United States 27 June 2007 California Appellate Court [2d District] (Orthotec, LLC v. Eurosurgical, S.A.)
[Cite as: http://cisgw3.law.pace.edu/cases/070627u1.html]
DATE OF DECISION:
CASE NUMBER/DOCKET NUMBER: B179387, B189213
CASE HISTORY: 1st instance Superior Court of Los Angeles County (BC276958) [reversed in part and remanded]
SELLER'S COUNTRY: United States (plaintiff)
BUYER'S COUNTRY: France (defendant)
GOODS INVOLVED: Medical devices
APPLICATION OF CISG: The appellate opinion states: "The trial court based its finding the CISG did not apply ... on the agreement's express direction it would be governed by California law and on evidence (1) the initial draft of the agreement provided for application of the CISG; (2) Bertranou believed potential distributors would be uncomfortable with a treaty governing the parties' relationship and discussed the matter with Viart; (3) Viart agreed to eliminate application of the CISG; and (4) the final version of the agreement omitted any reference to the CISG and provided only for the application of California law. Accordingly, as the trial court found, the facts of this case are distinguishable from those in Asante Technologies, Inc. v. PMC-Sierra, Inc. (N.D.Cal.2001) 164 F.Supp.2d 1142,1149-1150, relied on by Erosurgical, in which the parties expressed no clear desire to exclude application of the CISG to their agreement. (See also BP Oil Intern., Ltd. v. Empresa Estatal Petroleos (5th Cir.2003) 332 F.3d 333, 336-337 [parties did not expressly opt out of application of the CISG].)"
APPLICABLE CISG PROVISIONS AND ISSUES
Key CISG provisions at issue:
Classification of issues using UNCITRAL classification code numbers:
6A [Choice of law: exclusion of Convention by Contract]; 8C [Interpretation of party's statements or other conduct: interpretation in light of surrounding circumstances]
6A [Choice of law: exclusion of Convention by Contract];
8C [Interpretation of party's statements or other conduct: interpretation in light of surrounding circumstances]
CITATIONS TO ABSTRACTS OF DECISION
(a) UNCITRAL abstract: Unavailable
(b) Other abstracts
CITATIONS TO TEXT OF DECISION
Original language (English): Text presented below; see also 2007 WL 1830810 (Cal.App.2 Dist.) and the Unilex database at Note, however, that this case has not been officially published and that California Rules of Court, rule 8.1115, restricts citation of unpublished opinions in California courts.
CITATIONS TO COMMENTS ON DECISION
UnavailableGo to Case Table of Contents
June 27, 2007
APPEAL from a judgment of the Superior Court of Los Angeles County, Joanne O'Donnell, Judge. Affirmed in part, reversed in part and remanded.
Eurosurgical, S.A. appeals from the judgment entered after a four-week jury trial and a two-day bench trial awarding monetary and equitable relief to OrthoTec, LLC relating to OrthoTec, LLC's agreement to market Eurosurgical's medical devices in the United States. Eurosurgical contends the trial court made various evidentiary and instructional errors during the jury trial and neither the jury's damage award nor the trial court's equitable award is legally or factually sustainable. We reverse that part of the judgment finding against Eurosurgical on its declaratory relief claim and remand with directions for the trial court to modify the judgment to provide Eurosurgical is entitled to a 10 percent economic interest in OrthoTec, LLC from the date of the judgment forward. In all other respects, we affirm the judgment. We also grant the petition for a writ of habeas corpus/certiorari filed by Eurosurgical and its principals Guy Viart and Mathieu Maassen, which we have considered in conjunction with this appeal, finding an insufficient evidentiary basis for the trial court's order of contempt.
FACTUAL AND PROCEDURAL BACKGROUND
1. Eurosurgical and Its Interest in Distributing Its Products in the United States
Eurosurgical, founded in 1992, is a French corporation that designs and manufactures surgical products used in the treatment of spinal diseases. Viart is its managing director.
Near the time of Eurosurgical's formation, Viart met with Patrick Bertranou, a French citizen residing in Los Angeles. Bertranou, who had been a medical doctor in France, was distributing medical devices in the United States through a company called OrthoTec, Inc. Bertranou saw the United States as having the potential to be a hugely profitable market for distribution of Eurosurgical's products; Viart, recognizing significant benefits in expanding Eurosurgical's distribution of its products beyond Europe, was interested in using Bertranou to find a United States distributor for Eurosurgical's products.
During the next several years Bertranou unsuccessfully approached more than 20 companies as potential distributors for Eurosurgical's products. Eurosurgical also made efforts on its own to enter the United States market but likewise had no success.
2. The Licensing Agreement
Still interested in distributing Eurosurgical's products in the United States, but dissatisfied with the results of their efforts to date, Viart and Bertranou decided to enter a formal agreement they believed would help further the goal of securing a distributor. As a result, on November 24, 1997 Viart and Bertranou signed a licensing agreement in which Eurosurgical granted OrthoTec, Inc. "the exclusive right to Market and manufacture the Products [defined as three spinal interlaminal fixation devices entitled the SCS, Twinflex and Claris systems] and any improvements, alterations, modifications or replacements thereof ..., using the Patent Rights, and the right to use the Trademarks, by any and all methods and channels of distribution now or hereafter known and to permit or sublicense others to do any or all of the foregoing."Under the agreement OrthoTec, Inc. was required to "use its best efforts to Market the Products within the Territory[,]" which was defined as North America and Central America.
3. The Creation of OrthoTec, LLC and the Assignment Agreement
Operating under the terms of the licensing agreement, in 1998 Bertranou approached a company called StelKast Medical, Inc., which, after protracted discussions, sent Bertranou a letter of intent to purchase full rights, including marketing and manufacturing rights, to the SCS and Claris systems. The proposal would have been worth about $6 million to OrthoTec, Inc. OrthoTec, Inc. and StelKast Medical, Inc., however, were unable to reach final agreement.
Based on his negotiations with StelKast Medical, Inc., Bertranou believed that, for him to be successful in securing distribution outside Europe for Eurosurgical's products, he required more extensive manufacturing rights and a territory broader than North and Central America. (At trial Eurosurgical claimed Bertranou had proposed to sell greater rights to the products to StelKast Medical, Inc. than OrthoTec, Inc. had under the licensing agreement.) Bertranou also believed he should create a separate company specifically to do business with Eurosurgical because OrthoTec, Inc. was involved in other projects.
On August 28, 1998 Bertranou formed OrthoTec, LLC. According to OrthoTec, LLC's September 15, 1998 operating agreement, the company was created "to engage in the sales, manufacture, distribution and licensing of medical equipment now or hereafter designed by or for Eurosurgical, S.A., a French corporation, and of such other medical equipment determined by the Manager [initially Bertranou] in his sole discretion, and to do any and all other things determined by the Manager to be necessary, desirable or incidental to the foregoing purposes."
The day after OrthoTec, LLC's operating agreement was signed, the licensing agreement between OrthoTec, Inc. and Eurosurgical was terminated, and OrthoTec, LLC and Eurosurgical entered into a new agreement (the assignment agreement), which expanded OrthoTec, LLC's manufacturing rights and entitled Eurosurgical to an interest in OrthoTec, LLC.
Under the assignment agreement Eurosurgical sold and transferred to OrthoTec, LLC (1) all rights, including marketing rights, in the SCS, Claris and Cerfix cervical plate systems and any improvements, alterations, modifications or replacements; (2) the exclusive right to use the trademarks and the right of first opportunity to market any new product developed or created by or for Eurosurgical at any time; and (3) the exclusive right to pursue the issuance of one or more patents and other protections available in the territory (now defined as "North America, Mexico, Central America, India, Australia and New Zealand"). OrthoTec, LLC, from its first date of purchase of products from Eurosurgical, also enjoyed an exclusive right for 18 months to manufacture the products in the defined territory, and for the same time period OrthoTec, LLC was required to purchase the products exclusively from Eurosurgical. As consideration for transfer of the rights, OrthoTec, LLC was to give Eurosurgical a 10 percent ownership interest in OrthoTec, LLC. The agreement further provided that, if OrthoTec, LLC refused to timely pay any amount owed to Eurosurgical in connection with manufacturing the products, Eurosurgical could repurchase the rights from OrthoTec, LLC for $100. The agreement stated it was governed by California law and the prevailing party in any action to enforce the agreement was entitled to recover reasonable attorney fees.
4. OrthoTec, LLC's Licensing Agreement with REO SpineLine
Although Bertranou had not secured a deal with StelKast Medical, Inc., he remained in contact with one of the company's principals, Bradley Harris, who was experienced in the sale of spinal products; Bertranou and Harris continued to discuss the distribution of Eurosurgical's products outside Europe. As conversations between Bertranou and Harris progressed, Harris formed a new company, REO SpineLine, LLC, for the purpose of distributing Eurosurigcal's products. Harris was the sole owner and manager of REO.
On March 11, 1999 OrthoTec, LLC and REO entered into a licensing agreement for distribution of Eurosurgical's products, acknowledging OrthoTec, LLC's ownership of "all rights to advertise, merchandise, promote, distribute and sell" the SCS, Claris and Cerfix systems and REO's desire "to have the right to purchase the Products solely from [OrthoTec, LLC] and to then Market the Products throughout the United States, Canada, Mexico and Central America."Under the agreement OrthoTec, LLC granted to REO "[t]he exclusive right during the [five-year] Term of this Agreement to Market the Products only in the Territory using the Names, and any improvements, alterations, modifications or replacements thereof (if created by or for REO or Licensor [OrthoTec, LLC])." REO agreed, "at its expense, [to] use its best efforts to Market the Products throughout the Territory.""In addition to the purchase price to be paid for the Products to [OrthoTec, LLC]," OrthoTec, LLC received (1) an option to purchase for $1,000 a 25 percent interest in REO; and (2) a royalty equal to 5 percent of the retail sales price of all products sold to any retailer.
5. The Sale of Eurosurgical's Products in the United States
With the execution of the licensing agreement between OrthoTec, LLC and REO, a distributor had finally been secured for Eurosurgical's products outside of Europe. OrthoTec, LLC ordered its first product from Eurosurgical and resold it to REO at a profit. For the remaining months of 1999, OrthoTec, LLC made approximately $1.3 million in gross sales to REO. In the year 2000 gross sales for OrthoTec, LLC increased to approximately $2 million and the following year to $3 million. Eurosurgical's chief financial officer told Bertranou OrthoTec, LLC "had become the largest and most profitable client for Eurosurgical. That [it] was making the bulk of the purchase, the bulk of the volume, as well as most of the profits for Eurosurgical. And he told [Bertranou] that [Eurosurgical] had made over, by the end of 2000, almost $2 million in profits from what [OrthoTec, LLC] had purchased."
6. The Partnership Agreement
Although the 18-month period of exclusivity in the assignment agreement between Eurosurgical and OrthoTec, LLC ended in March 2000, OrthoTec, LLC continued to purchase products solely from Eurosurgical, despite having no obligation to do so. In early 2001 Viart expressed to Bertranou that Eurosurgical's investors "were not really happy to see that Eurosurgical had the largest client [OrthoTec, LLC] who could go away any day without a contract."According to Bertranou, Viart asked if he would sign another exclusive manufacturing contract to ensure OrthoTec, LLC's continued business, and Bertranou agreed on the condition Eurosurgical pay OrthoTec, LLC $15,000 per month to improve the company's cash flow and help with operating expenses. As a result, effective April 1, 2001 Eurosurgical and OrthoTec, LLC entered into a partnership agreement under which OrthoTec, LLC granted Eurosurgical a further period of manufacturing exclusivity for the two-year term of the agreement, plus an additional 36 months, and agreed to expand its marketing of the SCS and Claris systems to increase distribution of the products in North America. Eurosurgical, in turn, agreed to pay OrthoTec, LLC $15,000 per month for one year. The agreement provided it could be terminated "if by no later than April 1, 2002, the merger proposal among Eurosurgical, OrthoTec, LLC, and REO SpineLine has not become effective."
