Andreini & Co. v. MacCorkle Ins.
Service

 

 

 

 

 

 

 

 

 

 

Filed 9/9/13  Andreini & Co. v. MacCorkle Ins. Service
CA1/2

> 

> 

> 

> 

> 

> 

>NOT TO BE PUBLISHED IN OFFICIAL REPORTS

> 

 

California
Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or
relying on opinions not certified for publication or ordered published, except
as specified by rule 8.1115(b).  This
opinion has not been certified for publication or ordered published for
purposes of rule 8.1115.

 

 

 

 

IN
THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

 

FIRST
APPELLATE DISTRICT

 

DIVISION
TWO

 

 
>

ANDREINI & COMPANY,             Plaintiff and Appellant, v. MacCORKLE INSURANCE SERVICE, INC. et al.,             Defendants and Respondents.

A133473         (San Mateo County       Super. Ct. No. CIV 463671)

 

            For the second time in recent years we are called upon to
construe the scope of rule 8.278 of the California Rules of Court (rule 8.278),
which governs recovery of costs allowed following a successful appeal.  Last year the Supreme Court affirmed a
decision by this court, and held that “rule 8.278(d)(1)(F) does not authorize
an award of costs for interest expenses and fees incurred to borrow funds to
deposit as security for a letter of credit that was procured to secure an
appeal bond.”  (Rossa v. D.L. Falk
Construction, Inc. (2012) 53 Cal.4th 387, 399 (Rossa).)  Here, the
respondent borrowed money to deposit with the trial court in lieu of securing
an appeal bond.  After its appeal was
successful, it was allowed to recover the more than $200,000 interest paid on
the borrowed funds as a cost of appeal.  The costs were included in an amended
judgment from which this timely appeal was perfected.

            We
first consider whether rule 8.278 and the reasoning of Rossa preclude
the appellant recovering the interest paid on the borrowed funds as a cost of
appeal.  We conclude this type of
interest is likewise precluded.  Next, we
consider whether a recent amendment of rule 8.278, which expressly allows
recovery of interest in this situation, and which became effective during the
pendency of this appeal, should be given retroactive application.  We conclude that it should not.  In light of these conclusions, we modify the
amended judgment by deleting the interest, and affirm the modified, amended
judgment.

BACKGROUND

            This
dispute arose out of the decision of insurance broker Frederic Holbrook to
change his employment from Andreini & Company (Andreini) to MacCorkle
Insurance Service, Inc. (MacCorkle), taking a list of clients with him.  At the conclusion of a bench trial, the trial
court concluded that Holbrook did not breach his contract with Andreini or
otherwise misappropriate Andreini’s trade secrets.  However, the court further concluded that
MacCorkle and its chief executive officer Bernard Lauper were guilty of
misappropriating Andreini's trade secrets. 
Damages were awarded against MacCorkle and Lauper in the amount of
$1,275,000.  Andreini, MacCorkle, and
Lauper all appealed.  Division Four of
this District affirmed the judgment in favor of Holbrook, and reversed that
part of the judgment against MacCorkle and Lauper.  (Andreini & Co. v. MacCorkle Ins.
Service, Inc. (Jan. 14, 2011, A124784) [non pub. opn.].)  In short, it was a complete win for MacCorkle
and Lauper (who will hereafter be collectively referred to as MacCorkle).

            MacCorkle
did not post an appeal bond, electing instead to deposit $2,057,668.97 with the
clerk of the trial court,  an amount he
borrowed.  In April 2011, following
receipt of the remittitur, and after the Supreme Court had granted review of
our decision in Rossa, MacCorkle filed a memorandum of costs for the
expenses incurred on the appeal, seeking $214,771.40 representing the net
interest on the amount borrowed, identifying this item as “other expenses
reasonably necessary to secure surety bond.” 
No longer able to rely on our opinion in Rossa, but clearly
hoping that its reasoning would be vindicated, Andreini moved to tax this item
of MacCorkle and Lauper’s claimed costs. 
Relying on Cooper v. Westbrook Torrey Hills, LLP (2000) 81
Cal.App.4th 1294 (Cooper), which we had declined to follow in our Rossa
opinion, MacCorkle argued that the interest was allowable under rule
8.278.  The matter was extensively argued
to the trial court in July 2011. 
Believing “the equities in this case probably weigh against the award of
the interest,” the court nevertheless felt bound to follow Cooper.  The court then entered an amended judgment
awarding MacCorkle “$221,324.52 in costs on appeal . . . pursuant to
Rule 8.278,” from which Andreini perfected this timely appeal.

