Starpoint
Motor
Filed 5/22/13 Starpoint USA v. Daewoo Motor CA2/7
California Rules of Court, rule 8.1115(a), prohibits courts
and parties from citing or relying on opinions not certified for publication or
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publication or ordered published for purposes of rule 8.1115
IN
THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND
APPELLATE DISTRICT
DIVISION
SEVEN
STARPOINT USA, INC.
Cross-Complainant and Appellant,
v.
DAEWOO MOTOR COMPANY, LTD.
Cross-Defendant and Respondent.
No. B234891
(Los Angeles
County
Super. Ct.
No. TC017448)
APPEAL from a judgment of the Superior Court of
County, Cesar C. Sarmiento, Judge. Reversed and remanded for further
proceedings.
Duane Morris, William J. Baron,
Colleen A. Cassidy and Cyndie M. Chang for Cross-Complainant and
Appellant.
Lee, Hong, Degerman, Kang &
Waimey, Larry R. Schmadeka, Eric D. Olson and Nilam J. Patel for Cross-Defendant
and Respondent.
__________________________
Starpoint USA
filed a breach of contract action alleging that Daewoo Motor Company was
required to reimburse legal fees incurred in enforcing two indemnity
agreements. Prior to trial, the court
ruled that Starpoint could introduce extrinsic evidence to aid in the
interpretation of the agreements. The
jury reached a verdict finding that the parties intended the agreements to
require Daewoo to reimburse Starpoint’s claimed costs.
Daewoo
filed a motion for new trial and a motion
for judgment notwithstanding the verdict arguing that: (1) Starpoint had
failed to introduce any competent extrinsic evidence in support of its
interpretation of the agreement; (2) under the plain language of the agreement,
Starpoint was not entitled to attorney’s fees incurred in an action to enforce
the agreement. The trial court granted
both motions. We reverse the court’s
order granting judgment notwithstanding the verdict and affirm its order granting
a new trial.
FACTUAL AND PROCEDURAL BACKGROUND
Complaint
In 1997,
Daewoo Motor Company (Daewoo) established Daewoo Motor America (DMA) to
distribute Daewoo vehicles in the United States. On April 11, 2000, Daewoo and DMA included a
written indemnity agreement in an audit letter which stated: “[Daewoo] has agreed to reimburse [DMA] for
all product liability expenses, including fees and disbursements to legal
counsel, experts, judgments, settlement amounts not covered by the insurance
policies, and all other costs normally associated with the defense of product liability
litigation relating to vehicles and parts purchased by DMA from [Daewoo].†DMA’s accountant, KPMG, prepared the audit
letter, which was then signed by Daewoo.
In April of
2003, KPMG prepared a second audit letter stating, in relevant part: ““[Daewoo] has agreed to indemnify and hold
harmless [DMA] from any claim, demand, or legal proceedings (including legal
fees, costs and expenses related thereto) involving allegations of . . . bodily
injury, or property damage allegedly caused by a defect in design, manufacture
or assembly of [Daewoo] products or components thereof.†Daewoo signed the letter on April 18, 2003.
Shortly
thereafter, Michelle Bandy was injured while driving a Daewoo vehicle and filed
a product liability action against Daewoo and DMA’s successor in interest,
Starpoint USA. Starpoint filed a cross-complaint alleging
that that the audit letter agreements required Daewoo to indemnify all costs
related to the Bandy Action. In June of
2005, Daewoo settled the Bandy action on behalf of all parties in the chain of
distribution, including Starpoint.
Starpoint,
however, proceeded with its cross-complaint, asserting that Daewoo had breached
the 2000 and 2003 letter agreements by failing to reimburse: (1) legal expenses
Starpoint incurred in the Bandy action prior to settlement; and (2) legal
expenses Starpoint incurred in enforcing the indemnity provisions against
Daewoo. Starpoint also alleged that
Daewoo’s actions constituted a breach of the implied covenant of good faith and
fair dealing.
During
pretrial proceedings, the parties disputed the meaning of the letter agreements
and whether extrinsic evidence was
necessary to aid in their interpretation.
Starpoint asserted that language in the agreements requiring Daewoo to
indemnify “all legal costs†related to a product liability claim necessarily
included attorney’s fees incurred in enforcing Starpoint’s underlying indemnity
rights. Alternatively, Starpoint argued
that the court “should at least find that there is an ambiguity†as to whether
the agreements were intended to require reimbursement of enforcement costs and
“admit extrinsic evidence to clarify the ambiguity.†It further contended that the court should
“permit the jury†to resolve the ambiguity.
Daewoo,
however, argued that “the unequivocal language of the Audit Letters†precluded
Starpoint from recovering “attorneys fees and costs incurred in the prosecution
of its indemnity claims.†Daewoo further
argued that, to the extent any “uncertainties or ambiguity existe[d],â€
Starpoint had failed to identify any extrinsic evidence “of any intent or
formation that would assist in determining the meaning of the purported terms
in the Audit Letters . . . . As such, the Court must look [only] at the four
corners of the document.â€
At a pretrial hearing, the court ruled that “there [was]
ambiguity†as to whether the agreements required Daewoo to reimburse
enforcement costs and that a jury should resolve the issue: “I think there is extrinsic evidence
necessary to what is the intent of the parties on this issue regarding
indemnity and attorneys fees. So I think
that is what this trial is about, and that’s where we have the disagreement. That’s where the ambiguity begins.â€
and Verdict
Witness
testimony
At trial,
Starpoint called two witnesses who provided testimony regarding the intended
meaning of the letter agreements: Yeong
Soo Hong, who was Starpoint’s president and former chief financial officer, and
Agnes Cha, who served as an in-house attorney.
On direct
examination, Hong testified that the audit letters were intended to confirm
that Starpoint did not need to set aside reserves for product liability
exposure in their annual financial statements.
Hong alleged that he directed Starpoint’s accountant, KPMG, to draft the
letters in a manner that would require Daewoo to reimburse all costs incurred
in either defending a product liability action or enforcing the terms of the
agreements. Hong further stated that,
after KPMG drafted the letters, he sent them to Daewoo for signature.