7. The Merger Discussions and Eurosurgical's Efforts to Reacquire Rights
With the partnership agreement in place, Bertranou and Viart discussed potential ways to establish a permanent linking of OrthoTec, LLC, Eurosurgical and REO. Those discussions evolved into talks about a merger of the three companies. According to Bertranou, however, the proposal did not progress very far because Viart believed Eurosurgical was worth at least 50 percent in a merger and Harris thought REO was worth a 75 percent interest in a newly formed company.
Despite the difficulties in the merger discussions, in early December 2001 Viart came to Los Angeles with Maassen, a consultant he had hired to evaluate Eurosurigcal's relationship with OrthoTec, LLC, to meet with Bertranou. During that meeting Viart told Bertranou he wanted to create a new company with Eurosurgical's and OrthoTec, LLC's assets and obtain the licensing agreement OrthoTec, LLC had with REO and the rights to all the products in the territory. Viart said he would give Bertranou a 12.3 percent interest in the newly formed company. Bertranou told Viart the proposal was inadequate given that OrthoTec, LLC had become Eurosurgical's biggest and most profitable client and Eurosurgical had made $2 million in profits from OrthoTec, LLC's sales to REO. Bertranou suggested other possible way to establish a new relationship among the three companies. None of them, however, was acceptable to Viart.
During this time Maassen completed his review of the relationship between OrthoTec, LLC and Eurosurgical and reported his conclusions to Viart on January 1, 2002: "Under the provisions of the Assignment Agreement, EUROSURGICAL may demand payment of any invoice due for manufacturing items at 30 days. In order to avail itself of such provision, Eurosurgical must make a written demand for it. [¶] Said 'Assignment Agreement' gives very extensive rights to OrthoTec and it will be very difficult to go around it. Because of the scope of the products definitions, the territory, the granted rights, we must, at all costs, cause this Agreement to be terminated or to be substantially changed. Indeed, unless Eurosurgical repurchases such rights, the only way to escape for Eurosurgical lies with products with entirely new functions and in the determination of the prices applicable to the new products. [¶] ... [¶] The delicate issue appears to be the repurchase of the rights. It is clear that this would imply that OrthoTec be deprived of all exclusivity. It does not necessarily mean that it would deprive it from its ability to exploit such rights on its own. The analysis of the REO-OrthoTec relationship brings some enlightenment: nothing in the current situation seems to prevent REO from distributing products other than OrthoTec's, even under a different name. It is imperative to make Brad Harris understand that this is not the time to sign anything new with OrthoTec."
Maassen sent a letter to Viart on January 3, 2002 stating, Bertranou "refuses to accept any solution that would result in his losing complete control of OrthoTec. [¶] ... [¶] ... In fact, the risk for Eurosurgical of finding itself at some point in the future with a single major client that is free to engage elsewhere and without significant capital interests is very real.... [¶] Moreover, it is clear that time is working very much in favour of OrthoTec and that the financial risks are only increasing. For this reason, it is important to act quickly and above all with the greatest firmness."Maassen then proposed Eurosurgical (1) rescind the April 2001 partnership agreement; and (2) inform OrthoTec, LLC that Eurosurgical intends to enforce the assignment agreement's requirement that invoices be paid within 30 days and advise it that failure to pay all outstanding invoices within 45 days will result in Eurosurgical's repurchase of the rights it transferred under the assignment agreement. Maassen testified he did not believe OrthoTec, LLC had the ability to settle all outstanding invoices in that time frame and thus Eurosurgical would be able to terminate the assignment agreement.
Viart then sent two letters to Bertranou, the first stating Eurosurgical intended to exercise the avoidance clause in the partnership agreement if Bertranou did not submit "very shortly" a new proposal for a joint venture between Eurosurgical and OrthoTec, LLC; the second informing OrthoTec, LLC that Eurosurgical expected any new shipment to be paid for by bank transfer within 30 days of shipment and payment of all pending invoices within 30 days of receipt of the letter. In response Bertranou requested an accounting from Eurosurgical of all unpaid invoices; he received from Eurosurgical a statement of balance owed as of December 2001. Bertranou paid the stated outstanding balance in full.
About one month later Viart and Maassen went to REO headquarters and met with Harris and other REO principals. Bertranou was not present at the meeting. After that meeting, on February 7, 2002, Harris, on behalf of REO, and Maassen, on behalf of Eurosurgical, signed a nondisclosure agreement, recognizing the companies "contemplate candid discussions and negotiations concerning a possible merger or other affiliation between the two entities" and agreeing not to disclose any technical, financial or business information discussed during the negotiations. Maassen understood the agreement as preventing Eurosurgical from disclosing to OrthoTec, LLC any information it learned about REO and did not inform OrthoTec, LLC that Eurosurgical had entered this agreement with REO.
Several days later one of REO's principals sent Maassen an e-mail stating, "I very much enjoyed our meeting.... I think we all felt as if we had finally made tremendous progress toward understanding each other and what the future may hold for us. [¶] Since that meeting we have been working on an analysis of the buyout of OrthoTec, and hopefully we will have some numbers that may make sense soon.... [¶] ... REO would like very much to have more of an interlocking relationship with Eurosurgical, and if we can accomplish the first step of working through OrthoTec, then that should not be a problem for us. [¶] ... [¶ ] The only thing cast in stone at this point is the elimination of OrthoTec as a separate entity. Every thing else is on the table and I believe can be worked through relatively easily. [¶] I understood from Brad [Harris] that you are working through the OrthoTec issue and will be back to us soon with some proposal."
OrthoTec, LLC was having difficulty meeting the 30-day payment terms on new orders now being enforced by Eurosurgical and, therefore, was unable to buy as much product as in the past. Bertranou asked Viart to modify the terms to 90 days, and Viart agreed. Shortly thereafter, on April 22, 2002, Bertranou sent a letter to Viart stating OrthoTec, LLC was terminating the partnership agreement because Eurosurgical, OrthoTec, LLC and REO had failed to enter into a three-party arrangement by April 1, 2002, as provided by the agreement's terms.
On May 7, 2002 Eurosurgical sent a letter to Bertranou stating OrthoTec, LLC had a balance due from 1999 of $153,418.72 and requested payment "as soon as possible." Bertranou disputed that any amounts were due from 1999 based on conversations he had had with Eurosurgical's accountant and the recent statement of outstanding balance he had received from Eurosurgical, which had not shown any balance due for 1999 invoices and, in any event, had been paid in full. On May 20, 2002 Viart and Maassen met with REO representatives and told them Eurosurgical was going to terminate the assignment agreement with OrthoTec, LLC. Eurosurgical then sent another letter to OrthoTec, LLC demanding payment for unpaid invoices from 1999.
On June 28, 2002 Eurosurgical sent a letter to OrthoTec, LLC exercising its option to repurchase for $100 the rights defined in the assignment agreement on the ground that OrthoTec, LLC had refused to pay within 45 days the $153,418.72 demanded on May 7, 2002. That same day, before receiving Eurosurigcal's letter, Bertranou gave instructions to his bank to wire transfer, under protest, more than $70,000 to Eurosurgical as partial payment of the allegedly outstanding 1999 balance. On July 1, 2002, after receiving the June 28, 2002 letter, Bertranou sent a letter to Viart informing him about the initial wire transfer and stating he had given instructions to wire transfer another $82,650.32, the remaining balance, again under protest. On July 9, 2002 OrthoTec, LLC's counsel sent a letter to Viart returning the $100 payment for the repurchase of the rights in the assignment agreement and stating that, given the dispute regarding the 1999 invoices and the payment under protest, OrthoTec, LLC did not recognize Eurosurgical's exercise of its reacquisition option.
After this time Eurosurgical did not manufacture any additional product for OrthoTec, LLC; REO cancelled its open purchase orders with OrthoTec, LLC and, other than its already purchased inventory, refused to sell any additional product for OrthoTec, LLC. Instead, as of July 2002 Eurosurgical went into business directly with REO, signing a distribution agreement in October 2002. According to Maassen, both Eurosurgical and REO benefited from their new relationship without OrthoTec, LLC's involvement: Eurosurgical made more money dealing directly with REO than it had under its relationship with OrthoTec, LLC, and REO paid a lower price to acquire products from Eurosurgical than it had from OrthoTec, LLC. For its part, OrthoTec, LLC terminated its licensing agreement with REO and demanded REO cease using the rights transferred to OrthoTec, LLC under the assignment agreement. As of July 30, 2002 OrthoTec, LLC entered a manufacturing subcontract with a company called Specialized Medical Devices, Inc.
8. OrthoTec, LLC's Lawsuit Against Eurosurgical
On July 2, 2002 OrthoTec, LLC filed a lawsuit against Eurosurgical. In the operative first amended complaint OrthoTec, LLC alleged 10 causes of action: (1) breach of the assignment agreement; (2) restitution of forfeited property; (3) declaratory relief; (4) accounting; (5) injunctive relief; (6) intentional interference with contract; (7) negligent interference with contract; (8) breach of the partnership agreement; (9) unfair competition; and (10) specific performance. According to OrthoTec, LLC, Eurosurgical had fabricated the 1999 debt as a means to terminate the assignment agreement and repurchase the rights transferred to OrthoTec, LLC and thereafter unlawfully distributed its products in the United States. OrthoTec, LLC sought compensatory and punitive damages, equitable relief, attorney fees and costs.
9. Eurosurgical's Cross-complaint Against OrthoTec, LLC
On June 20, 2003 Eurosurgical filed a first amended cross-complaint against OrthoTec, LLC, alleging 13 causes of action: (1) breach of the assignment agreement; (2) breach of the partnership agreement; (3) breach of the loan agreement; (4) injunctive relief; (5) constructive trust; (6) goods sold and delivered; (7) accounting; (8) intentional misrepresentation; (9) negligent misrepresentation; (10) suppression of facts; (11) constructive fraud; (12) unfair competition; and (13) declaratory relief. According to Eurosurgical, OrthoTec, LLC failed to make timely payments for products purchased and to meet its marketing obligations to Eurosurgical. In addition, although Eurorsurgical had reacquired the rights transferred in the assignment agreement, OrthoTec, LLC was continuing to manufacture the products covered by the agreement. As did OrthoTec, LLC, Eurosurgical sought compensatory and punitive damages, equitable relief, attorney fees and costs.
10. The Jury Trial
The case was tried before a jury on OrthoTec, LLC's causes of action for (1) breach of the assignment agreement; (2) breach of the partnership agreement; (3) intentional interference with contract; and (4) negligent interference with prospective economic advantage  and on Eurosurgical's causes of action for (1) breach of the assignment agreement; (2) breach of the partnership agreement; (3) breach of the loan agreement; (4) goods sold and delivered; (5) intentional misrepresentation; (6) negligent misrepresentation; (7) suppression of facts; and (8) constructive fraud.
OrthoTec, LLC argued Eurosurgical's attempt to reacquire the rights conveyed under the assignment agreement and its subsequent manufacturing and marketing of the products through REO had caused OrthoTec, LLC to lose in the range of $7 million to $13 million in profits. Eurosurgical, on the other hand, claimed that any profits lost to OrthoTec, LLC were the result of OrthoTec, LLC's actions alone and that OrthoTec, LLC's failure to timely pay Eurosurgical for its purchase of products and to comply with Eurosurigcal's right to manufacturing exclusivity had caused Eurosurgical to suffer $3.4 million in damages.
The jury returned a special verdict as to OrthoTec, LLC's causes of action finding (1) in favor of OrthoTec, LLC on its claim for breach of the assignment agreement with damages of $6 million; (2) against OrthoTec, LLC on its claim for breach of the partnership agreement; (3) in favor of OrthoTec, LLC on its claim for intentional interference with contract with damages of $500,000; and (4) in favor of OrthoTec, LLC on its claim for negligent interference with prospective economic advantage with damages of $2.5 million. The jury also concluded on OrthoTec, LLC's interference with contract claim, by clear and convincing evidence, Eursurgical had acted with oppression, fraud or malice. On the causes of action in Eurosurgical's operative cross-complaint the jury found (1) against Eurosurgical on its claims for breach of the assignment agreement, breach of the loan agreement, goods sold and delivered, intentional misrepresentation, negligent misrepresentation and suppression of facts; and (2) in favor of Eurosurgical on its claim for breach of the partnership agreement with damages of $70,000.
