BFK, INC. v. CHINA LUCKY FILM CORPORATION No. B217184.

BFK, INC., Plaintiff and Appellant, v. CHINA LUCKY FILM CORPORATION, Defendant and Appellant.

Court of Appeals of California, Second District, Division Three.
Filed July 28, 2010.
Law Offices of Bin Li and Bin Li for Defendant and Appellant.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

KITCHING, J.

INTRODUCTION

Defendant China Lucky Film Corporation (China Lucky) appeals a $3 million judgment in favor of plaintiff BFK, Inc. (BFK) following a jury trial and a special verdict. BFK prevailed on its causes of action for breach of the implied covenant of good faith and fair dealing, negligent misrepresentation and breach of warranty, and was awarded $1 million in damages for each of those causes of action. The jury, however, rendered a verdict in China Lucky's favor on BFK's breach of contract, negligence, intentional misrepresentation, concealment, and false promise causes of action.

After the judgment was entered, BFK and China Lucky both filed motions for attorney fees. The trial court denied both motions, ruling that there was not a prevailing party in the action. BFK and China Lucky both appeal the trial court's order denying their respective motions for attorney fees.

We modify the judgment to reduce the amount from $3 million to $2 million because the special verdict does not support a $1 million award for BFK's breach of the implied covenant of good faith and fair dealing cause of action. However, we affirm the remainder of the judgment and the trial court's order denying both parties' motions for attorney fees.

FACTUAL AND PROCEDURAL BACKGROUND

Although both China Lucky and BFK filed appeals, neither party filed a reporter's transcript of the proceedings in the superior court. We thus do not know what evidence or argument was presented at trial.

1. Allegations in the Third Amended Complaint

In order to provide some context for the issues presented on appeal, we shall summarize the allegations in BFK's third amended complaint. BFK alleged the following.

BFK is a California corporation in the business of supplying photographic products to large businesses, including Princess Cruise Lines. China Lucky is a corporation with offices in China in the business of manufacturing such products.

In 2006, China Lucky represented to BFK that China Lucky was using Kodak technology in its products and that China Lucky could sell such products in the United States. In particular, China Lucky advised BFK that it would manufacture a product known as "SA-10" utilizing Kodak's "Edge 10" emulsion technology and that China Lucky was licensed to sell SA-10 in the United States. BFK was not interested in purchasing products made with China Lucky's own technology because China Lucky had a bad reputation for making substandard products.

In March 2006, BFK and China Lucky entered into an "Exclusive Import/Distribution/Sales/Marketing Agreement" (the Agreement). The Agreement granted BFK the "sole and exclusive right to sell, import, market, publicize and distribute" China Lucky's products in North America, including the United States.

The Agreement, dated March 20, 2006, also stated that the Agreement could be terminated if BFK and China Lucky did not reach an agreement with respect to volume and price within 90 days.

Pursuant to the Agreement, BFK purchased more than $650,000 worth of product from China Lucky over a period of several months. BFK repeatedly asked for SA-10 photographic paper and China Lucky repeatedly told BFK to be patient—it would became available "at any time." In the meantime, China Lucky sold SA-5 photographic paper to BFK. Unfortunately, within a short period of time, BFK's customers began to complain about the poor quality of SA-5 paper. BFK then demanded that China Lucky sell the SA-10 product to BFK, but China Lucky refused to do so. In February 2007, China Lucky admitted that it did not have the right to sell SA-5 or SA-10 paper in the United States.

The third amended complaint set forth two causes of action for breach of written contract. In the first cause of action, BFK alleged that China Lucky breached the Agreement by failing to sell SA-5 and SA-10 paper. In the second cause of action, BFK alleged that China Lucky breached the Agreement by selling products to another company in the United States.

The third cause of action in the third amended complaint was for breach of the implied covenant of good faith and fair dealing. In this cause of action, BFK alleged that China Lucky breached the implied covenant by refusing to ship SA-5 or SA-10 paper.

The third amended complaint also set forth causes of action for intentional misrepresentation, fraud — false promise, fraud — concealment of facts, fraud — failure to disclose, and negligent misrepresentation based on China Lucky's alleged false statements regarding its right to sell SA-5 and SA-10 paper in the United States.

Finally, the third amended complaint set forth causes of action for negligence and breach of warranty based on the poor quality of the SA-5 paper BFK purchased from China Lucky.

2. The Special Verdict and Judgment

In March 2009, the jury rendered a special verdict that consisted of separate forms for BFK's breach of contract, negligent misrepresentation, breach of the implied covenant of good faith and fair dealing, concealment, breach of warranty, intentional misrepresentation, negligence, and false promise causes of action.

