California Court of Appeals, Second District, Second Division
APPEAL from a judgment of the Superior Court of Los Angeles County, Ct. LC077949 James A. Steele, Judge.
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Law Office of Richard L. Weiner, Richard L. Weiner and Stephen M. Astor for Plaintiff and Appellant.
Lewis Brisbois Bisgaard & Smith and Roy G. Weatherup for Defendant and Appellant.
Kevin R Kane Associates and Kevin P. Kane for Defendant and Respondent.
I-CA Enterprises, Inc. (I-CA) appeals from a final judgment following a jury trial on I-CA’s claims of tortious interference with contractual relations against defendants Palram Americas, Inc. (Palram) and Plasgad Plastic Products Agricultural Cooperative Ltd. of Kibbutz Gadot (Plasgad). I-CA argues that it was entitled to a finding of joint and several liability against both defendants, rather than a separate award against each defendant. I-CA further argues that the trial court erred in granting a judgment notwithstanding the verdict (JNOV) on the issue of punitive damages as to Palram and a nonsuit on the issue of punitive damages as to Plasgad. Finally, I-CA argues that the prevailing party determination as between I-CA and Plasgad must be reversed and remanded for redetermination.
Palram cross-appeals from the judgment, arguing that no substantial evidence supports the jury verdict against it for compensatory damages on the theory of tortious interference with contractual relations. Finding no error we affirm the judgment.
The business relationships between the parties
I-CA is a small business incorporated in California in 1993 by husband and wife Adina Aloni and Doron Aloni (Aloni). I-CA stands for Israel-California. I-CA was established for the purpose of importing products from Israel to California.
Palram is a company based in Israel that manufactures and sells corrugated panels in the United States. Palram uses the extrusion method to produce the corrugated panels. The panels were attached to structures with wood closure strips—also manufactured by Palram—that matched the corrugation of the Palram panels. In 1993, Palram started trying to sell its products in Home Depot and some other retailers in the do-it-yourself (DIY) market. I-CA opened the first warehouse for Palram in the United States, and started importing the products from Israel.
Sometime in 1997 or 1998, Palram lost to a local wood supplier the business of selling the wood closure strips to Home Depot. Aloni suggested to his contacts at Palram that a plastic closure strip would be less prone to break and could not be undercut by the local wood supplier. The Palram executives informed Aloni that they could not manufacture such a product because Palram is an extrusion manufacturer, not an injection mold manufacturer. However, Palram had no objection to Aloni exploring this idea. The Palram executives expressed interest in hearing from Aloni later on, after he had the chance to develop the product.
Plasgad is an Israeli-based injection molding plastics manufacturer. In 1999, Aloni attended a trade show for the DIY market in Chicago. There, he met Amnon Shalman (Shalman), a representative of Plasgad. After the trade show, I-CA established a business relationship with Plasgad whereby I-CA agreed to distribute, warehouse, and market Plasgad products on the west coast. At that time, the only product Plasgad sold in the DIY industry was a plastic tub for mixing concrete. Plasgad had no business relationship with Palram.
Aloni invited two Plasgad executives to visit his warehouse in Van Nuys, where he showed them the wood closure strips he was storing for Palram. Aloni told the Plasgad executives about his idea of a plastic closure strip. After the executives’ return to Israel, Plasgad informed Aloni that it would like to be the manufacturer for this plastic closure strip, which together they would develop and take a chance on. Plasgad and I-CA worked together for many years to develop the closure strip specifically for Palram products. Plasgad insisted that it must own the patent for the new plastic closure strips. Aloni was agreeable to this, as long as he could be the exclusive North America supplier for the product. Plasgad obtained a patent for the strips on November 26, 2002.
In early 2001, former I-CA marketing manager Norm Cohen had an idea to develop a private label mixing tub for Ace Hardware. Aloni brought the idea to Plasgad, and Plasgad’s executives agreed to develop and sell the private label mixing tubs.
On February 20, 2002, a representative of Palram provided a written confirmation letter stating that I-CA would be Palram’s sole supplier of the plastic closure strips, and that Palram would be the exclusive distributor of these products in North America and Latin America. The letter agreement was signed by both Palram and Aloni for I-CA.