On
cross-examination, defense counsel asked Hong whether he had any conversations
with Daewoo regarding the meaning of the letters:
COUNSEL: You did not have any discussions with [Daewoo] regarding this
letter other than to sign it, is that right?
HONG: As you can see, the letter is more than ten years
old. When such a letter was sent, we did
have a mutual understanding about the product liability as to who is
responsible, so the party who is sending and the party who is receiving has
sufficient understanding as to the liability.
COUNSEL: Motion to strike, your honor.
COURT: Hold on.
Overruled. Ask your next
question, please.
COUNSEL: What I am asking you is, when this was sent to [Daewoo] in Korea,
did you pick up the phone and talk to someone at [Daewoo] about the terms in
the letter?
HONG: Like I said, when I was sending the letter, I told them
that, ‘A letter is being sent to you.’ But I don’t remember as to whether or
not I discussed content of this letter with someone else.
COUNSEL: The best of your recollection, you only told them it was coming,
‘Please sign it and return it’?
HONG: I just told you that I cannot quite
recall.
Hong also reiterated his view that
the letter agreements were intended to include reimbursement of expenses
incurred in both “defending†any product liability claim and “in making demands
or prosecuting the claim if [Daewoo] didn’t pay it.†In response to this assertion, defense
counsel asked Hong why he believed the text of the agreements required
reimbursement of enforcement costs. Hong
provided three reasons. First, he said
it was “common sense†that the manufacturer would “pay the product liability
100 percent.†Second, he asserted that
if Starpoint did not believe it was entitled to costs incurred in enforcing the
agreement, KPMG would have “mandated†that the company list “a reserve asset
for that†in the annual financial statements.
Third, Hong stated that the agreements referenced “‘all other costs normally
associated with the defense of a product liability litigation.’â€
At the
conclusion of the cross-examination, defense counsel inquired again as to
whether Hong had any “conversation with . . . Daewoo†regarding the “meaning or
interpretation†of the language in the audit letters. Hong responded: “Since this is the common
understanding as to the content of this letter, I don’t have any recollection
speaking.â€
On re-direct examination, Starpoint’s attorney asked Hong
to clarify his prior statements regarding his communications with Daewoo:
STARPOINT COUNSEL: [Defense counsel] asked you whether you had
a specific conversation about these letter agreements with someone at [Daewoo],
and I believe your response was that you did not have a specific conversation
about the letter agreements with [Daewoo] when you were sending this letter
because you had conversations prior to the time you sent the letters, correct?
DAEWOO COUNSEL: Objection. Leading,
THE COURT: Overruled.
You can answer.
HONG: Yes, that is correct.
STARPOINT COUNSEL: And the bottom line is that [Daewoo] . . .
agreed to reimburse you a hundred percent relating to product liability
expenses.
HONG: Yes, that is correct.
STARPOINT COUNSEL: Including legal fees for defending and
including legal fees for going after them if they don’t pay?
HONG: Correct. It would include all the expenses.
Finally, on
re-cross examination, defense counsel asked Hong: “Is it your testimony that you had a specific
conversation with people at [Daewoo] prior to the letters in which [Daewoo]
specifically said that they would agree to pay you reimbursement for
expenses, legal expenses, incurred in
going after [Daewoo] for product liability expenses?†Hong responded: “I told you already that
product liability responsibility would be borne by the manufacturer a hundred
percent, and this is common knowledge between the parties, and there is no
reason for [Daewoo] not to pay [Starpoint] the expenses that were
incurred. So when have a conversation
between the parent company and subsidiary company, you will not list each and
every case.â€
Starpoint’s
second witness, Agnes Cha, acknowledged on cross-examination that the audit
letters did not contain any “express language†regarding enforcement
costs. She also admitted that
Starpoint’s predecessor, DMA, had entered into agreements with other third
parties that did have language “specifically . . . say[ing] that ‘attorney’s
fees are recoverable in the enforcement of the rights of this agreement.’â€
On re-direct
examination, however, Cha testified that the intent of the letter agreements
were to ensure that Starpoint recovered “100%†of its product liability costs,
including any attorney’s fees incurred in enforcing the agreements. She also stated that, in the absence of the
letter agreements, she “th[ought]†Starpoint would “have to put a provision in
the financial statement for exposure to legal fees for products
liability.â€
Daewoo did not call any witnesses to rebut the testimony
of Hong or Cha. In closing argument, however, defense counsel argued that
neither audit letter contained “a promise to reimburse [Starpoint’s] attorney’s
fees should they attempt to enforce this agreement.†Counsel also argued that Starpoint could have
included such language, as it had done in contracts with other parties. Finally, counsel reminded the jury that Hong
had “no specific recollection of ever talking to [Daewoo]†about the meaning of
the letter agreements.
Jury
verdict
In a
special verdict form, the jury made the following findings: (1) the letter
agreements required Daewoo to “pay all legal expenses†that Starpoint incurred
in defending the Bandy action; (2) the letter agreements required Daewoo to
“indemnify Starpoint . . . for all attorney’s fees and legal expenses incurred
to enforce or prosecute the terms of the [agreements]â€; (3) Starpoint had
substantially complied with all of its obligations under the agreements; and
(4) Daewoo had “unfairly interfere[d] with Starpoint[’s] . . . rights to
receive the benefits of the contract.â€
The jury awarded damages to Starpoint of $57,667.28 for its legal
expenses in the Bandy action.
On September 24, 2010, the court entered a judgment
awarding Starpoint $57,667.28 for “attorney’s fees and legal expenses in the
underlying product liability action, plus prejudgment interest and post
judgment interest.†The judgment further
stated that the amount of Starpoint’s of recovery for “attorneys’ fees and
legal expenses incurred to enforce or prosecute the terms of the indemnity
letter agreement against [Daewoo]†would “be determined at a later hearing . .
