Strategic Concepts, LLC v. Beverly Hills Unified School Dist. ( 2018 )

Filed 6/6/18 (unmodified opn. attached)
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SIX
STRATEGIC CONCEPTS, 2d Civil No. B264478
LLC, (Super. Ct. No. BC420456)
(Los Angeles County)
Plaintiff, Cross-defendant
and Respondent, ORDER MODIFYING
OPINION AND DENYING
v. REHEARING
[NO CHANGE IN
BEVERLY HILLS UNIFIED JUDGMENT]
SCHOOL DISTRICT,
Defendant, Cross-
complainant and Appellant.
THE COURT:
It is ordered that the opinion filed herein on May 10, 2018,
be modified as follows:
1. On page 2, after the word (and heading) “FACTS,” insert
footnote 2 to read:
In her petition for rehearing, Christiansen complains that
our statement of facts may prejudice her in a possible
retrial. Her brief on appeal did not contain a statement of
facts. The facts we adduce here were derived from the
record. Nevertheless, Christiansen need not be concerned
because this is an unqualified reversal. “The effect of an
unqualified reversal (‘the judgment is reversed’) is to
vacate the judgment, and to leave the case ‘at large’ for
further proceedings as if it had never been tried, and as if
no judgment had ever been rendered.” (9 Witkin, Cal.
Procedure (5th ed. 2008) Appeal, § 869, p. 928, and the
plethora of cases cited.)
2. On page 8, in the second sentence in the last paragraph,
the name “Dennis Wolliver” is changed to “Dannis Woliver
Kelley.”
3. On page 8, in the third sentence in the last paragraph,
the phrase “from Wolliver’s office” is changed to “from Dannis
Woliver Kelley’s office.”
4. On page 19, the last paragraph is changed to read: “The
judgment is reversed. Costs are awarded to appellant.”
There is no change in the judgment.
Respondent’s petition for rehearing is denied.
2
Filed 5/10/18 (unmodified version)
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SIX
STRATEGIC CONCEPTS, 2d Civil No. B264478
LLC, (Super. Ct. No. BC420456)
(Los Angeles County)
Plaintiff, Cross-defendant
and Respondent,
v.
BEVERLY HILLS UNIFIED
SCHOOL DISTRICT,
Defendant, Cross-
complainant and Appellant.
A school district employee persuaded the district to convert
her position from employee to independent contractor. She
formed a limited liability company (LLC). The result: she was no
longer an employee to whom the district paid $113,000 per year;
she was now the sole owner of an LLC to which the district paid
more than $1.3 million a year. Later she persuaded the district
to award her LLC a $16 million no-bid contract. The district
later declared the contracts void in violation of Government Code
section 1090,1 prohibiting conflicts of interest in the making of
public contracts, and section 4525 et seq., requiring competitive
bidding for certain public contracts.
The LLC sued the district for breach of contract and the
district cross-complained to recover money paid under the alleged
void contracts.
The trial court instructed the jury that the LLC’s contracts
did not violate section 1090 on the theory the statute does not
apply to independent contractors. The court did not instruct on
the competitive bidding statutes. It also concluded that a
“termination for convenience” clause in the contract did not limit
damages. The jury awarded millions in damages to the LLC.
We reverse. Section 1090 applies to independent
contractors. The trial court misinterpreted section 1090 and
erred in not instructing on the competitive bidding statutes. The
contract also limits the LLC’s damages.
FACTS
Karen Christiansen was employed as director of planning
and facilities for the Beverly Hills Unified School District
(District). Among her duties Christiansen administered the
planning, construction, and maintenance of the District’s school
facilities. She received a salary of $113,000 per year plus a $150
per month automobile allowance. Her written employment
agreement ran from February 2005 through June 2007.
In 2006, Christiansen lobbied District officials to change
her position from an employee to a consultant. A former member
of the Board of Education (Board) testified, “Ms. Christiansen
lobbied hard to move from the director of facilities and planning
1All statutory references are to the Government Code
unless otherwise stated.
2
to consulting status.” In June 2006, Christiansen entered into a
new three-year contract with the District terminating her status
as an employee and naming her a consultant.