Based on the finding Eurosurgical had acted with malice, fraud or oppression with respect to the interference with contract claim, additional argument was presented to the jury on the issue of the amount of punitive damages, if any, it should award to OrthoTec, LLC. The jury returned a special verdict declining to award any punitive damages.
11. The Bench Trial and Judgment
After the jury's verdict the parties filed briefs and presented argument to the trial court on the equitable claims that remained from OrthoTec, LLC's operative complaint (restitution of forfeited property, declaratory relief, injunctive relief, unfair competition and specific performance) and Eurosurgical's operative cross-complaint (injunctive relief, constructive trust, accounting, unfair competition and declaratory relief).
According to OrthoTec, LLC, it was entitled to a declaration it owned all rights transferred to it under the assignment agreement; an injunction preventing Eurosurgical from selling or marketing the products other than to OrthoTec, LLC in the geographic area covered by the assignment agreement and requiring Eurosurgical to assign OrthoTec, LLC the intellectual property rights in the products; and specific performance by Eurosurgical of its duty under the assignment agreement to provide OrthoTec, LLC with plans and specifications for the products and any improvements, alterations, modifications or replacements of the products.
Eurosurgical argued OrthoTec, LLC was not entitled to any equitable relief because the $6 million damage award for breach of the assignment agreement fully compensated OrthoTec, LLC for the value of the rights transferred under the assignment agreement. In support of this argument, Eurosurgical submitted the declaration of the jury foreman, who had voted against the verdicts in favor of OrthoTec, LLC, in which he stated, "The $6,000,000 figure was reached by the jury based on a determination that $6,000,000 was the amount that OrthoTec should receive for the value of all rights that were assigned to OrthoTec, [LLC] under the terms of the Assignment Agreement.... The jury deliberations that led to the Verdict of $6,000,000 were based on a valuation by the jury that the rights that Eurosurgical had reacquired for OrthoTec in 2002 were worth $6,000,000 and that $6,000,000 was the full, fair and adequate compensation OrthoTec was entitled to receive for those rights. The $6,000,000 award did not include any damages for lost profits and was based on the belief that Eurosurgical would retain these rights."The jury foreman also declared the damage awards on the interference claims were based on a determination of OrthoTec, LLC's lost profits.
In addition, Eurosurgical asserted it was entitled to an injunction preventing OrthoTec, LLC from manufacturing the products covered by the assignment agreement and from selling counterfeit versions of those products; restitution to Eurosurgical of the profits obtained from such sales; an accounting for its 10 percent economic interest in OrthoTec, LLC; and a declaration the assignment agreement is void and Eurosurgical properly exercised its option and right to reacquire the rights covered by the agreement and has the exclusive right to manufacture the products for 36 months following OrthoTec, LLC's April 22, 2002 termination of the partnership agreement.
The trial court struck the juror declaration submitted by Eurosurgical on the ground it lacked foundation and was hearsay. It then issued a statement of decision (1) finding OrthoTec, LLC owns all rights conveyed under the assignment agreement and Eurosurgical's attempt to reacquire those rights was invalid; (2) ordering Eurosurgical to assign all intellectual property rights in the products and prohibiting it from selling or marketing any of the products in the territory covered by the assignment agreement; and (3) requiring Eurosurgical to turn over to OrthoTec, LLC all product plans and specifications. The court found against OrthoTec, LLC on its claim for unfair competition and against Eurosurgical on all its claims for equitable relief.
On August 27, 2004 judgment was entered on the jury's verdict and the trial court's statement of decision.
12. The Postjudgment Motions and Eurosurgical's Appeal
Eurosurgical moved for a new trial, for judgment notwithstanding the verdict on the intentional and negligent interference claims and to vacate the judgment on the ground either the equitable award or the damages award for breach of the assignment agreement had to be set aside because OrthoTec, LLC was not permitted to recover both monetary and equitable relief. The trial court denied all three motions. The court granted OrthoTec, LLC's motion for $555,868 in attorney fees.
Eurosurgical filed two timely notices of appeal, one from the judgment and order denying its motion for judgment notwithstanding the verdict and one from the postjudgment order awarding attorney fees. The two appeals were consolidated.
13. The Postjudgment Contempt Proceedings
While Eurosurgical's appeal was pending, OrthoTec, LLC filed in the trial court an application for an order to show cause, arguing Eurosurgical, Viart and Maassen were in contempt of the judgment for failing to turn over to OrthoTec, LLC plans and specifications regarding certain products and for taking actions to prevent OrthoTec, LLC from exercising trademark and other property rights to those products. The trial court issued an order to show cause, ordering Eurosurigcal, Viart and Maassen to appear on November 3, 2005 and demonstrate why they should not be adjudged in contempt of court and punished accordingly for willfully disobeying the orders contained in the judgment. Although neither Viart nor Maassen personally appeared at the hearing, counsel for Eurosurgical, Viart and Maassen argued, among other things, OrthoTec, LLC had failed to demonstrate any willful disobedience of the judgment. The trial court requested additional briefing and continued the hearing to December 5, 2005.
At the continued hearing, after entertaining additional argument, the trial court found Eurosurgical, Viart and Maassen had acted in contempt of the judgment and imposed a fine of $1,000 against each of them. According to the court's subsequently entered written order, Eurosurgical, Viart and Maassen willfully refused to comply with the judgment by failing to turn over to OrthoTec, LLC plans and specifications for certain products, interfering with and opposing OrthoTec, LLC's attempt to register the trademarks for those products and pursuing criminal charges in France against OrthoTec, LLC and Bertranou based on Bertranou's enforcement of the judgment. In its written order the court not only imposed a $1,000 fine on each of Eurosurgical, Viart and Maassen, but also directed the imprisonment of both Viart and Maassen for five days.
Eurosurgical, Viart and Maassen filed the instant petition for a writ of habeas corpus/certiorari challenging the trial court's order of contempt. Division One of this court issued an order to show cause why the requested relief should not be granted, and that matter, together with the related appeal, were subsequently transferred to our division.
Eurosurgical contends on appeal (1) the admission of evidence concerning a pending criminal action in France against Bertranou and pending actions commenced by Eurosurgical against OrthoTec, LLC in the United States Patent and Trademark Office (USPTO) constituted prejudicial error; (2) the trial court's failure to instruct the jury on principles regarding the United Nations Convention on Contracts for the International Sale of Goods (CISG) in relation to the interpretation of the assignment agreement constituted prejudicial error; (3) the trial court erred by directing a verdict in favor of OrthoTec, LLC on Eurosurgical's constructive fraud claim in the operative cross-complaint; (4) the evidence is insufficient to support the jury's verdicts on OrthoTec, LLC's claims for intentional interference with contract and negligent interference with prospective economic advantage; (5) the jury's damage awards on the interference claims cannot stand because they are duplicative of the award on the claim for breach of the assignment agreement; (6) the trial court's award of equitable relief to OrthoTec, LLC cannot stand because it is unwarranted and duplicative of the jury's monetary award; and (7) the trial court's award of attorney fees to OrthoTec, LLC constitutes an abuse of discretion.
In their habeas/certiorari petition Eurosurgical, Viart and Maassen contend substantial evidence does not support the trial court's finding they acted in willful disobedience of the judgment by failing to turn over certain documents to OrthoTec, LLC and by pursuing matters in the USPTO and in a French court.
Issues on Eurosurgical's Appeal
1. The Admission of Evidence of the Pending French and USPTO Proceedings Is Not a Basis To Reverse the Judgment
Prior to trial Eurosurgical moved in limine to exclude evidence of a civil and several criminal actions pending in France against Bertranou and proceedings commenced by Eurosurgical against OrthoTec, LLC in the USPTO on the ground those matters were not relevant to the instant case. The trial court granted Eurosurgical's motion. During Eurosurgical's cross-examination of OrthoTec, LLC's expert economist, its counsel asked a number of questions that OrthoTec, LLC contended opened the door to evidence of the other pending lawsuits. The trial court, recognizing the potential problem but noting the expert had not answered any of the questions except to say he did not know, admonished the jury to disregard any inferences suggested by the questions.
Subsequently, Eurosurgical's counsel asked Maassen three questions on direct examination about Eurosurgical's actions after termination of the assignment agreement: (1) "Did Eurosurgical ever do anything to prevent OrthoTec from selling any of the products governed by the Assignment Agreement?"(2) "Did Eurosurgical ever do anything to prevent OrthoTec from manufacturing any of the products governed by the Assignment Agreement?" and (3) "Did Eurosurgical ever do anything to prevent OrthoTec from doing business with a distributor other than REO SpineLine after the termination of the Assignment Agreement?"Maassen responded "no" to all three questions. On cross-examination OrthoTec, LLC's counsel asked Maassen whether Eurosurgical had caused to be filed a criminal action against Bertranou in France and had itself filed five trademark actions against OrthoTec, LLC. Over Eurosurgical's objection, Maassen responded "yes."
In proceedings held out of the presence of the jury OrthoTec, LLC argued Eurosurgical's questions to Maassen had opened the door to evidence of the other pending proceedings because they impacted OrthoTec, LLC's ability to do business. The trial court agreed: "[Eurosurgical's counsel] asked a whole series of questions that the witness [Maassen] answered about Eurosurgical never having done anything to prevent OrthoTec from selling any of its products, never having done anything to prevent OrthoTec from manufacturing any of the products, never having done anything to prevent OrthoTec from doing business with the distributor. And he answered them no, [Eurosurgical] never did that. Under those circumstances, the motion in limine is out the window. I mean [OrthoTec, LLC's counsel] is entitled to use that information [regarding the pending criminal and trademark proceedings] to impeach Mr. Maassen's testimony."Referring to its prior exchange with Eurosurgical's counsel during the cross-examination of OrthoTec, LLC's expert economist, the trial court added, "And that is why I was so completely astonished when you asked those questions today. I went back and immediately highlighted them on the real time, because I knew something like this was going to happen. I cannot comprehend ... why you didn't make sure what the court's position was going to be on all of this before you answered those questions. It's a big 'gotcha' that backfired on you. I'm sorry.... You know ... how loathe I was to try any other cases except this one in this trial, you know. But you just pushed it right over the edge."
On appeal Eurosurgical contends the trial court committed prejudicial error by overruling its objections to OrthoTec, LLC's questioning of Maassen on cross-examination about the pending criminal and trademark actions. We agree with the trial court's analysis and conclusion: Having specifically asking Maassen on direct examination whether Eurosurgical had done anything to prevent OrthoTec, LLC from selling or manufacturing products covered by the assignment agreement or from distributing products through any company other than REO, Eurosurgical made evidence of the other pending actions initiated by Eurosurgical directly relevant to this case; it cannot now complain that admitting such evidence was error or unduly prejudicial. (McKeon v. Santa Claus of California, Inc. (1964) 230 Cal.App.2d 359, 363 [party who opens door to admission of parol evidence cannot complain on appeal trial court erroneously relied on parol evidence to interpret the contract at issue]; see Horsemen's Benevolent & Protective Assn. v. Valley Racing Assn. (1992) 4 Cal.App.4th 1538, 1555 ["Where a party by his conduct induces the commission of error, he is estopped from asserting it as a ground for reversal. This application of the estoppel principle is generally known as the doctrine of invited error"].)
Although Eurosurgical argues the other proceedings could have had no impact on OrthoTec, LLC's ability to conduct business, that was a factual matter for the jury to determine. Once Eurosurgical's questioning of Maassen made relevant its conduct toward OrthoTec, LLC after its purported termination of the assignment agreement, OrthoTec, LLC was free to impeach Maassen with evidence Eurosurgical had in fact attempted to hinder OrthoTec, LLC's ongoing business operations. To the extent Eurosurgical contends OrthoTec, LLC's evidence was not persuasive, it had the opportunity to make that argument to the jury. But, having raised the issue whether Eurosurgical acted to thwart OrthoTec, LLC's business after attempting to terminate the assignment agreement, Eurosurgical cannot complain about the trial court's refusal to sustain its objections to OrthoTec, LLC's questions of Maassen on cross-examination regarding the other pending actions to impeach the verdict.