. by the Court.â€
motions
Daewoo’s
motion for judgment notwithstanding the verdict and motion for new trial
After the
judgment was entered, Daewoo filed a motion for judgment notwithstanding the
verdict (JNOV motion) and a motion for new trial challenging the portion of the
verdict finding that it was required to reimburse Starpoint for legal costs
incurred in enforcing the indemnity agreements.
In the JNOV motion, Daewoo argued – as it had before trial – that the
plain language of the letter agreements “show[ed] conclusively, and as a matter
of law, that Starpoint had no rights of indemnification as to an action to
enforce the contract.†Alternatively,
Daewoo argued that Starpoint had failed to introduce any extrinsic evidence
“from which the jury could find that the intent of the parties was to extend
the indemnity provision language used to indemnifying for enforcing the
contracts terms.†According to Daewoo,
Starpoint’s witnesses had merely provided their subjective belief as to the
meaning of the agreements, which was “irrelevant in determining the reasonable
meaning of the words and acts of the parties.â€
Daewoo contended that these same arguments applied to Starpoint’s claim
for breach of the implied covenant of good faith and fair dealing.
Daewoo’s
motion for a new trial raised similar arguments, asserting that the trial court
committed legal error when it permitted Starpoint to introduce parol evidence
to aid in the interpretation of the agreements.
Daewoo also argued that the court should permit a new trial because the
“[t]he weight of the evidence [wa]s against the finding that the audit letters
provided for recovery of attorneys fees and costs in an action to enforce their
provision.†According to Daewoo,
Starpoint’s trial evidence was “limited to self-serving expressions of [its]
own subjective intent at the time of the drafting of the letters by its own
auditors. Starpoint presented no
evidence, however, that such intent was ever communicated to [Daewoo] and that
[Daewoo] had concurred with Starpoint thus resulting in a meeting of the
minds.†Daewoo argued that these same
arguments applied to the jury’s finding on the implied covenant claim: “given the insufficiency of the evidence to
establish that the Audit Letters indemnified Starpoint for an action on the
contract, it follows that the evidence is insufficient to establish that
[Daewoo] deprived Starpoint of the supposed benefits of the contract and thus
breached the implied covenant of good faith and fair dealing.â€
In opposition, Starpoint argued that: (1) the court had
already ruled that the letter agreements were ambiguous as to whether Daewoo
was required to reimburse costs incurred to enforce the agreements; and (2) the
extrinsic evidence at trial was sufficient to support the jury’s finding that
the parties intended the agreements to extend to such costs. In support of its second point, Starpoint
contended that Hong had “offered . . . testimony†showing that “both [Daewoo]
and Starpoint were fully aware that [Daewoo] would indemnify and reimburse all
legal expenses relating to litigation involving Daewoo automobiles.†The only extrinsic evidence Starpoint cited
was testimony in which Hong stated that: (1) the parties had a “mutual
understanding . . . as to the product
liability [issue]â€; and (2) if Starpoint did not believe the letter agreements
required reimbursement of enforcement costs, its financial statements would
have included a reserve for those costs.
2.
The
trial court’s order granting Daewoo’s motions for JNOV and new trial
After a
hearing, the court entered a written order granting both of Daewoo’s
motions. The order addressed the motion
for new trial first, explaining that Starpoint had failed to provide any
“competent†extrinsic evidence regarding the intended meaning of the letter
agreements: “[T]he testimony of Mr. Hong
and Ms. Cha is not competent parol evidence.
Mr. Hong testified that he sent the Letter Agreements to [Daewoo] and
asked them to sign and return the letters.
[Citation.] Mr. Hong did not
recall whether there were any discussions regarding the terms of the agreement
prior to its execution. [Citation.] Thus, Mr. Hong’s testimony did not provide
any evidence of circumstances communicating [Starpoint’s] subjective intent or
negotiations between the parties that supports [Starpoint’s] interpretation of
the agreement. The testimony of Ms. Cha
is similarly deficient. Ms. Cha was not
a party to the negotiations or execution of the Letter Agreements, but had
merely gained her knowledge from review of the agreements and its context. [Citation.]
Evidence of the undisclosed subjective intent of the parties is
irrelevant to determining the meaning of contractual language. [Citation.]
Thus, [Starpoint] did not produce any competent parol evidence that
supports its interpretation that the Letter Agreements were intended to include
attorney’s fee in an action to enforce the contract. Interpretation of the Letter Agreements is
therefore a matter of law.â€
The court
further concluded that, because Starpoint failed to introduce any competent
extrinsic evidence, it was required to interpret the letter agreements based
solely on their language. The court
noted that, under the relevant case law, “an indemnitee [ordinarily] may not
recovery [sic] attorney’s fees
incurred to enforce the indemnity agreement unless the indemnity agreement
expressly or impliedly provides for an award of such fees. It is also the general rule that the
inclusion of attorney fees as an item of loss in a third-party claim-indemnity
provision does not constitute a provision for the award of attorney fees in an
action to enforce the indemnity contract.
[Citation.]â€
The court
ruled that, here, the parties’ letter agreements did not contain any language
“indicat[ing] an intent to award attorney’s fees in an action to enforce the
agreement. Rather, the Audit Letters
merely state the obligation of [Daewoo] to indemnify [Daewoo] for third-party
products liability claims and breach of warranty claims. Moreover, neither Letter Agreement even makes
any reference to the consequences of an action to enforce the contract. Thus, attorneys fees for enforcement of the
agreement was not contemplated by the parties and are outside the scope of the
Letter Agreements.â€
The court granted Daewoo’s motion for JNOV on the same
grounds, stating: “[Daewoo] argues that it is entitled to judgment
notwithstanding the verdict because . .
. [¶] there was no substantial evidence that Starpoint communicated an intent
to have the audit letter extend the indemnity for enforcement and that [Daewoo]
concurred with any such intent. The
court agrees. As discussed above . . .
in . . . the motion for new trial, Starpoint did not present any competent
parol evidence to support its interpretation of the contract. A party’s unexpressed subjective intent may
not be considered in interpreting the contract.