The new contract, however, did not change her duties. The
contract provided in part: “It is the intent of The District and
Karen Christiansen that the transition be seamless as far as the
operations of The District and the responsibilities of Karen
Christiansen are concerned and that Karen Christiansen
continue to have the same responsibilities she had as the Director
of Planning and Facilities except for those duties and
responsibilities which would be precluded due to her change in
status from employee to consultant.”
The contract further provided: “The District shall provide
office space, office equipment and supplies in an amount,
quantity and quality as is currently being provided to
Consultant.”
Pursuant to the contract, Christiansen’s two minor children
were considered children of a District employee for the purpose of
attending school in the District. Christiansen was allowed to
continue her use of the District’s email. The new District
Superintendant Kari McVeigh believed for a time that
Christiansen was a District employee and a member of her staff.
The contract set Christiansen’s compensation at $160 per
hour with a maximum compensation of $170,000 per year.
Compensation could not exceed the maximum without prior
written recommendation by the District staff and prior written
approval by the Board.
Christiansen formed Strategic Concepts, LLC (Strategic), of
which she was the sole owner. In early 2007, Christiansen
assigned her consulting contract to Strategic.
3
Payments Under the Contract
McVeigh and Assistant Superintendant of Business
Services Cheryl Plotkin were required to review and approve
Strategic’s invoices. McVeigh described her relationship with
Christiansen as “friendly, friends.” Plotkin frequently socialized
with Christiansen. She attended parties at Christiansen’s home.
They went on two pleasure trips. At Plotkin’s request,
Christiansen obtained tickets to a show in Las Vegas for Plotkin
and her husband. They reimbursed her. Christiansen hired
Plotkin’s daughter to work for Strategic.
In spite of the $170,000 per annum contract limitation,
Strategic’s invoices were approved and paid in the following
amounts: $253,520 in 2006; $1,313,035 in 2007; and $1,390,804
in 2008. No one from the District alerted the Board about the
over-payments. The invoices simply appeared on the Board’s
“consent calendar”; that is, items that the Board does not usually
review on an individual basis.
When Christiansen discovered her contract and payments
were being questioned by the District’s Citizens’ Oversight
Committee, she emailed Plotkin: “Let’s just say that the contract
was developed by your attorney . . . . Please shut this down fast.”
2008 New Contract
In June 2008, with one year left on her existing contract,
Christiansen negotiated a new contract. She testified that
McVeigh wanted a new contract because the existing contract did
not contain a “termination for convenience” clause; that is, a
clause that would allow the District to terminate her contract
without cause.
Christiansen’s friend was the District’s counsel, David
Orbach, and his partner, David Huff. Christiansen, Orbach and
4
Huff were among a group of friends who often met for drinks
after work. In emails Orbach referred to Christiansen as “my
queen” and she referred to him as “my prince.” Christiansen sent
Orbach and Huff an unsolicited picture of herself in a black
bikini. The attorneys and Christiansen exchanged a number of
emails containing sexual innuendo.
On June 3, 2008, the District and Strategic entered into a
new consulting contract. The contract terminated on June 30,
2009. The contract it replaced provided for maximum
compensation of $170,000 per annum. The new contract provided
for compensation per an hourly rate schedule attached as exhibit
B to the contract. In addition, the contract provided for a
retroactive payment in an amount not to exceed $950,000 for
services performed between January 1 and June 30, 2008. The
compensation would be updated annually as approved by the
Board.
The new contract contained a “termination for convenience”
provision. The provision stated in part: “This AGREEMENT
may be terminated without cause by DISTRICT upon sixty (60)
days’ written notice to CONSULTANT. In the event of a
termination without cause, the DISTRICT shall pay
CONSULTANT for all SERVICES performed and all expenses
incurred under this AGREEMENT supported by documentary
evidence, including payroll records, and expense reports up until
the date of notice of termination plus any sums due the
CONSULTANT for BOARD approved extra SERVICES. . . . In
addition, CONSULTANT will receive a termination fee that shall
be the equivalent of one (1) month of payment to CONSULTANT
for SERVICES based on the average of the valid invoiced
amounts from the three (3) months preceding termination
5
(‘Termination Fee’).” The contract was later amended to require
120 days’ notice of termination, and the one-month termination
fee was amended to three months’ payment.