2. The Trial Court's Decision Not To Instruct the Jury on the CISG's Principles Did Not Prejudice Eurosurgical's Case
Eurosurgical proposed a series of jury instructions on the CISG, arguing it applied to the sale of goods from Eurosurgical to OrthoTec, LLC under the assignment agreement. The trial court found the CISG did not govern the assignment agreement and, consequently, refused Eurosurgical's proposed instructions. Eurosurgical contends the trial court's failure to instruct the jury on the CISG's principles constituted prejudicial error.
Regardless of the merits of Eurosurgical's argument that jury instructions on the CISG were warranted, it is not entitled to reversal of the judgment on that ground because it has failed to establish it was prejudiced in any way by the trial court's decision the CISG did not govern the assignment agreement and concomitant refusal to instruct the jury on the CISG's principles. A fundamental tenet of appellate review is that a judgment will not be reversed unless the appellant demonstrates not only error in the trial court proceedings but also resulting prejudice. (Code Civ. Proc., § 475 ["No judgment, decision, or decree shall be reversed or affected by reason of any error, ruling, instruction, or defect, unless it shall appear from the record that such error, ruling, instruction, or defect was prejudicial, and also by reason that such error, ruling, instruction, or defect, the said party complaining or appealing sustained and suffered substantial injury, and that a different result would have been probable if such error, ruling, instruction, or defect had not occurred or existed"]; see, e.g., Paterno v. State of California (1999) 74 Cal.App.4th 68, 107 [to prevail on appeal, party who "has been deprived of a jury trial on an omitted theory ... must articulate prejudice specific to the particular case and cannot rely on a simple showing of error"]; Brokopp v. Ford Motor Co. (1977) 71 Cal.App.3d 841, 853-854 ["A miscarriage of justice should be declared only when the reviewing court is convinced after an examination of the entire case, including the evidence, that it is reasonably probable a result more favorable to the appellant would have been reached absent the error. [Citations.] Prejudice from error is never presumed but must be affirmatively demonstrated by the appellant"].) This rule is applicable to trial court error on an instructional issue: "[T]he existence of instructional error alone is insufficient to overturn a jury verdict. A defendant must also show that the error was prejudicial (Code Civ. Proc., § 475) and resulted in a 'miscarriage of justice' (Cal. Const., art. VI, § 13)." (Pool v. City of Oakland (1986) 42 Cal.3d 1051, 1069.)
Eurosurgical's argument on appeal regarding the purported impact of the trial court's failure to instruct on the CISG's principles relates solely to its right to collect from OrthoTec, LLC the alleged 1999 debt of $153,418.72. According to Eurosurgical, under the CISG it had no duty to inform OrthoTec, LLC about the outstanding debt and did not relinquish any right to pursue that debt by failing to do so immediately. As a result, Eurosurgical contends, jury instructions on those principles would have disproved OrthoTec, LLC's claim Eurosurgical forfeited its right to collect the alleged 1999 debt by waiting until May 2002 to do so and, therefore, had no basis to terminate the assignment agreement.
The focus of OrthoTec, LLC's case, however, was not that Eurosurgical waited too long to collect on outstanding invoices from 1999 but that Eurosurgical fabricated the debt as an excuse to terminate the assignment agreement and reacquire product rights. Evidence of Maassen's communications with Viart, specifically stating "we must, at all costs, cause [the assignment agreement] to be terminated or to be substantially changed," and with REO, contemplating a merger between Eurosurgical and REO and the elimination of OrthoTec, LLC as an intermediary, certainly supported OrthoTec, LLC's theory. In addition, Bertranou's testimony he had worked out any unresolved issues on the 1999 invoices with Eurosurgical's accountant long before the May 2002 demand and had received and paid earlier in 2002 a demand for payment of outstanding invoices, which included no debt from 1999, also supported OrthoTec, LLC's claim the alleged 1999 debt was fabricated. To the extent OrthoTec, LLC asserted Eurosurgical delayed in making efforts to collect the alleged 1999 debt, it was essentially to provide further support for its theory there was no debt, not to argue the right to collect a legitimate obligation had been forfeited. Accordingly, the trial court's failure to instruct the jury on the CISG's rules regarding unpaid invoices did not prejudice Eurosurgical's case.
In any event, even if we were to assume instructions on the CISG's principles may have had some relevance to Eurosurgical's case apart from the general contract instructions under California law given by the trial court, Eurosurgical has made no showing that it is reasonably probable it would have obtained a more favorable result absent the court's alleged error. (Soule v. General Motors Corp. (1994) 8 Cal.4th 548, 576-583 [miscarriage of justice occurs only when it is reasonably probable that a result more favorable to the complaining party would have been reached in the absence of error]; see also Brokopp v. Ford Motor Co., supra, 71 Cal.App.3d at pp. 853-854.)Absent such a showing, the trial court's failure to instruct the jury on the CISG's principles is no basis to reverse the judgment.
3. The Trial Court Did Not Err By Directing a Verdict in Favor of OrthoTec, LLC on Eurosurgical's Constructive Fraud Claim
a. Relevant proceedings
During deliberations the jury asked the trial court, "May you please clarify what constitutes 'constructive fraud,' charge 8 of [Eurosurgical's] counterclaim, as it is not provided in the instructions."After receiving the jury's question, the parties and the court realized the instruction on constructive fraud proposed by Eurosurgical had not been read to the jury or included in the packet of instructions. OrthoTec, LLC moved for a directed verdict on the constructive fraud cause of action, arguing Eurosurgical had failed to present substantial evidence of the elements of the claim. The trial court granted the motion. It then returned a note to the jury stating, "Q 12 [relating to the constructive fraud claim] is withdrawn from the special verdict form ."
b. Standard of review
On appeal from a judgment based on a directed verdict in favor of the defendant, we review the evidence in the light most favorable to the plaintiff, resolving all conflicts and drawing all inferences in its favor and disregarding conflicting evidence. (Colbaugh v. Hartline (1994) 29 Cal.App.4th 1516, 1521;Gouskos v. Aptos Village Garage, Inc. (2001) 94 Cal.App.4th 754, 758.)We must reverse the judgment if substantial evidence exists that would tend to prove each of the elements of the plaintiff's case. (Heller v. Pillsbury Madison & Sutro (1996) 50 Cal.App.4th 1367, 1392-1393.) However, a "mere 'scintilla of evidence' does not create a conflict for the jury's resolution; 'there must be substantial evidence to create the necessary conflict.'[Citation.]" (Nally v. Grace Community Church (1988) 47 Cal.3d 278, 291.)
c. Eurosurgical did not prove the elements of constructive fraud
"Unlike fraud and undue influence, a constructive fraud claim allows relief for negligent omissions constituting breach of duty in a confidential relationship."(Tyler v. Children's Home Society (1994) 29 Cal.App.4th 511, 548.)"Constructive fraud 'arises on a breach of duty by one in a confidential or fiduciary relationship to another which induces justifiable reliance by the latter to his prejudice.'[Citations.] Actual reliance and causation of injury must be shown. [Citations.]"(Ibid.;Younan v. Equifax Inc. (1980) 111 Cal.App.3d 498, 516, fn. 14 [elements of constructive fraud cause of action are (1) a fiduciary or confidential relationship; (2) nondisclosure; (3) intent to deceive; and (4) reliance and resulting injury (causation)].) " ' "In its generic sense, constructive fraud comprises all acts, omissions and concealments involving a breach of legal or equitable duty, trust or confidence, and resulting in damages to another. [Citations.] Constructive fraud exists in cases in which conduct, although not actually fraudulent, ought to be so treated-that is, in which such conduct is a constructive or quasi fraud, having all the actual consequences and all the legal effects of actual fraud."[Citation .]'" (Estate of Gump (1991) 1 Cal.App.4th 582, 601; see also Civ.Code, § 1573; Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 981-982, fn. 13.)Whether a fiduciary duty has been breached, and whether conduct constitutes constructive fraud, depend on the facts and circumstances of each case. (Assilzadeh v. California Federal Bank (2000) 82 Cal.App.4th 399, 415.)
" '[A] confidential relationship may exist whenever a person with justification places trust and confidence in the integrity of another.'[Citation.] ' "A confidential relation exists between two persons when one has gained the confidence of the other and purports to act or advise with the other's interest in mind. A confidential relation may exist although there is no fiduciary relation...." ' [Citation.]" (Tyler v. Children's Home Society, supra, 29 Cal.App.4th at p. 549.)
Eurosurgical's constructive fraud theory was that Bertranou and Eurosurgical had a confidential relationship, which Bertranou abused by misrepresenting his marketing and management skills and contacts to Viart and the rights he possessed in Eurosurgical's products to potential distributors and by deceiving Eurosurgical into entering the assignment agreement. Bertranou, however, is not named as a defendant in Eurosurgical's cross-complaint, and OrthoTec, LLC, which is the cross-defendant, did not begin its operations until one day before execution of the assignment agreement. OrthoTec, LLC cannot be liable for tortious conduct that occurred before its existence.
Moreover, even if OrthoTec, LLC somehow could be held responsible for Bertranou's actions prior to its existence, no evidence suggested Bertranou had a confidential relationship with Viart or Eurosurgical. To the contrary, Bertranou and Viart were in positions of equal bargaining power and worked to draft an agreement that would benefit each of them by sales of Eurosurgical's products outside Europe. Viart prepared the initial draft of the assignment agreement, and, although Eurosurgical now complains the agreement provided for a sale of the product rights, instead of a license, at the time the agreement was entered Viart preferred a sale because he was concerned about lawsuits in the United States. Viart's decision not to have the assignment agreement reviewed by a lawyer was his to make; it simply does not establish the existence of a confidential relationship with Bertranou or OrthoTec, LLC. (See Worldvision Enterprises, Inc. v. American Broadcasting Companies, Inc. (1983) 142 Cal.App.3d 589, 595 ["The mere fact that in the course of their business relationships the parties reposed trust and confidence in each other does not impose any corresponding fiduciary duty in the absence of an act creating or establishing a fiduciary relationship known to law"].)
Finally, in addition to the absence of a confidential relationship, Eurosurgical failed to prove it suffered any damage as a result of Bertranou's alleged misrepresentations. Eurosurgical made $2 million in profits from OrthoTec, LLC's purchase of products by the end of 2000, and no evidence suggests it would have made more but for Bertranou's alleged misrepresentations and other purported abuses of his confidential relationship with Eurosurgical. And, although Eurosurgical complains the terms of the assignment agreement were the result of Bertranou's "overreaching," it did not present any evidence how the agreement might have been different or resulted in a greater benefit to Eurosurgical absent the alleged misconduct. (Cf. Viner v. Sweet (2003) 30 Cal.4th 1232, 1240 [plaintiff proves "but for" element of causation by establishing harm suffered would not have occurred had defendant not been negligent].)
4. The Jury's Verdicts on OrthoTec, LLC's Interference Claims Are Supported by Substantial Evidence
a. Standard of review
In reviewing challenges to a verdict based on sufficiency of the evidence, we review the record as a whole, resolving all conflicts and indulging all legitimate and reasonable inferences in favor of the prevailing party, to determine whether substantial evidence supports the verdict. (Western State Petroleum Assn. v. Superior Court (1995) 9 Cal.4th 559, 571.)"Substantial evidence" in this regard does not mean "any evidence." Rather, to be "substantial," the evidence must be " 'of ponderable legal significance, ... reasonable in nature, credible, and of solid value.' " (Bowers v. Bernards (1984) 150 Cal.App.3d 870, 873, italics omitted.) If there is substantial evidence, contradicted or uncontradicted, that will support the finding, it must be upheld regardless of whether the evidence is subject to more than one interpretation. (Western State Petroleum Assn., at p. 571 [" 'When two or more inferences can be reasonably deduced from the facts, the reviewing court is without power to substitute its deductions for those of the trial court' "]; Von Beltz v. Stuntman, Inc. (1989) 207 Cal.App.3d 1467, 1481 [reviewing court may not reweigh the evidence].) "[T]he testimony of a single witness, even [a] party ..., may be sufficient. [Citation.]" (Jensen v. BMW of North America, Inc. (1995) 35 Cal.App.4th 112, 134.)
b. Intentional interference with contract
The elements of a cause of action for intentional interference with contract are (1) a valid contract between plaintiff and a third party; (2) defendant's knowledge of this contract; (3) defendant's intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage. (Pacific Gas & Electric Co. v. Bear Stearns & Co. (1990) 50 Cal.3d 1118, 1126.)
