Drink Tank Ventures LLC v. Real Soda in Real Bottles, Ltd. ( 2021 )

Filed 12/2/21 (unmodified opn. attached)
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION TWO
DRINK TANK VENTURES B298881, consolidated with
LLC, B302215
Plaintiff and Respondent, (Los Angeles County
Super. Ct. No. BC654392)
v.
ORDER MODIFYING
REAL SODA IN REAL OPINION AND DENYING
BOTTLES, LTD., et al., REHEARING
Defendants and NO CHANGE IN THE
Appellants. JUDGMENT
THE COURT:
It is ordered that the opinion filed on November 10, 2021,
be modified as follows:
1. On page 6, in the second paragraph of section II.B.,
insert a footnote at the end of the first sentence (which
ends with the phrase “that Real Soda and Ginsburg had
breached the NDA”), and renumber all subsequent
footnotes. The new footnote should read:
4 Although the trial court refused to give Drink
Tank’s proposed instruction that spelled out in
greater detail how Real Soda violated the NDA, there
is no question that Drink Tank opted to rest its claim
solely on violations of the NDA.
2. On page 17, insert “(Varian Medical Systems)”
immediately before the parenthesis ending the citation to
Varian Medical Systems, Inc. v. Delfino (2005) 35 Cal.4th
180, 196 so that the full citation reads:
(Varian Medical Systems, Inc. v. Delfino (2005) 35
Cal.4th 180, 196 (Varian Medical Systems))
3. On page 20, after the sentence “For these reasons, we
conclude that the absence of subject matter jurisdiction is
cognizable in this appeal,” add the following sentence:
What is more, this error is cognizable without an
additional showing of a miscarriage of justice.
(Varian Medical Systems, supra, 35 Cal.4th 180, 199,
fn. 10 [where trial court is divested of subject matter
jurisdiction, the “miscarriage of justice” requirement
in Article VI, section 13 of the California Constitution
“does not and cannot reconfer such jurisdiction”]; cf.
In re Jesusa V. (2004) 32 Cal.4th 588, 624 [where
trial court has subject matter jurisdiction, but merely
acts in excess of jurisdiction, the miscarriage of
justice requirement applies].)
2
* * *
There is no change in the judgment.
Respondent’s petition for rehearing is denied.
——————————————————————————————
LUI, P. J. ASHMANN-GERST, J. HOFFSTADT, J.
3
Filed 11/10/21 (unmodified opinion)
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION TWO
DRINK TANK VENTURES B298881, consolidated with
LLC, B302215
Plaintiff and Respondent, (Los Angeles County
Super. Ct. No. BC654392)
v.
REAL SODA IN REAL
BOTTLES, LTD., et al.,
Defendants and
Appellants.
APPEAL from a judgment and postjudgment orders of the
Superior Court of Los Angeles County, Terry A. Green, Judge.
Judgment reversed with directions to dismiss complaint;
postjudgment order vacated.
Felsenthal Law Firm and David B. Felsenthal; Joseph S.
Socher for Defendants and Appellants.
JDP and Jeff Dominic Price for Plaintiff and Respondent.
******
One beverage distributorship sued another for several
claims, but ultimately narrowed its lawsuit to a solitary tort
claim for intentional interference with a prospective economic
advantage premised solely on the theory that the other had
engaged in independently wrongful conduct by breaching a
nondisclosure and noncircumvention agreement. This is an
invalid theory as a matter of law because, as our Supreme Court
has said time and again, an actor’s breach of contract, without
more, is not “wrongful conduct” capable of supporting a tort
(Erlich v. Menezes (1999) 21 Cal.4th 543, 551-552 (Erlich); Cates
Construction, Inc. v. Talbot Partners (1999) 21 Cal.4th 28, 54
(Cates)), including the tort of intentional interference with a
prospective economic advantage (Arntz Contracting Co. v. St.
Paul Fire & Marine Ins. Co. (1996) 47 Cal.App.4th 464, 478-479
(Arntz); JRS Products, Inc. v. Matsushita Electric Corp. of
America (2004) 115 Cal.App.4th 168, 183 (JRS Products)).
Unfortunately, no one—not the plaintiff, not the defendant, not
the trial court—caught this error until the defendant moved for
judgment notwithstanding the verdict after the jury returned a
special verdict in the plaintiff’s favor that was premised solely on
the breach of the agreement.
We hold that where the jury’s special verdict for the
plaintiff is based on conduct that does not constitute an
actionable tort, that verdict cannot stand. That is because, just
as a trial court lacks subject matter jurisdiction to enter
judgment for conduct that does not violate a criminal or civil
statute (e.g., Dollenmayer v. Pryor (1906) 150 Cal. 1, 5
(Dollenmayer); People ex rel. Allstate Ins. Co. v. Weitzman (2003)
107 Cal.App.4th 534, 545-546 (Weitzman); People v. Vasilyan
(2009) 174 Cal.App.4th 443, 450 (Vasilyan)), a trial court also
2
lacks subject matter jurisdiction to enter judgment for allegedly
tortious conduct, fashioned by common law, that our Supreme
Court has determined is not tortious. Because a party’s conduct
cannot confer subject matter jurisdiction upon a court, the
defendant’s delay in objecting is irrelevant. And because the
plaintiff voluntarily whittled down its lawsuit to a solitary claim
and then submitted a special verdict form requiring the jury to
expressly find the invalid theory true, we may not infer other
findings to “save” that verdict and must accordingly reverse that
judgment and dismiss the plaintiff’s case. The attorney fees
order premised on the plaintiff prevailing consequently falls as
well.