The new contract further provided in part: “In the event a
termination for cause is determined to have been made
wrongfully or without cause, then the termination shall be
treated as a termination for convenience . . . , and
CONSULTANT shall have no greater rights than it would have
had if a termination for convenience had been effected in the first
instance. No other loss, cost, damage, expense or liability may be
claimed, requested or recovered by CONSULTANT.”
McVeigh signed the contract on behalf of the District. The
contract was approved by the Board.
Advocation for School Bond
In Spring 2008, Christiansen advocated for a new school
bond issue. She pressed the District to conduct a survey to
determine whether voters would favor it. She said the survey
could be done without cost to the District.
Christiansen sought McVeigh’s permission to address the
Board about the bond. McVeigh denied her request. She told
Christiansen that the recommendation for a bond issue should
come from the superintendent; if it comes from the project
management company, it will look like the company is only trying
to get business.
Nevertheless, Christiansen persisted. She procured a draft
community survey from her bond underwriter on her own
initiative. She repeatedly asked McVeigh to present it to the
Board. McVeigh resisted.
Christiansen presented McVeigh with her underwriter’s
bond scenarios. According to the underwriter, the District could
6
issue bonds up to $300 million. Christiansen told McVeigh that if
the Board approved the survey at its July 2008 study session,
there would be enough time to place the issue on the November
2008 ballot.
Eventually Christiansen got her way. She presented her
idea for the bonds at the Board’s July 2008 study session. The
Board approved the bond survey and approved placing the bond
issues on the November 2008 ballot. After the meeting, the bond
underwriter emailed Christiansen, “You choreographed the
meeting last night perfectly!”
Later in discussing whether to include agreements with the
underwriter and bond counsel in the draft Board resolution,
Christiansen emailed McVeigh, “Can we include my company’s
name too? I’d hate to do all this work and then be pushed aside.”
At the same Board meeting, Christiansen proposed that the
District retain Strategic for program and project management of
the projects to be funded by the bond. Christiansen proposed an
amendment to the 2008 contract that Strategic be paid $6 million
(2 percent of the $300 million project budget) for program
management and $10.125 million (4.5 percent of the construction
value of $225 million) for project management (hereafter
“contract amendment”).
The Board’s discussion of Christiansen’s proposed contract
amendment was described by the District’s attorney Huff as “very
contentious.” Huff said that both McVeigh and Christiansen
were unhappy that Christiansen’s proposed fees were debated.
The Board tabled the matter.
After the meeting, Christiansen emailed McVeigh.
Christiansen stated that she had been “breaking [her] butt” for
the District, and now her competitors would have an opportunity
7
to obtain the management contract. Christiansen claimed she
had been discounting her fees to the District and threatened to
stop the discount.
At a Board meeting in August 2008, Plotkin recommended
that the Board approve Christiansen’s contract amendment. The
Board approved the contract amendment three-to-one with one
abstention. No other bids were taken.
Bond Measure Passes and Strategic Bills
On November 8, 2008, the voters passed the $334 million
bond measure. On November 20, 2008, Christiansen sent the
first invoice for program and project management services in the
amount of $231,414.24. Between November 2008 and August
2009, Strategic collected more than $2,000,000 in management
fees even though no specific project had been approved.
Investigation
McVeigh retired in November 2008. Jerry Gross became
the new interim superintendent. Gross became concerned about
the amount of money being paid to Strategic without there being
an approved project.
The Board became aware that Christiansen was receiving
“a lot of money.” Board member Myra Laurie testified that when
Gross told her how much Christiansen was receiving, she was
shocked and became physically ill. Laurie called Christiansen.
Christiansen admitted she “might have gotten ahead of [herself].”
Contract Terminated
The Board met within 24 hours to consider the matter. The
Board retained a new attorney, Dennis Wolliver, to advise it. On
August 13, 2009, an attorney from Wolliver’s office wrote
Christiansen’s attorney advising him that Strategic’s contracts
with the District are void under section 1090 for conflicts of
8
interest. The same day Strategic was ordered by the District to
vacate the District’s premises.