Accordingly, the motion for [JNOV] on this ground is [granted].â€
Starpoint’s
motions for reconsideration and to set aside the judgment
Following
the entry of the court’s order, Starpoint filed a motion for reconsideration
and motion to set aside the judgment asserting that “the extrinsic evidence
presented at trial supports Starpoint’s interpretation that the Letter
Agreements provide for payment of enforcement costs. The evidence supports the jury’s verdict in
Starpoint’s favor on this issue, and compels a denial of [Daewoo’s] JNOV motion
and its motion for new trial.†Although
Starpoint’s motions essentially repeated the arguments it had made in
opposition to Daewoo’s motions for JNOV and new trial, Starpoint submitted
additional trial testimony in support of its position. In particular, Starpoint highlighted
testimony in which Hong stated that he had “conversations with Daewoo prior to
. . . sen[ding] the letters†and that Daewoo had agreed to reimburse both
“legal fees for defending and including legal fees for going after them if they
d[id]n’t pay.â€
In
addition, Starpoint cited testimony in which Hong and Cha stated that if the
letter agreements were not intended to require reimbursement of legal costs
incurred in enforcement, KPMG would have mandated that Starpoint set aside a
reserve for such costs in its annual financial statements. Hong also testified that Daewoo reviewed and
approved the financial statements, and therefore was aware that Starpoint was
not setting aside reserves for future enforcement costs.
The trial
court denied the motions, explaining: “In essence, Starpoint argues that the
evidence of the parties’ intent was sufficient to support the jury’s finding in
the special verdict. However, this again
rests on whether or not the testimony of Mr. Hong and Ms. Cha were competent
parol evidence. Starpoint again argues
that there was a dispute regarding extrinsic facts and that the trial testimony
of Mr. Hong and Ms. Cha state that they communicated their understanding that
the agreement provides for enforcement costs.
[¶] However, as this Court has
already explained, the testimony of Mr. Hong and Ms. Cha do not constitute
competent parol evidence. [¶] . . .
[¶] The citations to the testimony of
Mr. Hong cited by Starpoint in its moving papers do not compel a different
result. Mr. Hong simply stating that the
parties had a mutual understanding is insufficient. None of Mr. Hong’s testimony cited in the
motion shows that Mr. Hong communicated his intent in entering into the
agreement nor do they support Starpoint’s interpretation of the agreement.â€
On June 29,
2011, the court entered a “Judgment on Special Verdict and Pursuant to Rulings
in Favor of [Daewoo] for its Motion for Judgment Notwithstanding the Verdict
and Motion for New Trial.†The judgment
affirmed the portion of the special verdict requiring Daewoo “to pay the sum of
$57,667.28 for Starpoint’s attorney’s fees and legal expenses in the underlying
product liability action.†The judgment
further stated that, “[p]ursuant to the court’s ruling [granting Daewoo’s]
Motion for Judgment Notwithstanding the Verdict and . . . Motion for New Trial,
. . . it is hereby adjudged . . .[that] Starpoint shall take nothing on its
claim that . . . [Daewoo] breached the contract with respect to recovery of
Attorney Fees and costs in Starpoint’s action to enforce the contract; and
Starpoint take nothing on its claim that [Daewoo] breached contractually the
implied covenant of good faith and fair dealing.†Starpoint filed a timely appeal of the trial
court’s order granting Daewoo’s motions
for new trial and JNOV and the portion of the judgment reflecting those
rulings.
DISCUSSION
Starpoint
argues that we must reverse the trial court’s order granting a JNOV and new
trial because the jury’s finding that the parties intended the letter
agreements to require Daewoo to reimburse “attorney’s fees and legal expenses
incurred to enforce or prosecute the terms of the [agreements]†was supported
by substantial evidence. As discussed in
more detail below, Starpoint does not challenge the trial court’s ruling that,
in the absence of competent extrinsic evidence clarifying the parties’ intent,
the language of the letter agreements would not require Daewoo to reimburse
enforcement costs. It asserts, however,
that the trial court erred in concluding that the extrinsic evidence at trial
was insufficient to support the jury’s interpretation of the contract.
Because an order granting a motion for JNOV and an order
granting a motion for new trial are subject to significantly different standards
of review, we address the trial court’s grant of each motion separately.
Trial Court Erred in Granting Daewoo’s Motion for Judgment Notwithstanding the
Verdict
Legal
standards applicable to a judgment notwithstanding the verdict
“‘“The
trial judge’s power to grant a judgment notwithstanding the verdict is
identical to his power to grant a directed verdict [citations.]. The trial
judge cannot reweigh the evidence [citation], or judge the credibility of
witnesses. [Citation.] If the evidence is conflicting or if several
reasonable inferences may be drawn, the motion for judgment notwithstanding the
verdict should be denied. [Citations.]
‘A motion for judgment notwithstanding the verdict of a jury may properly be
granted only if it appears from the evidence, viewed in the light most
favorable to the party securing the verdict, that there is no substantial
evidence to support the verdict. If
there is any substantial evidence, or reasonable inferences to be drawn
therefrom, in support of the verdict, the motion should be denied.’ [Citation.]â€â€™
[Citation.]†(
(2005) 128 Cal.App.4th 212, 226-227 (Sole
Energy).)
“‘In passing upon the propriety of a judgment
notwithstanding the verdict, appellate courts view the evidence in the light
most favorable to the party who obtained the verdict and against the party to
whom the judgment notwithstanding the verdict was awarded. [Citations.]
In other words, we apply the substantial evidence test to the jury
verdict, ignoring the judgment.’
[Citation.]†(
p. 227.) If, however, the “appeal
challenging the denial of the motion for judgment notwithstanding the verdict
raises purely legal questions, . . . our review is de novo. [Citation.]†(Wolf
v. Walt Disney Pictures & Television (2008) 162 Cal.App.4th 1107, 1138
(Wolf).)