Substantial evidence at trial demonstrated Eurosurgical intentionally interfered with the licensing agreement between OrthoTec, LLC and REO: While Bertranou was developing ideas to effectuate a new working relationship among OrthoTec, LLC, Eurosurgical and REO, Viart and Maassen met with REO principals, without Bertranou, and signed a nondisclosure agreement that anticipated a merger between Eurosurgical and REO. An e-mail sent by an REO representative to Maassen shortly thereafter indicated, "The only thing cast in stone at this point is the elimination of OrthoTec as a separate entity."Subsequent communications between Maassen and REO principals discussed "a project to create a common structure or holding company, or a merger between Eurosurgical and REO SpineLine" and proposed "Eurosurgical and REO will get each half of the benefits of the elimination of this intermediary [referring to OrthoTec, LLC]" and Bertranou would be able to exercise his option to purchase 25 percent of REO but would not have a direct ownership in the new holding company. In addition, after Eurosurgical demanded from OrthoTec, LLC payment of the alleged 1999 debt, Maassen, in a draft business plan for Eurosurgical, summarized a goal of the company to "[b]uild a very close relationship with REO SpineLine, the U.S. partner, in order to join forces in the world's biggest market by far" and communicated with REO about its inventory projections. Once Eurosurgical had sent its letter stating its intent to reacquire from OrthoTec, LLC the rights conveyed in the assignment agreement, REO cancelled its open purchase orders with OrthoTec, LLC and refused to sell any additional product for OrthoTec, LLC. Eurosurgical and REO immediately went into business with each other, both profiting from the elimination of OrthoTec, LLC as an intermediary and, according to OrthoTec, LLC's damages expert, causing OrthoTec, LLC to lose millions of dollars in sales and profit.
Evidence relied on by Eurosurgical to argue the jury's verdict on the intentional interference claim cannot be sustained is unpersuasive. According to Eurosurgical, OrthoTec, LLC's termination of REO's exclusivity in May 2001 and its termination of the licensing agreement with REO in July 2002 demonstrated that OrthoTec, LLC, not Eurosurgical, was responsible for the end of its relationship with REO. But the evidence showed OrthoTec, LLC terminated REO's exclusivity in May 2001 because REO was not current on its invoices and more than $400,000 in default to OrthoTec, LLC, which was causing OrthoTec, LLC difficulty in making timely payments to Eurosurgical (payments, it will be recalled, that were demanded as part of Eurosurgical's plan to pressure OrthoTec, LLC into breaching the assignment agreement). Despite the termination of exclusivity, however, OrthoTec, LLC and REO continued to do business; indeed, OrthoTec, LLC's sales to REO increased until Eurosurgical attempted to repurchase the rights conveyed under the assignment agreement in June 2002. OrthoTec, LLC's termination of the licensing agreement with REO in July 2002 came only after Eurosurgical had attempted to reacquire the rights conveyed in the assignment agreement and both Eurosurgical and REO had ceased doing business with OrthoTec, LLC.
c. Negligent interference with prospective economic advantage
The tort of negligent interference with prospective economic advantage "imposes liability for improper methods of disrupting or diverting the business relationship of another which fall outside the boundaries of fair competition."(Settimo Associates v. Environ Systems, Inc. (1993) 14 Cal.App.4th 842, 845.)The tort is established when the plaintiff demonstrates "(1) an economic relationship existed between the plaintiff and a third party which contained a reasonably probable future economic benefit or advantage to plaintiff; (2) the defendant knew of the existence of the relationship and was aware or should have been aware that if it did not act with due care its actions would interfere with this relationship and cause plaintiff to lose in whole or in part the probable future economic benefit or advantage of the relationship; (3) the defendant was negligent; and (4) such negligence caused damage to plaintiff in that the relationship was actually interfered with or disrupted and plaintiff lost in whole or in part the economic benefits or advantage reasonably expected from the relationship. [Citation.]" (North American Chemical Co. v. Superior Court (1997) 59 Cal.App.4th 764, 786.)The defendant's interference with the relationship must be "wrongful 'by some measure beyond the fact of the interference itself.'[Citation.]" (Della Penna v. Toyota Motor Sales, U.S.A., Inc. (1995) 11 Cal.4th 376, 393, fn. omitted.) "[A]n act is independently wrongful if it is unlawful, that is, if it is proscribed by some constitutional, statutory, regulatory, common law, or other determinable legal standard."(Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1159.)
In addition to the evidence supporting the intentional interference with contract claim, OrthoTec, LLC demonstrated Eurosurgical interfered with its ongoing business relationship with REO and caused it to lose the probable future economic benefit of that relationship. Eurosurgical plainly was operating with the intent to prevent REO from continuing its relationship with OrthoTec, LLC. Indeed, Maassen specifically informed Viart, "It is imperative to make Brad Harris [of REO] understand that this is not the time to sign anything new with OrthoTec."Eurosurgical carried through on this plan by meeting with REO without Bertranou present and entering into its own agreement with REO. Then, once Eurosurgical believed it had reacquired the rights conveyed under the assignment agreement, it immediately went into business directly with REO, causing REO to cancel all outstanding purchase orders with OrthoTec, LLC and to cease selling product for OrthoTec, LLC. Moreover, OrthoTec, LLC presented evidence its relationship with REO had been increasingly profitable from 1999 to 2002 and it would have had the potential to continue to profit from the relationship absent Eurosurgical's actions.
Eurosurgical asserts there was insufficient evidence it engaged in any independent wrongful conduct and contends the trial court's instructions impermissibly allowed the jury to find Eurosurgical's breach of the assignment agreement, without more, constituted the wrongful conduct necessary to prove the tort. Eurosurgical is correct that, in general, a plaintiff cannot not simply present evidence of a breach of contract and use the same activity to recover tort damages under a theory of negligent interference with prospective economic advantage. (See JRS Products, Inc. v. Matsushita Electric Corp. of America (2004) 115 Cal.App.4th 168, 183 ["breach of contract claim cannot be transmuted into tort liability by claiming that the breach interfered with the promisee's business"]; Arntz Contracting Co. v. St. Paul Fire & Marine Ins. Co. (1996) 47 Cal.App.4th 464, 478-479 [plaintiff's complaint defendant terminated parties' bonding relationship without good cause "sounds in contract, not tort"; "contracting party's unjustified failure or refusal to perform is a breach of contract and cannot be transmuted into tort liability by claiming that the breach detrimentally affected the promisee's business"]; Khoury v. Maly's of California, Inc. (1993) 14 Cal.App.4th 612, 618 ["The sole alleged conduct of respondent was the breach of contract to supply the JPM products to appellant. The effect on appellant's customers (with whom respondent had no relations) and the damage to appellant's business were simply consequences of breach of contract.... Appellant's third cause of action is simply duplicative of his contract claim"].)
Unlike the situations in the cases relied upon by Eurosurgical, however, Orthotec, LLC did not simply prove Eurosurgical's breach of the assignment agreement interfered with its ability to supply REO or other customers with Eurosurgical-manufactured products, but rather that its wrongful breach of contract was part of a comprehensive plan designed to disrupt Orthotec, LLC's prospective economic relationship with REO that existed independent of Eurosurgical-that is, that even without the rights conferred by the assignment agreement, Orthotec, LLC had a valuable relationship with REO it could have exploited by providing new products for distribution and by finding alternative sources of supply for existing products. Thus, Orthotec, LLC was not seeking to recover only its breach of contract damages, as was the plaintiff, for example, in Khoury v. Maly's of California, Inc., supra, 14 Cal.App.4th at page 618, who alleged the defendant was his sole source of supply of products needed by his customers, but tort damages based on the additional injury to Orthotec, LLC's other business relationships caused by Eurosurgical's wrongful conduct.
Moreover, contrary to Eurosurgical's assertion, OrthoTec, LLC did not only present evidence of a simple breach of contract. Rather, OrthoTec, LLC introduced evidence that Eurosurgical, operating out of fear that OrthoTec, LLC could purchase through another manufacturer and eliminate the substantial profits it was enjoying from distribution of its products outside Europe, fabricated a debt of $153,418.72 from 1999. Then, despite OrthoTec, LLC's dispute of the validity of the debt and its payment of the alleged outstanding balance, Eurosurgical deemed OrthoTec, LLC in breach of the assignment agreement and conducted business with REO as though it had properly reacquired the rights conveyed in the agreement, causing the end of OrthoTec, LLC's relationship with REO. Eurosurgical acted with knowledge that OrthoTec, LLC and REO were operating under their own agreement and that OrthoTec, LLC had the potential to continue to profit from its relationship with REO. Such conduct is sufficient to establish the independent wrongful conduct required on a claim for negligent interference with prospective business advantage. (Korea Supply Co. v. Lockheed Martin Corp., supra, 29 Cal.4th at p. 1159.)
5. No Basis Exists To Reverse the Jury's Damage Awards on the Interference Claims on the Ground They Are Duplicative of the Award on the Cause of Action for Breach of the Assignment Agreement
"The fixing of damages has long been vested in the sound discretion of the trier of fact...." (Bertero v. National General Corp. (1974) 13 Cal.3d 43, 64.)The same is true of the jury's determination of which measure of damages to apply. (GHK Associates v. Mayer Group, Inc. (1990) 224 Cal.App.3d 856, 874.)"A reviewing court must uphold an award of damages whenever possible [citation] and all presumptions are in favor of the judgment [citations]."(Bertero, at p. 61.)
Eurosurgical contends the damage awards on the interference claims ($500,000 for intentional interference with contract and $2.5 million for negligent interference with prospective economic advantage) are duplicative of the $6 million damage award on the cause of action for breach of the assignment agreement. But OrthoTec, LLC's expert economist testified that, assuming OrthoTec, LLC had continued its business operations as owner of the product rights conveyed in the assignment agreement, its projected sales profits from the time of Eurosurgical's attempted reacquisition of the product rights through 2005 (the time by which the economist opined OrthoTec, LLC would be able to reestablish its business) were $6,984,747 if OrthoTec, LLC had continued to purchase product from Eurosurgical and $12,902,667 if OrthoTec, LLC had purchased product from a different manufacturer (whose prices were cheaper than Eurosurgical's).
Neither the expert economist nor OrthoTec, LLC's counsel differentiated between the lost profits caused by Eurosurgical's breach of the assignment agreement and those that resulted from its intentional interference with the licensing agreement between REO and OrthoTec, LLC and its negligent interference with OrthoTec, LLC's prospective economic advantage from a continuing relationship with REO. Yet OrthoTec, LLC's theory throughout trial was that its relationship with REO-both under the licensing agreement and prospectively into the future-had economic value independent of the assignment agreement and its legal relationship with Eurosurgical. The jury was free to apportion damages for each separate claim of wrongdoing (contractual and tortious) OrthoTec, LLC proved against Eurosurgical. (Bertero v. National General Corp., supra, 13 Cal.3d at p. 64;GHK Associates v. Mayer Group, Inc., supra, 224 Cal.App.3d at p. 874.)Given the jury's total damage award is well within the range of lost profits established by OrthoTec, LLC's expert economist, Eurosurgical's contention the jury did anything other than determine the proper damages for each cause of action is speculative. Because the jury was properly instructed that OrthoTec, LLC had to prove damages to recover on the breach of contract and interference claims and could reasonably have awarded a total of $9 million in lost profits to OrthoTec, LLC as a result of Eurosurgical's liability for the contract and tort causes of action, Eurosurgical's claim the jury awarded duplicative damages must be rejected.(Bertero, at p. 62.)
