Epochal Enterprises, Inc. v. LF Encinitas Properties, LLC ( 2024 )

Filed 1/12/24; Certified for Publication 1/25/24 (order attached)
COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
EPOCHAL ENTERPRISES, INC., D079905
Plaintiff, Cross-defendant and
Appellant, (Super. Ct. No. 37-2018-
00027797-CU-CO-NC)
v.
LF ENCINITAS PROPERTIES, LLC et
al.,
Defendants, Cross-complainants
and Appellants.
APPEALS from a judgment of the Superior Court of San Diego County,
Blaine K. Bowman, Judge. Affirmed in part, reversed in part, and remanded
for further proceedings.
G10 Law and Daniel T. Watts for Plaintiff, Cross-defendant, and
Appellant Epochal Enterprises, Inc.
Procopio, Cory, Hargreaves & Savitch, Kendra J. Hall; Solomon Ward
Seidenwurm & Smith, William V. Whelan and Matthew T. Arvizu for
Defendants, Cross-complainants, and Appellants LF Encinitas Properties,
LLC and Leichtag Foundation.
Epochal Enterprises, dba Divine Orchids (plaintiff) entered into a
commercial lease agreement with landlord LF Encinitas Properties, LLC and
Leichtag Foundation (defendants). The lease contained a limitation of
liability clause stating, in relevant part, defendants are not personally liable
as to any provision of the lease or the premises and plaintiff waived all claims
for “consequential damages or loss of business or profits.” After plaintiff sued
defendants, a jury found defendants liable for premises liability, negligence
and concealment. The jury awarded plaintiff damages for lost profits and
other past economic loss. The trial court granted defendants’ motion for
judgment notwithstanding the verdict (JNOV), finding the lease agreement’s
limitation of liability clause prevented plaintiff from recovering the economic
damages the jury awarded. This appeal follows.
Plaintiff appeals from the order granting JNOV in defendants’ favor.
Should we agree with plaintiff and reinstate the jury’s verdict, defendants
filed a protective cross-appeal challenging a portion of the damages award as
not supported by the evidence.
As we shall explain, we agree the trial court erred in granting JNOV in
defendants’ favor and we reverse the order. On defendants’ cross-appeal, we
conclude substantial evidence supports the damages award and affirm the
denial of defendants’ motion for partial JNOV.1
1 In addition to its request for JNOV, defendants brought an alternative
motion for new trial. The trial court denied the motion as moot. On remand,
defendants may request that the trial court rule on this motion.
2
FACTUAL AND PROCEDURAL BACKGROUND
A. Facts Leading to the Lease Agreement
In 2012, defendants purchased real property containing dilapidated
commercial greenhouses “as is,” knowing the greenhouses contained asbestos
and lead paint. The greenhouses were built in the 1960’s and defendants
planned to modernize them. The property contains multiple structures, each
one of which is called a “range.” Some of the ranges are greenhouses.
Defendants were informed about asbestos and lead in the greenhouses, that
Range 15 had friable asbestos coming from the joints of the heating system,
and inert asbestos existed in certain portions of the mechanics of the other
greenhouses.
During the escrow process, defendants cleared Range 15 of friable
asbestos. Other ranges held inert asbestos that to defendants’ knowledge did
not pose a threat to people or property. Defendants hired a firm to conduct
an environmental investigation, which recommended that defendants adopt
an operation and management plan with respect to asbestos on the property.
Defendants planned to remediate ranges as they became empty but they
failed to do that when Range 9 became vacant.
Plaintiff is owned and operated by Victor Le and his wife Ying Lee (the
principals). In 2015, plaintiff earned approximately $478,000 in gross sales.
Plaintiff owns two greenhouses in Fallbrook totaling 30,000 square feet, and
an 8,000 square foot greenhouse in Encinitas that is on the same property as
the principals’ residence.
Defendants’ employee Dempsey Sawyer showed Range 9 to the
principals. Sawyer knew Range 9 potentially contained asbestos and lead-
based paint but did not believe that any asbestos had been released. Sawyer
never discussed lead or asbestos contamination with the principals. He
3
believed he did not need to disclose the existence of asbestos to plaintiff
because the general language in the lease regarding hazardous materials
eliminated the need to inform plaintiff specifically about asbestos or lead.
Sawyer knew that exposing inert asbestos to the elements could make it
friable but did not inform plaintiff about this concern because he knew
plaintiff would be rebuilding the greenhouse and the asbestos would then not
be exposed to the elements. Mr. Le had never heard of asbestos and plaintiff
never received written information from defendants about asbestos or lead
paint before entering the lease.