Criminal Prosecution
Christiansen was prosecuted for a criminal violation of
section 1090. A jury found her guilty. She was sentenced to
more than four years in prison and ordered to pay the District
$3.5 million in restitution.
Division 1 of this court reversed the conviction in People v.
Christiansen (2013) 216 Cal. App. 4th 1181. The court reasoned
that for the purposes of criminal law, section 1090 did not apply
to independent contractors. The court declined to decide the
scope of section 1090 as applied to civil actions.
Instant Action
Christiansen and Strategic brought an action against the
District seeking a declaration that the 2008 contract and contract
amendment are not void under California’s conflict of interest
laws, including section 1090, or due to the failure to comply with
public contracting laws. Christiansen and Strategic later
amended the complaint to add a cause of action for breach of
contract.
The District cross-complained alleging that Christiansen
was at all times an employee of the District; that she violated
section 1090 et seq. on conflicts of interest; and that she violated
section 4525 et seq. for failure to comply with the competitive
bidding process.
Prior to trial, the trial court ruled that section 1090 does
not apply. The ruling was based on People v. Christiansen, supra,
216 Cal. App. 4th 1181. The court granted judgment of nonsuit on
the District’s cross-complaint against Strategic and Christiansen.
9
When the nonsuit was granted, Christiansen withdrew as a
plaintiff, leaving only Strategic.
The trial court instructed the jury: “On August 13th, 2009,
the Beverly Hills Unified School District notified Strategic
Concepts that it was declaring their contracts with the school
district void for claimed violations of Government Code section
1090. However, the court has determined in this case, and you
are instructed, that [Strategic’s] contracts did not violate
Government Code section 1090 and that the claimed violation of
that statute . . . was not a legally valid ground for voiding the
contracts.”
The jury awarded Strategic general contract damages of
$7,710,509 based on $16,125,000 in program and project
management fees less overhead and payments received. The jury
also awarded Strategic $6 million in special contract damages
based on the District’s actions destroying the value of Strategic.
The trial court awarded Strategic $4,310,660 in
prejudgment interest pursuant to Civil Code section 3287,
subdivision (b), and $2.3 million contractual attorney fees. The
total judgment is $20,321,169.
DISCUSSION
I
The District contends the trial court erred in instructing
that Strategic’s contracts did not violate section 1090 and that
violating the statute is not a legally valid ground for voiding the
contracts.
The trial court’s instruction is the equivalent of a directed
verdict or judgment of nonsuit in favor of Christiansen and
against the District. In reviewing the directed verdict or
judgment of nonsuit against the District, we view the evidence in
10
a light most favorable to the District and against Christiansen,
resolving all presumptions, inferences and doubts in favor of
District. (Baker v. American Horticulture Supply, Inc. (2010) 186
Cal. App. 4th 1059, 1072.) We affirm only if such a judgment is
required as a matter of law. (Ibid.)
Section 1090, subdivision (a) provides in part: “Members of
the Legislature, state, county, district, judicial district, and city
officers or employees shall not be financially interested in any
contract made by them in their official capacity, or by any body or
board of which they are members. Nor shall state, county,
district, judicial district, and city officers or employees be
purchasers at any sale or vendors at any purchase made by them
in their official capacity.”
The trial court’s instruction was based on its determination
that as a matter of law section 1090 does not apply because
Christiansen was an independent contractor and not an officer or
employee of the District. The instruction was based on People v.
Christiansen, supra, 216 Cal. App. 4th 1181. But while this
appeal was pending, our Supreme Court expressly disapproved
Christiansen in People v. Superior Court (Sahlolbei) (2017) 3
Cal.5th 230, 247.
In Sahlolbei, the defendant, a surgeon, was an independent
contractor of a public hospital. He sat on an independent
committee that advised the hospital’s board on matters including
physician hiring. He pressured the hospital into giving another
doctor a contract in which he (the defendant) had an interest.
The People charged the defendant with violating section 1090.
The trial court dismissed under Christiansen because the
defendant was an independent contractor. A divided Court of
Appeal affirmed the dismissal. Our Supreme Court reversed.
