v. Chaparrel Farms
Filed
10/23/12 Primex Farms v. Chaparrel Farms
CA5
NOT
TO BE PUBLISHED IN THE OFFICIAL REPORTS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opinion has not been certified for publication or ordered published for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
FIFTH APPELLATE DISTRICT
PRIMEX FARMS, LLC,
Plaintiff and
Appellant,
v.
CHAPARRAL FARMS, INC.,
Defendant,
Cross-complainant and Appellant;
KLEPPER AG SERVICES, INC.,
Cross-defendant
and Respondent.
F060514
(Super.
Ct. No. 07CECG02935)
APPEAL from a judgment of the
Superior Court of
County. Adolfo M. Corona,
Judge.
Dowling,
Aaron & Keeler, Dowling Aaron Incorporated, Lynne Thaxter Brown; Law
Offices of Walter W. Whelan, Walter W. Whelan and Brian D. Whelan for Plaintiff
and Appellant Primex Farms, LLC.
Bingham
McCutchen, Stephen Zovickian, Frank M. Hinman, Robert A. Brundage, Danielle M.
Foreman; Caswell, Bell & Hillson, Robert K. Hillison and Kimberly L. Mayhew
for Defendant, Cross-complainant and Appellant Chaparral Farms, Inc.
Perkins,
Mann & Everett, Jerry H. Mann and Craig A. Tristão for Cross-defendant and
Respondent Klepper Ag Services, Inc.
-ooOoo-
Defendant,
Chaparral Farms, Inc. (Chaparral), challenges a $3.4 million judgment in a
plaintiff, Primex Farms, LLC (Primex).
The jury found that Chaparral’s agent, Bill Klepper, the owner of
cross-defendant, Klepper Ag Services, Inc. (Klepper Ag), had both actual and
ostensible authority to sign a contract on behalf of Chaparral agreeing to
deliver Chaparral’s 2006, 2007, and 2008 pistachio crops to Primex for
processing. Chaparral only delivered its
2006 crop to Primex and delivered its 2007 and 2008 crops to another processor.
Chaparral
contends that the judgment is not supported by
authority to sign the contract with Primex.
Moreover, Chaparral argues, Klepper breached his fiduciary duty to
Chaparral when he failed to inform Chaparral that he had signed the purported
contract. Chaparral further argues that
the trial court erred when it refused to instruct the jury that Primex had a
duty to ascertain the scope of Klepper’s authority and when it admitted
extrajudicial statements made by Klepper.
In its cross-appeal, Primex asserts that the trial court incorrectly
denied its request for prejudgment interest.
Contrary to
Chaparral’s position, substantial evidence supports the judgment and the trial
court did not err as claimed. Further,
Primex is not entitled to prejudgment interest.
Accordingly, the judgment will be affirmed.
BACKGROUND
Primex
processes, roasts and packs pistachios and then resells them, both in shell and
as kernels. Primex is owned by Ali Amin
and his family, who have been in the pistachio business in Iran and California
for four generations. Amin was born in
Iran and speaks both Farsi and English.
Chaparral
grows pistachios on approximately 960 acres.
Chaparral’s president and owner is Mohammad Taghi Alaghbandian (M.T.).
English. He speaks Farsi. However, other Chaparral employees do speak
English, including Behrouz Saba, who was Chaparral’s agent in Austria, and
Abbas Alaghbandian (Abbas), Chaparral’s chief financial officer and M.T.’s
brother.
Klepper Ag
was a farm management company that specialized in managing pistachio orchards
for third parties. Klepper passed away
in June 2008 and the company shut down in May 2009.
Klepper
assisted Chaparral with developing the orchard beginning in the early
1990’s. Klepper helped to locate the
land, prepared the land, installed an irrigation system and planted the
trees. In 2003, Klepper signed an
agricultural management agreement with Chaparral.
Klepper took care of all of
Chaparral’s business operations in California.
On behalf of Chaparral, Klepper signed filings with the California
Secretary of State. Klepper also
executed agricultural leases and water exchange and water purchase agreements.
Klepper and his office assistant, Rosemary Farrar, took care of all of
Chaparral’s banking needs. Farrar made
all bank deposits, wrote checks to vendors, and balanced the Chaparral
account. Klepper and Farrar were the
only signatories on the Chaparral account.
All of the revenue generated from the sale of Chaparral’s crops flowed
through this account.
The Amin and Alaghbandian families
had a long-standing business relationship.
During all of Amin’s dealings with M.T., M.T. assured Amin that Primex
would always receive Chaparral’s crop.
Amin testified that, over the
years, M.T. referred to Klepper “as being the person in charge, and at the same
time also praising him as being an honest man and someone who takes care of
their stuff.†Amin further explained
that, although he had discussions with Saba, Chaparral’s agent in Austria, all
decisions and actions came through Klepper. From Amin’s perspective, Klepper
was Chaparral’s person in California.
Although M.T. did not testify at
trial, portions of his deposition were read into the record. M.T. explained that he has 23 or 24 factories
and 7,000 or 8,000 workers. In contrast,
Chaparral was a “very, very small company,†that M.T. referred to as a
“pistachio field.†Accordingly, it was
M.T.’s practice to not pay a lot of attention to Chaparral. He “was after [his] other businesses†and
only wanted the money from Chaparral.