REVIEW

Rossa>

            In
Rossa, our Supreme Court considered that part of rule 8.278 which at the
time authorized recovery as appeal costs “The cost to procure a surety bond,
including the premium, the cost to obtain a letter of credit as collateral, and
the fees and net interest expenses incurred to borrow funds to provide security
for the bond or to obtain a letter of credit, unless the trial court determines
the bond was unnecessary.” 
(Rule 8.278(d)(1)(F).)  The
appellant in Rossa had secured a
standby letter of credit for $954,070 that a surety required before posting an
appeal bond.  The bank issuing the letter
of credit in turn required the appellant to deposit the face value of the
letter of credit with the bank.  The
appellant had to borrow the money to satisfy the bank’s requirement, thereby
incurring almost $100,000 in interest, plus a fee of more than $1,700 to extend
the line of credit.  Having won on
appeal, the appellant sought to recover these sums, and was rejected by the
trial court, then by this court, and finally by the Supreme Court.  (Rossa,
supra, at p. 391.)  Two points of the
Supreme Court’s decision are central.

            >First, after an extensive examination of
the principles governing recovery of costs of appeal and the evolution of what
is now rule 8.278, the court noted that “provisions allowing the recovery of
costs historically have been strictly construed,” and that this approach “was
retained after the Legislature empowered the Judicial Council to prescribe
rules for appellate practice.”  (Rossa,
supra, at p. 395.)  The court then explained why this history and
approach supported denying recovery of the fee and interest related to the
letter of credit:

        “Construing rule 8.278(d)(1)(F) to extend to defendant’s
interest payments and fees related to its line of credit would be inconsistent
with the historic principle that cost provisions are to be strictly
construed.  Neither the language of the
rule nor its history indicates that the universe of items recoverable was being
expanded by the Judicial Council in 1993 to include more remote or indirect
costs of acquiring a letter of credit, such as interest and fees paid on credit
lines from which funds were drawn to secure a letter of credit.  Given that interest expenses may far exceed
all other costs (more than tripling the costs in this case), we would expect a
clear expression of an intent to allow the recovery of this item.  As the Court of Appeal observed below, ‘courts
do not lightly presume that substantial changes occur by “misdirection,” “vague
terms or ancillary provisions,” or in a “cryptic” manner.  [Citation.]’ . . . . [¶] name="SDU_6">. . .name=B82026903295> [E]ven
if we were not required to strictly construe cost provisions, more general
principles of statutory construction weigh in favor of construing rule 8.278’s
reference to ‘the cost to obtain a letter of credit’ to encompass only the
direct charges imposed in connection with the acquisition of a letter of
credit. . . . 

            “Rule 8.278(d)(1)(F) refers to two items—the cost of a surety bond and the cost
of a letter of credit. As explained above, surety bonds and standby letters of
credit are instruments that provide assurance that an obligation will be paid,
but they do not involve a transfer of funds unless the applicant defaults.  Due to its financial situation, an applicant
may have to borrow assets to secure payment before these instruments will be
issued, but borrowing funds is distinctly different from obtaining a bond and a
standby letter of credit; a loan is a means to name="SDU_1029">acquire
assets to satisfy the judgment, while a bond and a letter of credit are a means
to verify that assets are available to pay the judgment.  Due to these differences, the charges for a
loan typically will be substantially greater than the charges for a secured
bond or letter of credit.  Moreover,
interest charges and related fees for a loan may vary greatly, depending on the
creditworthiness of the judgment debtor, current interest rates, and other
terms of the loan, rendering such charges unpredictable and potentially many
times greater in amount than other costs.