11
In reversing, our Supreme Court concluded the term
“employees” as used in section 1090 is “intended to include
outside advisors with responsibilities for public contracting
similar to those belonging to formal employees, notwithstanding
the common law distinction between employees and independent
contractors.” (People v. Superior Court (Sahlolbei), supra, 3
Cal.5th at p. 237.) The focus is on the substance of the
challenged transaction, disregarding the technical relationship of
the parties. (Id. at p. 239.) The court cited with approval cases
applying section 1090 to independent contractors in the civil
context. (Id. at p. 238; see California Housing Finance Agency v.
Hanover/California Management & Accounting Center, Inc.
(2007) 148 Cal. App. 4th 682, 693 [independent contractor attorney
covered by section 1090]; Hub City Solid Waste Services, Inc. v.
City of Compton (2010) 186 Cal. App. 4th 1114, 1125 [independent
consultant advised city to hire his firm]; Davis v. Fresno Unified
School Dist. (2015) 237 Cal. App. 4th 261, 300 [independent
consultant awarded construction contract].)
The court in Sahlolbei referred to Christiansen as
illustrating why section 1090 must be construed as applying to
independent contractors. The court stated: “The perverse
consequences of exempting independent contractors from section
1090 provide another reason against ascribing to the Legislature
such an intent. An official ‘could manipulate the employment
relationship to retain “official capacity” influence, yet avoid
liability under section 1090’ . . . , a scenario illustrated by the
facts of Christiansen. Christiansen was initially employed
directly by the school district. . . . Two years later, she entered
into a new contract with the district under which she was treated
as an independent contractor, although she continued to perform
12
the same duties. . . . Her alleged malfeasance occurred during
the new contract. . . . As a result, she was able to escape liability
for misspending the public's money in large part because at the
time of her misconduct, she provided her own insurance . . . ; if
the exact same conduct had occurred under the old contract, she
could have been liable. The Christiansen court did not explain
why the Legislature would have intended this result.” (People v.
Superior Court (Sahlolbei), supra, 3 Cal.5th at p. 243, citations
omitted.)
Christiansen argues that she did not violate section 1090
because she was simply negotiating her own compensation.
(Citing Campagna v. City of Sanger (1996) 42 Cal. App. 4th 533,
539-540.) Of course, a District employee may negotiate a
reasonable salary without violating section 1090. But
Christiansen went far beyond that.
Christiansen used her position of trust as an employee to
ingratiate herself with the District’s administrators. She “lobbied
hard” to move from an employee to independent contractor. As a
result, she entered into a contract that transformed her from an
employee earning $113,000 per year to an independent contractor
earning over $1.3 million per year, doing the same work from the
same office in the District’s headquarters. Then she used her
influence with the District to obtain a $16 million no-bid contract
to administer the District’s new bond fund. Using a position of
public trust or influence to obtain such contracts is a clear
violation of section 1090. (See Hub City Solid Waste Services, Inc.
v. City of Compton, supra, 186 Cal. App. 4th 1114 [where city’s
consultant persuaded city to contract with consultant’s
corporation, contract void as violating section 1090].) There is a
reason why our Supreme Court in Sahlolbei used the facts of
13
Christiansen’s case to illustrate why section 1090 applies, not
why she was simply negotiating her own compensation.
Christiansen raises a number of arguments in her reply
brief under the heading “Statement of the Case.” The arguments
are raised in a summary manner without citation to authority.
We could treat the arguments as waived. (See Roe v. McDonald’s
Corp. (2005) 129 Cal. App. 4th 1107, 1114.) In any event, they are
without merit. A brief discussion will suffice.
Christiansen argues that Strategic’s invoices were fully
audited; that Strategic’s compensation was not excessive; that
the District is pursuing additional bonds without influence from
Strategic; and that Strategic had fully delivered on what had
been asked of it. We ask the rhetorical question, “What does this
have to do with section 1090?” The answer: nothing.
In Thomson v. Call (1985) 38 Cal. 3d 633, 648, our Supreme
Court stated that a violation of section 1090 does not require
actual dishonesty or fraud or an actual loss to the public agency.
Whether a contract is fair, just and equitable to the public
agency, or whether it is more advantageous to the public entity
than another contract has no bearing on the question of its
validity under section 1090. (Id. at p. 649.)
