Opinion
A144542 A147993
03-14-2018
LINDA BEESON et al., Plaintiffs and Respondents, v. LION CONNECTICUT HOLDINGS INC. et al., Defendants and Appellants.
ORDER MODIFYING OPINION AND DENYING REHEARING NO CHANGE IN JUDGMENT
BY THE COURT:
Appellants Lion Connecticut Holdings Inc. and ING North America Insurance Corporation's petition for rehearing is denied.
It is ordered that the opinion filed herein on March 14, 2018, be modified as follows:
1. In the second sentence of the first full paragraph on page 4 of the opinion, "May 2014" should be changed to "April 2014."
2. Footnote 1 on page 4 of the opinion should be deleted and replaced with the following: "As a result of a series of mergers and acquisitions, ING assumed and retained responsibility for any liability resulting from SMMS's wrongdoing. We refer to appellants collectively as ING."
3. The first sentence of the fourth full paragraph on page 5 should be deleted and replaced with the following: "As described in more detail below, the court ordered that ING pay plaintiffs a combined total of $36,817,339.01, which, when combined with the amounts they already had received from their settlement with Fireman's Fund and from other sources, fully compensated plaintiffs for their losses."
4. The last two sentences of the second full paragraph on page 13 (following footnote 3) should be deleted and replaced with the following: "But the court's focus on the instructors' failure to comply with their contracts with SMMS was part of the broader finding, which is supported by the record, that SMMS failed its duties to Fireman's Fund (and thus to plaintiffs) to ensure the quality of the program instructors."
5. The last sentence of the first full paragraph on page 23 of the opinion should be deleted and replaced with the following: "The court then awarded damages to each of the 34 individual plaintiffs (or families), ranging from around $260,000 to more than $3 million (which in some cases included loss of salary or other non-investment losses).
There is no change in judgment. Dated:
/s/_________
Humes, P.J.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Marin County Super. Ct. No. CIV092545)
An employer hired a company to give financial seminars to employees. Unbeknownst to the employer, the seminars were actually sales pitches designed to gain clients. Several employees hired the seminar instructors, then later lost money in the 2008 financial crisis as the result of risky investments. The employees sued their employer, who settled, and both the employees and the employer sued the seminar provider. Following a trial that spanned more than a year, the trial court found in favor of both the employees and the employer against the seminar provider.
In these consolidated appeals, the successor company to the seminar provider attacks the judgments regarding both liability and the measure of damages awarded. The employer, meanwhile, appeals from an order awarding it some, but not all, of the attorney fees it incurred in the litigation. We affirm the judgments in all respects.
I.
FACTUAL AND PROCEDURAL
BACKGROUND
Services Provided to Fireman's Fund
Successful Money Management Seminars, Inc. (SMMS) created and copyrighted financial-education programs and licensed them to financial professionals nationwide. Other companies could sponsor SMMS programs in which SMMS licensees would give presentations to company employees and guests at the companies' worksites. SMMS provided its licensee instructors with packages that included scripted presentations that could be used to plan, market, and conduct group and individual consultations, advertising brochures, workbooks for program participants, instructor manuals, business-development guides, standard forms to gather participants' personal information, and other branded material. SMMS presented its licensees as teachers or "financial services professionals" instead of salespeople, and seminar workbooks specifically encouraged participants to attend individual consultations.
In September 1996, respondent Fireman's Fund Insurance Company (Fireman's Fund) entered into a contract (the Sponsor Agreement) with SMMS to provide financial-education programs on Fireman's Fund campuses, and these seminars took place from 1996 to 2005. SMMS represented to Fireman's Fund that it would provide generic educational instruction, without any sales pitch and without endorsing any financial-services provider. The trial court found that, notwithstanding this representation and unbeknownst to Fireman's Fund, the SMMS program was actually designed as a sales tool for its licensees.
The Sponsor Agreement contained two provisions, paragraphs 3 and 4, that are relevant to the issues on appeal. Paragraph 3 provided: "SMMS will present seminars to [Fireman's Fund] and its affiliates' employees, agents and associates. The seminars will be presented by local instructors who are part of the SMMS network of licensees and are eligible to conduct seminars as part of the [Educator Provider Program]."
Paragraph 4 was titled "Quality Assurance" and provided: "(a) The course instructor will be chosen by SMMS. . . . SMMS has the option to replace the instructor if it is determined that the instructor has violated any part of their license agreement or corresponding National Account Seminar Fulfillment Agreement [hereafter Fulfillment Agreement] with SMMS.
"(b) SMMS will review evaluations at the conclusion of the initial seminar and all subsequent seminars.
"(c) SMMS will conduct a final review of all seminars, which will include an evaluation of our services and the course instructor for the sponsor."
SMMS selected financial advisors Gary Armitage, Michael Armitage, and Jeffery Guidi to present seminars at Fireman's Fund's Novato headquarters from 1996 through 2005.
Plaintiffs are Fireman's Fund employees (along with, in some cases, their spouses) who participated in the SMMS program during that time. They all consulted the SMMS financial advisors for advice about retirement, and they also told the advisors that they wanted to avoid making risky investments with their retirement savings. Following the advice of the SMMS financial advisors, they invested significant portions of their retirement savings in private-placement investments, which are investments generally unavailable to the public. Some plaintiffs retired early in reliance on monthly interest payments they received from the investments, and the other plaintiffs intended to rely on those interest payments for their future retirements.
By the middle of 2008, interest payments were no longer being paid on most of plaintiffs' investments. Plaintiffs also lost a portion, and in some cases all, of the principal they had invested. The Attorney General filed a criminal securities-fraud case against Guidi and Gary Armitage, and Guidi ultimately pleaded no contest to a misdemeanor and Armitage pleaded no contest to various counts.
Proceedings in the Trial Court
Plaintiffs sued Fireman's Fund in May 2009 and later added as defendants two successor entities of SMMS, appellants Lion Connecticut Holdings Inc. and ING North American Insurance Corporation (ING). Fireman's Fund paid plaintiffs $7.5 million to settle their claims, and it filed a cross-complaint against ING for breach of contract, negligent misrepresentation, concealment, and equitable indemnification. The case was bifurcated to consider liability first and damages second. A court trial began in September 2013, and the liability phase lasted six months. The trial court heard testimony from dozens of fact and expert witnesses and considered hundreds of exhibits.
Following a series of mergers and acquisitions, Lion Connecticut Holdings Inc. acquired SMMS, and Lion in turn was bought by ING. The trial court found that ING assumed and retained responsibility for any liability resulting from SMMS's wrongdoing, and appellants do not challenge that finding on appeal. We refer to appellants collectively as ING.
ING argued that SSMS was not liable to plaintiffs because plaintiffs were not third-party beneficiaries of the Sponsor Agreement, SMMS owed no duty to plaintiffs, that plaintiffs' harm was unforeseeable, and the financial advisors were not SMMS's agents. At a hearing in May 2014, the trial court found in favor of plaintiffs and Fireman's Fund and ordered them to prepare a proposed statement of decision, which they did. ING filed objections to the proposed statement, contending that it failed to identify the SMMS actions that amounted to a breach of duty and that the record did not support some of the proposed factual findings. But nowhere did it suggest that the trial court was being asked to base liability on a "negligent referral" theory of recovery.
The trial court issued the first of four statements of decision on June 18, 2014, and it addressed issues regarding SMMS's liability to plaintiffs and Fireman's Fund. As to plaintiffs, the court concluded that SMMS owed them a duty to take reasonable steps to ensure the quality of its program instructors. In reaching this conclusion, the court analyzed the factors set forth in Biakanja v. Irving (1958) 49 Cal.2d 647 regarding a plaintiff's ability to recover for the negligent performance of a contract where the plaintiff is not in privity with a defendant. It also analyzed three related concerns the Supreme Court highlighted in Bily v. Arthur Young & Co. (1992) 3 Cal.4th 370 (Bily). As to Fireman's Fund, the trial court concluded that SMMS (1) had misrepresented and concealed material facts in order to induce Fireman's Fund to sponsor its seminar programs, and (2) breached its contractual obligations.
The trial court issued its second statement of decision on September 26, 2014. In it, the court concluded that SMMS's conduct was a substantial factor in causing harm both to plaintiffs and to Fireman's Fund, and that SMMS had failed to establish any of its claimed affirmative defenses, including those based on the statute of limitations.
Because the damages phase of trial was expected to involve mostly issues that did not affect the interests of Fireman's Fund, the company proposed, and the other parties accepted, a stipulation to reduce its participation in that phase. In this stipulation, the parties agreed that "Fireman's Fund's non-attendance of the testimony portion of the damages phase of trial will not prejudice Fireman's Fund from seeking an award for attorneys' fees and costs, which will be addressed by the Court upon properly noticed motion by Fireman's Fund after the conclusion of the damages phase of trial." The stipulation also recognized that Fireman's Fund had paid plaintiffs $7.5 million to settle all of plaintiffs' claims against the company.
Following the damages phase, the trial court on December 12, 2014, issued its third statement of decision. The court found that "[t]here was simply no evidence . . . that Fireman's Fund did anything wrong," and it ruled that the company was entitled to recover the $7.5 million settlement payment made to plaintiffs, plus prejudgment interest since the date of settlement. The court specifically found that ING was liable to Fireman's Fund "for SMMS's multiple breaches of the Sponsor Agreement, misrepresentations and concealment under Fireman's Fund's pleaded and proven causes of action for breach of contract, negligent misrepresentation, concealment, equitable indemnity, and implied contractual indemnity."
As described in more detail below, the court ordered that ING pay plaintiffs a combined total of $36,817,339.01, which, when combined with the amounts they already had received from their settlement with Fireman's Fund, fully compensated plaintiffs for their losses. Judgment was entered in January 2015 awarding plaintiffs damages, and ING appealed (A144542).
Dispute Over Fireman's Fund's Entitlement to Attorney Fees
Proceedings continued in the trial court between ING and Fireman's Fund. Fireman's Fund sought punitive damages against ING, but the trial court concluded in its fourth statement of decision that there was insufficient evidence to support them because Fireman's Fund did not establish that anyone at SMMS acted with malice. Fireman's Fund does not challenge this finding.
