresented or concealed certain facts about Inc.s business and profitability. The Javors cross-complained against LLC and its owners, Charles J. Stos and George T. Boyle, alleging they failed to make payments on a promissory note. A jury found in favor of LLC on two claims, awarding it $283,812 on its intentional misrepresentation claim and $480,000 on its concealment claim, and found in favor of the Javors on their cross-complaint, awarding them $370,000 on their breach of contract claim. The jury also imposed $10,000 in punitive damages against Kathy Javor, and the trial court awarded attorney fees in the amount of $530,000 to LLC, Stos, and Boyle.
Inc. and the Javors appeal from the concealment award, contending there is no substantial evidence to support it. They also challenge the award of attorney fees on several grounds. LLC, Stos, and Boyle cross-appeal from the award in favor of the Javors on their cross-complaint. We hold there is insufficient evidence to support the concealment award, and find the cross-appeal to be without merit. Accordingly, we reverse the judgment and remand the matter to the trial court to strike the $480,000 award and redetermine the parties entitlement to attorney fees.
BACKGROUND
Thomas Javor started Inc. in 1989. It began as a messenger service with only one employee, and over time the company added additional services and employees. By 2002, the company had four divisions—courier, trucking, warehousing, and drayage—and had more than $4 million in annual sales. The company was unique; no other company in the country offered all four of these services.
Kathy Javor, who was co-owner of the company, was responsible for the financial side of the business, while Thomas Javor handled the day to day operations. In 2002, Kathy Javors father became ill. The Javors decided to sell Inc. so they could help Kathys father run his real estate business. They contacted a business broker, Dairl Johnson, to help them sell Inc.
In 2002 to 2003, Stos and Boyle were looking for a business to buy. They both had worked in the grocery industry for many years and had extensive experience in trucking, warehousing, and logistics. They were looking for a mature, stable, and profitable business that they could grow and "take . . . to the next level."
In May 2003, Johnson told Stos and Boyle about Inc. Johnson provided them with a business profile of Inc., as well as a balance sheet and profit and loss statements for the company. The documents presented Inc. as a well established, growing, profitable company with a capable management team in place. The parties signed a letter of intent to purchase the business and began the due diligence process. The Javors provided Stos and Boyle with additional financial documents, but Stos and Boyle were not allowed to contact Inc.s employees, customers, or vendors.
Inc. and LLC entered into a "Purchase Agreement for Business Assets" signed by the Javors on behalf of Inc. and Stos and Boyle on behalf of LLC. The agreement provided for a purchase price of $1.5 million, with $1,175,000 to be paid in cash, and a note for $325,000. Under the terms of the note, Stos, Boyle, and LLC agreed to pay the Javors $325,000 plus interest in 84 equal monthly installments. The note also provided that it may be subject to offset if material facts relevant to the operation of the business were not disclosed by the Javors or if material misrepresentations were made, but it also stated, "Buyer must continue to make all payments in a timely fashion as required and only after the offset has been agreed upon by the parties or determined by arbitration or litigation, [may Buyer] deduct the quantifiable amount from the principal of the note, thereby lowering the obligation and term of the note."
The sale of the business assets closed on July 14, 2003. At that time, the parties executed a Bill of Sale that listed the assets sold and allocated the purchase price as follows: Furniture, fixtures, and equipment ($107,352); DMV rolling stock ($206,980); Inventory/supplies/pallets ($2,668); Work in process ($75,000); Accounts payable (-$75,000); Accounts receivable ($450,000); Security deposit on the building ($35,000); Covenant not to compete ($311,000); Consulting agreement ($76,000); and Goodwill ($311,000).
Upon taking over the business, Stos and Boyle discovered several issues that impacted the business operations and required them to expend money they had not anticipated. For example, several creditors of Inc. demanded payment from LLC for money Inc. owed to them on unpaid invoices. Although LLC was not responsible for those liabilities, it had to pay some of the creditors in order to continue operating its business. Also, Stos and Boyle discovered that Inc. had promised one of its major customers that it would make enhancements to its warehouse management system, but it had not completed the work, so LLC was required to pay to implement the new system. LLC also was required to pay significantly higher workers compensation insurance premiums than Inc. had paid, because Inc. had been misclassifying its warehouse workers and truck drivers as clerical workers in order to lower its workers compensation premiums.