In an email dated February 22, 2002, Plasgad indicated it was acceptable to Plasgad that all purchases of the plastic closure strips in the United States be through
I-CA. Palram was aware that I-CA was the exclusive distributor of the strips in North America.
Home Depot decided to sell the plastic strips in its stores. Beginning in 2005, the wood closure strips being sold in all of the Home Depot stores in North American were replaced with the plastic strips. During this time, Palram bought 100 percent of the strips that Plasgad was able to manufacture.
On May 8, 2005, Shalman of Plasgad notified Norm Cohen of I-CA that Palram had contacted Plasgad directly. Shalman did not like this, because Palram was putting him in a position where he had to reply. Shalman asked I-CA to “please take care of this issue.” Shalman responded to his contact at Palram: “I-CA is our customer and all contacts regarding the closure strips will have to go through them. I am sure you understand that.” Aloni also had a conversation with the same contact at Palram and reiterated that if Palram has any issues they must communicate with I-CA. Plasgad was not permitted to “go around” I-CA.
The written contract between Plasgad and I-CA
On April 25, 2005, I-CA sent an email to Plasgad suggesting they put in writing all of their verbal agreements relating to the plastic closure strips and the Ace Hardware tubs. This suggestion was due in part to an impending change of leadership at Plasgad. Plasgad agreed and indicated it would start working on a draft.
Plasgad’s attorneys prepared an agreement captioned “Marketing and Exclusivity Agreement.” The first draft included a provision that allowed Plasgad to work directly with Palram for marketing products outside of the United States. Aloni objected to this provision, and requested that a provision be added prohibiting anyone but I-CA from directly or indirectly distributing
the plastic closure strips in North America. Plasgad agreed to this modification and incorporated the change into the final version of the agreement, which both Plasgad and I-CA signed. The final agreement clarified that any merchandise sent to North America had to pass through I-CA. It also provided that the parties would establish sales goals, and compliance with those goals would ensure continued exclusivity for I-CA. The agreement could be terminated by either party upon notice in writing, six months in advance.
Palram’s and Plasgad’s business relationships with I-CA end
In December of 2005, Plasgad increased its prices and asked I-CA to get this change approved by Palram. I-CA engaged in “tough” negotiations with Palram. I-CA informed Plasgad that it was a tough negotiation, and asked Plasgad not to communicate with Palram if Palram approached Plasgad. Ultimately Palram agreed to the price increase. However, I-CA received no orders from Palram for the plastic closure strips between January and August of 2006.
Aloni contacted Palram regarding his concern that there were no orders during the first half of 2006. He spoke with an individual at Palram who said that they had sufficient inventory. In November 2006, the CEO of Palram called Aloni and informed him that Palram was looking for a secondary supplier for the plastic closures. Aloni objected, explaining that there was a patent on the closure and Palram could not purchase it from someone else. Palram’s position was that they were looking for a secondary option, and they could do what they wanted. Palram had no alternative plan as to how it would supply Home Depot with the plastic strips.
Within a few days, I-CA informed Plasgad of its conversation with Palram and Palram’s position. Plasgad’s representative indicated he would check the strength of the patent.
On November 28, 2006, Palram sent I-CA a notice terminating the I-CA contract, effective in 90 days. The president of Palram testified that at the time Palram terminated its contract with I-CA, he did not know that Plasgad had a contract with I-CA.
On December 1, 2006, Plasgad sent I-CA a letter informing I-CA that it would cease supplying I-CA with the plastic closure strips on May 31, 2007. Plasgad explained: “I-CA has unfortunately not achieved the minimum level of sales required to retain the rights to sell these products in the USA.” However, no sales goals for the plastic closure strips had ever been established between the parties. In fact, I-CA had always sold Palram 100 percent
o the strips available. Plasgad’s manufacturing capability for the product was at 100 percent, and Palram experienced a 21 percent increase in sales of the strips in 2006.