A dispute then arose over the attorney-fees stipulation. Fireman's Fund contended, and ING disputed, that the stipulation contemplated that Fireman's Fund would be permitted to seek not only the attorney fees it incurred in pursuing its cross-claims against ING, but also the pre-judgment fees it incurred in defending plaintiffs' claims. ING submitted a proposed judgment on July 2, 2015. Fireman's Fund objected to the proposed judgment, arguing that a judgment was "premature" because the company was still seeking compensation from ING under the "tort of another" doctrine for the attorney fees it incurred in defending plaintiffs' claims.
As we discuss in more detail below, this doctrine treats certain fees not as costs but instead as a form of damages. "A person who through the tort of another has been required to act in the protection of his interests by bringing or defending an action against a third person is entitled to recover compensation for the reasonably necessary loss of time, attorney's fees, and other expenditures thereby suffered or incurred." (Prentice v. North Amer. Title Guar. Corp. (1963) 59 Cal.2d 618, 620.) "The tort of another doctrine is not really an exception to the American rule [that a party generally must pay for its own attorney fees unless a contract or statute provides otherwise], but simply 'an application of the usual measure of tort damages.' " (Mega RV Corp. v. HWH Corp. (2014) 225 Cal.App.4th 1318, 1337.)
Along with its objection, Fireman's Fund also filed a motion for attorney fees under Code of Civil Procedure section 1021.6, Civil Code section 1717, and the tort-of-another doctrine. In doing so, the company sought fees incurred in both (1) defending against plaintiffs' claims and (2) prosecuting its cross-claims. ING opposed the motion. It argued that Fireman's Fund had forfeited its claim to fees under the tort-of-another doctrine by declining to participate in the damages phase of trial, and that Fireman's Fund had not established its entitlement to fees under this theory in any event.
The trial court sided with ING. It concluded that "Fireman's Fund waived any right to claim these damages by essentially abandoning the request until the time the court was to enter judgment following the punitive damages phase." The court awarded Fireman's Fund $2,732,414.16 in attorney fees to prosecute its cross-complaint against ING as well as $83,223.50 in reasonable fees for the time period of June to September 2015. ING does not challenge either award.
Fireman's Fund filed a motion to reopen trial and to consider fees under the tort-of-another doctrine. Around the same time, ING filed another proposed judgment, this one including the trial court's award of attorney fees as costs to Fireman's Fund.
The trial court denied Fireman's Fund's request to reopen trial and entered judgment. ING appealed from the judgment, and Fireman's Fund cross-appealed (A147993). After briefing was complete in both appeals, the court consolidated A144542 and A147993 for purposes of argument and decision.
II.
DISCUSSION
ING's Appeal From the Judgment in Favor of Plaintiffs (No . A144542)
In its appeal in No. A144542, ING argues that the trial court erred in ruling that the company was liable to plaintiffs, in calculating damages, and by issuing insufficiently detailed statements of decision. We are not persuaded by any of these arguments.
A. SMMS Owed a Duty to Plaintiffs.
1. The Threshold Element of Duty in a Negligence Action.
" '[N]egligence is conduct which falls below the standard established by law for the protection of others.' " (Bily, supra, 3 Cal.4th at p. 396, quoting Rest.2d Torts, § 282.) " 'Every one is responsible, not only for the result of his willful acts, but also for an injury occasioned to another by his want of ordinary care or skill in the management of his property or person, except so far as the latter has, willfully or by want of ordinary care, brought the injury upon himself.' " (Bily, at pp. 396-397, quoting Rest.2d Torts, § 1714, subd. (a).) To prove a cause of action for negligence, a plaintiff must establish that "(1) the defendant owed the plaintiff a duty of care, (2) the defendant breached that duty, and (3) the breach proximately caused the plaintiff's damages or injuries." (Lueras v. BAC Home Loans Servicing, LP (2013) 221 Cal.App.4th 49, 62.) "The threshold element of a cause of action for negligence is the existence of a duty to use due care toward an interest of another that enjoys legal protection against unintentional invasion." (Bily, at p. 397.) "A duty of care may arise through statute or by contract. Alternatively, a duty may be premised upon the general character of the activity in which the defendant engaged, the relationship between the parties or even the interdependent nature of human society." (J'Aire Corp. v. Gregory (1979) 24 Cal.3d 799, 803.)
In the seminal case of Biakanja v. Irving, supra, 49 Cal.2d 647, the Supreme Court summarized the test for determining the existence of a defendant's duty to a third party where the defendant is not in privity with the third party: The determination "is a matter of policy and involves the balancing of various factors, among which are [1] the extent to which the transaction was intended to affect the plaintiff, [2] the foreseeability of harm to him, [3] the degree of certainty that the plaintiff suffered injury, [4] the closeness of the connection between the defendant's conduct and the injury suffered, [5] the moral blame attached to the defendant's conduct, and [6] the policy of preventing future harm." (Id. at p. 650 [defendant notary liable to beneficiary of a will that was invalid because of defendant's negligent preparation]; see also Centinela Freeman Emergency Medical Associates v. Health Net of California, Inc. (2016) 1 Cal.5th 994, 1013-1014 (Centinela).)
The Supreme Court has emphasized that not all "merely foreseeable" third parties are owed a duty. (Bily, supra, 3 Cal.4th at p. 398.) In Bily, the court listed three additional concerns when analyzing whether a third party is owed a duty: (1) whether a party liable for negligence would be subject to "potential liability far out of proportion to its fault," (2) whether a "generally more sophisticated class of plaintiffs" would "permit[] the effective use of contract rather than tort liability," and (3) whether expanded liability would increase the expense of a service and decrease its availability. (Ibid.)
ING argues that all these factors, as well as some factors not raised in the trial court, weigh against finding that SMMS owed a duty to plaintiffs. We disagree.
2. Contrary to ING's Argument, the Parties Never Litigated a "Negligent Referral" Cause of Action.
In challenging the trial court's conclusion that SMMS owed a duty to plaintiffs, ING first mischaracterizes the theory upon which the trial court relied. In the trial court, the dispute over SMMS's duty centered on whether plaintiffs were owed a duty as third parties to the contract between SMMS and Fireman's Fund under the factors in Biakanja v. Irving. On appeal, by contrast, ING argues at length that the trial court's conclusion was based on a legally invalid theory of "negligent referral or negligent introduction" even though "no such duty exists." (Italics omitted.) According to ING, the trial court's ruling was based on "the notion that a non-fiduciary who introduces a plaintiff to a professional or to a business thereby acquires a duty to determine the substantive competence of that professional or business and to guarantee a good outcome for the plaintiff."
ING correctly argues that courts generally have rejected liability based on a theory of negligent referral or negligent introduction, but it wrongly asserts that this was the basis for liability in this case. Our review of the record shows that the theory of negligent referral or negligent introduction was never raised below. Plaintiffs point out that theory was forfeited, if for no other reason, because ING failed to raise the issue in its objections to the statement of decision. (In re Marriage of Arceneaux (1990) 51 Cal.3d 1130, 1134 [if court issues statement of decision, party claiming deficiencies must object in order to avoid implied findings favorable to judgment under Code Civ. Proc., § 634].) We agree that we need not address ING's theory since it was not litigated below and is therefore not at issue in this appeal.
The disconnect of ING's argument is reflected by its heavy reliance on Violette v. Shoup (1993) 16 Cal.App.4th 611. In that case, plaintiffs sued a social acquaintance who recommended a financial planner to them "as a personal favor" but did not vouch for the planner's expertise or competence and was not even aware which investment the planner recommended for plaintiffs. (Id. at pp. 615, 620.) The court concluded that the social acquaintance owed no duty to plaintiffs because he was not their agent and "did no more than introduce" the planner to plaintiffs. (Id. at pp. 619-620, 622-623 & fn. 8.) But here, unlike in Violette, it was undisputed that two parties (SMMS and Fireman's Fund) were in privity, and the dispute was whether the agreement gave rise to any duty to plaintiffs. This was thus not akin to a "networking or referral opportunit[y]," as ING asserts.
Violette also concluded that the absence of an agency relationship between the social acquaintance and either the plaintiffs or the financial advisor was "fatal" to plaintiffs' claim of duty. (Violette v. Shoup, supra, 16 Cal.App.4th at p. 622.) True enough, the trial court here concluded that SMMS did not have an agency relationship with the financial advisors, which was fatal to plaintiffs' "agency-based causes of action," such as elder abuse. Had plaintiffs been pursuing a cause of action for "negligent referral," such an adverse finding might have affected it. But because there was no such cause of action, ING's reliance on the finding amounts to a non sequitur.
Confronted with plaintiffs' argument that ING's "negligent referral" or "negligent introduction" argument "is completely divorced from the trial court's factual findings and the legal framework properly applied by that court" (capitalization and bold omitted), ING responds that it is free to cite new authority on appeal to support an issue. The response misses the point. We have no quarrel with the notion that parties are free on appeal to cite new authority to support issues that were properly raised in the trial court. (Schmidt v. Bank of America, N.A. (2014) 223 Cal.App.4th 1489, 1505, fn. 11 [where appellant has not waived right to argue issue on appeal, party is free to cite new authority in support of issue]; Giraldo v. Department of Corrections & Rehabilitation (2008) 168 Cal.App.4th 231, 241, 251 [where party argued in trial court over applicability of "special relationship" doctrine, parties free on appeal to rely on out-of-state authorities not cited below].) But in this case, ING did not raise the issue below, and it does not point to anything in the appellate record to suggest that it did. Its arguments about whether liability may be based on a theory of negligent referral or negligent introduction are thus beside the point, and we need not further consider them.
3. ING Mischaracterizes the Nature of SMMS's Duty.
Turning to an issue that was litigated below, ING contends that the trial court erred when it found that SMMS owed a duty to plaintiffs. Before concluding that SMMS owed a duty to plaintiffs, the court first defined the duty. According to the court, "SMMS knew and advertised to prospective financial professionals that a majority of seminar attendees would become their long-term, loyal clients and buy investment products from them. Despite this, and aware that there were bad apples among their licensees, SMMS failed in its very limited efforts to weed out unscrupulous financial professionals who would be taking advantage of SMMS's carefully crafted and uniquely successful prospecting programs. To the contrary, SMMS provided these bad apples with materials, training, and employer endorsements, enabling them to appear as high-quality, trusted professionals. SMMS literally put them on a dais." (Fns. omitted.) As for "the general character of the activity in which [SMMS] engaged" that gave rise to a duty (J'Aire Corp. v. Gregory, supra, 24 Cal.3d at p. 803), the court concluded that "[t]he end and aim of the transaction at issue was for SMMS to enable its licensees to convert program participants to long-term clients from whom the licensees could profit by selling investment products." The court ultimately defined SMMS's duty to plaintiffs as the responsibility to take reasonable steps to ensure the quality of its program instructors.