M.T. testified that because he was in Iran, he gave Klepper the
responsibility for agriculture and to do what was necessary to farm the crops
for Chaparral.
It was Amin’s practice to have
written processing contracts with Primex’s growers. Due to the complexity of the agreement with the
growers, it was unacceptable to Amin to not have a contract. Nevertheless, Primex processed Chaparral’s
2002 and 2003 crops without written contracts.
Chaparral never returned the signed contracts.
However, Amin insisted that
Chaparral return the 2004 contract. Amin
told Saba that if Chaparral wanted to get paid, it would need to sign the
contract. Thereafter, Amin received the
2004 contract signed by Klepper. Klepper
also signed the 2005 processing contract on behalf of Chaparral. M.T. testified that in signing the 2004 and
2005 processing contracts, Klepper was following Chaparral’s instructions.
Primex developed a new contract for
its growers in 2006. The new contract
offered growers a 5 cent per pound bonus for a three-year commitment and added
a new payment option. The older version
had offered a 2 cent per pound bonus for a three-year commitment and had only
one payment option.
In August 2006, before the harvest,
Amin sent a copy of the new contract to Saba and discussed it with him. Amin told Saba that if Chaparral signed a
three-year contract he would be willing to pay a retroactive 2 cent per pound
bonus for the 2005 crop. In 2005, Saba
had requested that Chaparral be paid the 2 cent per pound bonus retroactively
because Chaparral had delivered three crops in a row to Primex. At that time, Amin explained that it was a
commitment bonus given on a going forward basis only.
In October 2006, Amin traveled to
Iran and talked briefly with M.T. Amin
attempted to discuss the new contract and his offer to give a 2 cent
retroactive bonus but M.T. was not interested in all the detail. When Amin mentioned the 2 cent retroactive
bonus, M.T. interrupted and said “Mr. Amin, you know, $.02 is not important to
us, relationship is important to us, we value your relationship.†M.T. was very complimentary of the service
Primex had given and told Amin “We will always support you, and you will always
have us.â€
When Amin returned to California,
the 2006 contract from Chaparral was in his mail. This contract was again signed by
Klepper. The one-year rather than the
three-year option had been marked but Klepper had not selected between the two
payment options. Amin called Klepper to
ask him to select a payment plan. Amin
also wanted Klepper to discuss the contract term with Chaparral to make sure
that it was Chaparral’s choice. Amin
knew that Chaparral wanted to get the maximum amount of money and Amin had been
told by M.T. that he would always get Chaparral’s crop. Additionally, Amin did not want Chaparral to
come back later and say that it deserved a commitment bonus.
A couple of weeks later, Amin
received the Chaparral contract with the three-year term and the new payment
option selected. As with the 2004 and
2005 contracts, this contract was signed by Klepper.
Paramount Farms, Inc. (Paramount)
is the largest pistachio processor in California and handles approximately 65
percent of all pistachios grown in the state.
Beginning in 2007, Paramount started offering to sell its stored
irrigation water to growers who signed a three-year contract with it.
In May 2007, a representative of
Paramount traveled to Vienna and met with Saba to discuss whether Chaparral
could do business with Paramount.
Thereafter, M.T. signed a contract agreeing to deliver Chaparral’s 2007,
2008 and 2009 crops to Paramount.
In August 2007, shortly before the
2007 harvest, Klepper learned that Chaparral had signed a contract with
Paramount. Klepper received a phone call
from Saba that was overheard by Joan Klepper (Joan), Klepper’s wife. Joan heard Klepper say “Saba, you cannot do
this. You have a signed contract with
Primex for three years.†Klepper then
stated something to the effect of “I’ve always provided water for you. I’ve always been able to get water for
you.†Immediately after Klepper got off
the phone, Joan spoke to him. She
described Klepper as being excited, angry, irritated and very upset. When Joan asked “What in the world is going on?â€
Klepper responded “I cannot believe it, … Paramount has gone to Austria and
guaranteed water to … Chaparral.â€
“They’ve chose to completely ignore their contracts they have with
Primex.†According to Joan, Klepper
stated that he had been told to sign a three-year contract with Primex. Klepper said “They told me to sign it.â€
On August 2, 2007, Klepper sent an
email to Saba with a copy to M.T.
Klepper wrote “[T]he 2007 contracts for delivery of your crop need to be
reviewed. Will it be Paramount or Primex? I signed a three year contract in November of
2006. It is now my understanding that
you signed a contract with Paramount.
Please advise me on how to plan for the delivery of your crop.†Chaparral responded “please be advised that
we have already signed a three-year contract with Messers Paramount. Therefore, you are kindly requested to
deliver the new crop to them.â€
In early August 2007, Amin first
learned that Chaparral had signed a contract with Paramount for the processing
of Chaparral’s 2007, 2008 and 2009 crops.
Amin was surprised. He had been
anticipating Chaparral’s crop to provide 20 percent of Primex’s pistachio
supply.
Thereafter, Amin spoke to both Saba
and M.T. Saba was apologetic and told
Amin that Paramount had come to visit.