6. The Trial Court's Award of Equitable Relief Is Not Improper
In an about-face to its assertion the $6 million award on the cause of action for breach of the assignment agreement constituted a comprehensive award for all lost profits (and thus the $3 million in damages awarded on the interference claims, also representing lost profits, were duplicative), Eurosurgical also argues the $6 million in contract damages represented the value of the product rights conveyed in the assignment agreement and, therefore, the equitable award to OrthoTec, LLC, including the product rights, cannot stand because it is duplicative of the jury's damage award. Eurosurgical's alternative, inconsistent argument is not persuasive.
As an initial matter, the dissenting juror's declaration relied on by Eurosurgical, which describes the $6 million award as including the value of the product rights, was properly stricken by the trial court. To argue the declaration was admissible, Eurosurgical relies on Drust v. Drust (1980) 113 Cal.App.3d 1(Drust), in which the Court of Appeal found admissible declarations by all 12 jurors explaining the elements of the jury's damage award. (Id. at pp. 8-11.)A different appellate court, however, has found Drust"to be an anomaly and ... inconsistent with the clear language of Evidence Code section 1150, subdivision (a)." (Ferreira v. Quik Stop Markets, Inc. (1983) 141 Cal.App.3d 1023, 1034.)The Ferreira court found two juror declarations reciting the mental process by which the jury reached its verdict inadmissible to impeach the verdict. (Id. at pp. 1033-1034.)The juror declaration in this case recites the jury's thought process in reaching its verdict on the breach of contract and interference claims and thus, like the declarations in Ferreira, was properly stricken as inadmissible.
Moreover, even if Drust were correctly decided, the circumstances in this case are significantly different from those in Drust and do not warrant admission of the dissenting juror's declaration. In Drust the prevailing plaintiff submitted declarations from all 12 jurors, which broke down the verdict into elements of damage. (Drust, supra, 113 Cal.App.3d at pp. 8, 9.) Based on those declarations, the defendant argued the jury had incorrectly included inconsistent elements of damage. (Id. at p. 8.) Addressing whether the declarations should be considered, the Court of Appeal held, "By reason of the nature of the declarations, combined with the manner in which they came into the record, we conclude that it is not improper to consider the information thus presented. The information discloses an error in determining the elements of damage. We are not required to ignore information which legitimately appears in the record."(Id. at p. 11.)Here, in contrast, Eurosurgical in support of its argument on the equitable issues in the case submitted a declaration of one juror-a dissenting juror at that-who necessarily could not present the views of the other jury members. In addition, the declaration did not identify an objective error made by the jury in awarding damages but rather purported to reveal the jurors' subjective analysis in reaching their damage determinations. As a result, even under Drust, neither the nature of the declaration nor the means by which it was put in the record suggests it should have been considered by the trial court. (Ferreira v. Quik Stop Markets, Inc., supra, 141 Cal.App.3d at p. 1035 ["The submission of affidavits from all 12 jurors, as was the case in Drust, is far different from the conclusions of 2 jurors in this case, hypothesizing the subjective thinking processes of all the jurors"].)
*21 Absent the juror declaration, Eurosurgical's contention the equitable award of the product rights is duplicative of the jury's $6 million award on the breach of contract claim is not supported by the evidence. OrthoTec, LLC's expert economist reported his opinion on lost profits under the assumption OrthoTec, LLC would regain the product rights conveyed in the assignment agreement. He specifically testified his damage figures assumed that, "because of this trial, OrthoTec gets its product rights back. I'm assuming OrthoTec can go back into business and can try to sell these products again."No evidence was presented on the value of OrthoTec, LLC damages if it were unable to retain the product rights Eurosurgical had attempted to reacquire. And, indeed, the jury was not instructed to value the product rights or to determine who owned those rights. As OrthoTec, LLC's counsel argued in summation, "And Mr. Wunderlich [OrthoTec, LLC's expert economist] assumed that as a result of this trial, OrthoTec would get back its rights and said ...'Okay. I think it will take [Bertranou] a couple of years to get [OrthoTec, LLC] back on their feet. So what sort of profits would OrthoTec have lost during the years they haven't been able to sell? And then as they revamped their efforts and find new distribution and go forward into the future."The trial court's conclusion OrthoTec, LLC was entitled to the product rights in equity is consistent with OrthoTec, LLC's theory of the case as it was tried to the jury.
Eurosurgical also asserts that, because the jury found against OrthoTec, LLC on Eurosurgical's claim for breach of the partnership agreement and awarded it $70,000 in damages, OrthoTec, LLC was barred from recovering equitable relief based on the doctrine of unclean hands. As the Supreme Court long ago recognized, the doctrine of unclean hands does not automatically bar a party from recovering equitable relief when the two parties are not equally at fault. (Watson v. Poore (1941) 18 Cal.2d 302, 312-313.)Moreover, as Eurosurgical itself acknowledges, whether the doctrine of unclean hands should be applied to a party is primarily a question of fact. (Platt v. Wells Fargo Bank American Trust Co. (1963) 222 Cal.App.2d 658, 664.)Here, the trial court concluded, "The evidence supports a finding that OrthoTec's violation of the Partnership Agreement, for which the jury awarded Eurosurgical $70,000 in damages, does not justify a finding that OrthoTec had unclean hands."Given the jury plainly found Eurosurgical bore greater fault than OrthoTec, LLC and the evidence supported OrthoTec, LLC's theory Eurosurgical fabricated a debt as a reason to terminate the assignment agreement and disrupted the relationship between OrthoTec, LLC and REO, the trial court, after properly weighing the equities, was well within its power to conclude the doctrine of unclean hands should not bar OrthoTec, LLC from recovering on its equitable claims.
Finally, Eurosurgical contends that, if the trial court's equitable award stands and the assignment agreement remains operative, it is entitled to a 10 percent economic interest in OrthoTec, LLC based on the provision in OrthoTec, LLC's operating agreement that Eurosurgical "shall be entitled to a 10% economic interest in the Company" if it does not consent to the terms of the operating agreement. Based on the jury's finding Eurosurgical materially breached the assignment agreement, Eurosurgical is not entitled to receive from OrthoTec, LLC the benefit of its 10 percent economic interest for the period in which it was in breach of the agreement. (See De Burgh v. De Burgh (1952) 39 Cal.2d 858, 863 ["in contract law a material breach excuses further performance by the innocent party"].) Nevertheless, because in awarding equitable relief the trial court found the assignment agreement "in full force and effect," Eurosurgical is entitled to a 10 percent economic interest in OrthoTec, LLC from the date of the August 27, 2004 judgment forward, as provided under the terms of OrthoTec, LLC's operating agreement.
7. The Trial Court Did Not Abuse Its Discretion in Awarding Attorney Fees to OrthoTec, LLC
Based on the attorney fee provision in the assignment agreement and the jury's finding Eurosurgical had breached that agreement, OrthoTec, LLC moved for $555,868 in attorney fees, contending it was entitled to the total amount of fees incurred in the litigation because all additional causes of action were inextricably intertwined with the claim for breach of the assignment agreement. The trial court agreed, granting in full OrthoTec, LLC's motion. Eurosurgical contends the trial court abused its discretion because OrthoTec, LLC should be limited to recovering fees incurred to pursue only its cause of action for breach of the assignment agreement and, in any event, the amount of fees requested by OrthoTec, LLC was not reasonable.
An order granting an award of attorney fees is generally reviewed for an abuse of discretion. (See, e.g., MHC Financing Limited Partnership Two v. City of Santee (2005) 125 Cal.App.4th 1372, 1397;Salawy v. Ocean Towers Housing Corp. (2004) 121 Cal.App.4th 664, 669.)In particular, "[w]ith respect to the amount of fees awarded, there is no question our review must be highly deferential to the views of the trial court."(Children's Hospital & Medical Center v. Bontá (2002) 97 Cal.App.4th 740, 777; see also PLCM Group, Inc. v. Drexler (2000) 22 Cal.4th 1084, 1095 [recognizing trial court's broad discretion in determining amount of reasonable attorney fees because experienced trial judge is in the best position to decide value of professional services rendered in court].) An appellate court will interfere with a determination of "what constitutes the actual and reasonable attorney fees""only where there has been a manifest abuse of discretion."(Fed-Mart Corp. v. Pell Enterprises, Inc. (1980) 111 Cal.App.3d 215, 228.)
Eurosurgical's initial contention the trial court abused its discretion by finding all additional causes of action inextricably intertwined with the claim for breach of the assignment agreement lacks merit. " 'Where a cause of action based on the contract providing for attorney's fees is joined with other causes of action beyond the contract, the prevailing party may recover attorney's fees under [Civil Code] section 1717 only as they relate to the contract action.' However, ... '[a]ttorney's fees need not be apportioned when incurred for representation on an issue common to both a cause of action in which fees are proper and one in which they are not allowed.' " (San Dieguito Partnership v. San Dieguito River Valley Regional etc. Authority (1998) 61 Cal.App.4th 910, 920, quoting Reynolds Metals Co. v. Alperson (1979) 25 Cal.3d 124, 129-130; see Abdallah v. United Savings Bank (1996) 43 Cal.App.4th 1101, 1111 [trial court need not apportion fees between contract and non-contract claims when claims are " ' "inextricably intertwined" ' " so it is " 'impracticable, if not impossible to separate the multitude of conjoined activities into compensable or noncompensable time units' "].) Here, all of the causes of action on both the operative complaint and cross-complaint involved Eurosurgical's actions in attempting to terminate the assignment agreement and reacquire product rights, and the efforts of OrthoTec, LLC's counsel to pursue its claim for breach of the assignment agreement applied equally to the other causes of action. It would have been impossible for the trial court to apportion OrthoTec, LLC's counsel's time between compensable and noncompensable activities. As a result, the trial court, having presided over the entire four-week jury trial and two-day bench trial and, therefore, intimately familiar with the efforts of OrthoTec, LLC's counsel, did not abuse its discretion in failing to apportion fees between the contract and non-contract causes of action.
With respect to its general argument the amount of fees requested by OrthoTec, LLC and awarded by the trial court was not reasonable, Eurosurgical has not established the court committed a manifest abuse of discretion. (Fed-Mart Corp. v. Pell Enterprises, Inc., supra, 111 Cal.App.3d at p. 228.) OrthoTec, LLC submitted the bills of the attorneys who worked on the case, which included detailed time records of the tasks performed. OrthoTec, LLC's trial counsel, Peter Ross, whose firm requested a substantial portion of the fees awarded, was generally the only attorney present for OrthoTec, LLC at trial and submitted two declarations in support of OrthoTec, LLC's motion detailing his extensive trial experience and stating, "[b]ased on [his] experience in the Southern California legal community, the hourly rates charged by [his] firm for partners, associates and paralegals are reasonable and comparable to the rates charged by other firms of a similar caliber that practice business litigation."The trial court no doubt was in the best position to view Mr. Ross's performance at trial and the value of his legal services and could certainly consider the $555,868 requested by OrthoTec, LLC reasonable when compared, for example, to the fact Eurosurgical paid $493,000 just to its expert accountant to evaluate the case and testify at trial regarding alleged damages suffered by Eurosurgical.
Issues on Eurosurgical's Writ Petition
1. Allegations in a Contempt Proceeding Based on the Willful Disobedience of an Order of Court Must Be Proved Beyond a Reasonable Doubt
Contempt is an act of disobedience of court in opposition to its authority, justice or dignity. (Raskin v. Superior Court (1934) 138 Cal.App. 668, 670.)Among the acts that may be punishable by a contempt order is the disobedience of any lawful judgment or order of the court. (Code Civ. Proc., § 1209, subd. (a) 5.) Contemptuous acts fall into two categories: direct contempt, which is committed in the immediate view and presence of the court; and indirect contempt, as alleged in this case, which occurs outside the court's presence. (Hanson v. Superior Court (2001) 91 Cal.App.4th 75, 81.)Any party to an action, including a corporate entity, willfully disobeying a court order may be punished for contempt. (See In re Coleman (1974) 12 Cal.3d 568, 572-574.)"Employees and agents of a party are also punishable for contempt if they had personal knowledge of the court's orders and participated in the acts constituting the contempt."(Wegner et al., Cal. Practice Guide: Civil Trials and Evidence (Rutter 2006) § 12:412, p. 12-82; Coleman, at pp. 573-574.)A person found guilty of contempt may be fined up to $1,000, imprisoned for up to five days, or both, for each separate act of contempt. (Code Civ. Proc., § 1218, subd. (a).)