ING attacks this conclusion in several ways. But in doing so, it reframes the issue in a way that, once again, disconnects its appellate arguments from the trial court's actual reasoning and findings. For example, ING narrows the scope of the duty SMMS was found to have owed Plaintiffs when it spends an entire section of its opening brief arguing that "the trial court erred in holding that SMMS had a duty to plaintiffs to monitor the investment practices of the seminar instructors." (Capitalization and bold omitted.) It claims that the court concluded that SMMS "had a duty to Plaintiffs to affirmatively monitor the advisors' investment practices" and that the court effectively imposed the duties of a broker-dealer on SMMS, "a financial-education company." In making this argument, it plucks selected quotes from the court's statement of decision. But when read in in context, these quotes show that the court imposed no such broker- dealer's duty of care on SMMS. Instead, the court considered the purpose of the Sponsor Agreement and concluded that SMMS was obligated to take reasonable steps to monitor the quality of the financial advisors who SMMS knew would take on responsibility for customers' retirement plans. In other words, the court determined that SMMS had a duty to take reasonable measures to ensure that it was not enabling advisors who would peddle risky and ruinous investment approaches. ING's lengthy, multi-pronged argument that the trial court unfairly placed a broker-dealer's monitoring duty onto SMMS is a red herring because it ignores the actual role SMMS had in enabling its licensees to recruit the plaintiffs as clients.
ING also mischaracterizes the trial court's ruling by pointing to several provisions of SMMS's internal standards regarding its licensees in arguing that "any Biakanja analysis must be limited to SMMS's performance of an obligation set forth within the four corners of the contracts." But the section of the first statement of decision relied upon by ING in making its argument is not about these standards, but is instead about how SMMS breached its contractual obligations to Fireman's Fund under the Sponsor Agreement. True enough, the court found that SMMS failed to comply with its own criteria by failing to ensure that its licensees were registered investment advisors who satisfied National Association of Securities Dealers (NASD) background checks; had at least five years of experience in the financial-services industry; and kept current on their financial obligations to SMMS. But, contrary to ING's suggestion, these lapses were not the bases for the trial court's ruling that SMMS owed plaintiffs a duty. Nor were the cited failures even the sole evidence of SMMS's breach of its contract with Fireman's Fund in any event.
4. The Trial Court Correctly Found That SMMS Owed a Duty Based on the Biakanja factors.
After the trial court concluded that SMMS's purpose under the Sponsor Agreement was to enable its licensees to recruit clients through SMMS's seminars, it weighed whether SMMS owed plaintiffs a duty of care under the Biakanja factors and concluded that it did. ING argues on appeal that the trial court misapplied these factors, a question of law for the court. (Kentucky Fried Chicken of Cal., Inc. v. Superior Court (1997) 14 Cal.4th 814, 819.) We therefore consider each of these factors.
Extent to which transaction was intended to affect plaintiffs: The first Biakanja factor is the extent to which a transaction was intended to affect plaintiffs. (Biakanja v. Irving, supra, 49 Cal.2d at p. 650.) The trial court found that the agreement between Fireman's Fund and SMMS called for SMMS to present financial-planning seminars to its employees and that plaintiffs, although they were not individually named in the agreement, "were a distinct class of people contemplated and described in the transaction at issue as the intended recipients of SMMS financial education programs."
ING first asserts, without citation to the record, that the trial court erred by finding that "SMMS's contracts with its instructors, including the provisions requiring instructors to stay current with their bills, gave rise to a duty to protect Plaintiffs from financial losses in any subsequent relationship with those instructors as financial advisors." But the court found no such thing. The court found that the contract between SMMS and Fireman's Fund—not the contracts between SMMS and its instructors—is what gave rise to the duty to Plaintiffs.
ING elsewhere repeats this non sequitur about instructors staying current with their bills in connection with analyzing the Biakanja factors. Again, the trial court pointed to the financial advisors' failure to stay current with their financial obligations to SMMS as evidence of SMMS's breach of the Sponsor Agreement, not as support for a duty under Biakanja. And the advisors' failure to pay their bills on time was cited, not in isolation as ING apparently contends, but as one of many signs that they did not comply with their contractual obligations.
Citing Desert Healthcare Dist. v. PacifiCare FHP, Inc. (2001) 94 Cal.App.4th 781, ING also complains that the first Biakanja factor was not met because SMMS's alleged negligent conduct was intended to affect particular people, as opposed to a class of people. The trial court disagreed with Desert Healthcare's conclusion that a duty may be inferred only where there is an intended effect on a specific person, and it was right to do so: the Supreme Court has disapproved Desert Healthcare and has reiterated "that a duty of care may be owed to a class of which the plaintiff is a member." (Centinela, supra, 1 Cal.5th at p. 1014, fn. 10.)
Foreseeability of harm: As to the second factor, the foreseeability of harm to plaintiffs (Biakanja v. Irving, supra, 49 Cal.2d at p. 650), the trial court concluded that it was foreseeable that plaintiffs would suffer losses in retirement income and savings "directly from the trusting relationship SMMS created between program participants and these unscrupulous, bad apple advisors approved by SMMS." The court stressed that "SMMS knew it was likely that program participants would become long-term clients of its licensees" because "SMMS designed its programs specifically to achieve that result and encouraged its licensees to 'operate and present the seminars as written and recommended.' " (Italics omitted.) Among the evidence relied upon by the trial court was marketing material stating it was more effective to present "educational seminars" instead of "sales presentation[s]," because "[b]y providing . . . seminar attendees with the education they need, you earn their trust."
ING argues, however, that "there was no basis to foresee that SMMS'[s] selection of the seminar instructors would cause Plaintiffs to be injured, many years later, by the subsequent pursuit of investment strategies that were fundamentally inconsistent with the general principles in the SMMS seminars themselves" and that "SMMS had no basis to foresee what occurred years later in Plaintiffs' relationships with the financial advisors." In other words, ING does not directly challenge the finding that it was foreseeable that plaintiffs would rely on the financial advisors but instead contends that it was unforeseeable that those advisors would harm plaintiffs. This is an overly restrictive analysis of foreseeability. Courts look to whether it was foreseeable that a defendant's failure to perform below the standard of care would affect plaintiffs, not simply whether it was foreseeable that the defendant would actually perform below the standard of care. (E.g., J'Aire Corp. v. Gregory, supra, 24 Cal.3d at pp. 804-805 [where county contracted with general contractor to complete improvements at airport restaurant, it was foreseeable under Biakanja that delay in completing construction would adversely affect the restaurant]; National Union Fire Ins. Co. of Pittsburgh, PA v. Cambridge Integrated Services Group, Inc. (2009) 171 Cal.App.4th 35, 46 [foreseeable under Biakanja that negligent administration of workers compensation program would affect provider of excess insurance]; see also Ballard v. Uribe (1986) 41 Cal.3d 564, 573, fn. 6 ["[A] court's task—in determining 'duty'—is not to decide whether a particular plaintiff's injury was reasonably foreseeable in light of a particular defendant's conduct, but rather to evaluate more generally whether the category of negligent conduct at issue is sufficiently likely to result in the kind of harm experienced that liability may appropriately be imposed on the negligent party."])
The cases upon which ING relies to argue lack of foreseeability are inapposite. In State Ready Mix, Inc. v. Moffatt & Nichol (2015) 232 Cal.App.4th 1227, a civil engineer who drafted plans for a harbor pier helped the general contractor by reviewing concrete mix even though it was not his job to do so. (Id. at pp. 1229-1230.) The concrete supplier miscalculated a chemical, resulting in defective concrete that had to be replaced. (Id. at pp. 1230-1231.) In concluding that the engineer owed no duty to the concrete supplier, the court held that none of the Biakanja factors were met. (Id. at p. 1234.) As for foreseeability, the supplier alleged that the engineer knew or should have known that the concrete would not meet project specifications, a particularly brazen allegation given that the supplier was the one that "overdosed" the chemical that caused the concrete to fail. (Ibid.) In any event, there were no facts alleged that the engineer knew or should have known about the overdosing that led to the defect. (Ibid.) And in analyzing another factor (the connection between the engineer's conduct and injury suffered), the court quipped that the engineer "[l]ack[ed] clairvoyant powers" to predict the effect of equipment problems that the supplier experienced "without telling anyone." (Ibid.) This stands in stark contrast to the situation here, where plaintiffs suffered injury from the type of activity they were expected to undertake as a result of SMMS's financial seminars.
The other cases upon which ING relies are likewise distinguishable on their unique facts. (Heritage Oaks Partners v. First American Title Ins. Co. (2007) 155 Cal.App.4th 339, 341, 345-346 [trustee in nonjudicial foreclosure sale owes no duty to subsequent purchasers of property where specific statutes governing such transactions do not contemplate such a far-reaching duty and Biakanja factors not met in any event]; Ludwig v. City of San Diego (1998) 65 Cal.App.4th 1105, 1108, 1111-1113 [in absence of evidence that a traffic engineer aide had any knowledge or notice that delaying leaving a trench open for too long would lead to its collapse, he owed no duty to construction worker in absence of foreseeability to the aide that delaying work would lead to collapse]; Keru Investments, Inc. v. Cube Co. (1998) 63 Cal.App.4th 1412, 1415, 1420 [contractor who performed seismic retrofitting work owed no duty of care to subsequent owner who bought property after major earthquake because it was not foreseeable that an unusually strong earthquake would occur when a balance owed on a loan was great enough to tempt the owner to default four years after code-compliant work was undertaken].)