FACTS AND PROCEDURAL BACKGROUND
I. Facts
A. Relationship between Real Soda and Drink
Tank
Both Real Soda in Real Bottles, Ltd. (Real Soda) and Drink
Tank Ventures, LLC (Drink Tank) distribute beverages and other
consumables to retailers and restaurants in the Southern
California region. Real Soda distributes old-timey craft sodas;
Drink Tank, drinks and snacks.
In early 2014, the founders of Real Soda and Drink Tank—
Daniel Ginsburg (Ginsburg) and Benjamin Kim (Kim),
respectively—met and became fast friends. Around the time that
Drink Tank started renting space for its operations in Real Soda’s
large warehouse, Drink Tank made overtures about acquiring
Real Soda.
In June 2014, Real Soda and Drink Tank signed a Mutual
Non-Disclosure and Non-Circumvention Agreement (the NDA).1
1 Ginsberg is not a party to the NDA.
3
Among other provisions, the NDA (1) obligated the parties not to
“directly or indirectly . . . divert any business, relationships,
contracts or other benefits, or otherwise impair any business
relationship [the other] has with any third [p]arty” for a period of
at least two years, and (2) provided that the “Discloser [of
information] shall be entitled to reasonable attorneys’ fees and
costs” “[i]n the event a dispute arises under this Agreement” “in
addition to all other remedies available to the Discloser . . . at law
or otherwise.”
On December 11, 2014, Real Soda and Drink Tank signed a
letter of intent regarding the potential acquisition.
No acquisition occurred because Ginsburg thought Drink
Tank’s asking price was too low.
B. So Cal Beverage plays Real Soda and Drink
Tank against each other
Enter Tico Group Inc., a company in the business of
distributing beer, wine, and spirits in the Southern California
region under the name So Cal Beverage Distributor (So Cal
Beverage).
In the fall of 2014, Drink Tank started negotiating with
Joseph Tchan (Tchan)— Tico Group, Inc.’s operator—to acquire
So Cal Beverage. On December 2, 2014, Drink Tank and So Cal
Beverage signed a letter of intent regarding a potential
acquisition that obligated each not to negotiate with anyone else
for 60 days. Drink Tank and So Cal Beverage exchanged a
barrage of draft purchase agreements. Drink Tank consistently
offered $240,000 to acquire So Cal Beverage.
In late February 2015, Tchan approached Ginsburg.
Within a few weeks, Real Soda started negotiating to acquire So
Cal Beverage. On April 2, 2015, Real Soda and So Cal Beverage
4
signed a letter of intent regarding a potential acquisition for
$250,000. Pursuant to that letter, Real Soda gave So Cal
Beverage a deposit of $5,000 on April 2 and a further payment of
$125,000 on April 23, when the two companies signed a purchase
agreement.
As the trial court aptly observed, Tchan was “play[ing] both
sides” by negotiating with both Drink Tank and Real Soda
simultaneously. From emails with Kim, Ginsburg knew about
the December 2014 letter of intent between Drink Tank and So
Cal Beverage, and knew that those negotiations were still
ongoing in mid-March 2017 (because one of Drink Tank’s
investors flew to California regarding the possible deal). But
Tchan assured Ginsburg that he had become dissatisfied and
upset with the state of negotiations with Drink Tank, and that he
had advised Drink Tank that the negotiations were effectively
over. As a result, Tchan and Ginsburg did not inform Drink
Tank about their negotiations. At the same time, however,
Tchan never told Drink Tank that he was dissatisfied; instead, he
kept negotiating with Drink Tank by continuing to provide
feedback on draft purchase agreements—up to and even after he
accepted the deposits from Real Soda.
C. Real Soda acquires So Cal Beverage
Real Soda ended up paying the full $250,000 purchase
price, and acquired So Cal Beverage.2
2 Real Soda later prevailed in an unrelated arbitration
proceeding against So Cal Beverage and Tchan to unwind the
deal and recover damages.
5
II. Procedural Background
A. Pleadings
In March 2017, Drink Tank sued Real Soda and Ginsburg
for (1) breach of contract and two torts regarding their alleged
interference with a contract or potential contract between Drink
Tank and a water supplier,3 and (2) intentional interference with
a prospective economic advantage—namely, Drink Tank’s
possible acquisition of So Cal Beverage—because Real Soda and
Ginsburg (a) “breach[ed]” the NDA, and (b) otherwise “tortiously
interfer[ed] in [Drink Tank’s] economic relationship and
negotiations with” So Cal Beverage.