Saba stated that he tried to convince M.T. not to go with Paramount but
that M.T. signed the contract. M.T. told
Amin that it was Saba’s decision to switch to Paramount.
By letter dated August 13, 2007,
Primex, through its attorney, sent a demand to Chaparral, in care of Klepper,
insisting that Chaparral honor the three-year contract with Primex. Klepper Ag forwarded this demand letter to
Saba.
In response, Klepper received a
letter dated August 20, 2007, addressed “To Whom It May Concern†and signed by
M.T. This letter stated “Bill Klepper
has no authority to sign an agreement binding Chapparal [sic] Farms Inc., aka, Chapparal [sic] Industries Inc. to a pistachio processing contract.â€
Rosemary Farrar, Klepper’s office
assistant, was present when Klepper received the August 20 letter from
M.T. Farrar testified that Klepper was
speechless, in shock, confused and very angry.
Klepper received a second letter
signed by M.T. dated September 11, 2007.
In this letter M.T. stated that Klepper was “not entitled to sign†the
three-year contract with Primex “or any other contracts with Primex and/or any
other person without my official written confirmation. You were not authorized to do so.†M.T. expressed that he was “astonished†that
Klepper entered into a contract with Amin without his acknowledgement and
written consent and recommended that Klepper contact Amin “and solve the
problem based on an amicable way.â€
Again, Farrar was present when
Klepper received this letter from M.T.
Farrar testified that Klepper was furious and that she heard him say
“This is just fucking bullshit.â€
Chaparral continued its
relationship with Klepper until his death in June 2008 and then with Klepper Ag
until the company shut down in 2009.
M.T. terminated Saba and Abbas,
M.T.’s brother, became the chief financial officer for Chaparral in early 2008.
M.T. testified that he terminated Saba
because Saba was lazy.
Farrar asked Abbas about Saba one
time and Abbas replied “Well, Mr. Saba is in the Siberia of Europe.†When Farrar asked what that meant, Abbas told
her “You don’t want to know.â€
Pistachios are an alternate bearing
crop. During an “on†crop year, an
orchard produces approximately twice the number of pistachios as during an
“off†crop year. Nevertheless, customers
want the same supply of nuts each year.
Accordingly, Primex needs to maintain a sufficient inventory to meet
customer needs throughout the year or it will lose customers.
By the time Amin learned that
Primex would not receive Chaparral’s 2007 crop it was not possible to replace
those nuts. The growers had already
committed their crops to other processors.
Therefore, Primex was forced to purchase already processed nuts to
maintain its inventory.
Primex filed the underlying
complaint against Chaparral for breach of contract alleging damages based on
Chaparral’s non-delivery of its 2007 and 2008 pistachio crops. Chaparral denied there was a contract and
filed a cross-complaint against Klepper Ag for indemnity. Chaparral alleged that Klepper Ag breached
its fiduciary duty to Chaparral.
The case was tried to a jury. The jury found that Klepper had actual and
ostensible authority to enter into the contract with Primex and that Chaparral
had breached the contract. The jury
awarded Primex $3,460,043 in damages.
The jury further found that Klepper Ag owed Chaparral a fiduciary duty
but had not breached it.
DISCUSSION
The record supports the jury’s findings that Klepper had both actual and
ostensible authority.
Chaparral
argues there is no substantial evidence to support the jury’s findings that
Klepper had actual or ostensible authority to sign a three-year processing
contract. Thus, the power of this court
begins and ends with a determination as to whether there is any substantial
evidence, contradicted or uncontradicted, to support these findings. (Crawford
v. Southern Pacific Co. (1935) 3 Cal.2d 427, 429.) Accordingly, the evidence must be viewed in
the light most favorable to Primex, giving it the benefit of every reasonable
inference and resolving all conflicts in its favor. (Jessup
Farms v. Baldwin (1983) 33 Cal.3d 639, 660.) Nevertheless, the evidence must be
substantial, i.e., reasonable, credible and of solid value. (Kuhn
v. Department of General Services (1994) 22 Cal.App.4th 1627, 1633 (
Substantial
evidence may consist of inferences.
However, “such inferences must be ‘a product of logic and reason’ and
‘must rest on the evidence’ [citation] .…â€
(Kuhn, supra, 22 Cal.App.4th
at p. 1633.) Further, when
confronted with conflicting inferences, this court cannot substitute its own
deductions for those of the jury. (
Competence (1998) 64 Cal.App.4th 1130, 1139.) The burden is on Chaparral to demonstrate
error. (Guntert v. City of Stockton (1976) 55 Cal.App.3d 131, 142.)
ii. Authority.
Here, it is
undisputed that Klepper acted as Chaparral’s agent. As such, Klepper represented Chaparral in
dealings with third persons. (
113 Cal.App.4th 549, 570.) At issue is
the extent of Klepper’s authority, i.e., what authority Chaparral actually or
ostensibly conferred upon him. (Civ.
Code, § 2315.)
Actual
authority exists when a principal expressly confers such authority or, by his
intentional or negligent conduct, causes the
agent to reasonably believe that the
principal consents to the agent’s execution of an act on the principal’s
behalf. (Civ. Code, § 2316;
61 Cal.2d 638, 643 (Tomerlin).) Ostensible authority arises as a result of
the principal’s conduct that causes the
third party to reasonably believe that the agent possesses the authority to
act on the principal’s behalf. (
circumstantial evidence.…’
[Citation.]†(
iii.