Degree of certainty plaintiffs suffered injury: The trial court found that each plaintiff established loss by testifying that he or she made investments based on the financial advisors' recommendations and later suffered financial loss that resulted in lost income. (Biakanja v. Irving, supra, 49 Cal.2d at p. 650.) And it found that some plaintiffs had to secure loans or file for bankruptcy because of their financial loss. ING does not challenge these findings, at least insofar as they were basis for finding that SMMS owed a duty.
Closeness of connection between SMMS's conduct and injury suffered: Under the next Biakanja factor, the connection between SMMS's conduct and plaintiffs' injury (Biakanja v. Irving, supra, 49 Cal.2d at p. 650), the trial court found that the connection was close because plaintiffs "clearly would not have been harmed or suffered to this degree had SMMS taken any reasonable effort to monitor the quality of these licensed instructors." The court noted that even though the financial advisors failed to meet SMMS's own guidelines for instructor selection, SMMS nonetheless continued to use them for SMMS programs at Fireman's Fund without checking to ensure that the advisors were offering a conservative approach to investing plaintiffs' retirement savings. And the trial court pointed to abundant examples of SMMS's failure to adequately monitor the instructors: only one of the financial advisors assigned to Fireman's Fund for nearly a decade had successfully passed an NASD background check, SMMS never asked broker-dealers what types of products the financial advisors were selling, and it never asked the financial advisors themselves what types of investments they were selling to their clients.
On appeal, ING acknowledges that the financial advisors "indisputably" played the "primary role" in causing plaintiffs' harm (citing Giacometti v. Aulla, LLC (2010) 187 Cal.App.4th 1133, 1140), because they "were directly involved in the selection of unsuitable investments and . . . told Plaintiffs to ignore the lengthy risk disclosures that they received." But it claims that the trial court unduly relied on "SMMS's failure to strictly enforce the instructors' timely-payment obligation from 1998 until April 2000." The record ING cites does not support its argument, and its claim that SMMS played only a "tertiary role" in plaintiffs' losses is wholly unpersuasive. For this same reason, we also reject ING's argument under Bily, supra, 3 Cal.4th at page 398, that a finding of duty is somehow out of proportion with SMMS's fault. ING claims that "it would be grossly out of proportion to punish SMMS's billing forbearance or its overall arrangement of the seminars by making it, in effect, the insurer of the success of Plaintiffs' entire multi-year financial strategies. (See Bily, at p. 398 [weighing proportionality].) This argument again downplays the role that SMMS's acts or omissions played in plaintiffs' losses.
Moral blame attached to SMMS's conduct: In concluding that SMMS's conduct was worthy of moral blame under the next Biakanja factor, the trial court cited FNS Mortgage Service Corp. v. Pacific General Group, Inc. (1994) 24 Cal.App.4th 1564. In that case, a nonprofit association controlled by officials who enforced local plumbing codes certified that it approved a specific pipe as meeting uniform standards. (Id. at pp. 1566-1567.) A general contractor used the pipe, which turned out to be defective, and sued the nonprofit for negligence. (Ibid.) The nonprofit denied that its conduct was worthy of moral blame because it did not act dishonestly or with malice or avarice. (Id. at p. 1575.) The court disagreed and concluded it was "enough to say that where a sufficient likelihood of harm to another attends a failure to perform an undertaking, sloth or timidity can be characterized as immoral." (Ibid.) The trial court here concluded that SMMS's conduct was akin to sloth because the company "knew that its licensees were advising persons near and in retirement and its licensees were selling limited partnerships, and that there were bad apples among the licensees that SMMS was promoting. Nevertheless, SMMS performed little or no due diligence to determine whether the Financial Advisors were among the bad apples before licensing them and allowing them to participate in the worksite program at Fireman's Fund. SMMS then did nothing to ascertain whether the Financial Advisors were potentially giving unsuitable advice to Plaintiffs, who had been converted to clients of the Financial Advisors as [a] natural result of SMMS's business model." (Fns omitted.)
As with other arguments, ING ignores these factual findings and argues that SMMS's conduct was not morally blameworthy because it did not involve "intentionally causing harm, having constructive knowledge that harm would ensue, acting with bad faith or reckless indifference, or engaging in inherently harmful or wrongful conduct." This is precisely the type of argument the court rejected in FNS Mortgage Service Corp. v. Pacific Group, Inc., supra, 24 Cal.App.4th at page 1575, and we reject it as well. ING's reliance on Adams v. City of Fremont (1998) 68 Cal.App.4th 243 is misplaced because that case did not involve a duty to third parties under a contract but instead analyzed the scope of a police officer's duty when responding to a crisis involving a person threatening suicide. (Id. at pp. 248-249.)
Policy of preventing future harm: Finally, as for the final Biakanja factor—preventing future harm (Biakanja v. Irving, supra, 49 Cal.2d at p. 650)—the trial court concluded that "to the extent other purveyors of financial education programs use similar models, specifically those including individual consultations, personalized financial plans, and employer worksite programs, imposing the responsibility to monitor the ongoing quality of their program instructors will likely prevent future harm." We agree.
ING points to the extensive state and federal regulation of individual advisors generally and the individual criminal and civil actions brought against Gary Armitage and Jeffrey Guidi specifically in support for its argument that no duty should be imputed here. But we are unpersuaded. That financial advisors are highly regulated is a tacit recognition that their actions can cause significant harm, and this weighs in favor of finding duty on the part of entities, such as SMMS, to monitor them appropriately to avoid future harm. In sum, we conclude that the trial court correctly concluded under Biakanja that ING owed a duty to plaintiffs.
B. Plaintiffs Established That SMMS Proximately Caused Their Harm.
ING next argues that the trial court erred in finding that SMMS's conduct proximately caused plaintiffs' harm. We disagree.
"The first element of legal cause is cause in fact: i.e., it is necessary to show that the defendant's negligence contributed in some way to the plaintiff's injury, so that 'but for' the defendant's negligence the injury would not have been sustained." (6 Witkin, Summary of Cal. Law (11th ed. 2016) Torts, § 1334, p. 631; see also Mitchell v. Gonzales (1991) 54 Cal.3d 1041, 1049 ["cause in fact" also referred to as "actual cause"]; CACI 430 [causation present where action is "substantial factor in causing harm"].) The trial court concluded that SMMS's conduct was a substantial factor in causing plaintiffs harm: "Absent the conduct of SMMS, Plaintiffs never would have met, trusted, or retained the Financial Advisors. Nor would Plaintiffs have heard of, let alone invested significant amounts of their retirement money in, the risky private placement investments they made on the advice of the Financial Advisors." ING does not challenge this finding.
ING nonetheless insists that SMMS did not proximately cause plaintiffs' harm because of the presence of an intervening, superseding event. "The doctrine of proximate cause limits liability; i.e., in certain situations where the defendant's conduct is an actual cause of the harm, the defendant will nevertheless be absolved because of the manner in which the injury occurred. Thus, where there is an independent intervening act that is not reasonably foreseeable, the defendant's conduct is not deemed the 'legal' or proximate cause. Rules of legal cause, therefore, operate to relieve the defendant whose conduct is a cause in fact of the injury, where it would be considered unjust to hold him or her legally responsible." (6 Witkin, Summary of Cal. Law, supra, Torts, § 1135, p. 633; see also CACI Nos. 432 [third-party conduct as superseding cause] & 433 [intentional tort/criminal act as superseding cause].) "To determine whether an independent intervening act was reasonably foreseeable, we look to the act and the nature of the harm suffered. [Citation.] To qualify as a superseding cause so as to relieve the defendant from liability for the plaintiff's injuries, both the intervening act and the results of that act must not be foreseeable. [Citation.] Significantly, 'what is required to be foreseeable is the general character of the event or harm . . . not its precise nature or manner of occurrence.' [Citation.] Whether an intervening force is superseding or not generally presents a question of fact, but becomes a matter of law where only one reasonable conclusion may be reached." (Chanda v. Federal Home Loans Corp. (2013) 215 Cal.App.4th 746, 755-756 (Chanda); see also Martinez v. Vintage Petroleum, Inc. (1998) 68 Cal.App.4th 695, 700 [question of whether to give jury instruction on proximate causation reviewed for substantial evidence].)
ING mistakenly asserts that we review the issue de novo, relying on a case that used that standard when considering "a normative question of policy" (i.e., whether a plaintiff's use of marijuana before driving constitutes a superseding cause of an accident). (Pedeferri v. Seidner Enterprises (2013) 216 Cal.App.4th 359, 372.)
In weighing whether there was a superseding event here, the trial court relied heavily on Chanda, which explains that a superseding event " 'absolves [the original] tortfeasor, even though his conduct was a substantial contributing factor, when an independent event [subsequently] intervenes in the chain of causation, producing harm of a kind and degree so far beyond the risk the original tortfeasor should have foreseen that the law deems it unfair to hold him responsible.' " (Chanda, supra, 215 Cal.App.4th at p. 755, quoting Soule v. General Motors Corp. (1994) 8 Cal.4th 548, 573, fn. 9.) The trial court considered three possible superseding causes of plaintiffs' harm: the financial advisors' criminal conduct, Fireman's Fund conduct, and the 2007-2009 recession. It ultimately concluded that SMMS failed to prove that any of these circumstances negated causation. On appeal, ING argues that "the trial court applied the wrong legal standard in its causation analysis" and that "[t]he trial court completely ignored the legal prong of the proximate causation analysis." This is inaccurate.
ING's proximate-cause argument essentially ignores the trial court's more than six pages of analysis of whether a superseding cause excused SMMS from liability. ING claims that plaintiffs made several "choices" that attenuated the connection between SMMS's actions and plaintiffs' injuries, including (1) choosing to attend a seminar, (2) scheduling "optional" one-on-one consultations with a financial advisor, (3) meeting again with those advisors to discuss investment options, sometimes years after the original seminar, (4) retiring early, (5) making "other financial decisions, such as refinancing their homes," and (6) deciding "to invest in risky private placements despite receiving extensive risk disclosures about those investments." Even if some of these events were separated in time from the original seminars that plaintiffs attended, they were the direct and foreseeable results of plaintiffs attending seminars that were specifically designed so that plaintiffs would become clients of the seminar instructors.