On February 9, 2007, I-CA received its last order from Palram for the plastic closure strips. In February 2007, Plasgad was in discussions with Palram to sell the plastic closure strips directly to Palram. Plasgad began selling the plastic closure strips directly to Palram in 2007.
In August 2007, I-CA discovered that Ace Hardware was purchasing the plastic mixing tubs directly from Plasgad. Ace inadvertently sent a purchase order to I-CA indicating that Plasgad was going directly to Ace with the mixing tubs. Plasgad has had no business relationship of any kind with I-CA from mid-2007 through the present. From 2007 through the present, Plasgad has been selling the plastic closure strips directly to Palram.
I-CA claims an offset for the breach
On advice of legal counsel, I-CA determined that as a consequence of Plasgad’s actions, I-CA could offset the amounts that came due to Plasgad for the plastic closure strips. Thus, after February 2007, I-CA declined to pay outstanding sums due for the strips. At trial, I-CA acknowledged the amount owing to Plasgad but believed it was owed more due to Plasgad’s conduct.
I-CA’s business collapses
I-CA suffered a significant financial setback due to the loss of the business with the plastic closure strips and the Ace mixing tubs. At the time that Palram and Plasgad shut I-CA out of these businesses, I-CA was attempting to develop a new embedded stone product. However, without the revenue from the strips and tubs, there was insufficient capital to finance the new venture. The Alonis shrank their business and ceased taking salaries from I-CA. Aloni obtained a contractor’s license and did his best to supplement the family’s income.
Pretrial pleadings and briefing
On May 14, 2007, I-CA filed a complaint against Palram and Plasgad for breach of contract, tortious interference with contractual relations, and accounting. On August 7, 2009, I-CA filed the operative first amended complaint containing the same causes of action. Each cause of action was
separately pled against each defendant. Neither complaint contained allegations of joint and several liability.
Both Palram and Plasgad answered the first amended complaint with a general denial and asserted various affirmative defenses.
Plasgad filed a cross-complaint against I-CA, Aloni, and Adina Aloni. The cross-complaint asserted causes of action for breach of written contract, fraud, reasonable value of goods, money had and received, account stated, book account, open account, and declaratory relief. Plasgad alleged that the Alonis were alter egos of I-CA. Plasgad further alleged that Plasgad and I-CA entered into a contract in 2005 under which I-CA agreed to purchase products from Plasgad and resell them in North America. The contract was terminable at will by either party with six months’ notice. After Plasgad gave written notice of its decision to terminate the contract, I-CA and the Alonis refused to pay for products shipped to I-CA. Plasgad alleged that it was owed $327, 396.96 plus interest at the time that the contract expired, and that such amount remained unpaid at the time of the filing of the cross-complaint.
I-CA and the Alonis answered the Plasgad cross-complaint, generally denying its allegations and asserting a variety of affirmative defenses, including a claim for offset pursuant to Code of Civil Procedure section 431.70.
Shortly before trial, Plasgad and Palram jointly moved to sever “issues of contractual interpretation concerning mutual at-will termination provision” in their respective contracts with I-CA. In opposition, I-CA abandoned its breach of contract claims against defendants, seeking to proceed to trial only on its contractual interference claims. Because I-CA intended to proceed to trial only on its causes of action for intentional interference with contractual relations, the trial court concluded “[t]his moots the issue of contract termination, as breach is not a required element of [the intentional interference] claim.” Plasgad’s and Palram’s severance motion was denied on the ground that there was no need for court interpretation of the contractual at-will termination provision.
Phase I of trial
Trial commenced in January 2012.
Near the end of phase I of trial, the trial court asked the parties to brief the issue of damages. I-CA argued that Palram and Plasgad were joint tortfeasors and that joint and several liability should be imposed upon them. Palram argued that I-CA must prove the actual damages caused by each defendant. Because a party cannot interfere with its own contract (citing Applied
Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 514 [28 Cal.Rptr.2d 475, 869 P.2d 454] (Applied)), I-CA could only seek from Palram damages for its interference with the I-CA/Plasgad contract, and could only seek from Plasgad damages for its interference with the I-CA/Palram contract. Because I-CA’s expert was unable to allocate damages between the two defendants, Palram asked that the testimony be stricken as speculative.