Drink Tank prayed for actual damages from Real Soda and
Ginsburg exceeding $1.3 million as well as punitive damages.
B. Trial
On the first day of trial, Drink Tank narrowed its lawsuit
to its intentional interference with a prospective economic
advantage claim involving So Cal Beverage.
Drink Tank also narrowed its theory of liability on that
claim to the theory that Real Soda and Ginsburg had breached
the NDA. The court instructed the jury that Drink Tank had to
prove “that Real Soda . . . and/or [] Ginsburg . . . engage[d] in
conduct that violated the written [NDA].” The trial court kept for
itself the legal question whether that conduct was “wrongful.”
Consistent with these instructions, Drink Tank argued in
opening and closing statements that its claim “involve[d] . . . the
solemnity of a contract” and that Real Soda and Ginsburg had
violated the NDA by “diverting . . . business, diverting
3 Drink Tank also sued the water supplier, but never served
it, so it was never joined as a party to the lawsuit.
6
relationships” away from Drink Tank and to themselves.
Although the trial court did not expressly find that Real Soda and
Ginsburg’s conduct in breaching the NDA was “wrongful,” it
implicitly did so by submitting the case to the jury. Real Soda
and Ginsburg did not object to the trial court’s handling of these
issues.
After the trial court dismissed the punitive damages
allegations, the jury returned a verdict awarding Drink Tank
$250,000 in lost business opportunity damages and $100,000 in
lost profits. In its special verdict, the jury found that “Real Soda .
. . or . . . Ginsburg . . . engage[d] in conduct that violated the
written [NDA].” There were no other special verdict findings
regarding other possible wrongful conduct by Real Soda or
Ginsburg.
The trial court entered judgment for Drink Tank in mid-
March 2019.
C. Motion for judgment notwithstanding the
verdict (JNOV)
In April 2019, Real Soda and Ginsburg filed a JNOV
motion on the ground, as pertinent here, that the intentional
interference verdict is invalid because the breach of a contract
(such as the NDA) is not “wrongful” conduct capable of
supporting such a claim. Following briefing and a hearing, the
trial court denied the motion in May 2019. The court cited three
reasons for denying relief on this ground: (1) Real Soda and
Ginsburg’s challenge to the wrongfulness of the conduct is not a
challenge to the sufficiency of the evidence, and thus is properly
raised in a motion for new trial (and not a motion for JNOV); (2)
Real Soda and Ginsburg cannot raise this challenge in a JNOV
motion because they had made the “tactical decision[]” not to
7
object until after the verdict and cannot now “ask the [trial] judge
for a mulligan”; and (3) the verdict is supported by other wrongful
conduct by Real Soda and Ginsburg aside from the breach of the
NDA found by the jury, such as making “disparaging” and
inaccurate remarks about Drink Tank to Tchan as well as
engaging in a “breach of etiquette” by not telling Drink Tank
about their negotiations with So Cal Beverage.
D. Motion for attorney fees
In July 2019, Drink Tank moved for attorney fees pursuant
to the remedies clause in the NDA. Drink Tank sought a total of
$785,981.70 in fees. After further briefing and a hearing, the
trial court found that Drink Tank’s attorney had overbilled and
overcharged; declined to use a multiplier; and awarded fees of
$280,700 recoverable against Real Soda.
E. Appeal and cross-appeal
Real Soda and Ginsburg appealed both the “judgment” and
the postjudgment order denying their JNOV motion, and Real
Soda appealed the postjudgment order granting Drink Tank
attorney fees.
Drink Tank cross-appealed the attorney fees order, but
abandoned that cross-appeal by not briefing any challenge to the
trial court’s award of attorney fees.
DISCUSSION
Real Soda and Ginsburg argue that the trial court erred in
letting the jury’s special verdict stand despite resting on a single
tort premised on a legally invalid theory. This argument requires
us to ask three questions: (1) Did the trial court err in implicitly
concluding that Real Soda and Ginsburg’s breach of the NDA
constituted “wrongful” conduct capable of supporting a claim for
intentional interference with a prospective economic advantage?
8
(2) If so, is that error cognizable in this appeal? (3) If so, what is
the proper remedy? These questions all involve questions of law
or the application of law to undisputed facts; as such, our review
is de novo. (Kaanaana v. Barrett Business Services, Inc. (2021) 11
Cal.5th 158, 165 [questions of law]; Boling v. Public Employment
Relations Bd. (2018) 5 Cal.5th 898, 912-913 [application of law to
undisputed facts]; Saffer v. JP Morgan Chase Bank, N.A. (2014)
225 Cal.App.4th 1239, 1248 (Saffer) [subject matter jurisdiction
is a question of law].)
I. Was There Error?
To prevail on a claim for intentional interference with a
prospective economic advantage, the plaintiff must prove (1) “‘“an
economic relationship between the plaintiff and some third party,
with the probability of future economic benefit to the plaintiff”’”;
(2) “the defendant’s knowledge of the relationship”; (3) (a) the
defendant engaged in conduct that interfered with that
relationship and (b) the defendant’s conduct was “independently
wrongful”—that is, ‘“wrongful by some measure beyond the fact
of the interference itself’”; (4) the defendant either intended to
interfere with the relationship or “knew that the interference was
certain or substantially certain to occur as a result of its”
conduct; and (5) the defendant’s acts “proximately caused”
“economic harm to the plaintiff.” (Roy Allan Slurry Seal, Inc. v.