ING's reliance on Phillips v. TLC Plumbing, Inc. (2009) 172 Cal.App.4th 1133 is misplaced. In that case, the court held that a plumbing company was not liable for negligently hiring a plumber who killed a client two years after the plumbing company fired him. (Id. at pp. 1144-1146.) The court relied on the rule that when a defendant's tort follows the defendant's termination, the tort and the employment may not be causally related (id. at p. 1145, citing Rest.3d Agency, § 7.05, com. c, illus. 5, p. 180), as well as the fact that the plumber and the client began a social relationship outside of the plumber's employment duties (Phillips, at pp. 1145-1146). Here, by contrast, plaintiffs' harm was caused by the very type of business relationship that the seminars were intended to foster.
In sum, we conclude that substantial evidence supports the trial court's finding that SMMS's conduct proximately caused plaintiffs' harm.
C. The Trial Court's Reliance on Plaintiffs' Model to Calculate Damages Was Reasonable.
ING challenges the measure used to calculate plaintiffs' losses, claiming that the court used a method that was invalid under state law. We again disagree.
1. Expert Testimony and the Trial Court's Ruling.
During the damages phase of trial, an expert testified on what a "model portfolio" would have looked like for each plaintiff had they not invested their money with the financial advisors. He opined that "each Plaintiff family should have been invested in a diversified portfolio of publicly-traded mutual funds, with a balance of equity [(]i.e., stock) funds and fixed income (i.e., bonds, government securities) funds, depending on Plaintiffs' ages, and typically switching to a more conservative balance of equity and fixed income at age 65. He also testified as to how the investments should have been allocated within each of these two broad categories (e.g., domestic vs. foreign stocks within the equity funds)." The expert used published indices to construct the model. Another expert then testified about how much money each plaintiff would have had if the plaintiff had invested in the model portfolio rather than with the advisors. According to the trial court, the damages calculations reasonably assumed that "(1) Plaintiffs would have invested the same amounts of new principal into the model portfolio on the same dates as they invested new principal with the Financial Advisors; and (2) Plaintiffs would have received the same distributions of money from their investments in the model portfolio on the same dates as they did from the investments made with the Financial Advisors (i.e., principal and/or interest that actually went to Plaintiffs, as opposed to being rolled over into another investment with the Financial Advisors)."
ING presented its own expert testimony on a proposed damages analysis. ING's expert used a calculation method "that calculated lost principal minus earnings," which the trial court concluded would not compensate plaintiffs "for much of their lost principal, or for any lost earnings."
The trial court concluded that plaintiffs' experts were credible and that they established a fair and reasonable approximation of how much more money each plaintiff would have had they invested in a "properly diversified portfolio of appropriate investments," as opposed to the investments they made on the advice of their investment advisors. By contrast, the court found ING's damages analysis to be flawed and unreasonable.
Using plaintiffs' model-portfolio approach, the trial court calculated damages for each plaintiff by adding "(1) the value of securities when the plaintiff turned them over to defendants, and (2) the amount which would have been earned had plaintiff not done so; and then subtract[ing] (a) the value of securities when defendants returned them to plaintiff, and (b) the earnings plaintiff received during the time that the defendants managed the portfolio of securities." The court acknowledged that it was "unknown, and unknowable" exactly how much each plaintiff would have earned absent SMMS's negligence, but concluded that its approach to calculating damages was a reasonable way to approximate plaintiffs' losses. (E.g., Twomey v. Mitchum, Jones & Templeton, Inc. (1968) 262 Cal.App.2d 690, 732 (Twomey) ["most rational approach" in certain cases "may well be a comparison of the actual experience with a theoretical properly managed account"].) The court then awarded damages to each of the 34 individual plaintiffs (or families), ranging from around $260,000 to more than $3 million.
2. The Standard of Review.
ING incorrectly argues that we are to review the trial court's "damages methodology" de novo. "At bottom, the determination of damages is essentially a factual matter on which inevitable differences of opinion do not warrant intervention by the appellate courts. [Citation.] Technical arguments about the meaning and effect of expert testimony on the issue of damages are best directed to the [trier of fact]." (Heiner v. Kmart Corp. (2000) 84 Cal.App.4th 335, 347.) We review the admission of expert testimony on damages for abuse of discretion and the decision to award damages for substantial evidence. (Ibid.) "Where the fact of damages is certain, the amount of damages need not be calculated with absolute certainty. [Citations.] The law requires only that some reasonable basis of computation of damages be used, and the damages may be computed even if the result reached is an approximation. [Citation.] This is especially true where, as here, it is the wrongful acts of the defendant that have created the difficulty in proving the amount of [damages]." (GHK Associates v. Mayer Group, Inc. (1990) 224 Cal.App.3d 856, 873-874.)
In arguing for the application of a de novo standard of review, ING relies on two inapposite cases, one involving an expert whose testimony on condemnation proceedings was governed by specific Evidence Code provisions (County Sanitation Dist. v. Watson Land Co. (1993) 17 Cal.App.4th 1268, 1278, 1282) and the other addressing whether California law permitted an expert's testimony on "hedonic damages." (Loth v. Truck-A-Way Corp. (1998) 60 Cal.App.4th 757, 760.) Moreover, it undercuts its position by citing a case that focused on whether the evidence supported the amount of damages. (S. C. Anderson, Inc. v. Bank of America (1994) 24 Cal.App.4th 529, 536-538 [where plaintiff offered no evidence on lost profits, trial court did not err in granting nonsuit].)
While ING characterizes the trial court's methodology as being contrary to law, its argument boils down to a difference of opinion over how best to calculate plaintiffs' award. We thus review the award of damages deferentially. (Heiner v. Kmart Corp., supra, 84 Cal.App.4th at p. 347.)
3. The Model Portfolio Provided a Fair and Reasonable Basis for the Trial Court's Calculation of Damages.
Civil Code section 3333 provides that for a breach of an obligation that does not arise out of a contract, the measure of damages "is the amount which will compensate for all the detriment proximately caused thereby, whether it could have been anticipated or not." ING claims that the trial court overcompensated plaintiffs by awarding them "not only for their actual losses at the financial advisors' hands, but also . . . millions of dollars of hypothetical gains from optimally managed retirement investments." ING claims that its own expert's approach to calculating damages was more consistent with the statute. According to ING, the "correct approach would have been to award Plaintiffs their actual losses on unsuitable investments—that is, the amounts they turned over to their financial advisors to purchase private placements, minus Plaintiffs' interim withdrawals and the remaining value those investments had when they left the financial advisors' control." This method was supported, according to ING, by its expert's computation of plaintiffs' "actual losses—essentially, the value of the assets turned over to the Plaintiff's financial advisor to invest in private placements, minus what the Plaintiff got back (i.e., the interim withdrawals and distributions the Plaintiff took from his or her portfolio, and the residual value of those private placements)."
ING's criticism of the trial court's damages methodology is essentially a "difference[] of opinion" over calculations that "do[es] not warrant intervention" by this court. (Heiner v. Kmart Corp., supra, 84 Cal.App.4th at p. 347.) Its efforts to portray the trial court's methodology as contrary to California law are not persuasive. The company argues that the trial court incorrectly relied on Twomey, supra, 262 Cal.App.2d 690 and Hobbs v. Bateman Eichler, Hill Richards, Inc. (1985) 164 Cal.App.3d 174 (Hobbs). In Twomey, an investment-banking and stock-brokerage partnership and the manager of a local partnership office were found to have carelessly and negligently handled a customer's account by engaging in excessive trading and by investing in highly speculative securities. (Twomey, at pp. 694-697.) The trial court computed plaintiff's damages by taking the value of securities at the time they were taken over by defendants, adding the amount those same securities would have earned had they not been improperly converted into other investments, and then subtracting the amount that was returned to plaintiff. (Id. at p. 730.) This court concluded that there was no prejudicial error in the way damages were calculated, and it rejected arguments that the calculation was too speculative and that damages for "churning" plaintiff's account should have been limited to the commissions that defendants earned. (Id. at pp. 730-733.) And it noted that it may be appropriate in some cases to compare a plaintiff's experience with "a theoretical properly managed account," as was done in this case, but that there was no evidence on the point in Twomey. (Id. at p. 732.)
In Hobbs, the trial court followed the same formula used in Twomey to calculate damages where a defendant was found to have made unsuitable investments for the plaintiff, churned her account, made transactions without her permission, and failed to advise her of substantial losses. (Hobbs, supra, 164 Cal.App.3d at pp. 180, 197.) In rejecting defendants' complaint that the damages award was "not perfectly measured" because it did not take into account the fact that plaintiff would have had to withdraw some of her principal even absent defendants' negligence, the court noted that " ' "the wrongdoer may not object to the plaintiff's reasonable estimate of the cause of the injury and of its amount, supported by the evidence, because [it is] not based on more accurate data which the wrongdoer's misconduct has rendered unavailable." [Citation.]' [Citation.] The wrongdoer must bear the risk of uncertainty which his own wrong has created." (Id. at p. 197; see also Rilovich v. Raymond (1937) 20 Cal.App.2d 630, 644 ["[W]rongdoers are not allowed to escape responsibility in damages for their acts merely because the circumstances are such as to render it extremely difficult or impossible to ascertain the amount of damage with certainty."].) Taken together, Twomey and Hobbs stand for the proposition that a damages award will not be overturned as unduly speculative when there is a reasonable basis for its calculation and its amount is supported by substantial evidence.
By contrast, ING describes these cases as part of "a specialized line of cases involving suits against stockbrokers for tortious breaches of their fiduciary duties to make investment decisions that will accumulate wealth or generate income for their clients." According to ING, "the measure of damages applied in Twomey and Hobbs was developed in a suit against a defendant with fiduciary duties and practical control over the plaintiff's individual investment decisions," whereas here "SMMS had no such duties and could exercise no control over Plaintiffs' investments." We agree with plaintiffs that the cases are not so limited in scope. Nowhere in the opinions did the courts purport to limit their holdings to situations involving stockbrokers. And ING's attempt to distinguish the cases by noting that the defendants in them had direct control over their plaintiff customers' accounts is another way of arguing that SMMS owed no duty to plaintiffs and did not proximately cause plaintiffs' losses, arguments we already have rejected.