With respect to BFK's breach of contract claim, the jury responded to questions set forth in California Civil Jury Instructions (CACI), verdict form (VF) 303, entitled "Breach of Contract—Contract Formation Issue," as modified by the trial court. The jury found that the contract terms were clear enough so that the parties could understand what each was required to do; that the parties agreed to give each other something of value; that the parties agreed to the terms of the contract; and that BFK was excused from all, or substantially all, of the significant things that the contract required it to do.

The jury nonetheless found against BFK on its breach of contract cause of action. Question No. 6 of CACI VF-303 stated: "Did the parties agree to price, volume and payment terms, as called for in the March 20, 2006 and March 21, 2006 agreement?" Question No. 6 further stated: "If your answer to question 6 is yes, then answer question 7. If you answered no, stop here, answer no further questions, and have the presiding juror sign and date this form." The jury answered Question No. 6 by stating "no." The jury then skipped the remaining questions relating to BFK's breach of contract cause of action, and the presiding juror signed and dated the form.

With respect to BFK's breach of the implied covenant of good faith and fair dealing cause of action, the jury found that China Lucky breached the implied covenant and that the breach caused BFK $1 million of damages. The jury, however, did not make a finding as to whether BFK and China Lucky entered into a binding contract.

The jury also found in BFK's favor on its negligent misrepresentation and breach of warranty causes of action, awarding BFK $1 million of damages for each cause of action. However, the jury returned a verdict against BFK and for China Lucky on BFK's remaining causes of action.

On April 24, 2009, the trial court entered judgment in favor of BFK and against China Lucky in the amount of $3 million, plus $38,005.89 in costs. China Lucky filed a timely appeal of that judgment.

3. Motions for Attorney Fees

After the judgment was entered, BFK and China Lucky filed separate motions for attorney fees. The trial court denied both motions, finding that "there is no party prevailing on the contract for purposes of attorney fees, Civil Code [section] 1717." BFK and China Lucky both filed timely appeals of the trial court's order denying their respective motions for attorney fees.

CONTENTIONS

China Lucky makes three main arguments. The first is that the special verdict in favor of BFK on its cause of action for breach of the implied covenant of good faith and fair dealing must be reversed because the jury found that there was no contract between the parties. The second is that the jury awarded duplicate damages and that, at most, the judgment should have been in the amount of $1 million. Finally, China Lucky contends that because it prevailed on BFK's contract claims, the trial court abused its discretion in denying China Lucky an award of attorney fees. BFK disputes China Lucky's arguments and contends that the trial court erroneously denied BFK an award of attorney fees.

DISCUSSION

1. The Special Verdict Does Not Support a Judgment in BFK's Favor On BFK's Cause of Action for Breach of the Implied Covenant of Good Faith and Fair Dealing

"`Unlike a general verdict (which merely implies findings on all issues in favor of the plaintiff or defendant), a special verdict presents to the jury each ultimate fact in the case. The jury must resolve all of the ultimate facts presented to it in the special verdict, so that "nothing shall remain to the court but to draw from them conclusions of law." (Code Civ. Proc., § 624.) [¶] The requirement that the jury must resolve every controverted issue is one of the recognized pitfalls of special verdicts. "[T]he possibility of a defective or incomplete special verdict, or possibly no verdict at all, is much greater than with a general verdict that is tested by special findings . . . ." [Citation.]'" (Myers Building Industries, Ltd. v. Interface Technology, Inc. (1993) 13 Cal.App.4th 949, 959-960; accord Trujillo v. North County Transit Dist. (1998) 63 Cal.App.4th 280, 285.)

An essential element of a cause of action for breach of the implied covenant of good faith and fair dealing is the existence of a contract. (CACI 325). "There is no obligation to deal fairly or in good faith absent an existing contract." (Racine & Laramie, Ltd. v. Department of Parks & Recreation (1992) 11 Cal.App.4th 1026, 1032.) Hence, in order for a special verdict to support a judgment on a cause of action for breach of the implied covenant of good faith and fair dealing, it must include a finding that the parties entered into a binding contract.1

Here, the special verdict form relating to BFK's breach of the implied covenant of good faith and fair dealing cause of action did not ask the jury whether the parties entered into a binding agreement. Thus there was no finding on an essential element of the cause of action. The special verdict therefore is defective on its face.

Moreover, in response to Question No. 6 in the breach of contract special verdict form, the jury found that the parties did not agree on price, volume and payment terms. This finding amounted to a finding that the Agreement was not a binding contract because the parties did not agree upon essential terms. (See Ablett v. Clauson (1954) 43 Cal.2d 280, 284-285 (Ablett); Patel v. Liebermensch (2008) 45 Cal.4th 344, 352.)2 Accordingly, the special verdict does not support a judgment in BFK's favor with respect to its breach of the implied covenant of good faith and fair dealing cause of action.