In addition to these unanticipated costs, Stos and Boyle learned that the accounts receivable had been misrepresented, in that more than $200,000 of the accounts listed were uncollectible. Finally, Stos and Boyle were told by an employee shortly after the sale closed that an account for which Inc. did significant business, Tech Data, was about to terminate its contract. Tech Data was the largest account in Inc.s trucking division, with almost $480,000 in annualized sales in 2002, or about 10 percent of Inc.s total sales for the year. Thomas Javor had been told that Tech Data was terminating its contract (for reasons unrelated to Inc.s service) before the sale closed, but he did not disclose this fact to Stos or Boyle.[]
Tech Data was not a direct customer of Inc. The Tech Data business was placed with Inc. through a broker, C.H. Robinson, which was Inc.s customer.
Thomas Javor testified that he did tell Stos and Boyle about Tech Data before the sale closed, but Stos and Boyle testified that he did not.
Stos and Boyle told the Javors about the problems they were encountering. After trying to resolve their differences with the Javors and getting no satisfactory response, they notified the Javors that LLC would cease payments on the note. Thus, after making five payments, LLC, Stos, and Boyle made no further payments on the note.
LLC filed its complaint against the Javors a few months later. It alleged 13 claims for breach of contract, one claim for intentional misrepresentation and one claim for negligent misrepresentation. In the breach of contract claims, LLC alleged a total of $1,778,733.29 in "decreased sale value" and an additional $79,738.29 in damages, for a total of $1,858,471.58 in damages from breach of contract. The complaint also alleged $1,858,471.58 in damages for each misrepresentation claim. The Javors filed a cross-complaint against LLC, Stos, and Boyle, for breach of contract and declaratory relief based upon their failure to continue making payments on the note.[]
The cross-complaint includes an additional claim based upon a dispute over a telephone bill, but that claim was not litigated at trial.
The matter was tried before a jury, with 10 days of testimony. LLCs theory of the case was that the Javors breached the purchase agreement, misrepresented the financial state of the business, and concealed material facts about the business, resulting in out-of-pocket losses and lost assets of $283,812, plus either $1,149,996.22 in lost value (i.e., the difference between the fair market value of the business and the amount they paid) or $2,049,345 in lost profits. Although LLC took pains to differentiate the kinds of losses it claimed (i.e., lost assets versus lost value versus lost profits), it did not distinguish between the different causes of action in arguing damages. That is, it did not attempt to link specific damages with specific causes of action, but instead argued that its damages were the same regardless of the cause of action. In presenting their breach of contract claim, the Javors argued that they were entitled to the balance owed on the note, plus interest and late penalties, for a total of just under $370,000.
The trial suffered from several delays (none relevant to this appeal), resulting in the loss of several jurors and alternates. The parties ultimately stipulated to a jury of eight, with five jurors needed to reach a verdict.
The lost profits figure is based upon five years of lost profits. LLC argued that the jury could award more than that, and provided amounts representing seven and 10 years of lost profits.
The jury was provided with a verdict form for each cause of action—the Javors breach of contract claim, and LLCs breach of contract, intentional misrepresentation, negligent misrepresentation, concealment claims—as well as a form asking whether Inc., Kathy Javor, and/or Thomas Javor engaged in conduct with malice, oppression, or fraud. Each of the verdict forms for LLCs claims for misrepresentation and concealment contained the following question: "What are QUICK PICK EXPRESS, LLCs damages? [¶] a. Out of pocket losses and lost asset value: $__________ [¶] b. Difference in the fair market value of the business as compared to what the Plaintiffs [sic] paid for the business: $__________ [¶] c. Past economic loss, including lost earnings and lost profits: $__________ [¶] d. Future economic loss including future lost earnings and future lost profits: $__________." The verdict form for LLCs breach of contract claim included a similar question, although it omitted "Past economic loss, including lost earnings and lost profits." The verdict form for the Javors breach of contract claim did not ask the jury to break out any elements of damages, and asked only for the total amount of damages.