The
trial court did not err in permitting Starpoint to introduce extrinsic evidence
of the parties’ intent
Before
assessing whether substantial evidence supported the jury’s findings, we first
address Daewoo’s assertion that we should affirm the JNOV because, as a matter
of law, the letter agreements cannot be reasonably interpreted to require
reimbursement of attorney’s fees incurred in enforcing the agreements. Prior to trial, the court ruled that the
letter agreements were ambiguous on this issue and permitted Starpoint to
introduce extrinsic evidence regarding “the intent of the parties.†Daewoo, however, contends that the trial
court should have never permitted the trial to hear any extrinsic evidence
because the agreements unambiguously preclude Starpoint from recovering
enforcement costs.
A court
must interpret a contract to give effect to the mutual intent of the parties at
the time the contract was formed. (Civ.
Code, § 1636.) “Ordinarily, the
objective intent of the contracting parties is a legal question determined
solely by reference to the contract’s terms.
(Civ. Code, § 1639 [‘[w]hen a contract is reduced to writing, the
intention of the parties is to be ascertained from the writing alone, if
possible . . .’]; Civ. Code, § 1638 [the ‘language of a contract is to govern
its interpretation . . .’].) [¶] The
court generally may not consider extrinsic evidence . . . to vary or contradict
the clear and unambiguous terms of a written . . . contract. [Citations.]
Extrinsic evidence is admissible, however, to interpret an agreement
when a material term is ambiguous. [Citations.]†(Wolf,
supra, 162 Cal.App.4th at p. 1126.)
“The test
of whether parol evidence is admissible to construe an ambiguity is not whether
the language appears to the court to be unambiguous, but whether the evidence
presented is relevant to prove a meaning to which the language is ‘reasonably
susceptible.’ [Citation.]†(Winet v.
Price (1992) 4 Cal.App.4th 1159, 1165 (Winet).) As explained by the California Supreme
Court: “Although extrinsic evidence is
not admissible to add to, detract from, or vary the terms of a written
contract, these terms must first be determined before it can be decided whether
or not extrinsic evidence is being offered for a prohibited purpose. The fact that the terms of an instrument
appear clear to a judge does not preclude the possibility that the parties chose
the language of the instrument to express different terms. That possibility . . . exists whenever the
parties’ understanding of the words used may have differed from the judge’s
understanding.†(Pacific Gas & E. Co. v. Thomas Drayage etc. Co. (1968) 69
Cal.2d 33, 39-40.)
“The
decision whether to admit parol evidence involves a two-step process. First, the court provisionally receives
(without actually admitting) all credible evidence concerning the parties’
intentions to determine ‘ambiguity,’ i.e., whether the language is ‘reasonably
susceptible’ to the interpretation urged by a party. If in light of the extrinsic evidence the
court decides the language is ‘reasonably susceptible’ to the interpretation
urged, the extrinsic evidence is then admitted to aid in the second step –
interpreting the contract.†(
1165.) In this case, the court concluded
that the letter agreements were reasonably susceptible to the interpretation
set forth by Starpoint and permitted extrinsic evidence.
We agree
that that the letter agreements are ambiguous as to whether the parties
intended to require Daewoo to reimburse attorney’s fees incurred in enforcing
the agreements. The April 2000 letter
states, in relevant part, that Daewoo “has agreed to reimburse all product
liability expenses, including fees and disbursements to legal counsel . . .
relating to vehicles and parts purchased by [DMA] from [Daewoo].†The phrase “all product liability expenses,
including . . . disbursements to legal counsel†might be reasonably construed as
extending to legal fees incurred to enforce the agreement. Such costs would not have been incurred but
for a product liability claim, and therefore might be reasonably characterized
as a “product liability expense.â€
Moreover, the April 2000 letter agreement contains no language that
expressly precludes the award of legal fees incurred in enforcing the
agreement.
The April
2003 letter contains similar language stating, in relevant part, that Daewoo
“has agreed to indemnify . . . [DMA] from any claim . . . (including legal
fees, costs, and expense related thereto) involving allegations of . . . bodily
injury or property damages allegedly caused by . . . [Daewoo] products.†Again, the language requiring Daewoo to indemnify
all “legal fees, costs and expenses†“related†to a product liability claim
might be reasonably construed as including legal expenses Starpoint incurred in
enforcing Daewoo’s indemnity obligations.
Such expenses were ultimately incurred as a result of a product
liability claim and were therefore arguably “related†to the product liability
claim. Moreover, as with April 2000
letter, the April 2003 letter contains no language that expressly precludes the
reimbursement of such fees.
Daewoo,
however, contends that several cases have considered indemnity agreements with
similar language and concluded that they did not require reimbursement of
attorney’s fees incurred to enforce the agreements. For example, in Carr Business Enterprises, Inc. v. City of Chowchilla (2008) 166
Cal.App.4th 14 (Carr), the parties
disputed whether the following provisions extended to legal expenses incurred
in enforcing the agreement: “[Carr]
shall indemnify and hold harmless [Chowchilla] . . . from and against all
claims, damages, losses and expenses including attorney fees arising out of the
performance of the work described herein . . .â€
(Id. at p. 19.) The court concluded that although, “[a]t
first glance, the language . . . seem[ed] to extend beyond [costs associated
with the] third-party claims[,] . . . relevant case authority suggest[ed]†the
agreement could not be read so broadly.
(Id. at p. 20.)
The court
reviewed three cases – Myers Building
Industries, Ltd. v. Interface Technology, Inc. (1993) 13 Cal.App.4th 949 (
82 (Meininger) and
Cal.App.4th 1328 (Campbell) – that
considered whether an indemnification agreement requiring reimbursement of
legal fees “arising out of†or “related to†the performance of certain duties
extended to legal fees incurred in enforcing the agreement. (See Myers,
supra, 13 Cal.App.4th at pp. 963-964 [indemnifying “all claims . . . and
expenses, including . . . attorney’s fees, arising out of . . . the performance
of the Workâ€]; Meininger, supra, 63
Cal.App.3d at p. 84 [indemnifying “any . . . claims . . . , including counsel
or attorneys’ fees . . . which may arise directly or indirectly from the
performance of this Contract’]; Campbell,
supra, 78 Cal.App.4th at p. 1336 [indemnifying “claims, . . . including . .