American Asphalt South, Inc. (2017) 2 Cal.5th 505, 512 (Roy
Allan Slurry); Ixchel Pharma, LLC v. Biogen, Inc. (2020) 9
Cal.5th 1130, 1141 (Ixchel); Korea Supply Co. v. Lockheed Martin
Corp. (2003) 29 Cal.4th 1134, 1153-1154, 1164-1165 (Korea
Supply); Della Penna v. Toyota Motor Sales, U.S.A., Inc. (1995) 11
Cal.4th 376, 392-393 (Della Penna); see also CACI No. 2202.)
9
Where, as here, the plaintiff asserts the right to a trial by
jury, it is the jury’s job to adjudicate whether the plaintiff has
proven every element—except the third element. The
responsibility of adjudicating the third element is divided
between the jury and the trial court: Whether the defendant
engaged in interfering conduct (part (3)(a)) is, like the other
elements of this tort, a factual question for the jury, but whether
that conduct is independently wrongful (part (3)(b)) is a legal
question for the trial court. (CACI No. 2202, Directions for Use
[“Whether the conduct alleged qualifies as wrongful . . . is
resolved by the court as a matter of law”]; Crown Imports, LLC v.
Superior Court (2014) 223 Cal.App.4th 1395, 1404-1405 (Crown
Imports) [“The fact that the defendant’s conduct was
independently wrongful is an element of the cause of action
itself”].)
The requirement that the defendant’s interference be
independently wrongful means that it is not enough for a plaintiff
to show that the defendant interfered with the plaintiff’s
economic relationship with the third party (Della Penna, supra,11 Cal.4th at pp. 378-379, 392-393; Ixchel, supra, 9 Cal.5th at p.
1142), even if the defendant did so with an improper motive
(Korea Supply, supra, 29 Cal.4th at pp. 1158 & 1159, fn. 11 [“[a]n
act is not independently wrongful merely because defendant
acted with an improper motive”]; San Jose Construction, Inc. v.
S.B.C.C., Inc. (2007) 155 Cal.App.4th 1528, 1544-1545; Artnz,
supra, 47 Cal.App.4th at p. 477 [“bad thoughts are no tort”]). To
establish that the defendant’s interfering conduct was
independently wrongful, the plaintiff must instead prove that the
conduct—whether directed at the plaintiff or someone else—was
‘“proscribed by some constitutional, statutory, regulatory,
10
common law, or other determinable legal standard.’” (Ixchel, at
p. 1142, quoting Korea Supply, at p. 1159; Reeves v. Hanlon
(2004) 33 Cal.4th 1140, 1152; Crown Imports, supra, 223
Cal.App.4th at p. 1405 [conduct need not be “independently
wrongful as to the plaintiff”]; accord, Tri-Growth Centre City, Ltd.
v. Silldorf, Burdman, Duignan & Eisenberg (1989) 216
Cal.App.3d 1139, 1153-1154 [defendant’s conduct breached a
fiduciary duty; independently wrongful]; PMC, Inc. v. Saban
Entertainment, Inc. (1996) 45 Cal.App.4th 579, 602-603 (PMC)
[defendant’s conduct violated “federal or state law or unethical
business practices,” such as “defamation, trade libel or trade
mark infringement”; independently wrongful], disapproved on
other grounds in Korea Supply, at p. 1059, fn. 11.)
What is more, the requirement that the defendant’s
interference be independently wrongful is an essential—and,
indeed, defining and limiting—aspect of the tort of intentional
interference with a prospective economic advantage. It is quite
literally the element that causes the interference to be a tort.
(Korea Supply, supra, 29 Cal.4th at p. 1159 [“It is this
independent wrongfulness requirement that makes defendants’
interference with plaintiff’s business expectancy a tortious act”].)
There is a good reason for this. Where the economic relationship
between a plaintiff and a third party has ripened into an
enforceable contract, that “contract receives greater solicitude”
and a defendant’s effort to cause a breach of that contract “is . . .
a wrong in and of itself.” (Quelimane Co. v. Stewart Title
Guaranty Co. (1998) 19 Cal.4th 26, 55-56.) But where the
plaintiff and a third party have only a “prospective contractual
relationship,” that third party’s business is still up for grabs:
“[A]s long as” other market participants “use[] fair and
11
reasonable means” to entice the third party away from the
plaintiff, the “privilege of free competition” shields those
participants from liability in tort for doing so. (PMC, supra, 45
Cal.App.4th at p. 603; Bed, Bath & Beyond of La Jolla, Inc. v. La
Jolla Village Square Venture Partners (1997) 52 Cal.App.4th 867,
881.) The limitation of the tort of intentional interference with a
prospective economic advantage to cases where the plaintiff
proves that the defendant’s conduct was independently wrongful
thus “sensibly redresses the balance between providing a remedy
for predatory [that is, wrongful] economic behavior” (on the one
hand) “and keeping legitimate business competition outside
litigative bounds” (on the other). (Della Penna, supra, 11 Cal.4th
at p. 378; Ixchel, supra, 9 Cal.5th at pp. 1142, 1146.)