            “If we adopt a restrictive meaning of the reference in rule
8.278(d)(1)(F) to ‘the cost to obtain a letter of credit,’ interpreting it to
encompass only the direct charges for a letter of credit, the cost will be
similar in amount to ‘the cost to procure a surety bond,’ and similar in
character with respect to the service it is acquiring—verification of
assets.  If we adopt a more expansive
meaning, interpreting it to encompass interest charges and fees incurred to
borrow funds to secure the letter of credit, that item of cost will be markedly
dissimilar to ‘the cost to procure a surety bond,’ with respect to both the
size and nature of the expenses incurred. 
Therefore, we adopt the restrictive meaning of ‘the cost to obtain a
letter of credit,’ and reject an interpretation that encompasses interest
expenses incurred in acquiring assets to secure a letter of credit.”  (Rossa,
supra, at pp. 396-397.)

            Second, the
court addressed Cooper:

        “[D]efendant relies on Cooper. . . in which the
court allowed an appellant to recover as costs the interest expenses incurred
on funds the appellant borrowed to deposit as an undertaking in order to stay
foreclosure pending appeal.  The court
observed that former rule 26(c)(6) [the predecessor to rule 8.278] authorized
the award of ‘ â€œexpense[s] reasonably necessary to procure the surety
bond,” ’and that [Code of Civil Procedure] section 995.730 provides that
‘ â€œ[a] deposit given instead of a bond . . . is treated the
same, and is subject to the same conditions, liability, and statutory
provisions . . . as the bond.” â€™ 
(Cooper, supra, at p. 1298.) 
The court concluded, ‘In order to read rule 26(c) consistent with
section 995.730, the reasonable or necessary costs associated with procuring a
deposit in lieu of a bond must be awarded to a prevailing party.’  ( Id. at p. 1299, fn. omitted.)

name="sp_999_7">        “In light of our conclusion that
rule 8.278 does not authorize an award of interest expenses incurred to acquire
assets to obtain a bond and letter of credit to stay enforcement of a judgment
pending appeal, it follows that section [Code of Civil Procedure] 995.730 does
not authorize an award of interest expenses incurred to acquire assets to
deposit in lieu of a bond.  Therefore, we
disapprove the holding of Cooper v. Westbrook Torrey Hills
. . . .  We express no opinion with respect to whether
[Code of Civil Procedure] section 995.730, which states that deposits are
subject to the same statutory provisions as bonds, but does not refer to the
California Rules of Court, was intended to apply rules concerning bonds to
deposits in lieu of bonds, notwithstandingname="SDU_1030"> the
fact that the Legislature has delegated to the Judicial Council the
responsibility for ‘establish[ing] by rule allowable costs on appeal and the
procedure for claiming those costs.’ 
([Code of Civil Procedure] § 1034, subd. (b).)”  (Rossa,
supra, at p. 398, fn. omitted.)

            Andreini sees reversal as a simple matter of stare
decisis, because in Rossa the Supreme
Court reached the categorical conclusion that “Rule 8.278(d)(1)(F) does not
allow recovery of interest expense.”  By
contrast, MacCorkle labors mightily to distance itself from >Rossa, and delineates what it claims
proves that “the development of the rules relating to the award of costs on
appeal demonstrates a steady expansion of recoverable costs.”  MacCorkle then insists that “the statutes,”
particularly Code of Civil Procedure section 995.730, “provide a separate and
independent basis for an award of costs.” 
Moreover, “the rules as adopted by the Judicial Council cannot be
inconsistent with the statutes adopted by the Legislature.”