B. The Lease Agreement
In 2014, Mr. Le, on behalf of plaintiff, signed an agreement with
defendants to lease Range 9 from defendants “as-is” for five years at eight
cents a square foot.2 Defendants’ law firm drafted the lease. Plaintiff did not
have a lawyer or anyone else review it. Mr. Le did not read the lease except
for the lease price and term, and Mrs. Lee did not read the lease at all.
The lease contained an indemnification provision shielding defendants
from personal injury or property damage liability for property connected with
plaintiff’s use of the premises, absent gross negligence or intentional
misconduct by defendants:
2 The “as-is” provision provides: “Delivery of Premises. Except as
expressly set forth in this Section 6.1, Landlord is delivering and Tenant
accepts the Premises “AS-IS”, “WHERE IS” and “WITH ALL FAULTS”
without any representations, warranties, or guaranties of any nature, express
or implied, oral or written, past, present or future regarding the Premises or
the Restroom Facilities. Landlord shall complete the following work within a
commercially reasonable time following the full execution and delivery of this
Lease. . .: installation of a submeter for gas and electrical service to the
Premises. Any other additions, alterations or improvements desired by
Tenant shall be at Tenant’s sole cost and expenses. . . .”
4
“10.1 Indemnification: This Lease is made upon the express
condition that Landlord shall be free from all liability and
claims for damages by reason of any injury to any person or
persons, including the agents and employees of Tenant, or
property of any kind whatsoever and to whomsoever
belonging, including Tenant’s property, from any cause or
causes whatsoever, in, upon or in any way connected with
the Premises or its use or occupancy during the Term,
excepting only liability caused by the gross negligence or
intentional misconduct of Landlord. Tenant shall
indemnify and hold Landlord harmless from all such
liability, loss, cost, expense, and obligations, including
reasonable attorneys’ fees, on account or arising out of any
cause in, on or about the Premises during the Term and/or
any acts, omissions or negligence of Tenant or of any person
claiming by, through or under Tenant, or of the contractors,
agents, employees, licensees or invitees of tenant or any
such person in, on or about the Project, however occurring
except as may be caused by the gross negligence or
intentional misconduct of Landlord.” (Italics added.)
Plaintiff also agreed to a provision limiting defendants’ liability:
“10.6 Limitation of Liability: Neither Landlord nor any
affiliate of Landlord nor their respective members,
principals, beneficiaries, partners, trustees, shareholders,
directors, officers, employees, contractors or agents shall
have any personal liability with respect to any of the
provisions of the Lease or the Premises. If Landlord is in
breach or default with respect to Landlord’s obligations
under the Lease, Tenant shall look solely to the equity
interest of Landlord in the Project for the satisfaction of
Tenant’s remedies or judgments. No other real, personal,
or mixed property of any Landlord, wherever situated, shall
be subject to levy to satisfy such judgment. Upon any
transfer of Landlord’s interest in this Lease or in the
Project, the transferring Landlord shall have no liability or
obligation for matters arising under this Lease from and
after the date of such Transfer. Landlord shall in no event
be liable for any consequential damages or loss of business
5
or profits and Tenant hereby waives any and all claims for
any such damages.” (Italics added.)
After plaintiff moved into Range 9, Mr. Le started renovating the
property. Sawyer knew plaintiff planned renovation of Range 9 would expose
asbestos to the elements and this “concern[ed]” him. He does not recall ever
expressing this concern to Mr. Le.
C. The Storm and Unlawful Detainer Action
In March or April 2016, a storm damaged Range 9. After the storm,
Mr. Le saw a steam pipe spraying inside the greenhouse and informed
defendants. He was told to leave the door open so defendants could send
people to clean the room. The lease agreement stated plaintiff was
responsible for any repairs to the property. Nonetheless, Sawyer had a
company that did asbestos remediation do the repair because the corner of
the valve had asbestos and he was concerned this might be a problem. The
company defendants hired to make the repair never tested for asbestos but
treated the repair as “an asbestos job.” Sawyer never informed plaintiff
about his concern that asbestos might have been released because the pipe
was in an area of the leased premises open to the air. Defendants believed
they had no affirmative obligation to notify plaintiff of the release or
potential release of asbestos and claimed the company it hired to do the
remediation work could determine whether to advise plaintiff.
Plaintiff fell behind in rent payments, and in May 2016, defendants
sent a notice to quit or pay rent. In December 2016, defendants filed an
unlawful detainer action against plaintiff.