Because, as noted above, Drink Tank narrowed its lawsuit
to a single claim for intentional interference with a prospective
economic advantage and then further narrowed that claim to the
theory that Real Soda and Ginsburg’s conduct was independently
wrongful solely because they “violated the written [NDA],” the
question then becomes: Did the trial court err in implicitly
concluding that a violation of the NDA constituted independently
wrongful conduct?
It did.
That is because “[c]onduct amounting to a breach of
contract becomes tortious only when it also violates an
independent duty arising from principles of tort law.” (Applied
Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th
503, 515; Erlich, supra, 21 Cal.4th at p. 551; Aas v. Superior
Court (2000) 24 Cal.4th 627, 643, superseded on other grounds by
Civ. Code, §§ 895-945.5.) Because a bare breach of contract,
without more, is not tortious, such a breach cannot constitute
12
independently wrongful conduct capable of giving rise to the tort
of intentional interference with a prospective economic
advantage. (Cates, supra, 21 Cal.4th at p. 54 [“‘[a] contracting
party’s unjustified failure or refusal to perform is a breach of
contract, and cannot be transmuted into tort liability by claiming
that the breach detrimentally affected the promisee’s business’”];
Artnz, supra, 47 Cal.App.4th at pp. 478-479 [dismissing claim for
intentional interference with a prospective economic advantage
premised on defendant’s breach of a contract with the plaintiff];
JRS Products, supra, 115 Cal.App.4th at p. 183 [same]; Deerpoint
Group, Inc. v. Agrigenix, LLC (E.D.Cal. 2018) 345 F.Supp.3d
1207, 1235 [“Under California law, a breach of contract cannot
constitute the ‘wrongful’ conduct required for the tort of
interference with prospective economic advantage”].)
For these reasons, we conclude that, by sending the case to
the jury, the trial court erred in implicitly ruling that Real Soda
and Ginsburg’s breach of the NDA qualified as an independently
wrongful act.
II. Is the Error Cognizable In This Appeal?
Due to the trial court’s error, Real Soda and Ginsburg have
been found liable based on conduct that is not independently
wrongful—and, as a consequence, not tortious. May this verdict
stand because Real Soda and Ginsburg did not bring this error to
the court’s attention until after trial?
It must not stand, for two interlocking reasons.
The first reason is that a trial court lacks subject matter
jurisdiction to enter judgment for conduct that our Supreme
Court has determined does not amount to a tort.
“Subject matter jurisdiction . . . is the power of the court
over a cause of action or to act in a particular way.” (Greener v.
13
Workers Comp. Appeals Bd. (1993) 6 Cal.4th 1028, 1035, italics
added; Karlsson v. Ford Motor Co. (2006) 140 Cal.App.4th 1202,
1236 [“Subject matter jurisdiction concerns the authority of the
court to try a certain type of action . . .”], italics added; Quigley v.
Garden Valley Fire Protection Dist. (2019) 7 Cal.5th 798, 807 [“A
lack of fundamental jurisdiction is the “‘“‘entire absence of power
to hear or determine the case”’”], italics added; cf. People v.
American Contractors Indemnity Co. (2004) 33 Cal.4th 653, 660
[“Lack of [subject matter] jurisdiction . . . means an entire . . .
absence of authority over the subject matter”].)
Causes of action—and the subject matter jurisdiction that
trial courts possess to entertain them—can arise (1) from statutes
enacted by legislative bodies (such as our Legislature or
Congress), except where that authority has been curtailed by the
Supremacy Clauses of the federal or California Constitutions
(e.g., De Tomaso v. Pan American World Airways, Inc. (1987) 43
Cal.3d 517, 520, fn. 1 [“[w]hether or not tort claims are
preempted by [federal Railway Labor Act] is a question of subject
matter jurisdiction”]; El Rancho Unified School Dist. v. National
Education Assn. (1983) 33 Cal.3d 946, 961 [federal statute divests
trial courts of subject matter jurisdiction over lawsuit for
damages]) or (2) from judges exercising their inherent, common
law authority to fashion remedies, except where that authority
has been curtailed by statutory or constitutional law (Olcese v.
Justice’s Court (1909) 156 Cal. 82, 85 [trial courts are the “courts
with the fullest common law and equity jurisdiction”]; Dale v.
Dale (1998) 66 Cal.App.4th 1172, 1177-1178 [“The superior court
has subject matter jurisdiction over a tort action . . .”]; Cory v.
Shierloh (1981) 29 Cal.3d 430, 439 [“the Legislature possesses a
broad authority both to establish and to abolish tort causes of
14
action”], superseded on other grounds by Bus. & Prof. Code, §
25602.1.)