The actual authority finding.
Chaparral contends that the record
is devoid of evidence that Chaparral intentionally granted Klepper authority to
enter into a multi-year contract to sell pistachios. Contrary to Chaparral’s position, such evidence
does exist. Joan’s testimony regarding
Klepper’s 2007 telephone conversation with Saba supports the jury’s
finding. As outlined above, after Joan
heard Klepper’s side of the telephone conversation and asked him what was going
on, Klepper responded that Paramount had guaranteed water to Chaparral and that
Chaparral had chosen to ignore their contract with Primex. According to Joan, Klepper stated that he had
been told to sign a three-year contract with Primex. Klepper said “They told me to sign it.†From this, the jury could logically and
reasonably infer that someone at Chaparral told Klepper to sign the contract
and thus he was authorized to do so.
Chaparral
acknowledges this evidence but claims that it is not more probable than not
that “they†referred to Chaparral.
Chaparral contends that such an inference would have to be drawn “from
thin air†and thus this testimony is insufficient to establish actual
authority. (Cf. Leslie G. v. Perry & Associates (1996) 43 Cal.App.4th 472,
483.) In other words, a reasonable trier
of fact could not find that Klepper had actual authority based on this
evidence. (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 857.)
However, in the context in which
this discussion took place, the inference that “they†referred to Chaparral is
“‘a product of logic and reasonâ€â€™ and rests on the evidence. (Kuhn,
supra, 22 Cal.App.4th at p. 1633.)
We cannot substitute our own deductions for those of the jury. Accordingly, substantial evidence supports
the actual authority finding.
Chaparral
further argues that Klepper’s out-of-court statement that “They told me to sign
it†is not competent evidence that he had actual authority based on the general
rule that the “declarations of an agent are not admissible to prove the fact of
his agency or the extent of his power as such agent.†(Howell
v. Courtesy Chevrolet, Inc. (1971) 16 Cal.App.3d 391, 401.) Chaparral notes that over a century of law
has held such declarations to be inadmissible.
Even if
this rule may apply in some circumstances, it is inapplicable to the issue of
whether the agent had actual authority. Rather the rule against admitting the agent’s
out-of-court declarations to prove the fact of the agency applies to the issue
of ostensible authority. For example, in Petterson v. Stockton & T.R. Co. (1901) 134 Cal. 244, relied on
by Chaparral, the court stated “Agency cannot be proved by the declarations of
the agent .… What [the third party]
believed, without some action on the part of the [principal] justifying such
belief, would cut no figure.†(
authority.
Similarly, the other cases relied
on by Chaparral concern ostensible authority.
(E.g., South Sacramento Drayage
Co. v. Campbell Soup Co. (1963) 220 Cal.App.2d 851, 857;
16 Cal.App.3d at p. 401; Raleigh v. Lee (1914)
26 Cal.App. 229; Hubback v. Ross (1892)
96 Cal. 426; Scott v. Los Angeles
Mountain Park Co. (1928) 92 Cal.App. 258; and J.L. v. Children’s Institute, Inc. (2009) 177 Cal.App.4th 388 (
As explained by the court in J.L.,
“Ostensible agency cannot be established by the representations or conduct
of the purported agent; the statements or acts of the principal must be such as
to cause the belief the agency exists.
[Citations.] ‘ “Liability of
the principal for the acts of an ostensible agent rests on the doctrine of
‘estoppel,’ the essential elements of which are representations made by the
principal, justifiable reliance by a third party, and a change of position from
such reliance resulting in injury.
[Citation.]†[Citation.]’ [Citation.]â€
(J.L., supra, 177 Cal.App.4th
at p. 404.)
Unlike ostensible authority, actual
authority can be based on the agent’s reasonable belief that the principal
consented to the agent’s execution of an act.
Thus, evidence of the agent’s belief is relevant. A third party’s belief, which must be based
on the acts of the principal rather than the agent, is not involved. Accordingly, the estoppel doctrine is
inapplicable. Therefore, the agent’s
declarations are not inadmissible as evidence of actual authority. The reason for excluding the agent’s
extrajudicial declarations as proof of the agency does not exist.
Farrar’s testimony regarding Klepper’s
reactions to the letters from Chaparral stating that Klepper was not authorized
to sign the three-year contract with Primex further supports the actual
authority finding. Based on Klepper’s
confusion and angry outburst upon receipt of the letters, the jury could
reasonably infer that Klepper believed he had authority to sign the contract.
Chaparral argues the trial court
erred in admitting Klepper’s extrajudicial statement that denial of his
authority was “bullshit†based on the rule that agency cannot be proved through
the agent’s declarations. However, as
discussed above, this rule is inapplicable here because the evidence was
admitted to prove actual authority, not ostensible authority.
Even though the jury’s finding that
Klepper had actual authority alone supports the judgment, we will also consider
and uphold the jury’s finding that Klepper had ostensible authority.