ING also places undue reliance on Sargon Enterprises, Inc. v. University of Southern California (2012) 55 Cal.4th 747, which analyzed the admission of expert testimony regarding a business's lost profits. (Id. at p. 753.) The Supreme Court in that case concluded that the trial court did not abuse its discretion in excluding an expert's testimony as speculative, because the expert compared plaintiff's small dental-implant company to much larger companies and thus his lost-profit projections were " 'wildly beyond, by degrees of magnitude, anything [plaintiff company] had ever experienced in the past.' " (Id. at pp. 775-779.) By contrast, this case involved "profits" only insofar as the term refers to returns on investments, but not to any business that plaintiffs owned. And in Sargon Enterprises, the court concluded that admitting the expert testimony in question would have meant plaintiff could possibly "obtain a massive verdict based on speculative projections of future spectacular success." (Id. at p. 781.) As we explain below, we agree with the trial court's finding that plaintiffs' experts reasonably relied on historical information to create a model portfolio.
ING alternatively argues that even if it were legally permissible to rely on Twomey and Hobbs, the trial court's award went further than either case permits. But again, Twomey stated, albeit in dicta, that one rational approach to compensating a plaintiff whose securities account had been "churned" might be to compare the plaintiff's "actual experience with a theoretical properly managed account" (Twomey, supra, 262 Cal.App.2d at p. 732), which is what the court did here. Twomey cited a 1967 Harvard Law Review note that analyzed different measures of recovery for cases involving "churning" (where a dealer induces too many transactions in a customer's account). (Twomey, at pp. 707, 732, citing Note, Churning by Securities Dealers (1967) 80 Harv. L.Rev. 869, 869, 884-885.) That note, in turn, described a theoretical "loss of bargain" measure of damages: "A court could estimate how the plaintiff's account would have fared if it had not been churned in a number of ways. An arbitrary interest rate could be employed, perhaps that used to calculate the interest rate on a judgment, or the lower interested rate paid by banks; alternatively, the rate could be tied to one of the index figures for market prices generally. The latter approach would be particularly desirable during a period of market decline, since it would then reflect only the proportion of plaintiff's losses due to mismanagement of the account. The proper figure may well vary with the type of account; thus, an account trading in blue chip stocks might be more appropriate for use of the Dow-Jones average than one trading in unlisted securities. The traditional discretion left to trial courts in finding damages appropriate to the facts of the case will be heavily relied upon while the law in this area remains uncharted. So long as the court bears in mind the desirability of guaranteeing that the customer is made as nearly whole as possible, it is likely that any rational measure of damages will be upheld." (Note, Churning by Securities Dealers, at p. 885, italics added, fns. omitted.) Although the present case did not involve churning, it did involve measuring damages in a situation where it is impossible to calculate plaintiffs' losses with precision. The quoted portion of the note cited in Twomey recognized that it may be appropriate in certain cases to calculate losses by referring to performance indices, which is what the trial court did here. We do not consider the trial court's methodology to be a "departure from the Twomey/Hobbs method," much less an "especially striking" one, as ING claims, because those cases recognized, as did the note cited in Twomey, that courts' overarching goal is to make a plaintiff whole, not to adhere to a rigid method of calculating damages.
ING relies on various federal cases that it claims are critical of the type of methodology used by the trial court, but none compel reversal. (E.g., Carras v. Burns (4th Cir. 1975) 516 F.2d 251, 259 [although full compensation for lost equity might be appropriate in some situations, recovery limited to ascertainable losses in situation where it "was so highly leveraged and the market decline so precipitous that it was necessary to meet margin calls"]; Resolution Trust Corp. v. Strook & Strook & Lavan (S.D.Fla. 1994) 853 F.Supp. 1422, 1424-1426 [following Florida law on lost profits, summary judgment granted where plaintiff made money on bond purchase in question, failed to establish causation, and damages theory flawed because alternative investment choice that would have performed better was not known].)
We acknowledge that Rueter v. Merrill Lynch, Pierce, Fenner & Smith (N.D.Ala. 2006) 440 F.Supp.2d 1256 contains sweeping language that "the 'prudently managed account' theory [of damages] is too speculative and is unacceptable as a matter of law" and that a more appropriate measure of damages "should be calculated based on the actual net out-of-pocket losses proximately caused by the alleged misconduct." (Id. at p. 1260.) But Reuter and the cases cited in it reveal they involved situations where plaintiffs either suffered no loss or realized gains from defendants' wrongful investments, did not address the "model portfolio" measure of damages, or are otherwise easily distinguishable. (Ibid. [where plaintiffs claimed their investments were unsuitable in light of their objectives, "award of damages would be improper as a result of the Plaintiffs' realization of a substantial gain from their investments with" defendant], citing Messer v. E.F. Hutton & Co. (11th Cir. 1987) 833 F.2d 909, 922-923 [where plaintiff did not have track record of following broker's advice, he could not recover based on what broker should have recommended, especially where plaintiff failed to establish causation]; Barrows v. Forest Laboratories, Inc. (2nd Cir. 1984) 742 F.2d 54, 59-60 [where plaintiffs received stock in exchange for sale of business, they could not claim damages based on value of stock if true financial condition had been known, because value was "clearly a speculative proposition"; plaintiffs would receive "windfall" because they received more than adequate compensation for their business]; Madigan, Inc. v. Goodman (7th Cir. 1974) 498 F.2d 233, 239-240 [plaintiffs allowed to amend complaint in fraud case where they bought at a higher price but still realized a profit, "but defendants' fraud did not obligate them to create profits that never existed and, under the alleged circumstances, never could have existed"]; Resolution Trust Corp. v. Strook & Strook & Lavan, supra, 853 F.Supp. at p. 1424 [plaintiff made around $20 million in profit on transaction that was result of allegedly negligent advice].) In short, these cases involved individual analyses of the particular facts presented and do nothing to suggest that trial courts are categorically prohibited from using a "model portfolio" measure of damages.
True, ING directs us to a 1968 federal district court case that criticized the specific loss-of-bargain approach described in Churning by Securities Dealers because it "requires the Court, to a great extent, to engage in speculation and conjecture" and "would require the Court to blind itself to the financial facts of life and would, in the Court's opinion, amount to the awarding of punitive damages under the guise of compensatory damages." (Stevens v. Abbott, Proctor & Paine (E.D.Va. 1968) 288 F.Supp. 836, 849.) But at least one other case has acknowledged that using a model portfolio is a legitimate way to measure damages in order to make a plaintiff whole. (Jicarilla Apache Nation v. U.S. (Fed.Cl. 2013) 112 Fed.Cl. 274, 305-310 [trial court adopted plaintiff's damages model using an "investment portfolio proxy" to show what a properly managed account would have earned]; see also Osofsky v. Zipf (2nd Cir. 1981) 645 F.2d 107, 111 [" '[T]here cannot be any one rule of damages prescribed which will apply in all cases, even where it is conceded that the finding must be limited to actual damages.' "]; Panos v. Island Gem Enterprises (S.D.N.Y. 1995) 880 F.Supp. 169, 175 [in securities cases, courts have permitted "all forms of loss-based relief, whether articulated under out-of-pocket, benefit-of-the-bargain, or other loss theories"].) In any event, we agree with Twomey that California law authorizes the use of a model portfolio to calculate damages in appropriate cases.
ING also complains that plaintiff's experts used "hypothetical rates of return from various market indices"; "indiscriminately treated all investments alike" without distinguishing the conventional ones from the unsuitable ones; and assumed that some plaintiffs "would have borrowed money against their residences to invest in the model portfolio, and then reaped the excess of the model portfolio's returns over their cost of borrowing." These arguments all boil down to the contention that the model used by plaintiffs' experts was imperfect. Again, however, all that was required was that the model provide a reasonable approximation of damages.
We also reject ING's argument that the trial court improperly awarded damages for non-investment losses to plaintiffs who retired earlier than they otherwise would have because the awards were based on self-serving speculation about retirement timing. The trial court was in the best position to evaluate plaintiffs' credibility, and we will not set aside its determinations about when plaintiffs would have retired absent their financial advisors' faulty advice.
D. The Trial Court's Lengthy Statements of Decision Were Sufficiently Detailed.
Finally, ING argues in A144542 that the trial court erred "by not taking into account the substantial factual differences among Plaintiffs and failing to make any individualized findings with regard to each Plaintiff (other than the dollar amount of damages)," and that this alleged error requires "a new trial as to all Plaintiffs." Again, we are not persuaded.
1. Factual Background.
ING filed objections to each of the trial court's first three proposed statements of decision, which were prepared jointly by plaintiffs and Fireman's Fund. In each set of objections, ING objected that the proposed statements did not make findings specific to the individual plaintiffs.
The trial court's first statement of decision, on liability "phase one" issues, was 44 pages long (including the table of contents and two appendices, one of which was five pages of record citations). The statement of decision concluded that (1) SMMS designed and implemented its financial-education programs to enable its licensees to gain long-term, loyal clients and to sell financial products; (2) ING assumed and retained responsibility for and liability resulting from SMMS's actions; (3) SMMS owed a duty to plaintiffs and breached that duty; (4) SMMS misrepresented and concealed material facts to induce Fireman's Fund to sponsor its seminar programs; (5) SMMS breached its contractual obligations to Fireman's Fund, and (6) SMMS did not have an agency relationship with the financial advisors.
The trial court's second statement of decision was 52 pages long (including the table of contents and three tables). It concluded that (1) SMMS's conduct was a substantial factor in causing plaintiffs' and Fireman's Fund's harm and that (2) ING failed to establish any claimed affirmative defense: (a) the statute of limitations against either plaintiffs or Fireman's Fund, (b) lack of proximate cause, (c) assumption of risk, (d) plaintiff's comparative negligence, or (e) Fireman's Fund's comparative fault.
The trial court's third statement of decision, on damages, was more than 26 pages long (including a table of contents and an appendix spanning more than eight pages listing supporting evidence). The trial court listed all 34 plaintiffs as units to account for spouses or related trusts, and awarded each unit damages based on their investment and non-investment losses, minus settlement recoveries they already had received from Fireman's Fund. In total, these statements of decision spanned 123 pages.