Where a party purports to bring a statute-based cause of
action that does not satisfy its statutory prerequisites, a trial
court lacks subject matter jurisdiction. This is true for civil
causes of action. (E.g., Weitzman, supra, 107 Cal.App.4th at pp.
545-546 [statute allows litigant to bring qui tam suit for public
disclosure of information, but only if he was not original source of
that information; failure to satisfy this requirement means no
subject matter jurisdiction]; Dollenmayer, supra, 150 Cal. at p. 5
[statute allows action only if there is a “lawful order of reference”;
failure to satisfy this requirement means no subject matter
jurisdiction]; Vaughn v. Condon (1921) 52 Cal.App. 713, 715-716
[statute allows for garnishment, but not by public corporations;
failure to satisfy this requirement means no subject matter
jurisdiction]; cf. In re Estate of Keet (1940) 15 Cal.2d 328, 336
[trial court’s decree is “clearly within its statutory grant of
jurisdiction” means subject matter jurisdiction exists].) It is also
true for prosecutions for crimes that must, in California, be
defined by statute; thus, a trial court lacks subject matter
jurisdiction to accept a plea for conduct that does not fall within
any statutorily defined crime. (E.g., Vasilyan, supra, 174
Cal.App.4th at pp. 448-450 [a trial court “lack[s] subject matter
jurisdiction” over a “conviction and sentence imposed for a crime
that does not exist”]; People v. Wallace (2003) 109 Cal.App.4th
1699, 1704 [same].)4
4 The courts are currently split over whether a trial court
categorically lacks subject matter jurisdiction where the
statutory prerequisite that goes unmet is the requirement of
exhaustion of claims or the presentation of claims to a public
15
By this same logic, a trial court also lacks subject matter
jurisdiction where a party purports to bring a common law-based
cause of action that does not satisfy its judicially articulated
prerequisites.
Even though the tort of intentional interference with a
prospective economic advantage is a common law creation, our
Supreme Court has definitively ruled that a plaintiff does not
have a valid claim for this tort where the sole interference alleged
is a breach of contract. Put differently, where the plaintiff’s sole
theory supporting the special verdict and the judgment is that
the defendant’s conduct was wrongful because the defendant
breached a contract, there is no tort. Because there is no tort, the
trial court in this case lacked subject matter jurisdiction.
The parties resist this conclusion, noting the longstanding
principle that a court’s subject matter jurisdiction does not turn
on the “sufficiency or insufficiency of [the] pleadings,” at least
where the “pleadings state a case belonging to a general class
over which the authority of the court extends.” (In re Application
of Sargen (1933) 135 Cal.App. 402, 408-409; City of Santa Paula
agency. (Compare Redlands High School Dist. v. Superior Court
(1942) 20 Cal.2d 348, 360 [failure to satisfy claims presentation
requirement does not deprive trial court of subject matter
jurisdiction]; State of California v. Superior Court (2004) 32
Cal.4th 1234, 1239-1240 & fn. 7 [same]; Keiffer v. Bechtel Corp.
(1998) 65 Cal.App.4th 893, 900 [failure to exhaust administrative
remedies “does not concern . . . subject matter jurisdiction”];
Mission Housing Development Co. v. City & County of San
Francisco (1997) 59 Cal.App.4th 55, 66-68 [same] with Saffer,
supra, 225 Cal.App.4th at pp. 1252-1253 [failure to exhaust
administrative remedies required by a federal statute “implicates
a question of subject matter jurisdiction”].) However, this split is
not implicated here.
16
v. Narula (2003) 114 Cal.App.4th 485, 491 [“an error in the
labeling of the pleading did not deprive the court of
jurisdiction”].) This principle is of no help here for two reasons.
To begin, the operative pleading in this case—that is, Drink
Tank’s complaint—was “sufficient” to invoke the court’s subject
matter jurisdiction because it alleged independently wrongful
conduct beyond the bare breach of the NDA. Further, and more
to the point, it was Drink Tank’s decision to narrow its lawsuit
and to obtain a special verdict based solely on the bare breach of
the NDA that yielded a judgment for conduct that is not a tort as
defined by our Supreme Court and hence outside the trial court’s
subject matter jurisdiction.
The second reason is that a trial court’s lack of subject
matter jurisdiction generally cannot be forfeited, waived, or the
subject of invited error or estoppel. (Schlyen v. Schlyen (1954) 43
Cal.2d 361, 375-376 [subject matter jurisdiction “‘may not be
conferred by consent, waiver, agreement, acquiescence or
estoppel’”]; People v. Tindall (2000) 24 Cal.4th 767, 776, fn. 6
[same].) Because a judgment issued by a court lacking subject
matter jurisdiction is void (Varian Medical Systems, Inc. v.
Delfino (2005) 35 Cal.4th 180, 196), the possible nonexistence of
such jurisdiction may be raised “‘whenever that issue comes to
the court’s attention,’” including for the first time on appeal
(Totten v. Hill (2007) 154 Cal.App.4th 40, 46; People v. Lara
(2010) 48 Cal.4th 216, 225).5
5 The exception providing that parties may lose the right to
object to a trial court’s common law-based subject matter
jurisdiction by not invoking a statute that operates to displace
that jurisdiction (Doney v. Tambouratgis (1979) 23 Cal.3d 91, 98-
99; Popejoy v. Hannon (1951) 37 Cal.2d 159, 173, superseded by
17
Drink Tank responds with what boils down to three
arguments.