. reasonable attorneys fees . . . which
arise . . . from . . . or relate to this escrowâ€].) In all three decisions, the courts concluded
that the agreements did not “allow[] recovery of [enforcement] fees.†(Carr,
supra, 166 Cal.App.4th at pp. 21-22.)
The Carr court contrasted
those decisions with Baldwin Builders v.
Coast Plastering Corp. (2005) 125 Cal.App.4th 1339 and Continental Heller Corp. v. Amtech Mechanical Services, Inc. (1997)
53 Cal.App.4th 500, which ruled that such fees were recoverable where the
contract included express language for “‘“attorney’s fees incurred in enforcing
[the] indemnity agreement.â€â€™
[Citation.]†(
23.)
The
language of the indemnity provision under consideration “more closely
parallel[ed] the language found in Myers,
Meininger, and Campbell, than the language examined in Baldwin and Continental. Unlike in Baldwin,
there is no express language authorizing recovery of fees in an action to
enforce the contract.†(
23.)
Daewoo
asserts that Carr is the latest in “a
long line of established authorities holding that,†in the absence of language
expressly authorizing recovery of fees in an action to enforce the contract,
“standard third party indemnity language . . . may not be construed to grant
any right to recover attorney fees incurred in the enforcement of the indemnity
agreement.â€
Although
Starpoint acknowledges that the contractual language at issue in
distinguished from the language in the letter agreements here, it correctly
asserts that in none of those decisions did the parties submit extrinsic
evidence. Moreover, none of the
decisions addressed whether extrinsic evidence could have been properly
admitted to aid in the interpretation of the agreements. Thus, the limited issue decided in those
cases was whether the language of the indemnity agreements, considered without
the benefit of extrinsic evidence, were properly interpreted as requiring
reimbursement of fees incurred to enforce the agreement. The issue here, however, is whether the
letter agreements were “reasonably susceptible†to such an interpretation,
thereby supporting the admission of extrinsic evidence.
For the reasons explained above, we conclude that the
letter agreements were at least reasonably susceptible to Starpoint’s
interpretation. The trial court’s
admission of extrinsic evidence was therefore proper.
Starpoint
introduced substantial evidence that the parties intended the letter agreements
to include reimbursement of enforcement costs
The court
granted Daewoo’s motion for JNOV because it concluded that Starpoint failed to
introduce any “competent†extrinsic evidence regarding the parties’ intended
meaning of the letter agreements. (See
Genentech, Inc. (2008) 43 Cal.4th 375, 395 [interpretation of a written
contract is “solely a judicial function . . . when a determination was made
based on incompetent [extrinsic] evidence.
[Citation.]â€].) In particular,
the court concluded that Starpoint’s witnesses had merely described their own
subjective understanding of the letter agreements without offering any evidence
that they had “communicat[ed]†this intent to Daewoo. According to the court, Starpoint’s
President, Yeong Soo Hong, testimony showed only that: (1) he had sent Daewoo
the letter agreements for signature; and (2) he could not recall whether he had
any discussions with Daewoo regarding the meaning of the letters prior to their
execution. The court concluded that none
of the other witnesses provided any testimony related to discussions with
Daewoo.
Starpoint
does not dispute that “‘[e]vidence of the undisclosed subjective intent of
the parties is irrelevant to determining the meaning of contractual
language.’†(Salehi v. Surfside III Condominium Owners’ Assn. (2011) 200
Cal.App.4th 1146, 1159 (Salehi)
[“‘[e]vidence of the undisclosed subjective intent of the parties is irrelevant
to determining the meaning of contractual language’â€]; Winet, supra, 4 Cal.App.4th at p. 1165, n. 3 [witness’s
“testimony as to what he subjectively understood and intended the [contract] to
encompass . . . was not competent extrinsic evidence, because evidence of the
undisclosed subjective intent of the parties is irrelevant to determining the
meaning of contractual languageâ€].) It
argues, however, that it presented substantial evidence from which the jury could
reasonably infer that Hong did in fact communicate his understanding of the
letter agreements to Daewoo and that Daewoo shared his understanding. We agree.
“The
testimony of a single witness, even a party, is sufficient to provide
substantial evidence to support a factual finding.†(Fariba
v. Dealer Services Corp.
(2009) 178 Cal.App.4th 156, 171.) At trial, Hong testified that, when he sent
the letters the Daewoo, the parties “ha[d] a mutual understanding†that Daewoo
was required to reimburse any legal costs incurred in enforcing the
agreements. Hong also testified
that: (1) he had conversations with
Daewoo about the letter agreements before they were signed; and (2) Daewoo
specifically “agreed to reimburse . . . a hundred percent relating to product
liability expenses,†which included both “legal fees for defending and . . .
legal fees for going after them if they don’t pay.â€
Under the
“highly deferential†substantial evidence standard (Hub City Solid Waste Services, Inc. v. City of Compton (2010) 186
Cal.App.4th 1114, 1128, Hong’s testimony was sufficient to support the jury’s
finding that the parties intended the agreements to require reimbursement of
legal expenses incurred in enforcing those agreements. Considered in the light most favorable to the
verdict, a jury could legitimately infer from Hong’s testimony that, before
entering into the letter agreements, he had conversations during which Daewoo
agreed it would indemnify enforcement costs.
As the trial court observed, it is true that other
portions of Hong’s testimony raise questions as to whether he did in fact
engage in any such discussions. During
his cross-examination, Hong repeatedly stated that he could not recall whether
he had any conversations with Daewoo regarding the meaning of the letter
agreements. He also stated that such
conversations would have been unnecessary because it was “common sense†that
Daewoo would reimburse the costs of enforcing the indemnity agreements. Under the “substantial evidence rule,â€
however, we “must accept as true the evidence supporting the verdict, disregard
conflicting evidence, and indulge every legitimate inference to support the
verdict.†(Murray’s Iron Works, Inc. v. Boyce (2008) 158 Cal.App.4th 1279,
1285.) “‘[E]ven testimony which is subject
to justifiable suspicion do[es] not justify the reversal of a judgment, for it
is the exclusive province of the . . . jury to determine the credibility of a
witness and the truth or falsity of the facts upon which a determination
depends.’†(New v. New (1957) 148 Cal.App.2d 372, 384.)