Although Stos and Boyle were cross-defendants, they were not plaintiffs; LLC was the only plaintiff. Nevertheless, the parties and the court tended to refer to LLC, Stos, and Boyle collectively as "plaintiffs."
During deliberations, the jury sent the court two questions. One asked whether the jury was to award punitive damages. The other question asked, "Are the damage numbers the same on each form or are they all added up for a `grand total?" After conferring with counsel, the court gave additional instructions on punitive damages that had been inadvertently omitted and told the jury that it was not to determine an amount of punitive damages at that time. In response to the other question, the court instructed the jury as follows: "Quick Pick Express, LLC has made claims against Inc., Thomas Javor and Kathy Javor for breach of contract and negligent misrepresentation and fraud by misrepresentation and/or concealment. If you decide that LLC has proved both claims, the same damages that resulted from both claims can be awarded only once." One of the jurors then asked, "Do we fill it out on one of the forms?" The court told the jury to fill out all of the forms completely, including the numbers.
After further deliberations, the jury returned with its verdicts. It found against LLC on its breach of contract claim, and in favor of LLC on its negligent and intentional misrepresentation and concealment claims. It awarded no damages on the negligent misrepresentation claim, $283,812 in out of pocket losses and lost asset value on the intentional misrepresentation claim, and $480,000 in out of pocket losses and lost asset value on the concealment claim. The jury wrote "0" in the remaining spaces for damages on the verdict forms for the intentional misrepresentation and concealment claims. In addition, the jury found that Kathy Javor—but not Inc. or Thomas Javor—engaged in the conduct with malice, oppression, or fraud (and after presentation of further evidence, the jury awarded LLC $10,000 in punitive damages). Finally, the jury found in favor of the Javors on their breach of contract claim and awarded them damages in the amount of $370,000.
All of the parties filed post-trial motions. Inc. and the Javors moved for a remittitur or alternatively for a new trial. They contended that the $480,000 award could only relate to the Javors failure to disclose the impending loss of Tech Data, and that the amount should be reduced to $120,000, which would represent one year of net profits from that account. They also argued that the two awards of lost assets were duplicative and could not be aggregated, and therefore the judgment should be limited to $283,812. Inc. and the Javors also moved to be designated the prevailing party for the purpose of recovering attorney fees.
LLC, Stos, and Boyle filed four motions. They sought a new trial on punitive damages, arguing that the amount awarded was inadequate. They sought judgment notwithstanding the verdict on the Javors breach of contract claim, on the ground that they were entitled to stop making payments on the note under the legal principle of "defensive relief." They moved for entry of judgment in LLCs favor without deduction for the amount owed on the note or, alternatively, for a net judgment in LLCs favor or, alternatively, for a new trial on damages. Finally, they moved to be designated the prevailing party. In both their opposition to Inc.s and the Javors motion for remittitur/new trial and their own motion for entry of judgment, LLC, Stos, and Boyle repeatedly argued that the $480,000 award on the concealment claim represented the $120,000 yearly loss of profits from the Tech Data account, multiplied by four years.
The trial court denied both of Inc.s and the Javors motions and LLCs, Stoss, and Boyles motions for a new trial on punitive damages and for judgment notwithstanding the verdict. In denying Inc.s and the Javors motion for remittitur or new trial, the trial court stated, "The Jurys award does not reflect a double recovery. Rather, the Jury awarded two separate sums for two distinct injuries. The Jury awarded Plaintiffs [sic] $480,000 in lost profits due to concealment regarding the Tech Data account. The Jury awarded an additional $283,812 for out of pocket losses and lost asset value, based upon Defendants various misrepresentations." (Italics added.)