First, Drink Tank invites us to view the issue here as an
error with the jury instructions or the special verdict form, and
notes that such errors may be forfeited, waived, or found to be
invited error or the subject of estoppel. To be sure, unlike a trial
court in a criminal case that has “the ultimate responsibility for
properly instructing the jury” (People v. Wickersham (1981) 32
Cal.3d 307, 335, overruled on other grounds in People v. Barton
(1995) 12 Cal.4th 186), a trial court in a civil case has “‘no duty to
instruct on its own motion’” (Agarwal v. Johnson (1979) 25 Cal.3d
932, 950-951, disapproved on other grounds in White v. Ultramar,
Inc. (1999) 21 Cal.4th 563) and no duty to revise incorrect
instructions (Truman v. Thomas (1980) 27 Cal.3d 285, 301).
Consequently, errors in the jury instructions can be forfeited by a
party’s failure to object, can be the subject of waiver or estoppel
due to a party’s acquiescence, and can be deemed invited error if
that acquiescence was tactical. (Saxena v. Goffney (2008) 159
Cal.App.4th 316, 328-329; Mesecher v. County of San Diego (1992)
9 Cal.App.4th 1677, 1685-1686; Elisalda v. Welch’s Sand &
Gravel Co. (1968) 260 Cal.App.2d 46, 51-52.) And although it is
the plaintiff who bears the burden of submitting a special verdict
form that obtains a finding on each of the questions essential to
liability (Behr v. Redmond (2011) 193 Cal.App.4th 517, 531-532
statute on other grounds as stated in Marsh v. Tilley Steel Co.
(1980) 486, 496) certainly exists, but it has no applicability here,
where the limitation on subject matter jurisdiction derives from
our Supreme Court’s binding delineation of the boundaries of a
tort that must be satisfied as an element of the plaintiff’s case
(Della Penna, supra, 11 Cal.4th at p. 378) rather than an
optional, statute-based affirmative defense.
18
(Behr)), errors in a special verdict form are not cognizable on
appeal if they were invited by the defendant (Saxena, at pp. 328-
329). But neither the jury instructions nor the special verdict
form in this case were erroneous: The trial court instructed the
jury to make every factual finding entrusted to it, and the special
verdict form tracked those instructions. As noted above, the error
here was with the trial court’s erroneous finding—on a question
of law entrusted to it—that Real Soda and Ginsburg’s alleged
breach of contract was independently “wrongful” and it was this
erroneous legal finding that led to a verdict being entered on
conduct that does not constitute a tort at all and thus led to a
judgment entered when the court lacked subject matter
jurisdiction.
Second, Drink Tank suggests that Real Soda and Ginsburg
used the wrong procedural vehicle—namely, a motion for JNOV
rather than a motion for new trial—to raise their objection to the
verdict. This argument is beside the point. Real Soda and
Ginsburg appealed both the order denying the JNOV motion and
the judgment itself. Those are separately appealable.
(Sweatman v. Department of Veterans Affairs (2001) 25 Cal.4th
62, 68 [“The moving party may appeal from the judgment or from
the order denying the motion for judgment notwithstanding the
verdict, or both”]; Code Civ. Proc., § 904.1, subds. (a)(1) & (a)(4)
[“judgment” and “order . . . denying a motion for judgment
notwithstanding the verdict” each subject to appeal].)
Regardless of any limits on the scope of the JNOV motion, we
may certainly consider a challenge to the trial court’s subject
matter jurisdiction on appeal from the judgment.
Lastly, Drink Tank argues that its complaint properly
alleged a claim for intentional interference with a prospective
19
economic advantage. This is correct, as the complaint alleged two
categories of “wrongful conduct”—namely, (1) the alleged breach
of the NDA, and (2) other, unspecified “tortious[] interference.”
But it is also irrelevant because Drink Tank subsequently
narrowed its claim at trial to the legally invalid breach-of-
contract theory.6
For these reasons, we conclude that the absence of subject
matter jurisdiction is cognizable in this appeal.
III. What Is the Proper Remedy?
A. As to the judgment
Using a special verdict (rather than a general verdict) can
be risky. On the front end, the plaintiff must be excruciatingly
careful to make sure that the special verdict form contains every
finding necessary to sustain a cause of action (Pinto v. Farmers
Ins. Exchange (2021) 61 Cal.App.5th 676, 693; Myers Building
Industries, Ltd. v. Interface Technology, Inc. (1993) 13
Cal.App.4th 949, 959-960 (Myers Building)) because any missing
elements preclude a judgment in the plaintiff’s favor. The risk of
error falls solely on the plaintiff because it is the plaintiff, as the
party with the burden of proof, who has the “responsibility for
submitting a verdict form sufficient to support her causes of
action.” (Behr, supra, 193 Cal.App.4th at p. 531.) On the back
end, the plaintiff is limited to the express findings made by the
jury in the special verdict form and, unlike with a general
verdict, courts cannot imply findings to support a special verdict.