The
court erred in granting JNOV on Starpoint’s implied covenant claim
In its
motion for JNOV, Daewoo argued that because Starpoint had presented no evidence
supporting the jury’s finding that the letter agreements required reimbursement
of enforcement costs, the court must also grant a JNOV on Starpoint’s breach of
the implied covenant claim, which alleged that Daewoo had “‘unfairly
interfere[d ]with Starpoint’s right to receive’†this contractual benefit.
The court’s written order states that it “agreed†with Daewoo on this issue. The final judgment reflects this finding,
stating that Starpoint shall “take nothing on its claim that [Daewoo] breach .
. .the implied covenant . . .†Based on
the text of the order and final judgment, it appears that the court entered a
JNOV on Starpoint’s implied covenant claim based on its finding that that the
jury’s interpretation of the letter agreements was not supported by substantial
evidence.
did support the jury’s finding on that issue, we also reverse the court’s grant
of JNOV on Starpoint’s implied covenant claim.
Trial Court Did Not Abuse its Discretion in Granting the Motion for New Trial
Daewoo ’s
motion for new trial raised essentially the same argument set forth in its
motion for [JNOV]. Specifically, Daewoo
contended that the trial should permit a new trial pursuant to Code of Civil
Procedure section 657, subdivision (6) because the “weight of the evidence†showed
that Starpoint had never “communicated†its “subjective intent†to Daewoo at
any time prior to the execution of the letter agreements. The trial court granted Daewoo’s motion for
new trial for the same reasons it granted the JNOV. Specifically, the court ruled that: (1)
Starpoint’s extrinsic evidence showed only its “undisclosed subjectiveâ€
understanding of the letter agreements, which was “irrelevant to determining
the meaning of contractual languageâ€;
(2) in the absence of any “competent parol evidence,†interpretation of
the letter agreements was a question of law; and (3) the plain language of the
letter agreements did not “obligate [Daewoo] to pay attorney’s fees in actions
to enforce the contract.â€
On appeal, Starpoint contends that because the record
contains “credible evidence of the contracting parties’ intent . . .†, the
trial court “erred in taking this issue from the jury . . .â€
Summary
of applicable law and standard of review
“[T]he
function of a new trial motion is to allow a reexamination of an issue of fact.
. . . Unlike . . . judgments notwithstanding the verdict[,] . . . . granting a
new trial does not entail a victory for one side or the other. It simply means the reenactment of a process
which may eventually yield a winner.
Accordingly, the judge has much wider latitude in deciding the
motion.†(Fountain Valley Chateau Blanc Homeowner’s Assn. v. Department
(1998) 67 Cal.App.4th 743, 751 (Fountain
Valley).)
Code of
Civil Procedure section 657 sets forth the exclusive grounds for granting a new
trial. (See Neal v. Montgomery Elevator Co. (1992) 7 Cal.App.4th 1194,
1198.) Section 657, subdivision (6)
permits the court to order a new trial on all or part of the issues based
on “[i]nsufficiency of the evidence to justify the verdict or other
decision . . . .†“Insufficiency of
the evidence in this context means an absence of evidence or that the evidence
received, in the individual judgment of the trial judge, is lacking in probative
force to establish the proposition of fact to which it is addressed.†(Dominguez
v. Pantalone (1989) 212 Cal.App.3d 201, 215.) In making this assessment, the trial court is
permitted to “disbelieve witnesses, reweigh evidence and draw reasonable
inferences contrary to that of the jury. . . â€
(Fountain Valley, supra, 67
Cal.App.4th at p. 751.) On appeal, “an
order granting a new trial upon the ground of the insufficiency of the evidence
. . . shall be reversed as to such ground only if there is no substantial basis
in the record for any of such reasons.â€
(Code of Civ. Proc., § 657.)
A ruling on
a motion for a new trial is “generally review[ed] . . . for abuse of
discretion.†(Plotnik v. Meihaus
(2012) 208 Cal.App.4th 1590, 1614.) In
Cal.4th 405, the California Supreme Court clarified the highly deferential
standard of review applicable to a new trial order predicated on insufficiency
of the evidence: “[The] order . . .
‘must be sustained on appeal unless the opposing party demonstrates that no
reasonable finder of fact could have found for the movant on [the trial
court’s] theory. [Citation.] Moreover, ‘[a]n abuse of discretion cannot be
found in cases in which the evidence is in conflict and a verdict for the
moving party could have been reached . . . .’ [Citation.] In other words, ‘the presumption of
correctness normally accorded on appeal to the jury’s verdict is replaced by a
presumption in favor of the [new trial] order.’
[Citation.] [¶] . . . [¶] The only relevant limitation on this
discretion is that the trial court must state its reasons for granting the new
trial, and there must be substantial evidence in the record to support those
reasons. [Citation.]†(Id. at
p. 412.)
“[G]iven the latitude afforded
a judge in new trial motions, orders granting new trials [based on
insufficiency of the evidence] are ‘infrequently reversed.’†(Fountain
Valley, supra, 67 Cal.App.4th at
p. 751.)