Christiansen argues that Strategic was not the force behind
the new bonds. She cites evidence that the Board expressed
concern for seismic safety and its desire to promptly discharge
that obligation. But Christiansen cites no evidence that the
Board was contemplating placing the bond measure on the ballot
until she became involved. In any event, whether Strategic was
the force behind the bonds is beside the point. What is relevant
is that Christiansen was the force behind the $16 million contract
awarded to Strategic.
14
Christiansen argues Superintendent Gross had a conflict of
interest in that he was working for a direct competitor of
Strategic. Assuming it is true, Christiansen fails to say how it is
relevant to this appeal. At most, the argument goes to the weight
of Gross’s testimony, a matter of no concern on appeal.
Finally, Christiansen argues the District’s counsel
intimidated McVeigh and the District’s director of human
resources, Nora Rogue, in an effort to convince them not to testify
at trial. Both McVeigh and Rogue testified someone who
identified himself as the District’s counsel called and advised
them to assert their Fifth Amendment right not to testify. Both
testified without invoking the Fifth Amendment. Christiansen
fails to state the relevance of this allegation to this appeal.
II
The District contends the trial court erred in refusing to
instruct the jury on the failure to comply with competitive
bidding statues. (§ 4525 et seq.)
Section 4529.12 provides in part: “All architectural and
engineering services shall be procured pursuant to a fair,
competitive selection process . . . .” Section 4529.10 defines
“architectural and engineering services” to include “construction
project management services.” Contracts that fail to comply with
the competitive bidding statutes are unenforceable. (See Santa
Monica Unified Sch. Dist. v. Persh (1970) 5 Cal. App. 3d 945, 952.)
The District pled section 4525 et seq. both as an affirmative
defense to Christiansen’s action on the contract and in the
District’s cross-complaint to recover money paid to Christiansen
under the contract. The District proposed special jury
instructions on the issue prior to trial.
15
Thereafter, the District dismissed its cause of action
pursuant to section 4525 et seq. from its cross-complaint. The
dismissal does not mention section 4525 et seq. as an affirmative
defense.
Christiansen moved in limine to exclude any evidence or
argument that her contract was unenforceable under section
4525 et seq. The trial court denied the motion.
The trial court, however, did not instruct the jury on the
failure to comply with the competitive bidding statutes. Nor is
such an instruction included in the record under refused or
withdrawn instructions. The District points to no ruling by the
court or offers any other explanation for why the instruction was
omitted. Perhaps it was omitted inadvertently.
Christiansen argues that the District waived the issue
when it dismissed its claim before trial. But the dismissal was
only on the cross-complaint. It did not affect the District’s
affirmative defense.
Christiansen argues that the District waived the matter
when, after it initially proposed the instruction, it did not
“further pursue” an instruction on the issue. Christiansen claims
the District acquiesced in the removal of the instruction during
the trial court’s jury instruction conference.
Because we are reversing, we need not decide this question.
In the event of a retrial, the District may request, if it so desires,
an appropriate instruction.
III
For the benefit of the trial court and parties in the event of
a retrial on remand, we consider the question of damages.
The 2008 contract between the District and Christiansen
contains what the parties refer to as a ‘termination for
16
convenience” clause. The clause allows the District to terminate
Strategic’s contract without cause upon 120 days’ written notice.
Upon termination, the District is required to pay Strategic for
services performed and expenses incurred to the date of
termination. In addition, the District must pay a “Termination
Fee” of the equivalent of one month’s payment based on the
average of valid invoices for the previous three months.
The clause concluded: “In the event a termination for cause
is determined to have been made wrongfully or without cause,
then the termination shall be treated as a termination for
convenience . . . and CONSULTANT shall have no greater rights
than it would have had if a termination for convenience had been
effected in the first instance. No other loss, cost, damage,
expense or liability may be claimed, requested or recovered by
CONSULTANT.”
The parties have differing interpretations concerning the
application of this clause. There is evidence from which a
reasonable trier of fact could find Christensen received notice of
termination from the District. Christiansen claims, however, the
District did not give Strategic notice of termination. On August
13, 2009, the District’s attorney wrote to Christiansen’s attorney
advising that Strategic’s contracts with the District are void. If
the letter is not enough, the District physically removed
Christiansen from the District’s premises on the same day. Even
if the District’s termination was wrongful, the contract expressly
provides the wrongful termination shall be treated as a
termination for convenience.