            We agree, almost entirely, with Andreini.  The only point of our disagreement is that
stare decisis is not truly a factor.  “Under
the doctrine of stare decisis, all tribunals exercising inferior jurisdiction
are required to follow decisions of courts exercising superior
jurisdiction.”  (Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450,
455.)  “An appellate decision is not
authority for everything said in the court’s opinion, but only ‘for the points
actually involved and actually decided.’ ” 
(Santisas v. Goodin (1998) 17
Cal.4th 599, 620.)  The classic statement
dates to 1860:  “A decision is not
. . . authority except upon the point actually passed upon by the
Court and directly involved in the case.” 
(Hart v. Burnett (1860) 15
Cal. 530, 598.)  The point actually
involved and decided in Rossa was the
holding quoted at the start of this opinion. 
We are not dealing with that point—whether the interest costs of a
letter of credit used in lieu of an appeal bond could be recovered under rule
8.278(d)(1)(F)—but the closely related issue of whether the interest costs of
money borrowed for deposit with the court in lieu of an appeal bond can be
recovered under rule 8.278.

            >Rossa’s two statements concerning
deposits in lieu of bonds occur in that precise and limited context.  First, the Supreme Court quoted with approval
a 1964 decision by this court when discussing the necessity of strictly
construing rule 8.278:  “Moreover, interpreting the
rule to reach indirect costs that are not clearly specified in the rule would
invite litigation concerning the myriad ways in which the burden of providing
security on appeal constitutes a “cost” to the appellant.  As the court observed in Sequoia Vacuum
Systems v. Stransky (1964) 229 Cal.App.2d 281, ‘[t]he necessity to set
limits is obvious and dictates a close adherence to the clearly expressed
legislative intent [citations].  For
example, the extension [of the right to recover the premium on a bond to allow
the recovery of interest payments made to borrow funds deposited name=SearchTerm>in
lieu of a bond]
would logically permit a party who was not required to borrow but could deposit
his own money, to claim as costs the interest which he might otherwise be
acquiring through investment name="citeas((Cite_as:_53_Cal.4th_387,_*396,_2">elsewhere.”  (Id. at p. 289.)”  (Rossa,
supra, at p. 396.) 

            Second,
in disapproving Cooper’s construction
of Code of Civil Procedure section 995.730, the court stated: “In light of our conclusion
that rule 8.278 does not authorize an award of interest expenses incurred to
acquire assets to obtain a bond and letter of credit to stay enforcement of a
judgment pending appeal, it follows that section 995.730 does not authorize an
award of interest expenses incurred to acquire assets to deposit in lieu of a
bond.”  (Rossa, supra, at p. 398.)

            Still, if Rossa
is not dispositive, it does provide the analytical template.  Rossa
made it clear that the matrix governing the recovery of appellate costs are the
statutes devoted to that subject and rule 8.278, all strictly construed.  With the exception of the 2012 amendment of
rule 8.278, which we address separately, nothing in the matrix has changed.  Code of Civil Procedure section 995.730, the
basis for the Cooper decision, has
not been amended to add language expressly dealing with costs on appeal.  Thus, for purposes of this part of our
analysis, the rule of strict construction endorsed in Rossa still operates.  The
Supreme Court’s statement that “Construing rule 8.278(d)(1)(F) to extend to defendant’s
interest payments and fees related to its line of credit would be inconsistent
with the historic principle that cost provisions are to be strictly construed”
(Rossa, supra, at p. 396) is no less applicable to interest related to a
sum deposited with the court.  (See Civ.
Code, § 3511 [“Where the reason is the same, the rule should be the
same”].)

            MacCorkle
next argues that “Rossa discussed but
did not decide the direct cost recoverability issue.”  But that issue was subsumed within >Rossa’s discussion of the rule of strict
construction.