2. The Trial Court's Statements of Decision Were Sufficiently Detailed.
The standards governing statements of decision are well settled. Code of Civil Procedure section 632 provides that upon a party's timely request in a court trial, the court is required to render a statement of decision "explaining the factual and legal basis for its decision as to each of the principal controverted issues as trial." "A statement of decision need not address all the legal and factual issues raised by the parties. Instead, it need do no more than state the grounds upon which the judgment rests, without necessarily specifying the particular evidence considered by the trial court in reaching its decision." (Muzquiz v. City of Emeryville (2000) 79 Cal.App.4th 1106, 1124-1125.) "[A] statement of decision is adequate if it fairly discloses the determinations as to the ultimate facts and material issues in the case. [Citation.] When this rule is applied, the term 'ultimate fact' generally refers to a core fact, such as an essential element of a claim. [Citation.] Ultimate facts are distinguished from evidentiary facts and from legal conclusions." (Central Valley General Hospital v. Smith (2008) 162 Cal.App.4th 501, 513.)
Appellate review of a statement of decision is governed by Code of Civil Procedure section 634, which provides that "[w]hen a statement of decision does not resolve a controverted issue, or if the statement is ambiguous and the record shows that the omission or ambiguity was brought to the attention of the trial court . . . , it shall not be inferred on appeal . . . that the trial court decided in favor of the prevailing party as to those facts or on that issue." "Where findings upon an issue are requested but not made, an appellate court cannot conclude from the record that the trial court decided such issues against the complaining party. Code of Civil Procedure section 634 provides that where findings are requested on a pertinent issue, but none are made, an appellate court may not infer that 'the trial court found in favor of the prevailing party on such issue.' A judgment rendered without findings on all material issues must be reversed. [Citation.] Not only must the court make findings on all material issues, but the findings made must be definite and certain." (Anderson v. Southern Pacific Co. (1968) 264 Cal.App.2d 230, 234-235 (Anderson).)
ING first asserts that the differences among the individual plaintiffs' experiences would have precluded class certification had they sought it. (Block v. Major League Baseball (1998) 65 Cal.App.4th 538, 542 [class action will not be permitted where there are diverse factual issues to be resolved, even if there are many common questions of law].) But this is entirely irrelevant to the question whether the trial court's findings in its statement of decision were sufficiently specific.
The heart of ING's argument is that the trial court did not make meaningful individualized findings on plaintiffs' claims. It faults the court for "fail[ing] to take into account the many differences that exist among Plaintiffs": the date each plaintiff attended a seminar, whether the plaintiff ever attended a seminar in the first place, the interval between when a plaintiff attended a seminar and that plaintiff's decision to hire a financial advisor, how soon the plaintiff first invested in a private placement, the "history and nature of the Plaintiff's investment relationship with his or her financial advisor when that Plaintiff first invested in a private placement," whether the plaintiff knew the investments made were risky, the date each plaintiff suffered any losses, and the "type and extent of losses" that each plaintiff suffered. These all strike us as merely "evidentiary facts," as opposed to the "ultimate facts" required in a statement of decision. (Central Valley General Hospital v. Smith, supra, 162 Cal.App.4th at p. 513.)
The distinction between evidentiary and ultimate facts is illustrated in the appellate cases that have reversed trial court decisions because of the insufficiency of a statement of decision. ING cites Anderson, where plaintiff filed an action requesting a declaration that her husband's death invalidated a lien on a parcel of real property and defendant filed a cross-complaint asking for entitlement to money it claimed had been held in escrow. (Anderson, supra, 264 Cal.App.2d. at p. 233.) The trial court concluded that defendant was entitled to the money. (Ibid.) The appellate court concluded that there was sufficient evidence to support the trial court's finding that the parties had entered into an oral agreement, but that the trial court never decided the "basic issue" it was asked to decide: whether the agreement was entered into by reason of mutual mistake of fact or law, thus voiding consent. (Id. at pp. 233-235.) The court reversed, concluding that the trial court had failed to execute its duty in a declaratory relief action to decide all legal and equitable issues and to " 'make a full and complete declaration, disposing of all questions of rights, status, or other legal relations encountered in construing the instruments before it.' " (Id. at p. 234.) In short, the judgment was reversed because the trial court had not rendered findings on all "material issues." (Id. at pp. 234-235.)
Likewise, in other cases that have reversed based on inadequate statements of decision, the trial courts were determined to have completely failed to address principal contested issues. For example, in Miramar Hotel Corp. v. Frank B. Hall & Co. (1985) 163 Cal.App.3d 1126, the trial court issued a four-line minute order that purported to be a statement of decision but that did not address "certain principal controverted issues" that appellants raised in their request for a statement. (Id. at pp. 1127-1128.) The appellate court reversed because the minute order failed to explain the factual and legal bases for the court's decision and ignored appellants' request for an issuance of such a statement. (Id. at p. 1129.)
Here, of course, the trial court issued detailed statements of decision, and ING does not claim that those statements failed to decide a controverted issue. Instead, it faults the court for not describing in sufficient detail all of the evidentiary facts underlying those decisions. This case is more akin to cases where courts have upheld statements of decision. (E.g., Muzquiz v. City of Emeryville, supra, 79 Cal.App.4th at p. 1126 [statement of decision need not address how court "resolved intermediate evidentiary conflicts, or respond point by point to the various issues posed in appellant's request for a statement of decision"]; Board of Administration v. Wilson (1997) 52 Cal.App.4th 1109, 1159 [statement of decision not fatally defective for failing "expressly to address factors pertinent to necessity defense"]; People v. Casa Blanca Convalescent Homes, Inc. (1984) 159 Cal.App.3d 509, 524 [trial court not required "to make findings with regard to detailed evidentiary facts" or "to make minute findings as to individual items of evidence"].)
ING also fails to demonstrate that any insufficiency in the details of the statements of decision would warrant reversal. "Even though a court fails to make a finding on a particular matter, if the judgment is otherwise supported, the omission to make such finding is harmless error unless the evidence is sufficient to sustain a finding in favor of the complaining party which would have the effect of countervailing or destroying other findings." (People v. Casa Blanca Convalescent Homes, Inc., supra, 159 Cal.App.3d at p. 524.) ING claims that the trial court's failure to provide individualized analysis of each plaintiff prejudiced it with respect to the findings on duty, causation, damages, and the statute of limitations, because the court "avoid[ed] making numerous findings that would have (or could have) favored Defendants on [those] issues." Again, though, the trial court did make findings on all these issues, they were simply unfavorable to ING. ING appears to present these arguments under the umbrella of "insufficient findings" as a way to reargue issues that we already have rejected. For example, it claims that had the trial court taken each plaintiff's specific facts into account, the court would not have found a causal link between SMMS's negligence and harm to plaintiff, because "[m]any of the factors cited by the trial court (such as the billing dispute, the Armitage firm's use of ePlanning, or Armitage's first private placements) did not occur until years after the seminars began." This misstates the trial court's findings on causation, which we have already fully discussed.
ING appears to similarly reargue issues when it contends that a new trial is warranted due the trial court's alleged failure to make sufficiently individualized findings as to each plaintiff's damages. ING claims that the court failed to distinguish between "investments that were perfectly appropriate for a particular plaintiff (e.g., mutual funds and variable annuities) and those that were inappropriately risky and illiquid (i.e., the specified private placements)." But the court explained why it chose the "model portfolio" approach to calculate damages. The fact that ING lists four plaintiffs whose traditional investments lost value and then states, "[a]nd so on" does not convince us that the trial court's damages methodology was flawed. We agree with plaintiffs that "this argument is a transparent attempt to have this Court apply a de novo standard of review; i.e., by framing its argument in terms of the necessity for individualized findings, ING attempts to evade the deference afforded to the trial court's findings based on expert testimony that use of the four portfolios provided a reasonable approximation of Plaintiffs' damages on the facts of this case."
Finally, ING raises a new argument under the guise of alleged insufficient findings when it contends that the trial court insufficiently addressed ING's defense of the statute of limitations. The trial court concluded, in a portion of its second statement of decision that spanned more than seven pages, that ING failed to demonstrate by a preponderance of the evidence that any plaintiff family suffered actual and appreciable harm more than two years before the filing of their original complaint; that plaintiffs' negligence claims did not accrue until after May 26, 2007; that plaintiffs' negligence claims did not accrue until they discovered that their harm had been caused by wrongful conduct; and that their negligence claims did not accrue until they discovered or could have discovered that SMMS's failure to adequately vet and monitor the financial advisors contributed to their harm.
A determination of whether the statute of limitations has run is a question of fact that we review for substantial evidence. (Kitzig v. Nordquist (2000) 81 Cal.App.4th 1384, 1391, 1396; Nielsen v. Workers' Comp. Appeals Bd. (1985) 164 Cal.App.3d 918, 927.) On appeal, ING simply repeats the arguments that the trial court rejected, under the guise of a supposed failure to address the statute of limitations defense "as to each Plaintiff individually." In doing so, it presents only evidence favorable to its argument and ignores the substantial evidence that supports the trial court's decision. " '[H]owever lame, however inconclusive, any number of the findings may be, if in any case there be one clear, sustained and sufficient finding upon which the judgment may rest, every presumption being in favor of the judgment, it will be here concluded that the court did rest its judgment upon that finding, or those findings, and the others may and will be disregarded.' " (Brewer v. Simpson (1960) 53 Cal.2d 567, 584.) And to the extent that ING argues that plaintiffs' harm accrued when they lost salary and benefits or incurred mortgage-refinancing costs, we agree with plaintiffs that ING waived this defense by not raising it below. (Bardis v. Oates (2004) 119 Cal.App.4th 1, 13-14, fn. 6.)
In short, the trial court's statements of decision were sufficiently detailed, and we reject ING's attempt to shoehorn other issues into an argument to the contrary.
ING's Appeal from the Judgment in Favor of Fireman's Fund (A147993)
E. The Trial Court's Judgment in Favor of Fireman's Fund is Proper Under Principles of Equitable Indemnification.
We next turn to consider the trial court's judgment in No. A147993, which awarded Fireman's Fund $7.5 million from ING reflecting the amount of the settlement between Fireman's Fund and plaintiffs. ING's argument that we should set aside this judgment relies on us first concluding that ING is not liable to plaintiffs. According to ING, "[b]ecause [ING has] no underlying liability to Plaintiffs here . . . , all of [Fireman's Fund's] cross-claims automatically fail as well." We conclude that the court's award was proper based on principles of equitable indemnification.