The
trial court did not abuse its discretion in granting a new trial based on
insufficiency of the evidence
The trial
court’s order indicated that it had granted the motion for new trial upon the
ground of insufficiency of the evidence:
“[Starpoint] did not produce any competent parol evidence that supports
its interpretation that the Letter Agreements were intended to include
attorney’s fees in an action to enforce the contract.†The order also provided a statement of
reasons for the decision, explaining that
Starpoint’s evidence did not establish that it had communicated its
subjective understanding subjective understanding of the letters to
Daewoo. The court noted that Hong had
testified that he could not recall having any conversations with Daewoo
regarding the letter agreements, while Cha “was not a party to the negotiations
or execution of the Letter Agreements, but had merely gained her knowledge from
review of the agreements.†In the
court’s view, this testimony did not qualify as “competent parol evidenceâ€
because “the undisclosed subjective intent of the parties [wa]s irrelevant to
determining the meaning of contractual language.â€
Starpoint
contends that we must reverse the trial court’s order because the evidence at
trial was sufficient to support an inference that Starpoint did communicate its
subjective understanding of the letter agreements to Daewoo. In effect, Starpoint asserts that because
substantial evidence supported the jury’s interpretation of the letter
agreements, the court should have denied the motion for new trial. This assertion overlooks the different tests
applicable to a motion for JNOV and a motion for new trial. In evaluating the motion for JNOV, the trial
court was prohibited from weighing the evidence or assessing credibility, and
was tasked with determining whether there was any substantial evidence,
contradicted or uncontradicted, to support the jury’s verdict. But, when it came to the motion for new
trial, the court was permitted to weigh the evidence, consider the credibility
of witnesses, and determine whether the weight of the evidence went against the
jury’s verdict. (Casella v. Southwest Dealer Services (2007) 157 Cal.App.4th 1127,
1159-1160.) Moreover, the trial court
was free to draw inferences from the evidence different from those the jury
accepted. (Horsford v. Board of Trustees of California State University (2005)
132 Cal.App.4th 359, 379.)
Starpoint
attempts to avoid this deferential standard of review by asserting that the
court’s “conclusion that . . . the proffered extrinsic evidence was not
competent evidence of the parties’ mutual understanding of their contractsâ€
involved a question of law that we review de novo. While it is true that an order granting a new
trial based on an issue of law is reviewed under the de novo standard (see
Cal.App.4th 1500, 1505), the order here was clearly predicated on the court’s
factual finding that Starpoint failed to prove it communicated its subjective
understanding of the agreement to Daewoo.
Accordingly, we must affirm the court’s order “unless [Starpoint]
demonstrates that no reasonable finder of fact could have found for the movant
on [the trial court’s] theory. . . .†(
As
discussed above, Hong was the only witness who testified as to communications between
Daewoo and Starpoint. During
cross-examination, Hong repeatedly stated that he could not recall whether he
had any discussions with Daewoo regarding the terms of the letter agreement. During his re-direct examination, however, he
stated that he had in fact spoken with Daewoo prior to entering into the letter
agreements and that Daewoo agreed it would reimburse legal fees incurred in
enforcing the agreement. Finally, on
re-cross examination, defense counsel asked Hong again whether he “had a specific
conversation . . . in which Daewoo . . . specifically said that they would
agree to . . . reimburse[] . . . legal
expenses, incurred in going after Daewoo Motor Korea for product liability
expenses?†In response, Hong said he did
not have to tell Daewoo “each and every case†that was covered by the letter
agreements because it was “common knowledge†that a manufacturer would pay for
any costs associated with enforcing a product liability indemnity
agreement. In light of this inconsistent
testimony, a reasonable trier of fact could conclude that Hong did not have any
conversation with Daewoo about his subjective understanding of the contracts.
Starpoint
contends that, in addition to Hong’s testimony, evidence of the parties’
conduct unequivocally shows they mutually agreed that the letter agreements
were intended to require reimbursement of legal fees incurred in enforcing the
agreements. Hong and Cha testified that
if Starpoint or KPMG did not believe those fees were covered by the letter
agreements, KPMG would have required Starpoint to list a reserve for such fees
on its annual financial statements. Hong
further testified that Daewoo reviewed the financial statements and never
asserted that Starpoint should include reserves for costs associated with
enforcing the letter agreements.
Starpoint contends this “evidence of the parties’ conduct†shows they
shared a mutual “understanding of the Letter Agreements . . . – namely that,
that [Starpoint] had no exposure for enforcement costs.â€
To the
extent this evidence is even relevant to demonstrating the meaning Daewoo
ascribed to the letter agreements, it is certainly not sufficient to reverse
the trial court’s order granting a new trial.
Starpoint produced no evidence showing that Daewoo shared its belief
that a financial statement would normally include a reserve for future costs of
enforcing an indemnity provision. Nor
did it introduce any expert testimony suggesting that a financial statement
should normally include such a reserve.
Without such evidence, Hong and Cha’s testimony about Starpoint’s
financial statements merely serve as additional evidence of their own,
undisclosed subjective understanding of the contract.
Because a reasonable trier of fact could have concluded
that Starpoint failed to provide any competent extrinsic evidence regarding the
parties’ intent, the court did not abuse its discretion in granting a new trial
on the jury’s finding that Daewoo breached the letter agreements by failing to
reimburse Starpoint for attorney’s fees incurred in enforcing the
agreements. Nor did the court abuse its
discretion in granting a new trial on Starpoint’s breach of the implied
covenant claim, which was predicated on this same alleged breach of the letter
agreements.
title="">[3]
DISPOSITION
The judgment
and the court’s order granting Daewoo judgment notwithstanding the verdict are
reversed. The trial court’s order
granting a new trial on the jury’s finding that Daewoo breached the letter
agreements by failing to reimburse Starpoint’s enforcement costs and breached
the implied covenant of good faith and fair dealing is affirmed. Because the parties have not appealed the
portion of the verdict finding that Daewoo breached the letter agreements by
failing to reimburse Starpoint for legal expenses incurred in defending against
the Bandy Action, no retrial on that issue is required. Each party shall bear its own costs on
appeal.
ZELON,
J.
We concur:
PERLUSS, P.
J.
WOODS, J.
title="">[1]
Daewoo’s motion also argued that
it was entitled to a new trial because the court had erred in instructing the
jury and by refusing to admit findings and judgments entered in a related
bankruptcy proceeding.
title="">[2]
The court’s written order,
however, also stated that “the error was not prejudicial†because Starpoint
“did not recover any damages on the breach of the covenant claim that were not
independently recoverable under the breach of contract claim.†Despite that finding, the language in the
final judgment indicates that the court entered judgment against Starpoint on
the claim.