        MacCorkle’s final attempt to break free
of Rossa is to advance an issue that
was not considered by the Supreme Court. 
MacCorkle contends that “allowing a plaintiff to recover interest at ten
percent per year during the course of an appeal but prohibiting [a] defendant
and appellant from recovering the cost incurred to deposit the funds to stay
enforcement violate[s] the defendant’s right to equal protection.”  Although something like this claim was
mentioned briefly during the extensive argument heard by the trial court on
Andreini’s motion to tax, nothing like it can be found in MacCorkle’s written
opposition.  Andreini responds that the
single oral mention (consisting of 12 lines in the reporter’s transcript) was
inadequate to preserve the issue for appellate review.  We agree with Andreini.  (People
v. Burgener (2003) 29 Cal.4th 833, 860-861, fn. 3; Hershey v. Reclamation District No. 108 (1927) 200 Cal. 550, 564; >Fourth La Costa Condominium Owners Assn. v. Seith (2008) 159 Cal.App.4th 563,
585.) 

        Although we have the discretion to relax
the rule in order to consider a pure issue of law, particularly if it
implicates an important issue of public policy, or if it is not dependent on
the production of additional evidence (e. g., Adams v. Murakami (1991)
54 Cal.3d 105, 115, fn. 5; Hale v. Morgan (1978) 22 Cal.3d 388,
394; 9 Witkin, Cal. Procedure (5th ed. 2008) Appeal, § 415, pp. 473–474), we
decline to do so.  The issue of costs
seems particularly one where specific dollars-and-cents comparisons would be
most pertinent.  This was the approach we
adopted when addressing a very similar claim in our Rossa opinion.   Although our
decision no longer had any authority because the Supreme Court had granted
review, like Banquo’s ghost it infused both sides’ arguments in the trial
court.  It is most appropriate to remind
McCorkle of this detail, the same one it accused Andreini in the trial court of
trying to evade, which removes any element of surprise in McCorkle’s
omission.  Put bluntly, Andreini has no
valid excuse for waiting until this appeal to develop the argument for the
first time.

        In conclusion, although >Rossa’s examination of letter of credit
costs does not qualify as direct, controlling precedent, its reasoning
is highly germane.  The logic of the
approach adopted by the Supreme Court in Rossa
easily transfers to the arguments made here concerning borrowed deposit costs.

Rule 8.278(d)(1)(G)

            In
Rossa, our Supreme Court noted, notwithstanding its construction of rule
8.278, “Of course, the Judicial Council may consider whether to extend the
right to recover costs to interest expenses and fees incurred to borrow funds
to secure a letter of credit.”  (Rossa,
supra, at p. 398, fn. 8.)  The Judicial Council did so consider.  In October 2012, and in response to Rossa,
it amended rule 8.278(d)(1)(F)—with the language we italicize below—and added
rule 8.278(d)(1)(G) to provide for recovery of:

            “(F)
The cost to procure a surety bond, including the premium, and the cost to
obtain a letter of credit as collateral, and the fees and net interest
expenses incurred to borrow funds to provide security for the bond or to obtain
a letter of credit, unless the trial court determines the bond was
unnecessary; and

            “(G)
The fees and net interest expenses incurred to borrow funds to deposit with the
superior court in lieu of a bond or undertaking, unless the trial court
determines the deposit was unnecessary.”

            “Rules
adopted by the Judicial Council . . . shall take effect on a date to
be fixed in the order of adoption.” 
(Gov. Code, § 68072.)  The
Judicial Council specified that these changes to rule 8.278 would take effect
on January 1, 2013.  The parties were
asked to file supplemental briefs on the effect of rule 8.278 (d)(1)(G).

            Rules
of Court are interpreted according to the same principles governing
interpretation of statutes.  (>Rossa, supra, at p. 391; Alan v.
American Honda Motor Co., Inc. (2007) 40 Cal.4th 894, 902.)  With respect to statutes, our Supreme Court
has held there is a “strong presumption” against applying them
retroactively.  (McClung v. Employment
Development Dept. (2004) 34 Cal.4th 467, 475; see Save Our Forest & Ranchlands v. County of San Diego (1996) 50
Cal.App.4th 1757, 1763 [considering retroactive application of amended Rule of
Court].)  “ â€˜[A] statute’s
retroactivity is, in the first instance, a policy determination for the
Legislature and one to which courts defer absent “some constitutional
objection” to retroactivity.’ 
[Citation.]  . . .  ‘[A] statute may be applied retroactively
only if it contains express language of retroactivity or if other sources provide a clear and unavoidable implication
that the Legislature intended retroactive application.’  [Citation.]” 
(McClung v. Employment Development Dept., supra, at p. 475)  A statute
is deemed to be retroactive if it substantially
changes the legal consequences of past events. 
(Californians for Disability
Rights v. Mervyn’s, LLC (2006) 39 Cal.4th 223, 230-231; >Western Security Bank v. Superior Court
(1997) 15 Cal.4th 232, 243.) 