"In general, indemnity refers to 'the obligation resting on one party to make good a loss or damage another party has incurred.' " (Prince v. Pacific Gas & Electric Co. (2009) 45 Cal.4th 1151, 1157.) This obligation may be expressly provided for by contract, be implied from a contract not specifically mentioning indemnity, or arise from the equities of particular circumstances. (Rossmoor Sanitation, Inc. v. Pylon, Inc. (1975) 13 Cal.3d 622, 628.) Equitable indemnification among concurrent tortfeasors is permitted on a comparative fault basis to ensure that liability for damage is borne by those whose wrongdoing caused it in direct proportion to their respective fault. (American Motorcycle Assn. v. Superior Court (1978) 20 Cal.3d 578, 591.) A defendant that settles a claim may assert a claim for equitable indemnity against concurrent tortfeasors, including other defendants. (Sears, Roebuck & Co. v. International Harvester Co. (1978) 82 Cal.App.3d 492, 494.) And "the party seeking indemnity must prove payment of the settlement amount . . . and that the settlement amount was reasonable." (Mullin Lumber Co. v. Chandler (1986) 185 Cal.App.3d 1127, 1134-1135.)
The trial court here found that Fireman's Fund's settlement with plaintiffs was reasonable and entered in good faith and that Fireman's Fund was not responsible for plaintiffs' losses. And the court rejected ING's arguments that Fireman's Fund was either not entitled to indemnification or that Fireman's Fund was entitled to less than the amount it paid to plaintiffs because of Fireman's Fund's own conduct.
On appeal, ING relies on the rule that where a defendant is not liable to a plaintiff, a third party is barred from recovering from that defendant for indemnity. (Prince v. Pacific Gas & Electric Co., supra, 45 Cal.4th at p. 1165.) ING contends that Fireman's Fund's claim for equitable indemnity fails because ING is not liable to plaintiffs. But we have squarely rejected ING's arguments that it is not liable to plaintiffs. Accordingly, the rule that " ' "there can be no indemnity without liability" ' " (ibid.; Munoz v. Davis (1983) 141 Cal.App.3d 420, 425) is irrelevant. Since ING was properly determined to be liable for plaintiffs' injuries, and since the trial court found that "[t]here was simply no evidence . . . that Fireman's Fund did anything wrong," we can see no justification for us to disturb the $7.5 million dollar award under principles of equitable indemnification.
When ING filed its opening brief in A147993, it obviously could not have known how this court eventually would rule on its underlying liability to plaintiffs in A144542. But although it argued at length that Fireman's Fund's cross-claims for concealment, negligent misrepresentation, and breach of contract failed "on multiple other grounds," ING contended that Fireman's Fund's "cross-claims, however labeled, all assert only the same derivative injury—the settlement payment [Fireman's Fund] made to Plaintiffs as a result of Plaintiffs' underlying claims against [all defendants]." In other words, ING claims that all of Fireman's Fund's claims against it "sound in indemnity, notwithstanding [Fireman's Fund's] attempt to evade the limits on equitable indemnity by asserting an 'artfully pleaded claim.' " Because we affirm the judgment on the basis of principles of equitable indemnity, and because ING apparently concedes that Fireman's Fund's claims all rise and fall on this theory, we need not and do not resolve the parties' appellate arguments over whether the judgment should be affirmed or otherwise modified as a result of Fireman's Fund's separate non-indemnification claims that SMMS injured it directly under tort and contract theories (concealment, negligent representation, and breach of contract).
We also reject ING's related, two-paragraph argument that the trial court "applied an incorrect legal standard in awarding [Fireman's Fund] damages of $7.5 million—the full amount of its settlement." ING claims that Fireman's Fund's "comparative fault should have reduced the damages awarded for all of [Fireman's Fund's] claims." We agree with Fireman's Fund that ING has provided no valid legal or factual basis to apportion fault, and we thus summarily reject ING's argument.
Having disposed of ING's arguments in Nos. A144542 and A147993, we turn next to Fireman's Fund's cross-appeal challenging the award of attorney fees.
Fireman's Fund's Cross-appeal from the Award of Attorney Fees (A147993)
F. The Attorney-fees Stipulation Did Not Preserve Fireman's Fund's Right to Seek Fees Under the "Tort of Another" Doctrine.
As we have mentioned, the parties stipulated that "Fireman's Fund's non-attendance of the testimony portion of the damages phase of trial w[ould] not prejudice Fireman's Fund from seeking an award of attorneys' fees and costs, which w[ould] be addressed by the Court upon properly noticed motion by Fireman's Fund after the conclusion of the damages phase of trial." Eventually, the trial court awarded Fireman's Fund the fees it incurred in prosecuting its cross-claims against ING, but it denied Fireman's Fund the fees it incurred in defending plaintiffs' claims. Fireman's Fund argues that the denial of these later fees was improper. We disagree.
As we have mentioned, the trial court awarded Fireman's Fund $2,732,414.16 for the fees the company incurred to prosecute its cross-complaint against ING and $83,223.50 in fees for the time period of June to September 2015. Again, ING does not challenge this award.
As it argued below, Fireman's Fund contends on appeal that the attorney-fees stipulation authorized it to seek the fees it incurred in defending plaintiffs' claims, because it was entitled to those fees as a component of its damages under the tort-of- another doctrine. It also contends that it should have been permitted to re-open trial to seek and prove those damages. We conclude that the trial court properly rejected these arguments.
Fireman's Fund first contends that the "plain language" of the attorney-fees stipulation supports its interpretation that the stipulation covered seeking attorney fees under the tort-of-another doctrine. Fireman's Fund repeatedly maintains that the stipulation preserved its right to seek "tort-of-another attorneys' fees." But fees recoverable under this doctrine are different from attorney fees sought as costs in a post-trial motion. "[T]he so-called 'third party tort exception' to the rule that parties bear their own attorney fees is not really an 'exception' at all but an application of the usual measure of tort damages. The theory of recovery is that the attorney fees are recoverable as damages resulting from a tort in the same way that medical fees would be part of the damages in a personal injury action. In such cases there is no recovery of attorney fees qua attorney fees." (Sooy v. Peter (1990) 220 Cal.App.3d 1305, 1310, italics added; see also Brandt v. Superior Court (1985) 37 Cal.3d 813, 817 [comparing attorney fees recoverable as damages resulting from a tort to medical fees as damages in personal-injury action].)
The attorney-fees stipulation did not cover attorney fees recoverable as damages, but instead covered attorney fees recoverable by noticed motion following the damages phase of trial. Collecting damages under the tort-of-another doctrine involves factual questions of whether a defendant's tortious conduct "reasonably compel[led]" a plaintiff to retain counsel to defend against a third party's claims (or whether it was "reasonably necessary" to do so) (Brandt v. Superior Court, supra, 37 Cal.3d at pp. 817, 820), whether the incurrence of attorney fees was proximately caused by defendant's tort (id. p. 817), and whether the case involved "a clear violation of a traditional tort duty between the tortfeasor who is required to pay the attorney fees and the person seeking compensation for those fees." (Sooy v. Peter, supra, 220 Cal.App.3d at p. 1310.)
These issues would have been appropriate to litigate in the damages phase of trial, which the stipulation contemplated that Fireman's Fund would largely skip, meaning Fireman's Fund did not intend to litigate this type of damages. Fireman's Fund acknowledges that attorney fees recoverable under the tort-of-another doctrine " had to be litigated in the damages phase of trial ," but it contends that this means the attorney-fees stipulation "c[ould] only be read to preserve [such] fees." In other words, Fireman's Fund contends that the only reason to enter into a stipulation reserving its right to fees under a tort-of-another theory was because there was no other interest it had to protect by not appearing for the damages phase. The problem with this argument is that the stipulation itself stated its purpose was to "streamline the damages phase of trial." And the parties specifically stated that Fireman's Fund's "primary issues affecting [its] interests in the damages phase of trial c[ould] be accomplished through stipulation," then stipulated that Fireman's Fund had suffered $7.5 million in damages—the exact amount the trial court later awarded to Fireman's Fund. Allowing Fireman's Fund to separately litigate attorney fees as damages after the damages phase of trial and after litigating potential punitive damages, for an award more than the parties stipulated, would run counter to the parties' stated purpose of "streamlin[ing]" the proceedings.
Because the stipulation was unambiguous, we need not consider the extrinsic evidence cited by Fireman's Fund, except to say we agree with the trial court that it does not support Fireman's Fund's position.
We also reject Fireman's Fund's alternative argument that the trial court abused its discretion in declining to reopen trial to allow Fireman's Fund to seek attorney fees as damages. The case is distinguishable from Estate of Horman (1968) 265 Cal.App.2d 796, upon which Fireman's Fund relies. In Horman, the parties conducted trial believing that answers to interrogatories had been admitted as evidence. (Id. at pp. 805-806.) The trial court did not rule the interrogatories as inadmissible until it handed down its decision, then denied a motion to reopen the case for the purpose of presenting evidence that would support the information in the interrogatory responses. (Id. at p. 806.) The appellate court held that the trial court abused its discretion in denying the motion to reopen because appellants had made a sufficient showing of an excuse for not having produced the evidence sooner, and the court was not permitted to "act so as to preclude a party from adducing competent, material and relevant evidence which tends to prove or disprove any material issues." (Id. at pp. 806-809.) Here, by contrast, the trial court took no action that precluded Fireman's Fund from participating in the damages phase of trial. It was Fireman's Fund itself that declined to present evidence.
ING would suffer substantial prejudice were trial to be reopened. Trial in this matter started more than four years ago, and proceedings continued for more than two years. To reopen the proceedings at that late date, let alone now after lengthy appellate briefing and time for decision, would only further delay the resolution of this complicated matter. To do so after Fireman's Fund voluntarily absented itself from most of the damages proceedings is not warranted.
III.
DISPOSITION
The judgments in A144542 and A147993 are affirmed.
In A144542, plaintiffs shall recover their costs on appeal.
In A147993, each side shall bear their own costs.
/s/_________
Humes, P.J. We concur: /s/_________
Dondero, J. /s/_________
Banke, J.