Christiansen argues the District breached the termination
for convenience clause by failing to give notice 120 days prior to
termination. She concludes that the clause is unenforceable and
17
she is entitled to damages for the entire remaining term of the
contract.
But where a party has the right to terminate a contract
without cause upon a specified period of notice, damages for
breach is limited to lost profits for the period of the notice. Thus,
in Martin v. U-Haul Co. of Fresno (1988) 204 Cal. App. 3d 396, the
contract allowed the defendant to terminate without cause on 30
days’ written notice. The defendant terminated the contract
without notice. The jury awarded plaintiff $29,000 for breach of
contract. The trial court granted the defendant’s motion for a
new trial on the ground of excessive damages subject to the
condition that the motion would be denied if plaintiff agreed to a
reduction in damages to $725. Plaintiff appealed and the Court
of Appeal affirmed. Where the defendant had the right to
terminate the contract without cause on 30 days’ notice,
plaintiff’s damages for breach are limited to 30 days. (Id. at pp.
407-408.)
Christiansen’s reliance on Kuffel v. Seaside Oil Co. (1970)
11 Cal. App. 3d 354 is misplaced. There defendant contracted to
sell gasoline to plaintiffs for a 10-year period. Simultaneously
plaintiffs leased a gasoline station from defendant for the same
10-year period. The sales contract gave defendant the right to
terminate the contract on 15 days’ written notice. The lease
contained no such provision. Defendant induced plaintiffs to
agree to terminate the sales contract by fraudulently
representing a new contract would be executed. The jury found
defendant breached the sales contract and awarded substantial
damages. The Court of Appeal rejected defendant’s argument
that damages should be limited to 15 days. Among the reasons
the court gave was that the sales contract was not terminable on
18
15 days’ notice. The court viewed the sales contract and 10-year
lease as parts of the same transaction. The court concluded that
the right to terminate the sales contract was intended to take
effect only after the lease ceased to exist. (Id. at p. 368.)
Here there is no similar impediment to the exercise of the
District’s right to terminate the contract without cause. The
correct measure of damages arising from the District’s failure to
give 120 days’ notice is limited to 120 days’ lost profits.
Thus, assuming the trier of fact finds that the District
breached Strategic’s contract, damages would be limited to:
compensation for services performed and expenses incurred to
the date of termination; lost profits Strategic can prove it suffered
for 120 days after termination; and the equivalent of three
months’ payment based on the average of the previous three
months.
The judgment is reversed for further proceedings consistent
with this opinion. Costs are awarded to appellant.
CERTIFIED FOR PUBLICATION.
GILBERT, P. J.
We concur:
YEGAN, J.
19
TANGEMAN, J.:
I concur with the majority that the trial court erred
by refusing to instruct the jury on Government Code section 1090
and that this case must be remanded for retrial with an
appropriate instruction. I do not join in the majority’s recitation
of facts to the extent it involves resolution of disputed evidence.
(South Coast Framing, Inc. v. Workers’ Comp. Appeals Bd. (2015)
61 Cal. 4th 291, 304 [“The Court of Appeal is not free to reweigh
the evidence”].) Finally, I do not join in part III (damages on
retrial) as it is both unnecessary and involves the resolution of
disputed evidence. (People v. Contreras (2018) 4 Cal.5th 349, 381
[stating a “‘cardinal principle of judicial restraint—if it is not
necessary to decide more, it is necessary not to decide more’”].)
TANGEMAN, J.
J. Stephen Czuleger, Judge
Superior Court County of Los Angeles
______________________________
Horvitz & Levy LLP, Barry R. Levy, Bradley S. Pauley,
Scott P. Dixler; Greenberg Glusker Fields Claman & Machtinger
LLP, Fred A. Fenster, Steven A. Stein for Defendant, Cross-
complainant and Appellant.
Law Offices of Philip Kaufler, Philip Kaufler; Law Offices
of Jonathan P. Chodos, Jonathan P. Chodos for Plaintiff, Cross-
defendant and Respondent.