The court also found that LLC, Stos, and Boyle were the prevailing parties and granted in part their motion for entry of judgment to the extent it sought a net judgment in favor of LLC. LLC, Stos, and Boyle subsequently moved for their attorney fees and costs, which the court granted in part. Judgment was entered as follows: LLC is to recover compensatory damages in the amount of $393,812 from Inc. and the Javors; LLC is to recover punitive damages against Kathy Javor in the amount of $10,000; and LLC, Stos, and Boyle are to recover from Inc. and the Javors attorney fees in the amount of $530,000 and costs in the amount of $25,036. Inc. and the Javors timely appealed from the judgment, and LLC, Stos, and Boyle timely cross-appealed from the breach of contract portion of the judgment.
DISCUSSION
A. Inc.s and the Javors Appeal
In their opening brief on appeal, Inc. and the Javors challenge the jurys $480,000 award for concealment on several grounds. First, they contend there is no evidence to support the jurys finding "that the award represented a lost asset, i.e., something LLC purchased but didnt receive." They note that the parties agreed the award could only represent the loss of the Tech Data account, but the Tech Data account was not included on the Bill of Sales list of assets or on LLCs experts list of lost assets. Second, they contend the award could not represent lost value or lost profits because the jury expressly found "$0" damages in the form of lost value and lost profits. Third, they contend the jurys verdict could not be interpreted to represent lost profits for several reasons, none of which need be detailed here. Finally, they raise several arguments regarding the attorney fee award: (a) the award must be vacated if this court determines the $480,000 verdict must be stricken; (b) even if the $480,000 verdict stands, they are entitled to their attorney fees as the prevailing parties on their claim arising from the note; (c) in any event, Stos and Boyle are not entitled to attorney fees because they are not parties to the complaint and therefore are not prevailing parties.
LLC does not respond to the second and third contentions raised in the opening brief. Instead, it contends that (1) Inc. and the Javors are precluded from challenging the $480,000 award on the grounds asserted in the appellants opening brief because they did not make those arguments in the trial court, and (2) they waived their assertion of insufficiency of the evidence because they failed to state all of the material facts in their opening brief. LLC also argues that Inc.s and the Javors first contention fails because there is evidence that LLC paid for but did not receive goodwill, an asset, which the jury could have valued at $480,000. Finally, LLC argues that the trial court properly found that it and Stos and Boyle are entitled to attorney fees, and the Javors are not, because the purchase agreement and the note were "inextricably intertwined," rather than distinct and independent contracts, and therefore the trial court was within its discretion to determine that LLC, Stos, and Boyle were prevailing parties entitled to their attorney fees. None of LLCs arguments has merit.
Although Stos and Boyle are listed as respondents, we note that the $480,000 award was in favor of LLC only. Therefore, we refer to LLC as the only respondent to the appeal from that award.
1. Inc.s and the Javors Arguments are not Precluded or Waived
Relying on cases that hold that contentions or theories cannot be raised for the first time on appeal, LLC argues that Inc. and the Javors are precluded from challenging the $480,000 award on the grounds asserted in their opening brief because they did not make those arguments in the trial court. LLC is incorrect. A challenge to the sufficiency of the evidence to support a judgment may be made for the first time on appeal. (See, e.g., Tahoe National Bank v. Phillips (1971) 4 Cal.3d 11, 23, fn. 17.) Similarly, a question of law based upon uncontroverted facts may be raised for the first time on appeal. (See, e.g., California School of Culinary Arts v. Lujan (2003) 112 Cal.App.4th 16, 26.) Since Inc.s and the Javors arguments challenging the $480,000 award are based upon insufficiency of the evidence or questions of law, we may consider them on appeal.
LLC also argues that Inc. and the Javors waived their challenge based upon insufficiency of the evidence because they failed to summarize all of the material evidence fairly. While LLC is correct that an appellant is required to fairly summarize all material evidence (see, e.g., Nwosu v. Uba (2004) 122 Cal.App.4th 1229, 1246), it is incorrect that Inc. and the Javors failed to comply with their obligation. As appellants, Inc. and the Javors were required to state all the facts material to the issues presented on appeal, not simply all evidence. (See, e.g., Cal. Rules of Court, rule 8.204(a)(2); Foreman & Clark Corp. v. Fallon (1971) 3 Cal.3d 875, 881.) The evidence that LLC claims was omitted from the opening brief regarding Thomas Javors change in testimony regarding Tech Data and the obstacles Stos and Boyle faced was not material to the issues on appeal. Therefore, Inc. and the Javors did not waive their challenge to the sufficiency of the evidence.