Because a finding of contempt carries a possibility of imprisonment, all contempt proceedings are criminal in nature. (People v. Gonzalez (1996) 12 Cal.4th 804, 816.)As a result, the accused possesses some of the rights of a criminal defendant, including the right to proof of the charges beyond a reasonable doubt. (Ross v. Superior Court (1977) 19 Cal.3d 899, 913 [" 'an accused on trial for contempt must be proved guilty beyond a reasonable doubt' "]; Gonzalez, at p. 816;In re Coleman, supra, 12 Cal.3d at p. 572.)In a case, such as the instant matter, involving indirect contempt proceedings based on the disobedience of a prior court order, the accusing party must establish proof beyond a reasonable doubt of (1) the facts establishing the court's jurisdiction; (2) the accused's knowledge of the order disobeyed; (3) the accused's ability to comply; and (4) the accused's willful disobedience of the order. (In re Jones (1975) 47 Cal.App.3d 879, 881.)" 'To hold a person guilty of contempt for violating an injunction, the acts constituting the contempt must be clearly and specifically prohibited by the terms of the injunction. [Citations.] The party bound by an injunction must be able to determine from its terms what he may and may not do; he cannot be held guilty of contempt for violating an injunction that is uncertain or ambiguous [citation], just as he may not be held guilty of violating a criminal statute that fails to give him adequate notice of the prohibited acts.' [Citation.]" (Sorensen v. Superior Court (1969) 269 Cal.App.2d 73, 78.)
The power to weigh evidence at a contempt proceeding rests exclusively with the trial court. (In re Coleman, supra, 12 Cal .3d at p. 572.)"Accordingly, it is well settled that [the appellate court's] responsibility upon review is merely to ascertain whether there existed any substantial evidence to sustain the jurisdiction of the trial court."(Ibid.) An adjudication of indirect contempt requires substantial evidence the accused willfully and contemptuously refused to obey the order of the court. (Oliver v. Superior Court (1961) 197 Cal.App.2d 237, 240.)
2. The Trial Court's Finding Eurosurgical, Viart and Maassen Willfully Violated the Judgment Is Not Supported by Substantial Evidence
Two paragraphs of the judgment were the subject of the contempt proceedings against Eurosurgical, Viart and Maassen: Paragraph 3, which prohibits Eurosurgical from claiming or exercising any intellectual property rights in the products covered by the assignment agreement, and paragraph 5, which requires Eurosurgical to turn over to OrthoTec, LLC all plans and specifications for products covered by the assignment agreement. The trial court concluded Eurosurgical, Viart and Maassen each willfully disobeyed paragraph 5 of the judgment by refusing or ignoring OrthoTec, LLC's demands for the plans and specifications to the Oria SCS, Oria Claris and Oria Zenith products. It also found Eurosurgical had willfully disobeyed paragraph 3 by interfering with and opposing OrthoTec, LLC's attempts to register and record trademarks and by pursuing in France criminal charges against OrthoTec, LLC and Bertranou for asserting trademark rights. According to the trial court, Viart and Maassen had also violated paragraph 3, Viart by signing on behalf of Eurosurgical the criminal complaint in France and Maassen by submitting a declaration to the USPTO on behalf of Eurosurgical asserting assignment of the trademarks to OrthoTec, LLC was not valid.
Given the requirement of proof beyond a reasonable doubt of the charges in a contempt proceeding (People v. Ross, supra, 19 Cal.3d at p. 913;People v. Gonzalez, supra, 12 Cal.4th at p. 816;In re Coleman, supra, 12 Cal.3d at p. 572), the trial court's findings are not sustainable. Because the judgment did not expressly identify the products covered by the assignment agreement (the trial court had specifically declined to identify the covered products by name in the judgment), there was a genuine dispute whether the products at issue in the contempt proceedings-the Oria SCS, Oria Claris and Oria Zenith-were simply updated formulations of the original SCS, Claris and Cerfix products identified in and, therefore, covered by the assignment agreement or, instead, different products outside the scope of the agreement. Although in its written order of contempt the trial court made a factual finding that, in addition to the three products named in the assignment agreement (SCS, Claris and Cerfix), the rights to the Oria SCS, Oria Claris and Oria Zenith were also conveyed under the agreement, the judgment itself was not clear and unambiguous. As a result, there was not proof beyond a reasonable doubt that Eurosurgical, Viart and Maassen willfully refused to comply with the judgment by failing to turn over the plans and specifications to the products in dispute. (Sorensen v. Superior Court, supra, 269 Cal.App.2d at p. 78 [party "cannot be held guilty of contempt for violating an injunction that is uncertain or ambiguous"]; see also Foust v. Foust (1956) 47 Cal.2d 121, 124 ["Liability for such drastic punishment [of contempt] 'should not rest upon implication or conjecture' but rather upon an order expressing in 'clear, specific and unequivocal' language the act required"]; In re Marcus (2006) 138 Cal.App.4th 1009, 1015 [" 'Any ambiguity in a decree or order must be resolved in favor of an alleged contemnor' "].)
Moreover, although the judgment prohibits Eurosurgical from claiming or exercising any intellectual property rights in the products covered by the assignment agreement, it does not purport to limit Eurosurgical's ability to advance its position in a bona fide dispute over trademark rights. The judgment is completely silent as to how the parties are to settle disagreements arising out of the enforcement of its provisions. As a result, the actions taken in the French courts and the USPTO do not constitute proof beyond a reasonable doubt of willful violations of the judgment and, therefore, cannot support the contempt order. (Sorenson v. Superior Court, supra, 269 Cal.App.2d at p. 78 [punishment of party for contempt can be based only on violation of a specified order, not for violation of other duties imposed by an agreement or by law].) Indeed, to the extent Maassen represented to the USPTO there was a dispute regarding the rights to the trademarks claimed by OrthoTec, LLC and Eurosurgical had appealed from the judgment affirming OrthoTec, LLC's rights under the assignment agreement, he was reporting on the posture of the case and the parties' positions, not acting in a manner that establishes a willful violation of the judgment.
There is no doubt the evidence introduced during the contempt proceedings established that a genuine dispute had arisen between OrthoTec, LLC and Eurosurgical regarding the scope of the assignment agreement and OrthoTec, LLC's rights to obtain plans and specifications to certain products and to register the trademarks to those products. As both OrthoTec, LLC and Eurosurgical recognized during the equitable proceedings before the trial court, continued enforcement of the assignment agreement was likely to require the parties to resolve ongoing issues. And, in fact, OrthoTec, LLC's assertion it had rights to products beyond those specified in the assignment agreement may well be correct. But the judgment on its face does not clearly and unambiguously prohibit Eurosurgical, Viart and Maassen from taking the alleged contemptuous actions. As a result, based on the language in the judgment and the elevated standard of proof required in contempt proceedings, the contempt order against Eurosurgical, Viart and Maassen cannot stand.
That portion of the judgment finding against Eurosurgical on its cause of action for declaratory relief is reversed; and the matter is remanded with directions to the trial court to modify the judgment to provide that Eurosurgical is entitled to a 10 percent economic interest in OrthoTec, LLC from the date of the August 27, 2004 judgment forward. In all other respects, the judgment is affirmed. The petition for writ of habeas corpus/certiorari is granted; and the trial court is directed to vacate its order of contempt. OrthoTec, LLC is to recover its costs in the appeal. Eurosurgical is to recover its costs in the writ proceeding.
We concur: Johnson and Zelon, JJ.
1. Under OrthoTec, LLC's operating agreement Eurosurgical was required to consent to be bound by all of the agreement's terms to obtain its 10 percent ownership interest in OrthoTec, LLC. Eurosurgical refused to consent and did not sign the membership amendment to the operating agreement. According to the operating agreement, "[i]f Eurosurgical does not sign below [on the membership amendment], then it shall be entitled to a 10% economic interest in [OrthoTec, LLC]."
2. About the same time Eurosurgical and OrthoTec, LLC entered into an agreement for Eurosurgical to loan OrthoTec, LLC $125,000. Bertranou directed Viart to deposit the money into Bertranou's personal account and testified, although the agreement states the "loan is to assist in the financing of a marketing and communication structure on the North American market for the promotion of [Eurosurgical's] products (office space, office equipment and communication, human resources ... )[,]" Viart understood the loan was for personal reasons. The loan was repaid with OrthoTec, LLC funds.
3. On May 4, 2001 OrthoTec, LLC's counsel sent a letter to Harris terminating OrthoTec, LLC's exclusive licensing agreement with REO because REO had failed to timely pay for its purchases and was more than $400,000 in default to OrthoTec, LLC. According to the letter, OrthoTec, LLC would "continue to allow REO to purchase and resell products at this time, but on a non-exclusive basis."At trial Eurosurgical argued OrthoTec, LLC's termination of exclusivity with REO demonstrated it never intended to work to effectuate a merger of the three companies.
4. OrthoTec, LLC also sued REO but dismissed it from the action to pursue claims against REO in federal court.
5. Additional causes of action for conversion, indemnity, accounting, state trademark infringement, dilution of distinctive quality of trademarks and trade names and infringement of trademarks and trade names to enhance commercial value of products were dismissed prior to or during trial.
6. An additional cause of action for breach of an oral contract was dismissed during trial.
7. During trial the court allowed OrthoTec, LLC to amend the operative complaint to rename its cause of action for negligent interference with contract as one for negligent interference with prospective economic advantage.
8. The trial court directed a verdict in favor of OrthoTec, LLC on Eurosurgical's claim for constructive fraud; the jury, therefore, did not return a verdict on that cause of action.
9. This was OrthoTec, LLC's second application for an order to show cause regarding contempt against Eurosurgical, Viart and Maassen. The trial court previously had issued an order to show cause but had dismissed it on the ground Eurosurgical, Viart and Maassen had not received sufficient notice of the charges against them.
10. Although a contempt judgment is "final and conclusive" (Code Civ. Proc., § 1222), it is nonappealable (Code Civ. Proc., § 904.1, subd. (a)(1)) and, therefore, reviewable exclusively by a writ petition. (People v. Gonzalez (1996) 12 Cal.4th 804, 816;In re Buckley (1973) 10 Cal.3d 237, 240, fn. 1.) A petition for a writ of habeas corpus may be brought to challenge the lawful restraint of a person or conditions of imprisonment and, therefore, is the appropriate method to challenge that portion of the order of contempt against Viart and Maassen directing their imprisonment for five days. (In re Coleman (1974) 12 Cal.3d 568, 572, fn. 2.) That portion of the order of contempt imposing a fine on Eurosurgical, Viart and Maassen is reviewable by a petition for a writ of certiorari. (Ibid.)
11. OrthoTec, LLC filed a request for judicial notice of a judgment and findings of fact and conclusions of law entered by the district court in a federal court action it pursued against Eurosurgical and REO, contending they had res judicata and collateral estoppel effect in the instant proceeding. Although we certainly have the authority to take judicial notice of federal court records (Evid.Code, § § 452, 459), we decline to do so in this case because OrthoTec, LLC failed to explain how the federal court records impact our resolution of any of the issues raised by Eurosurgical in its appeal. Accordingly, OrthoTec, LLC's request for judicial notice is denied.
12. Viart and Maassen also contend as to themselves individually (1) OrthoTec, LLC did not properly serve them with a copy of the judgment as required to initiate contempt proceedings against them; (2) substantial evidence does not support the trial court's finding they had the personal power to comply with the judgment; and (3) the trial court should not have ordered imprisonment in addition to a fine. Because we grant writ relief on substantial evidence grounds related to Eurosurgical, Viart and Maassen, we need not reach Viart and Maassen's additional contentions that apply only to them as individuals. We also find no merit to Eurosurgical, Viart and Maassen's contention the trial judge was required to recuse herself from the contempt proceedings. (See McClenny v. Superior Court (1964) 60 Cal.2d 677, 684-685 [in contempt proceeding the " 'judge who tried the case ... is ordinarily in the best position to pass upon the questions involved,' and to hear matters involving the same or closely related issues"].)