            The
operative question is whether the Judicial Council intended the changes to rule
8.2678 to operate prior to the effective date of those changes.  This inquiry involves a pure issue of law to
which we bring our independent, de novo review. 
(Reid v. Google, Inc. (2010)
50 Cal.4th 512, 527; In re Tobacco II
Cases (2009) 46 Cal.4th 298, 311.)

            If
rule 8.278(d)(1)(G) were to be applied here, Andreini’s liability for
MacCorkle’s costs would zoom from $6,553.12 to $221,324.52.  That would clearly qualify as “new or
different liabilit[y],” an “ â€˜ â€œincrease[d] . . .
liability,” â€™ â€and thus a substantial
change in the “ â€˜legal consequences of past conduct.’ â€  (Quarry
v. Doe I (2012) 53 Cal.4th 945, 956.) 
Imposition of the vastly greater sum is far too significant to be
characterized as a mere non-retroactive clarification of existing law.  (See Colmenares v.
Braemar Country Club, Inc. (2003) 29 Cal.4th 1019, 1024, fn. 2.) 

            This
is confirmed by the only thing approaching explanatory history for the changes
to rule 8.278.  The report of the
Appellate Advisory Committee to the Judicial Council, after summarizing >Rossa, stated:  “This proposal amends rule 8.278
. . . to provide that the net interest expenses and fees incurred to
borrow funds for deposit as security for an appeal bond, a letter of credit
procured to secure an appeal bond, or a deposit with the superior court in lieu
of an appeal bond are all recoverable costs. 
This change will remedy a problem
that causes significant costs to parties who wish to appeal money
judgments.”  The report further advised
the Council that the changes “may impose a significant
new cost on respondents if the appellant prevails on appeal.”  (Appellate Advisory Com., Judicial Council of
Cal., Rep. on Appellate Procedure: 
Recoverable Costs on Appeal (Aug. 27, 2012) pp. 3, 5, italics
added.)  There is nothing in the report
indicating an intent for retroactive application.  Indeed, even the brief postponement of the
amended rule’s effective date (from October 26, 2012 to January 1, 2013)
evidences purely prospective application. 
(See People v. Floyd (2003) 31
Cal.4th 179, 187.)  We defer to the
Judicial Council’s decision, and conclude that the presumption against
retroactive application has not been overcome. 
(McClung v. Employment Development
Dept., supra, 34 Cal.4th 467,
475.)

            The
preceding establishes that rule 8.278(d)(1)(G) is not to receive retroactive
application to this appeal, which at all relevant times has been governed by
the version of rule 8.278 considered by our Supreme Court in >Rossa. 
That version, strictly construed, made no allowance for a successful
appellant to recover the interest incurred on borrowed funds used to make a
deposit in place of an appeal bond.  The
trial court thus erred in denying MacCorkle’s motion to tax Andreini’s effort
to recover that interest as a cost of appeal.

>DISPOSITION

            That
portion of the amended judgment awarding MacCorkle “$221,324.52 in
costs on appeal . . . pursuant to Rule 8.278” is modified to
“$6,553.12 in costs on appeal . . . pursuant to Rule 8.278.”  As so modified, the judgment is
affirmed.  Andreini shall recover its
costs on this appeal.

 

                                                                                    _________________________

                                                                                    Richman,
J.

 

We concur:

 

_________________________

Kline, P.J.

 

_________________________

Haerle, J.