LLCs claim that Inc. and the Javors omitted any discussion of the assets purchased is simply wrong. Inc. and Javors noted that the Bill of Sale listed all the assets, set forth all of the assets in a footnote, and attached a copy of the Bill of Sale to the opening brief.
2. The $480,000 Award Cannot be Interpreted to Represent Lost Profits
As noted, the trial court upheld the jurys verdict on the concealment claim by finding that the $480,000 award represented lost profits. Inc. and the Javors challenge this finding on the ground that the jury made an express determination that LLC suffered "$0" in lost profits as a result of the concealment, and the trial court could not interpret the verdict in a manner that was inconsistent with that determination. They are correct. Where a jury has made a clear and unequivocal finding of no damages, the court has no power to make a judgment that does not conform to that finding. (See, e.g., Cheung v. Daley (1995) 35 Cal.App.4th 1673, 1677; Telles v. Title Ins. & Trust Co. (1969) 3 Cal.App.3d 179, 187.)
3. There is no Substantial Evidence to Support the $480,000 Award
At trial, LLC offered the testimony of numerous witnesses to show that Inc. and the Javors, through misrepresentation and concealment, presented a distorted picture of Inc.s financial situation. Stos and Boyle described their discovery of promises that had been made to customers that had not been fulfilled, bills that had not been paid, and accounts receivable that were uncollectible. They learned that the company was about to lose the Tech Data account, one of the companys largest accounts. They also discovered that the company did not have a strong management team, as had been represented, and it had been misclassifying its workers to reduce its workers compensation premiums and had improperly failed to pay overtime to its workers.
To show the damages it suffered, LLC presented the testimony of Jason Engel, a forensic accountant. Engel did not attempt to attribute specific damages to the different causes of action. Rather, he assumed the damages were the same for each claim and only differentiated between categories of damages.
One category of damages he identified was out-of-pocket costs and lost assets. He explained that this category includes over-inflated assets such as overstated accounts receivable and unanticipated costs, such as payments LLC made on bills owed by Inc. or claims by customers against Inc. for which the customer was holding LLC accountable. He provided a schedule of these damages, showing a total of $283,812 in lost assets and out-of-pocket costs.
Another category of damages Engel identified was lost profits. He explained that this category of damages is based upon the "benefit of the bargain principle"—i.e., that "the buyers are entitled to receive what they bargained for." He computed the lost profits by examining the financial statements that Inc. had provided and making adjustments to reflect what he found to be the true revenues and expenses of the company. The difference between the profit shown on Inc.s financial statements and the adjusted financial statement represented the lost profit. He explained that the business will continue to lose profits into the future, and therefore he calculated the lost profits (using a net present value for future losses) for a period of five years, seven years, and 10 years.
The third category of damage Engel identified was the difference between what LLC paid for the assets of Inc. and the actual value of those assets. Engel testified that the company only had value to the extent it had collectible accounts receivable and tangible assets. He opined that the company had no goodwill, which he defined as "the ability to earn money," because based upon his adjustments to Inc.s financial statements, the company did not have a history of making profits and did not have the capacity to make profits. He did not address the other assets listed in the Bill of Sale, such as the covenant not to compete or the consulting agreement with Thomas Javor. He determined the "difference in value" damages by calculating the value of the collectible accounts receivable and tangible assets and subtracting that sum from $1.5 million, the amount LLC paid for those assets, and concluded the difference in value was $1,149,996.22.
Engel explained that these three categories of damages were distinct. The out-of-pocket costs and lost assets represented a "one-time" loss, and "if the sellers are now required to give them the $283,000 that will put the buyers in the same position as if the sellers had given them the true value of the assets that they purchased." The lost profits represented "a continuing loss of the business from year to year"; an award of those damages provides the buyer with the benefit of the bargain. The lost value analysis is an alternative to the lost profits analysis.