Chaparral argues the ostensible
authority finding is not supported by substantial evidence because there is no
evidence that Chaparral intentionally caused or allowed Amin to believe that
Klepper had authority to enter into a three-year contract to sell
pistachios. Chaparral acknowledges that
Klepper had authority to sign the one-year contracts. Nevertheless, Chaparral asserts, a three-year
contract is not a similar transaction and thus, the fact that Klepper signed
one-year contracts could not have lulled Amin into reasonably believing that
Klepper had authority to sign the three-year contract.
Before recovery can be had against
the principal for the acts of an ostensible agent, three requirements must be
met: (1) The person dealing with an
agent must do so with a reasonable belief in the agent’s authority; (2) such
belief must be generated by some act or neglect by the principal sought to be
charged; and (3) the person relying on the agent’s apparent authority must not
be negligent in holding that belief. (
403-404.)
Here, the parties, Amin and M.T.,
had a long-term business relationship.
Klepper assisted M.T. with developing Chaparral and handled all of
Chaparral’s business operations in California.
In speaking with Amin, M.T. referred to Klepper as being the person in
charge and praised Klepper as an honest man “who takes care of their
stuff.†From Amin’s perspective, all of
Chaparral’s decisions and actions came through Klepper. It was Klepper who signed the prior
contracts, signed filings with the California Secretary of State on behalf of
Chaparral and handled all of Chaparral’s banking needs. Moreover, M.T. told Amin that Amin would
always get Chaparral’s crop.
Under these circumstances, the jury
could reasonably find that Klepper had ostensible authority to sign the
three-year contract with Primex. M.T.’s
hands off approach to the business and dependence on Klepper to run Chaparral,
along with his statements that Klepper was in charge, that Klepper was an
honest man and that Amin would always get Chaparral’s crop, supports finding
that Amin’s belief that Klepper had authority was reasonable and was generated
by M.T.’s conduct. Moreover, due to
their long-standing business relationship and M.T.’s assurances that Chaparral
would always support Primex, the evidence supports finding that Amin was not
negligent in holding the belief that Klepper had authority.
b. The trial court did not err in refusing Chaparral’s proposed jury
instruction.
Chaparral requested the trial court
to instruct the jury that “persons dealing with … an assumed agent who attempt
… to hold the principal responsible for the agent’s acts are bound at their
peril to ascertain, not only the fact of the agency, but the nature and extent
of the agent’s authority.†The court
refused. Chaparral argues this was error
because the instruction was legally correct and was supported by abundant
evidence.
A party is entitled, upon request,
to correct, nonargumentative instructions on every asserted theory of the case
that is supported by substantial evidence.
(Soule v. General Motors Corp. (1994)
8 Cal.4th 548, 572.) The propriety of a
jury instruction is a question of law. (
171 Cal.App.4th 72, 82.)
The text of Chaparral’s proposed
instruction comes from Hill v. Citizens
Nat. Trust & Sav. Bk. (1937) 9 Cal.2d 172, 177 (Hill). In
under a contract by which another corporation agreed to sell certain real
estate on the ground that the corporation was the agent of the respondent
bank. However, not only was there no
evidence of the corporation’s actual authority to sell the land on behalf of
the bank, there was no evidence of ostensible authority either. The bank was unaware of the corporation’s
existence. Under these circumstances,
the court noted that the appellants took the “risk not only of ascertaining
whether the person with whom he is dealing is the agent, but also of
ascertaining the scope of his powers.†(
rule “that persons dealing with an assumed agent … are bound at their peril, if
they would hold the principal, to ascertain not only the fact of the agency but
the nature and extent of the authority, and in case either is controverted, the
burden of proof is upon them to establish it.â€
(Ibid.)
While Chaparral is correct that its
proposed instruction was an accurate statement of the law, it nevertheless was
inapplicable to this case. Chaparral’s
instruction pertains to an assumed
agent. Here, it was undisputed that
Klepper was Chaparral’s agent.
Additionally, this proposed
instruction was inconsistent with the instruction given that “[a]t all relevant
times, Klepper Ag Services, Inc. was the agent of Chaparral Farms, Inc.†Thus, the proposed instruction could have
misled the jury. The trial court is not
required to give instructions that are misleading. (Conservatorship
of Gregory (2000) 80 Cal.App.4th 514, 522.)
Moreover, even if we assume the
trial court should have given this proposed instruction, the failure to do so
was not prejudicial. The jury found that
Klepper had actual authority to sign the three-year contract with Primex, a
finding that is supported by substantial evidence. “Where the agent acts within the scope of his
actual authority, it is immaterial whether or not an inquiry into the extent of
the authority has been made by a person dealing with the agent.†(Myers
v. Stephens (1965) 233 Cal.App.2d 104, 115.)
c. The record supports the defense verdict on Chaparral’s
cross-complaint.
Chaparral cross-complained against
Klepper Ag alleging that Klepper breached his fiduciary duty to Chaparral by
not informing Chaparral that he had signed the three-year contract with
Primex. The jury found that Klepper owed
a fiduciary duty to Chaparral but that he did not breach that duty. Chaparral contends this finding is not
supported by substantial evidence.