In the meantime, after the repairs on the pipe, Mr. Le noticed some
debris remained. Becoming concerned that the debris might contain
asbestos, he sent samples to a laboratory for testing. Lab reports dated
February and March 2017, revealed asbestos and lead paint on the insulation
6
pipes running through Range 9. In March 2017, the County of San Diego
quarantined Range 9 based on friable asbestos in the air and on the ground.
Friable asbestos is more of a health risk because it could be released further.
In April 2017, defendants obtained a default judgment in the unlawful
detainer action. That same month, as part of the abatement plan, defendants
had the orchid plants and soils HEPA vacuumed. After the vacuuming,
samples of the soil showed no asbestos. In May 2017, defendants notified
plaintiff to retrieve its orchids, but plaintiff did not do so and abandoned its
inventory.
D. Plaintiff’s Lawsuit
In June 2018, plaintiff filed this action based on defendants’ failure to
disclose asbestos and lead paint in Range 9. It sought economic damages for
its orchid inventory. The complaint alleged seven causes of action:
(1) premises liability; (2) negligence; (3) intentional misrepresentation; (4)
breach of contract rescission based on fraud; (5) unjust enrichment; (6) breach
of implied covenant of good faith and fair dealing; and (7) unfair business
practices. Defendants filed a cross-complaint against plaintiff for breach of
lease. The jury’s special verdict found defendants liable for premises liability
and negligence. The jury also found defendants intentionally failed to
disclose facts plaintiff did not know, and could not reasonably have
discovered but the jury found no intent to deceive and therefore no liability
for concealment. The jury awarded plaintiff $144,300 in “lost profits” and
$77,700 in “other past economic loss.” On defendants’ counterclaim the jury
found plaintiff failed to pay the rent under the lease but that the failure did
not harm defendants. The court entered judgment for plaintiff on its
complaint.
7
E. Posttrial Proceedings
Defendants filed a motion for JNOV challenging the economic damage
award to plaintiff based on plaintiff’s contractual waiver of consequential
damages and the jury’s finding that defendants were only liable for
negligence. Defendants also filed a partial request for JNOV regarding the
jury’s award of $77,700 for “other past economic loss” claiming plaintiff
submitted no damage evidence except for “lost profits,” and there is no
evidentiary support in the record supporting an award for “other past
economic loss.” The trial court granted defendants’ motion for JNOV. The
court concluded that the limitation of liability clause (lease section 10.6)
barred plaintiff’s recovery. Although the trial court also addressed the
arguments regarding the indemnity provision (lease section 10.1) it stated,
“the ‘indemnification’ clause is separate from the ‘limitation of liability’
clause. . . . [T]he ‘limitation of liability’ clause applies to the damages at
issue here (which are economic in nature) and thus it is not clear why the
‘limitation of liability’ clause would stop applying just because the
‘indemnification’ clause does not.”
I. GENERAL LEGAL PRINCIPLES
“ ‘The trial court’s discretion in granting a motion for [JNOV] is
severely limited.’ [Citation.] ‘ “The trial judge’s power to grant a [JNOV] is
identical to his power to grant a directed verdict [citations]. The trial judge
cannot reweigh the evidence [citation], or judge the credibility of witnesses.
[Citation.] If the evidence is conflicting or if several reasonable inferences
may be drawn, the motion for [JNOV] should be denied. [Citations.] ‘A
motion for [JNOV] of a jury may properly be granted only if it appears from
the evidence, viewed in the light most favorable to the party securing the
verdict, that there is no substantial evidence to support the verdict. If there
8
is any substantial evidence, or reasonable inferences to be drawn therefrom,
in support of the verdict, the motion should be denied.’ [Citation.]” ’
[Citation]” (Hansen v. Sunnyside Products, Inc. (1997) 55 Cal.App.4th 1497,
1510.) “On review of an order granting JNOV, we ‘ “must resolve any conflict
in the evidence and draw all reasonable inferences therefrom in favor of the
jury's verdict.” ’ ” (Ibid.) We also “determine de novo whether there is
substantial evidence to support the verdict and whether the moving party is
entitled to judgment in its favor as a matter of law.” (Paykar Constr. v.
Spilat Constr. Corp. (2001) 92 Cal.App.4th 488, 494.)