LLC asked the jury to award it $283,812 in out-of-pocket costs and lost assets and either $1,149,996.22 in lost value or $2,049,345 (or more) in lost profits for each of the claims it asserted (breach of contract, intentional misrepresentation, negligent misrepresentation, and concealment). As noted, the jury returned a verdict awarding LLC damages for out-of-pocket costs and lost assets on two claims—$283,812 for intentional misrepresentation and $480,000 for concealment.
In response to Inc.s and the Javors assertion on appeal that no substantial evidence supports the latter award because there was no evidence that LLC lost an asset valued at $480,000, LLC argues that goodwill was an asset listed in the Bill of Sale, and there was evidence that LLC did not receive any goodwill from Inc. This theory—goodwill as a lost asset—was not advanced at trial. Thus, not surprisingly, there was very little evidence presented related to goodwill. Over 10 days of testimony, goodwill was briefly discussed by two witnesses: Stos testified there was no goodwill associated with the Quick Pick Express name, and Engel testified that Inc. had no goodwill because it had no history of making profits. No effort was made to quantify the damage resulting from the alleged lack of goodwill. Indeed, the only evidence of any value attributed to goodwill was found in the Bill of Sale, which allocated $311,000 of the purchase price to goodwill, but Stos, Boyle, and Engel all testified that the values assigned to each asset on the Bill of Sale were only for tax purposes and did not reflect the true value of each asset. This evidence does not constitute substantial evidence to support an award of $480,000 in lost asset damages caused by concealment.
"`Substantial evidence is evidence of ponderable legal significance, evidence that is reasonable, credible and of solid value. [Citations.] `Substantial evidence . . . is not synonymous with "any" evidence. Instead, it is `"`substantial proof of the essentials which the law requires." [Citations.] The focus is on the quality, rather than the quantity, of the evidence. `Very little solid evidence may be "substantial," while a lot of extremely weak evidence might be "insubstantial." [Citation.] Inferences may constitute substantial evidence, but they must be the product of logic and reason. Speculation or conjecture alone is not substantial evidence. [Citations.] . . . [¶] The ultimate test is whether it is reasonable for a trier of fact to make the ruling in question in light of the whole record. [Citation.]" (Roddenberry v. Roddenberry (1996) 44 Cal.App.4th 634, 651-652.)
Applying this "ultimate test," we must determine whether, in light of the record, it would be reasonable for the jury to determine that LLC paid $480,000 for goodwill that it did not receive as a result of concealment. LLC suggests that the jury reasonably could arrive at $480,000 in lost asset damages caused by the concealment of the impending loss of the Tech Data account by multiplying the anticipated annual profit from that account — which Engel testified was $120,000 — by four years, or by awarding an amount equal to one year of gross revenues from that account. But such a determination not only would be pure conjecture, it would be unreasonable.
LLC presented no evidence that goodwill may be valued by multiplying anticipated profits of a single account by a number of years or by determining one year of gross revenues for that account. At best, it presented evidence — Engels testimony — that goodwill is the "price that youre paying for . . . the ability to earn money." But Engel did not suggest how one determines that price; the jury could only speculate as to the method that might be used. Moreover, it would be unreasonable for the jury to conclude that the goodwill associated with the Tech Data account was worth almost one third of the purchase price of the entire business, particularly in light of evidence showing that Tech Data represented less than 10 percent of Inc.s annual sales.
In short, LLC did not present any substantial evidence from which a jury could determine the value of the goodwill (or any other asset other than those Engel listed in his schedule of out-of-pocket costs and lost assets) that it purchased but did not receive as a result of concealment. Therefore, the award of $480,000 on the concealment claim cannot stand. Because LLC had a full and fair opportunity to present its case and failed to present sufficient evidence to support this award, we direct the trial court on remand to strike the award and enter a new judgment. (See, e.g., Kelly v. Haag (2006) 145 Cal.App.4th 910, 919 [no retrial when reversal is based upon insufficiency of the evidence].)