The trial court instructed the jury
on Chaparral’s burden as follows:
“… On the cross-complaint of Chaparral Farms, Inc.,
against Klepper Ag Services, it is the burden of Chaparral Farms, Inc., to
establish that Klepper Ag Services breached its fiduciary duty by exceeding its
authority in signing the three-year Primex agreement and/or failing to notify
Chaparral Farms, Inc., that he signed it.â€
When the jury returned the defense
verdict on the cross-complaint, it implicitly concluded that Chaparral, as the
cross-complainant, did not carry its burden of proof. In this situation, i.e., an appeal of a
judgment that was based on a failure of proof, it is somewhat misleading to
characterize the issue as whether substantial evidence supports that
judgment. (Shaw v. County of Santa Cruz (2008) 170 Cal.App.4th 229, 279.) This is because the problem before this court
is not whether Chaparral proved by a preponderance of the evidence that Klepper
breached his fiduciary duty. That was a
question for the jury and it was resolved against Chaparral. The question for this court is whether the
evidence compels a finding in favor of Chaparral as a matter of law. (Roesch
v. De Mota (1944) 24 Cal.2d 563, 570-571; Shaw v. County of Santa Cruz, supra, 170 Cal.App.4th at p.
279.) “Specifically, the question
becomes whether [Chaparral’s] evidence was (1) ‘uncontradicted and unimpeached’
and (2) ‘of such a character and weight as to leave no room for a judicial
determination that it was insufficient to support a finding.’†(Shaw
v. County of Santa Cruz, supra, 170 Cal.App.4th at p. 279.) The answer here is no.
Relying on the rule that an agent
has a fiduciary duty to the principal
to disclose all information in the agent’s possession that is relevant to the
agency (L. Byron Culver & Associates
v. Jaoudi Industrial & Trading Corp. (1991) 1 Cal.App.4th 300, 304),
Chaparral contends that Klepper breached his fiduciary duty when he did not
inform Chaparral that he had signed the Primex contract. Chaparral argues that, because there is no
record of any fax, letter, email, or telephone call timely informing Chaparral
that Klepper signed the contract, the record does not support the jury’s
finding.
However, the jury found that
Klepper was instructed by Chaparral to sign the three-year contract with
Primex. As discussed above, the evidence
supports this finding. Thus, there is
evidence from which the jury could have reasonably concluded that Chaparral
already knew that the contract had been signed and thus it was unnecessary for
Klepper to disclose this information.
Accordingly, the record does not contain uncontradicted evidence of such
character and weight as to compel a finding that Klepper breached his fiduciary
duty to Chaparral. Therefore, the record
supports the verdict on the cross-complaint.
d. The jury properly awarded replacement cost damages.
i. Damages under the
Commercial Code for seller’s breach of contract.
The California Uniform Commercial
Code provides a buyer with several alternative remedies for a seller’s breach
of contract. (Cal. U. Com. Code,
§ 2711.) A buyer can “‘cover’ by
making in good faith and without unreasonable delay any reasonable purchase of
… goods in substitution for those due from the seller.†(§ 2712, subd. (1).) In that case, “[t]he buyer may recover from
the seller as damages the difference between the cost of cover and the contract
price .…†(§ 2712, subd.
(2).) The failure to effect cover does
not bar the buyer from any other remedy.
(§ 2712, subd. (3).)
If the buyer is either unable to
cover or elects not to cover, the measure of damages is the difference between
the market price at the time the buyer learned of the breach and the contract
price. (Cal. U. Com. Code, § 2713;
36 Cal.App.4th 376, 381 (KGM Harvesting).)
Under either alternative the buyer
may also recover incidental and consequential damages. (Cal. U. Com. Code, §§ 2711, 2715.) Consequential damages include any loss
resulting from the buyer’s general or particular requirements and needs of
which the seller had reason to know at the time of contracting and that could
not reasonably be prevented by cover or otherwise. (§ 2715, subd. (2)(a).)
available.
By the time Primex learned that
Chaparral would not be delivering its 2007 crop, Primex was unable to replace
these unprocessed pistachios because growers had already committed their crops
to other processors. Chaparral’s 2007
crop represented approximately 20 percent of Primex’s anticipated supply for
that year. Further, because 2007 was an
“on†crop year, Primex had been planning to have four to five million pounds of
pistachios in its inventory to mitigate the “off†crop year in 2008.
In 2007 and 2008 Chaparral produced
approximately 5.5 million pounds of pistachios.
Without these pistachios, Primex had an inventory shortage. To mitigate a potential loss of customers,
Primex purchased finished pistachios, i.e., already processed, both in shell
and kernels, to add to its inventory.
Primex suffered a loss on the
purchased nuts because Primex was not able to charge for the processing. This loss is known as the contribution
margin. Chaparral does not dispute
Primex’s entitlement to contribution margin damages. However, due to market fluctuations, Primex
incurred an additional loss when it was required to sell some of the purchased
nuts for less than it paid for them.
Primex’s expert, Susan Thompson, referred to this component as the
replacement cost loss. To determine the
selling prices, Thompson used the average sales prices from all of Primex’s
sales during the 2007 and 2008 crop years.
Chaparral argues that the trial
court erred in permitting the jury to award Primex damages for its replacement
cost loss. According to Chaparral, the
finished pistachios were cover goods and Primex did not meet the requirements
for cover damages. Therefore, Chaparral
asserts, Primex was limited to damages under California Uniform Commercial Code
section 2713, i.e., the difference between the market price and the contract
price.