A “special verdict must present the conclusions of fact as established by
the evidence, and not the evidence to prove them; and those conclusions of
fact must be so presented as that nothing shall remain to the Court but to
draw from them conclusions of law.” (Code Civ. Proc., § 624.) “The elements
of a cause of action constitute the essential or ultimate facts in a civil
case . . . .” (Stoner v. Williams (1996) 46 Cal.App.4th 986, 1002.) To the
extent there is an ambiguity in the special verdict after the jury is
discharged, the trial court’s function is to interpret the verdict “ ‘from its
language considered in connection with the pleadings, evidence and
instructions.’ ” (Woodcock v. Fontana Scaffolding & Equip. Co. (1968) 69
Cal.2d 452, 456 (Woodcock).) If trial court’s interpretation is incorrect, we
will interpret the verdict if it is possible to give a correct interpretation. (Id.
at p. 457.) Because a “ ‘special verdict’s correctness must be analyzed as a
matter of law’ ” (City of San Diego v. D.R. Horton San Diego Holding Co., Inc.
(2005) 126 Cal.App.4th 668, 678), on appeal we review de novo the trial
court’s interpretation of the special verdict (Fuller v. Department of
Transportation (2019) 38 Cal.App.5th 1034, 1038).
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II. PLAINTIFF’S APPEAL
A. The Indemnification Clause Does Not Bar Plaintiff’s Damages
Section 10.1 of the lease is an indemnification clause which provides
defendants are “free from all liability and claims for damages” except for
liability caused by defendants’ “gross negligence or intentional misconduct”
and that plaintiff “shall indemnify and hold [defendants] harmless” from
liability unless the liability is based on defendants’ “gross negligence or
intentional misconduct.” Plaintiff’s first cause of action for premises
liability/negligence alleged defendants breached their duty to warn plaintiff
of any contamination hazards or warn plaintiff about the risks of exposure to
asbestos. The second cause of action for negligence alleged defendants
breached their duty to plaintiff by leasing the property without informing
plaintiff of the risk and failed to comply with all state laws.
Anticipating defendants would rely on the indemnification clause
(section 10.1) to avoid liability except for “liability caused by [defendants’]
gross negligence or intentional misconduct,” plaintiff alleged that defendants’
conduct constituted gross negligence. Accordingly, the court instructed the
jury that defendants are “not responsible for [plaintiff’s] harm, unless you
find that [defendants were] grossly negligent, committed fraud, or
intentionally harmed [plaintiff].” Based on this instruction, plaintiff
contends that by awarding damages the jury necessarily found defendants
grossly negligent.
Defendants argue plaintiff failed to obtain specific jury findings on
whether defendants committed gross negligence so as to take their conduct
outside the scope of the indemnification clause and this court cannot imply
findings from the jury’s special verdicts. We disagree that plaintiff was
10
required to present to the jury a special verdict form asking whether
defendants committed gross negligence.
Gross negligence is defined as “either a ‘ “ ‘want of even scant care’ ” ’ or
‘ “ ‘an extreme departure from the ordinary standard of conduct.’ ” ’ ” (City of
Santa Barbara v. Superior Court (2007) 41 Cal.4th 747, 754.) Gross
negligence “connotes such a lack of care as may be presumed to indicate a
passive and indifferent attitude toward results.” (Calvillo–Silva v. Home
Grocery (1998) 19 Cal.4th 714, 729, disapproved of on other grounds by
Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 853, fn. 19.)
“California does not recognize a distinct common law cause of action for gross
negligence apart from negligence.” (Jimenez v. 24 Hour Fitness USA, Inc.
(2015) 237 Cal.App.4th 546, 552, fn.3; City of Santa Barbara, at pp. 779–780
[“We do not view our holding . . . as recognizing a cause of action for gross
negligence.”].) Gross negligence is different from ordinary negligence in
degree, not in kind. (Anderson v. Fitness Internat., LLC (2016) 4 Cal.App.5th
867, 881.) Because gross negligence is simply a degree of negligence, the
elements of a claim for gross negligence is the same as one for ordinary
negligence. (Rosencrans v. Dover Images, Ltd. (2011) 192 Cal.App.4th 1072,
1082.)
“Where liability attaches only for gross negligence it is for the jury,
under proper instructions by the court, to pass upon the question whether
such negligence exists.” (Krause v. Rarity (1930) 210 Cal. 644, 655.) Here,
the trial court defined gross negligence (CACI No. 425) and instructed the
jury, consistent with the indemnification clause, that plaintiff could not
recover damages unless it found defendants were “grossly negligent,
committed fraud, or intentionally harmed [plaintiff].” (CACI No. 451.) As
relevant here, the jury received special verdict forms on plaintiff’s causes of
11
action for premises liability, negligence, and negligence (vicarious liability).
It found in plaintiff’s favor on all three causes of action, concluded defendants
intentionally failed to disclose facts plaintiff did not know and could not
reasonably have discovered, and awarded plaintiff damages.