(Trujillo v. North County Transit Dist. (1998) 63 Cal.App.4th 280,
6 This is also why Drink Tank’s request, at oral argument,
for leave to amend its complaint is misplaced; the defect is not
with the operative complaint but with how Drink Tank
subsequently chose to narrow it.
20
285; Singh v. Southland Stone, U.S.A., Inc. (2010) 186
Cal.App.4th 338, 358.) If an essential finding is missing, its
“absence . . . precludes judgment for the plaintiff on that claim.”
(Behr, at p. 531.)
So what is the proper remedy when a trial court lacks
subject matter jurisdiction because the only remaining claim is
based solely on a theory that renders the defendants’ conduct
nontortious, and the special verdict form submitted to the jury is
limited to findings pertaining to that invalid theory?
It is reversal with instructions to dismiss the plaintiff’s
case.
Although Drink Tank initially alleged other claims and, as
to the intentional interference with a prospective economic
advantage claim, initially alleged other theories of wrongful
conduct aside from Real Soda and Ginsburg’s breach of the NDA,
Drink Tank voluntarily dismissed its other claims and, in its
special verdict form, voluntarily narrowed its intentional
interference claim to a theory of wrongful conduct based on a
breach of the NDA. Drink Tank is stuck with these choices, and
these choices lead ineluctably to the conclusion that dismissal of
its action is the necessary remedy.
Drink Tank points us to evidence from the trial that it
argues demonstrates Ginsburg disparaged Drink Tank to Tchan,
misused Drink Tank’s confidential and proprietary information,
misappropriated trade secrets, breached Drink Tank’s
“confidence,” and otherwise engaged in unfair business practices
in violation of California’s unfair competition law (Bus. & Prof.
Code, § 17200). To be sure, this conduct might in theory be
sufficient to elevate Real Soda and Ginsburg’s breach of the NDA
into a tortious breach of contract, which exists outside the bad
21
faith insurance context when “‘(1) the breach is accompanied by a
traditional common law tort, such as fraud or conversion,’” “‘(2)
the means used to breach the contract are tortious, involving
deceit or undue coercion,’” or “‘(3) one party intentionally
breaches the contract intending or knowing that such a breach
will cause severe, unimaginable harm in the form of mental
anguish, personal hardship, or substantial consequential
damages.’” (Erlich, supra, 21 Cal.4th at pp. 553-554.) But Drink
Tank’s use of the special verdict form precludes us from inferring
that the jury’s finding of wrongful conduct was based on any of
these other, possibly valid theories.
B. As to the attorney fees award
Does our conclusion that the judgment in Drink Tank’s
favor must be reversed and that Drink Tank’s sole remaining
claim dismissed mandate that the award of attorney fees in its
favor also be vacated?
It does.
Although California follows the American rule that
requires parties to bear their own attorney fees, parties may alter
that rule by contract to allow for the award of attorney fees to the
party who prevails in litigation between them. (Code Civ. Proc., §
1021; Miske v. Coxeter (2012) 204 Cal.App.4th 1249, 1259 [section
1021 “allows the parties to agree that the prevailing party in
litigation may recover attorney fees”]; Civ. Code, § 1717, subd. (a)
[authorizing an award of attorney fees “to the prevailing party”
“[i]n any action on a contract” if “the contract specifically
provides” for attorney fees].)
The trial court’s award of attorney fees in this case was
based upon the remedies clause in the NDA, which entitles the
“Discloser” to “reasonable attorney’s fees” “[i]n the event a
22
dispute arises under this Agreement” “in addition to all other
remedies available to the Discloser . . . at law or otherwise.”
Although this clause does not expressly limit the award of
attorney fees to the prevailing party, we must imply that
limitation: It is required by the pertinent statutes (Code Civ.
Proc., § 1021; Civ. Code, § 1717); it is implied by the clause itself,
which provides for attorney fees “in addition to all other remedies
available,” and there are no remedies available to the party that
does not prevail; and it is necessary to avoid giving the clause the
absurd instruction that would entitle the “Discloser” to attorney
fees in all situations, including if it brought an utterly frivolous
lawsuit (Morris v. Reclamation Dist. No. 108 (1941) 17 Cal.2d 43,
51).
Because, in light of our rulings, Drink Tank did not prevail
in its lawsuit against Real Soda and Ginsburg, Drink Tank is not
entitled to any attorney fees and the trial court’s order awarding
fees must be vacated.
* * *
Given our disposition, we need not reach the remaining
arguments challenging the validity of the verdict.
23
DISPOSITION
The judgment is reversed, the order granting attorney fees
is vacated, and the trial court is ordered to dismiss plaintiff’s
complaint in its entirety. Each party is to bear its own costs on
appeal.
CERTIFIED FOR PUBLICATION.
______________________, J.
HOFFSTADT
We concur:
_________________________, P. J.
LUI
_________________________, J.
ASHMANN-GERST
24