2. China Lucky's Argument Regarding Duplicative Damages Is Not Supported By Facts in the Record

"`"A judgment or order of the lower court is presumed correct. All intendments and presumptions are indulged to support it on matters as to which the record is silent, and error must be affirmatively shown. This is not only a general principle of appellate practice but an ingredient of the constitutional doctrine of reversible error." [Citation]' [Citations.]" (Gee v. American Realty & Construction, Inc. (2002) 99 Cal.App.4th 1412, 1416.)

"The party seeking to challenge an order on appeal has the burden to provide an adequate record to assess error.3 [Citation.] Where the party fails to furnish an adequate record of the challenged proceedings, his claim on appeal must be resolved against him. [Citations.]" (Rancho Santa Fe Assn. v. Dolan-King (2004) 115 Cal.App.4th 28, 46.)

Here, China Lucky contends that the jury awarded duplicative damages. However, China Lucky failed to provide any record of the evidence admitted at the trial. We thus do not know what evidence of damages BFK presented for each of its causes of action, and therefore have no way of determining whether the damages awarded by the jury were duplicative. Accordingly, China Lucky failed to meet its burden of showing that the judgment should be reversed due to duplicative damages.

3. Both Parties Failed to Meet Their Burden of Showing That the Trial Court Abused Its Discretion in Denying Their Respective Motions for Attorney Fees

We review the trial court's ruling on a motion for attorney fees for abuse of discretion. (EnPalm, LLC v. Teitler (2008) 162 Cal.App.4th 770, 774.) Attorney fees can be recovered by a prevailing party as an allowable cost when authorized by contract, statute, or law. (Code Civ. Proc., § 1033.5, subd. (a)(10.)

In this case, both BFK and China Lucky claim that they are entitled to attorney fees pursuant to a contract, namely the Agreement. As appellants, both BFK and China Lucky have the burden of showing that the trial court abused its discretion.

BFK argues that it was the prevailing party on the contract because the jury found in its favor on its breach of the implied covenant of good faith and fair dealing cause of action. However, as explained above, the special verdict does not support a judgment in BFK's favor on that cause of action. The premise of BFK's argument therefore is without merit.

China Lucky argues that it was the prevailing party for purposes of attorney fees because it prevailed on all contract claims and the court cannot consider noncontract claims in determining the prevailing party. (See Federal Deposit Ins. Corp. v. Dintino (2008) 167 Cal.App.4th 333, 357.) This argument is premised on the assumptions that (1) there was a contract among the parties and (2) that the contract contained an attorney fee clause. Although the Agreement attached to the third amended complaint did indeed contain an attorney fee clause, there is nothing in the record indicating that the Agreement was admitted into evidence, or even that BFK alleged at trial that the Agreement was the operative contract. China Lucky thus failed to meet its burden of showing that there was any basis for the trial court to award it attorney fees.

Moreover, we cannot ascertain from the special verdict alone whether China Lucky prevailed on all causes of action relating to a contract with an attorney fee clause. As stated, BFK prevailed on its breach of warranty cause of action. A party prevailing on a breach of warranty claim may recover attorney fees if the warranty was part of a contract that contained an attorney fee clause. (See Vons Cos., Inc. v. Lyle Parks Jr., Inc. (2009) 177 Cal.App.4th 823, 834-835; Brittalia Ventures v. Stuke Nursery Co., Inc. (2007) 153 Cal.App.4th 17, 28-29.) In this case, however, the record does not clearly indicate whether BFK's breach of warranty cause of action, as presented at trial, was based on the Agreement or some other contract that contained an attorney fee provision.

For all of these reasons, we must presume that the trial court's order denying BFK's and China Lucky's motions for attorney fees was correct.

DISPOSITION

The judgment is modified so that the amount of the judgment in BFK's favor is $2 million, plus $38,005.89 in costs. As modified, the judgment is affirmed. The order denying BFK's and China Lucky's motions for attorney fees is also affirmed. Each party is to bear their own costs.

We concur:

KLEIN, P. J.

CROSKEY, J.

FootNotes


1. BFK argues that a "separate breach" of the contract is not required to support a breach of the implied covenant of good faith and fair dealing cause of action. This argument does not relate to the first, essential element of the cause of action, namely the existence of a contract.
2. "`[A] promise may be sufficiently definite when it contains an option given to the promisor or promisee, yet if an essential element is reserved for the future agreement of both parties, the promise can give rise to no legal obligation until such future agreement. Since either party by the terms of the promise may refuse to agree to anything to which the other party will agree, it is impossible for the law to affix any obligation to such a promise.'" ( 43 Cal.2d at p. 284-285.)
3. "When practicing appellate law, there are at least three immutable rules: first, take great care to prepare a complete record; second, if it is not in the record, it did not happen; and third, when in doubt, refer back to rules one and two." ( (2003) , 364.)

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