4. The Attorney fee Award Must be Vacated
In light of our determination that the $480,000 award cannot stand and a new judgment must be entered, we vacate the attorney fee award and remand the matter for the trial court to determine who, if anyone, is the prevailing party. The parties raise several issues regarding this determination — such as whether there may be different prevailing parties on the different contracts at issue (e.g., the purchase agreement or the note), and whether Stos and Boyle may be deemed prevailing parties on the claims LLC brought. We leave these issues for the trial court to determine in the first instance.
B. The Cross-Appeal
In their much abbreviated opening brief on their cross-appeal, LLC, Stos, and Boyle argue that the jurys finding that they breached the note was erroneous as a matter of law, and that the jury impermissibly awarded the Javors compounded late charges in awarding the Javors $370,000 on their breach of contract claim. Given the many deficiencies of the brief — it contains no headings, has inadequate citations to the record, and attempts to incorporate by reference its motion for judgment notwithstanding the verdict — we could deem the issues abandoned. (See, e.g., Soukup v. Law Offices of Herbert Hafif (2006) 39 Cal.4th 260, 294, fn. 20; In re S.C. (2006) 138 Cal.App.4th 396, 408.) Nevertheless, we will briefly address the issues raised.
1. Fraud as an Absolute Defense
LLC, Stos, and Boyle contend the jurys finding that they breached the note is erroneous as a matter of law because Inc.s and the Javors fraud provided an absolute defense to payment of the note. Their argument fails because it is contrary to the express language of the note. The note provides that, "if Buyer believes that material facts relevant to the operation of the business were or should have been known to the Seller but not disclosed to the Buyer or if any misrepresentations of a material nature were made, the Buyer shall have the right to offset the loss/damages from the principal of the note," but "Buyer must continue to make all payments in a timely fashion as required and only after the offset has been agreed upon by the parties or determined by arbitration or litigation, [may Buyer] deduct the quantifiable amount from the principal of the note, thereby lowering the obligation and term of the note." LLC, Stos, and Boyle do not address this language in their opening or reply briefs.
They also contend that the jury should not have found them liable on the note but instead should have offset the amount awarded on LLCs misrepresentation and concealment claims against the amount due under the note and entered a net amount in their favor. In light of our reversal of the concealment award, any net recovery would be in favor of Inc. and the Javors.
2. Calculation of Late Charges
LLC, Stos, and Boyle contend the calculation of late charges used by the jury was erroneous because it resulted in compounded late charges, which is not permitted under California law. The case they rely upon, however, does not apply to this case. That case, Walker v. Countrywide Home Loans, Inc. (2002) 98 Cal.App.4th 1158, discussed the application of statutory restrictions on late fees on home loan installment payments. (Id. at pp. 1171-1172.) No such statutory restriction is involved here.
Instead, the note simply called for "a Five percent (5%) late charge for any past due payments." The Javors presented testimony from Jubin Merati, a forensic economist, to explain how to calculate the late charge. He explained that the jury could assess a five percent charge for each month each payment was late, which would result in a total of $42,221, or it could assess a one-time five percent penalty to the principal and interest, which would result in a total late fee of $16,380. He also explained why the first method was "more accurate." LLC, Stos, and Boyle did not challenge Meratis methods, nor did they offer any other method for calculating the late charges. Although they now offer an alternative method of calculation in their opening brief, the method Merati suggested and the jury accepted is a reasonable interpretation of the language of the note. Thus, the jury properly awarded the Javors $42,221 in late charges.
DISPOSITION
The judgment is reversed. The matter is remanded with directions to the trial court to strike the $480,000 award in favor of LLC on its concealment claim and the award of attorney fees and costs to LLC, Stos, and Boyle. The trial court is to make a new determination regarding prevailing parties and make a new award of attorney fees and costs if necessary. Inc. and the Javors shall recover their costs on appeal.
We concur:
MANELLA, J.
SUZUKAWA, J.