13. The CISG is an international treaty governing contracts for the sale of goods between parties living in those countries that have signed the treaty. The intent of the countries signing the treaty was "that the adoption of uniform rules which govern contracts for the international sale of goods and take into account the different social, economic and legal systems would contribute to the removal of legal barriers in international trade and promote the development of international trade[.]" (United Nations Convention on Contracts for the International Sale of Goods (May 1980) 19 I.L.M. 668, 671.)
14. The trial court based its finding the CISG did not apply to the assignment agreement on the agreement's express direction it would be governed by California law and on evidence (1) the initial draft of the agreement provided for application of the CISG; (2) Bertranou believed potential distributors would be uncomfortable with a treaty governing the parties' relationship and discussed the matter with Viart; (3) Viart agreed to eliminate application of the CISG; and (4) the final version of the agreement omitted any reference to the CISG and provided only for the application of California law. Accordingly, as the trial court found, the facts of this case are distinguishable from those in Asante Technologies, Inc. v. PMC-Sierra, Inc. (N.D.Cal.2001) 164 F.Supp.2d 1142, 1149-1150, relied on by Eurosurgical, in which the parties expressed no clear desire to exclude application of the CISG to their agreement. (See also BP Oil Intern., Ltd. v. Empresa Estatal Petroleos (5th Cir.2003) 332 F.3d 333, 336-337 [parties did not expressly opt out of application of the CISG].)
15. The trial court fully instructed the jury on contract interpretation and breach under California law and on the proper measure of damages for a breach of contract.
16. The requirement that an appellant demonstrate prejudice, in addition to error in the trial court proceedings, is also contained in the California Constitution. (Cal. Const., art. VI, § 13 ["No judgment shall be set aside, or new trial granted, in any cause, on the ground of misdirection of the jury, or of the improper admission or rejection of evidence, or for any error as to any matter of pleading, or for any error as to any matter of procedure, unless after an examination of the entire cause, including the evidence, the court shall be of the opinion that the error complained of has resulted in a miscarriage of justice"].)
17. In one paragraph of its opening brief, and citing no authority, Eurosurgical contends the trial court erred by allowing OrthoTec, LLC to elicit evidence suggesting Eurosurgical had violated customs regulations in shipping products to REO and then by refusing to instruct the jury to disregard such evidence. As with the refusal to instruct on the CISG's principles, even if the trial court should have prevented questioning about shipping to REO or stricken the testimony, Eurosurgical has not shown the few questions answered or OrthoTec, LLC's counsel's reference to them in closing argument prejudiced its case. Given the overwhelming evidence of Eurosurgical's plan to terminate the assignment agreement and its efforts to establish a direct relationship with REO, the brief reference to shipping procedures and customs regulations in a four-week jury trial simply could not have contributed to the jury's verdict against Eurosurgical, and Eurosurgical cannot demonstrate a reasonable probability it would have obtained a more favorable jury verdict had the reference not been made. (Code Civ. Proc., § 475; Cal. Const., art. VI, § 13; Soule v. General Motors Corp., supra, 8 Cal.4th at pp. 576-583;Brokopp v. Ford Motor Co., supra, 71 Cal.App.3d at pp. 853-854.)
18."The difference between actual fraud and constructive fraud is primarily the type of conduct which may be treated as fraudulent, such as a failure to disclose material facts within the knowledge of the fiduciary. Further, the reliance element is relaxed in constructive fraud to the extent we may presume reasonable reliance upon the misrepresentation or nondisclosure of the fiduciary, absent direct evidence of lack of reliance. [Citations.]" (Estate of Gump, supra, 1 Cal.App.4th at p. 601.)
19. Eurosurgical contends the trial court lacked power to direct a verdict once the matter had been submitted to the jury, but cites no authority supporting that proposition. Because the standard for granting a directed verdict is the same as that for a posttrial judgment notwithstanding the verdict (Hansen v. Sunnyside Products, Inc. (1997) 55 Cal.App.4th 1497, 1510 [trial court's power to grant judgment notwithstanding the verdict is identical to its power to grant a directed verdict, namely, when it appears from the evidence, viewed in the light most favorable to the opposing party, there is no substantial evidence to support the cause of action]), even if we were to agree with Eurosurgical's assertion of procedural irregularity, it suffered no prejudice as a result of the trial court's removal of the constructive fraud claim from the jury's consideration. Eurosurgical's additional contention its other tort claims were prejudiced when the trial court directed a verdict on the constructive fraud cause of action is specious. The jury was not told the court had found Eurosurgical failed to present substantial evidence to prove the claim. It was simply instructed the constructive fraud question had been withdrawn. The fact the jury returned with its verdict in the case shortly after being told it did not have to answer the constructive fraud question is no surprise considering that question was the last one on the special verdict form.
20. Eurosurgical contends the trial court abused its discretion by allowing OrthoTec, LLC at the close of evidence to amend its operative complaint to rename its cause of action for negligent interference with contract as one for negligent interference with prospective economic advantage. (Compare J'Aire Corp. v. Gregory (1979) 24 Cal.3d 799, 803 [recognizing a tort for negligent interference with prospective economic advantage] with Fifield Manor v. Finston (1960) 54 Cal.2d 632, 633 [declining to recognize a tort for negligent interference with contract].) "The trial court has broad discretion to grant or deny an amendment to a complaint at trial, and California courts have been extremely liberal in allowing such amendments to conform to proof. [Citations .]" (Glaser v. Meyers (1982) 137 Cal.App.3d 770, 776-777; see Code Civ. Proc., § § 473, subd. (a)(1), 576.) In general, the trial court's discretion is restricted only when the opposing party demonstrates inexcusable neglect by the party seeking the amendment or probable prejudice as a result of allowing it. (Magpali v. Farmers Group, Inc. (1996) 48 Cal.App.4th 471, 487.)Eurosurgical did not argue OrthoTec, LLC engaged in inexcusable neglect and has not demonstrated it was prejudiced in any respect by the amendment. Plainly, there was evidence at trial demonstrating OrthoTec, LLC had continued economic potential from doing business with REO, and Eurosurgical does not set forth any new defense it would have presented in response to the amended pleading had it known earlier of the redesignation of this cause of action.
21. The trial court instructed the jury that one of the necessary elements of proof for OrthoTec, LLC's claim for negligent interference with prospective economic advantage was "[t]hat Eurosurgical engaged in wrongful conduct through breach of its own contract with OrthoTec."This instruction was a slightly modified version of the official jury instruction approved for use by the Judicial Council, which provides with respect to the wrongful-conduct element of the tort of negligent interference with prospective economic advantage that the plaintiff must prove, "That [name of defendant] engaged in wrongful conduct through [insert grounds for wrongfulness, e.g., breach of contract with another, misrepresentation, fraud, violation of statute]." (Judicial Council of Cal. Civ. Jury Instns. (2006) CACI No. 2204; cf. Cal. Rules of Court, rule 2.1050(a) & (b).)
22. In one sentence of its opening brief Eurosurgical contends any recovery by OrthoTec, LLC on its interference claims based on Eurosurgical's doing business directly with REO would operate as an illegal restraint on trade. Eurosurgical did not defend OrthoTec, LLC's interference claims on this theory in the trial court and, therefore, has forfeited the argument on appeal. (Munro v. Regents of University of California (1989) 215 Cal.App.3d 977, 988-989 [party may not change theory of a cause of action on appeal and raise issue not presented in the trial court].) In any event, the basis for liability on the interference claims was not the mere fact Eurosurgical went into business with REO but rather Eurosurgical's disruption of OrthoTec, LLC's ongoing relationship with REO.
23. The expert economist also testified Eurosurgical owed OrthoTec, LLC (1) $153,674 for the alleged 1999 debt paid under protest by OrthoTec, LLC; (2) $148,658 in unpaid invoices from April 22, 2002; and (3) $70,000 as a credit for OrthoTec, LLC's return of certain screws used in the products.
24.Evidence Code section 1150, subdivision (a), provides, "Upon an inquiry as to the validity of a verdict, any otherwise admissible evidence may be received as to statements made, or conduct, conditions, or events occurring, either within or without the jury room, of such a character as is likely to have influenced the verdict improperly. No evidence is admissible to show the effect of such statement, conduct, condition, or event upon a juror either in influencing him to assent to or dissent from the verdict or concerning the mental processes by which it was determined."
25. The trial court specifically rejected Eurosurgical's argument that awarding OrthoTec, LLC equitable relief constituted a double recovery: "The jury found that Eurosurgical wrongfully terminated the Assignment Agreement by improperly exercising its option to reacquire the rights under Paragraph 12 of the Assignment Agreement. OrthoTec's remedy at law, the damages awarded by the jury, is not adequate. Although the jury awarded OrthoTec damages for the breach of contract as of a certain date, those damages did not compensate OrthoTec for the loss of the rights. Although Eurosurgical urges the Court to make a contrary finding, the Court cannot do so without speculation in the absence of any instruction or even argument to the jury that its award should compensate OrthoTec for its loss of the rights. The evidence, including without limitation the testimony of plaintiff's expert [economist] Robert Wunderlich does not support such a finding. For this reason, awarding OrthoTec the rights in addition to the damages awarded by the jury does not result in an inequitable double recovery."
26. For the same reason, OrthoTec, LLC was not required to elect either monetary or equitable relief in this case. " 'Broadly speaking, election of remedies is the act of choosing between two or more concurrent but inconsistent remedies based upon the same state of facts....' " (Baker v. Superior Court (1983) 150 Cal.App.3d 140, 144.)Here, because the monetary award compensated OrthoTec, LLC for lost profits and the equitable award allowed OrthoTec, LLC to continue operating under the assignment agreement, the two remedies were not inconsistent.
27. Eurosurgical concedes it did not consent to the terms of OrthoTec, LLC's operating agreement and thus is not entitled to an ownership interest in the company.
28. Eurosurgical also contends the trial court's equitable award constituted a rewriting of the assignment agreement that prevented it from exercising its bargained-for option to reacquire the product rights. The trial court, however, did not find Eurosurgical lacked power under the assignment agreement to exercise that option when appropriate. Rather, the court concluded Eurosurgical's attempt to reacquire the rights under the circumstances presented in this case was "invalid."
29. Eurosurgical argues that, because OrthoTec, LLC did not prevail on a number of causes of action, it should not have recovered attorney fees for those claims. Eurosurgical exaggerates the number of claims on which OrthoTec, LLC did not prevail. Other than the reciprocal causes of action for breach of the partnership agreement, the only cause of action on which OrthoTec, LLC did not prevail was its claims for unfair competition, which was part of the bench trial. Nothing in the record suggests OrthoTec, LLC's counsel expended measurable time on activities directed solely to those claims, which would have necessitated an apportionment of fees. Our reversal of the judgment to the extent it denied declaratory relief to Eurosurgical confirming its right to a 10 percent interest in OrthoTec, LLC from the date of the judgment forward similarly does not merit an apportionment of attorney fees.
30. Paragraph 3 of the judgment provides, "Eurosurgical, and its officers, agents, employees, representatives, and all persons acting in concert or participating with it shall refrain from claiming or exercising any intellectual property rights or other property rights in the Products and/or any improvements, alterations, modification or replacements thereof (whether created by or for Eurosurgical or OrthoTec) in the Territory, including without limitation patents, copyrights, FDA 510k's, and trademarks, and Eurosurgical hereby assigns all such rights to OrthoTec[.]"
31. Paragraph 5 of the judgment provides, "Eurosurgical shall specifically perform Paragraph 4(a)(ii) of the Assignment Agreement, which requires Eurosurgical to turn over to OrthoTec copies of all plans and specifications for all products, the rights to which were assigned to OrthoTec by Eurosurgical pursuant to the Assignment Agreement, including existing Products and future Products covered by the Assignment Agreement[.]"
32. In conjunction with their petition for a writ of habeas corpus/certiorari, Eurosurgical, Viart and Maassen requested that we take judicial notice of certain decisions from pending matters in the French courts. Because those decisions are not necessary to our resolution of their petition, we deny the judicial notice request.Go to Case Table of Contents