As noted above, when a seller
breaches the contract, the buyer may cover by buying substitute goods, in good
faith and without unreasonable delay.
Here, Primex could not cover with unprocessed pistachios because none
were available at the time of the breach.
Nevertheless, although the parties did not characterize them as such in
the trial court, the finished pistachios were arguably substitute goods. (Cf. KGM
Harvesting, supra, 36 Cal.App.4th at p. 385, fn. 4.)
In any event, Primex was not
required to cover and was still entitled to damages. Primex could recover the difference between
the market price and the contract price plus any incidental and consequential
damages. (KGM Harvesting, supra, 36 Cal.App.4th at p. 381.) However, because no unprocessed pistachios
were available to Primex at the time of the breach, there was no market
price. Be that as it may, Primex was not
precluded from receiving consequential damages.
An award of damages as measured by California Uniform Commercial Code
section 2713, is not a prerequisite to an award of consequential damages. (Green
Wood Industrial Co. v. Forceman Internat. Development Group, Inc. (2007)
156 Cal.App.4th 766, 773-774.)
Due to Chaparral’s breach, Primex
lost about 20 percent of its anticipated pistachio supply. Primex must keep an inventory of finished
pistachios to maintain the supply during the “off†crop years or risk losing
customers both that year and in the future.
Accordingly, to mitigate its damages, Primex purchased finished
pistachios to compensate for its inventory shortage during 2007 and 2008. There is no indication that these purchases
were not made in good faith. However,
the price of pistachios fluctuates.
Unfortunately, Primex was not prescient and did not time the market
properly. Rather, it purchased high and,
in order to fulfill certain contracts, was required to sell low.
Nevertheless, Primex made a
reasonable, albeit somewhat unsuccessful, effort to avoid loss. Chaparral was the party in breach. Accordingly, the risks incident to Primex’s
effort are to be carried by Chaparral, the party whose wrongful conduct caused
such effort to be necessary. (
Accountancy Corp. (1990) 226 Cal.App.3d 442, 460.) Under these circumstances, the losses
incurred by Primex in its effort to avoid losses resulting from Chaparral’s
breach are recoverable as damages. (
iii. The replacement cost damages
award is supported by the record.
To arrive at a figure for the
replacement loss, Primex’s expert, Thompson, calculated the cost of the
replacement nuts per pound purchased by Primex during the 2007 crop year and
then calculated the average selling price per pound for nuts during the 2007
crop year. Comparing these two prices,
Thompson concluded that Primex had sold the replacement nuts at a loss. Because Primex’s 2007 purchases did not fully
make up for the inventory loss due to Chaparral’s breach, Thompson did a
similar calculation for 2008.
Chaparral’s expert, Kenneth Rugeti,
primarily agreed with Thompson’s numbers.
His disagreement was with the sales price. Instead of averaging the 2007 crop year
sales, Rugeti averaged the 2008 crop year sales. It was Rugeti’s opinion that the replacement
nuts were actually sold as part of the 2008 crop. Based on this analysis, Rugeti opined that
Primex made a profit on the replacement nuts.
Other factors affecting the
replacement cost analysis were testified to by Amin. Amin explained that the replacement nuts were
blended into Primex’s inventory, as is the usual practice, and thus it was not
possible to determine the exact selling price for those nuts. Primex’s inventory consists of pistachios
left over from the previous crop year, the crop it receives from growers for
the current crop year and additional purchases of finished nuts. These nuts are blended depending on the quality
of grade that is needed to meet the customers’ orders. Therefore, it was not possible to keep track
of any particular pistachios. Amin also
testified that, in the nut trading business, many of the contracts for the
entire year are entered into in September or October at the beginning of the
crop year. Those contracts set the price
at the time they are entered and may cover future shipments that take place up
to as long as 16 months later.
Chaparral argues that substantial
evidence does not support the replacement cost award. Chaparral notes that Thompson admitted that
she did not know the actual selling price of the replacement nuts. In fact, it is not possible to make that
determination. Chaparral objects to
Thompson’s use of the average price for the whole year as the selling
price. Chaparral asserts that there is
no evidence to support the assumption that this average price is the price the
replacement nuts were sold for.
According to Chaparral, sales of the 2007 crop occurred long before Primex
bought the replacement nuts and there is no evidence that the nuts sold were
the replacement nuts.
The jury was presented with
opposing views of how the replacement cost damages should be calculated,
weighed that evidence, and agreed with Primex’s calculation. While it is true that the replacement nuts
were purchased throughout the 2007 crop year, i.e., between October 2007 and
August 2008, evidence was presented that in the usual course of business,
Primex enters contracts at the beginning of the crop year and, at that time,
sets the prices for shipments that take place later in the year, regardless of
the price Primex paid for the nuts shipped.
Viewing this evidence in the light most favorable to Primex, giving it
the benefit of every reasonable inference and resolving all conflicts in its
favor, Thompson’s use of the average price for the year to calculate the
replacement cost award is supported by substantial evidence.