In an order dated January 27, 2012, the trial court agreed with defendants that any damages would not be joint and several. The court stated: “It must be remembered that there are two distinct contracts involved and the damages flowing from the breach of each would not seem to be identical. Furthermore, if the jury were to find both defendants liable, they would, in effect, be finding a defendant liable for having interfered with its own contract which is improper.” However, the court declined to exclude I-CA’s expert’s testimony in its entirety, therefore Palram’s motion was denied.
The trial court provided the following instruction to the jury on damages: “In this case, I-CA Enterprises, Inc. seeks damages from more than one defendant. You must determine the liability of each defendant to [I CA] separately. If you determine that more than one defendant is liable to [I-CA] for damages, you will be asked to find the total damages, if any, for which each defendant is separately liable. With respect to damages claimed by [I-CA] allegedly arising from the loss of the ACE Hardware tubs business, such damages, if any, may be attributed only to [Palram] and not to [Plasgad].”
On January 30, 2012, at the end of phase I of trial, the jury returned a special verdict. The jury found that contracts existed between I-CA and both Palram and Plasgad, that each company knew of the other company’s contract with I-CA and intentionally disrupted that contract. The jury found that I-CA was harmed by the disruption and that each company’s conduct was a substantial factor in causing that harm. The jury found that Palram and Plasgad were each separately liable to I-CA for $225, 137.62. The jury further found that both Palram and Plasgad engaged in the tortious conduct with malice, oppression or fraud.
In a separate special verdict, the jury found that I-CA refused to pay for goods that Plasgad delivered to I-CA. The jury found that I-CA owed $327, 396.96 to Plasgad for these goods. The court also awarded Plasgad prejudgment interest on the $327, 396.96 plus $89.70 per day until entry of judgment.
Plasgad’s nonsuit in phase II of trial
Prior to trial, I-CA served discovery seeking to obtain Plasgad’s financial information in the event of a punitive damages finding. In November 2011,
the parties stipulated that any evidence of defendants’ financial condition would not be admitted until after the jury returned a verdict awarding actual damages and a finding of malice, oppression or fraud.
After phase I of trial, I-CA renewed its request for Plasgad’s financial information. Plasgad refused to produce such information, and in February 2012 I-CA filed a motion to compel. I-CA argued that Plasgad had refused to produce its financial information, which was necessary for the jury to consider in awarding punitive damages against Plasgad. I-CA proposed to take the deposition of the custodian of records for Plasgad telephonically, obviating the need for the custodian to travel to California.
On February 23, 2012, the trial court entered an order on the motion. The court found that under Code of Civil Procedure section 1989, a court lacks the power to compel nonresidents to attend trial or to produce documents. The court concluded that it had no power to enforce an order to compel attendance of a party over whom it has no jurisdiction as a result of Code of Civil Procedure section 1989. There was no dispute that Plasgad and its officers and other personnel are nonresidents.
Furthermore, the court held, I-CA’s notice to appear was deficient in that it failed to state with specificity the documents to be produced, instead broadly requesting all financial records. I-CA’s motion to compel was denied in its entirety. The court noted, “To the extent [Plasgad] has been relieved of an obligation to comply and produce, that situation is attributable, in whole or at least in large part, to [I-CA’s] apparent lack of diligence and preparation. It is almost inconceivable that this court has been forced to deal with this issue at this stage given that fact that this case has been pending for almost [five] years and [I-CA] has at all times known it was dealing with at least one entity defendant domiciled in a foreign jurisdiction.”
As a consequence of the trial court’s ruling on its motion to compel, I-CA had insufficient evidence of Plasgad’s net worth and financial condition for the purpose of proving punitive damages. I-CA attempted to offer the testimony of its economic expert that Plasgad’s financial condition was as reported in Dun & Bradstreet (D&B). Plasgad filed an ex parte application to prevent this testimony, which the court granted, finding that the information was inadmissible hearsay.
Under the circumstances, the trial court granted Plasgad’s motion for nonsuit on
I-CA’s claim for punitive damages and excused its counsel from participation in phase II.
Phase II as to Palram