Chaparral’s breach caused Primex to
suffer damages. That fact is
undisputed. Where the
with absolute certainty. (
92 Cal.App.4th 385, 398.) The law only
requires that some reasonable basis of computation be used. The result reached can be a reasonable
approximation. (Ibid.) The jury was
presented with a reasonable basis for computing damages arising from
Chaparral’s breach and arrived at a reasonable approximation.
There are
two components to the damages that were awarded to Primex, the contribution
margin and the replacement cost. The
contribution margin damages are based on the per pound profit Primex would have
made on the processing of the pistachios that Chaparral delivered to Paramount
in 2007 and 2008.
Primex’s expert, Thompson,
calculated the contribution margin by starting with the total cost incurred by
Primex in processing nuts. This total
cost was segregated into two categories, fixed costs and variable costs. The variable costs that are directly related
to processing were then divided by the total number of pounds processed to
arrive at a variable cost per pound. The
figure charged by Primex per pound to the growers to process nuts less that
variable cost per pound is the contribution margin.
At trial, Primex moved the court
for prejudgment interest on the damages award.
The court denied the motion. On
appeal, Primex challenges the trial court’s denial of prejudgment interest on
the contribution margin damages.
Under Civil Code section 3287,
subdivision (a), a party is entitled to recover prejudgment interest on the
damages award from the date that the amount was both (1) due and owing and (2)
certain or capable of being made certain by calculation. (Uzyel
v. Kadisha (2010) 188 Cal.App.4th 866, 919 (Uzyel).) The test for
recovery of prejudgment interest under this section is whether the defendant
(1) actually knows the amount of damages owed plaintiff, or (2) could compute
that amount from information reasonably available to the defendant. (KGM
Harvesting, supra, 36 Cal.App.4th at p. 391.) Prejudgment interest should be awarded only
if one of these two conditions is met. (
Enterprises, Inc. (1983) 149 Cal.App.3d 901, 907.)
Damages that must be judicially
determined based on conflicting evidence are not ascertainable. (Uzyel,
supra, 188 Cal.App.4th at p. 919.)
However, a legal dispute concerning defendant’s liability or uncertainty
regarding the measure of damages does not render damages unascertainable. (Ibid.)
On appeal, this court must
independently review whether and when Primex’s contribution margin damages were
certain or capable of being made certain by calculation. (KGM
Harvesting, supra, 36 Cal.App.4th at pp. 390-391.)
Primex argues that it is entitled
to prejudgment interest on the contribution margin damages as of September 11,
2009, because on that date Chaparral received Primex’s interrogatory answers
and therefore had all the information it needed to calculate Primex’s
contribution margin loss. In these
answers, Primex stated that it
“currently estimates the damage resulting to it from
Chaparral’s breach of contract with respect to the 2007 crop to be
$1,389,048.56. This amount includes two
years of interest in the amount of $231,508.09.
The amount is based on 3,452,351 in-shell pounds delivered by Chaparral
to Cal Pure in 2007 and meats in the amount of 383,603 pounds. The contribution margin has been calculated
at .2624 for the 2007 crop year. This
calculation is only an estimate and is subject to change based on the
calculation to be done by Plaintiff’s expert (who will be disclosed and made
available for deposition.)â€
Similar information was given for the 2008 crop year with
the contribution margin calculated at .2664.
However, in
responding to a further set of interrogatories in November 2009, Primex noted
it had changed its contribution margin calculations to reflect a “crop yearâ€
basis. Primex did not provide the
supporting data showing how Primex arrived at those figures.
Thompson revised her calculations
for the contribution margin a second and third time during her two
depositions. Some of these changes were
in response to criticism from Chaparral’s expert. At trial, Thompson used $0.25 per pound to arrive
at the contribution margin losses.
Chaparral’s expert did not dispute those figures.
Primex admits that the numbers set
forth in the interrogatory answers vary from the numbers presented by its
expert during her depositions and at trial but contends that these slight
variations do not preclude a prejudgment interest award. Primex is correct that minor calculation
errors that can easily be corrected do not make damages uncertain. (KGM
Harvesting, supra, 36 Cal.App.4th at pp. 391-392.) It is when there is a large discrepancy
between the amount demanded and the amount awarded that the damages will be
considered uncertain. (
920.) Also, damages are uncertain when
they depend on a judicial determination based on conflicting evidence or when
there is a lack of factual information needed to readily calculate
damages. (Ibid.) If the defendant does
not know or cannot readily compute the damages, the plaintiff must supply the
defendant with supporting data so that the defendant can ascertain the
damages. (KGM Harvesting, supra, 36 Cal.App.4th at p. 391.)
Here, while Primex supplied
Chaparral with its contribution margin, it did not provide the supporting data
needed to make that calculation. This,
combined with the expert’s multiple calculation modifications, leads to the
conclusion that the contribution margin damages were not ascertainable by
Chaparral. Accordingly, the denial of
prejudgment interest will be affirmed.
DISPOSITION
The judgment is affirmed. The parties will bear their own costs on
appeal.
_____________________
LEVY, J.
WE CONCUR:
_____________________
WISEMAN, Acting P.J.
_____________________
KANE, J.
name="_ftn1" title="">[1] We
use initials and first names for convenience only. No disrespect is intended.