We presume the jury followed the trial court’s instruction that plaintiff
could not recover damages unless it found defendants were “grossly
negligent, committed fraud, or intentionally harmed [plaintiff].” (Cassim v.
Allstate Ins. Co. (2004) 33 Cal.4th 780, 803–804 (Cassim) [“[a]bsent some
contrary indication in the record, we presume the jury follows its instructions
[citations] ‘and that its verdict reflects the legal limitations those instructions
imposed’ ”]; see People v. Yeoman (2003) 31 Cal.4th 93, 139 [“the presumption
that jurors understand and follow instructions [is] ‘[t]he crucial assumption
underlying our constitutional system of trial by jury’ ”].) Because the jury did
not find fraud or that defendants intended to deceive plaintiff, it necessarily
found defendants grossly negligent.
The record supports a finding that defendants acted with gross
negligence in that their conduct constituted “an extreme departure from what
a reasonably careful person would do in the same situation to prevent harm
to oneself or to others.” (CACI No. 425.) Sawyer, defendants’ employee,
knew exposing inert asbestos to the elements could make it friable and was
concerned that plaintiff’s renovation of Range 9 would expose asbestos to the
elements but never expressed his concerns to the principals. After Range 9
suffered storm damage, Sawyer had an asbestos remediation company do the
repairs, even though the lease agreement made plaintiff responsible for the
repairs, but never informed plaintiff about his concern that asbestos might
have been released. Ultimately, the County of San Diego quarantined Range
9 based on friable asbestos in the air and on the ground. Sawyer’s failure to
12
inform plaintiff about his concerns necessarily resulted in plaintiff’s
employees and property being exposed to friable asbestos because plaintiff
continued to use Range 9 until the County of San Diego quarantined the
building.
The trial court concluded the jury did not find gross negligence because
plaintiff failed to put a special verdict before the jury to obtain such a finding.
The trial court cited no authority that a special verdict form is required for
gross negligence. Defendants similarly fault plaintiff for not submitting a
special verdict form addressing gross negligence, arguing it was plaintiff who
raised gross negligence as a defense to the enforceability of the lease
agreement. Defendants also failed to cite any authority that a special verdict
form addressing gross negligence was required and we found no such
authority. Interpreting the special verdicts in connection with the pleadings,
evidence, and instructions, the jury understood it could not award damages to
plaintiff unless it found defendants grossly negligent. By awarding plaintiff
damages the jury necessarily found defendants grossly negligent. Thus, the
indemnification clause (section 10.1) does not bar plaintiff’s damages award.
B. The Limitation of Liability Clause Does Not Bar Plaintiff’s Damages
1. The Health and Safety Code
One of the primary purposes of the Carpenter-Presley-Tanner
Hazardous Substance Account Act (the Act; Health & Saf. Code,3 § 25300 et
seq.)4 was to “[e]stablish a program to provide for response authority for
3 All undesignated statutory reverences are to the Health and Safety
Code.
4 Effective January 1, 2024, the Legislature recodified and reorganized
the Act without substantive changes. (2022 Cal. Legis. Serv. Ch. 257 (Assem.
Bill No. 2293).) All references to the Act are to the statutes as they existed
prior to January 1, 2024.
13
releases of hazardous substances, . . . that pose a threat to the public health
or the environment.” (§ 25301.) Asbestos is a hazardous air pollutant
(§ 25316, subd. (e); see also, 42 USCA § 7412, (a)(6) & (b)) and a “known
carcinogen when inhaled.” (McNeal v. Whittaker, Clark & Daniels, Inc.
(2022) 80 Cal.App.5th 853, 857.) Any owner of nonresidential real property
who knows or has reasonable cause to believe that a release of hazardous
substance has come to be located on or below the property” must before
leasing the property, give the lessee written notice of the condition.
(§ 25359.7, subd. (a), italics added.) “Failure of the owner to provide written
notice when required by this subdivision to the . . . lessee, or renter shall
subject the owner to actual damages and any other remedies provided by
law.” (Ibid.)
Additionally, the Asbestos Notification Law (§ 25915 et seq.) sets forth
a scheme for notifying employees, contractors and other persons providing
services on a property of the presence of asbestos on that property. When
construction, maintenance, or remodeling is to be conducted in an area of the
leased premises where there is the potential for employees to encounter
asbestos or asbestos-containing materials, the owner responsible for the
construction, maintenance, or remodeling must post a written warning.
(§§ 25915.5, subd. (a), 25916.) The posted warning sign must state either:
“CAUTION. ASBESTOS. CANCER AND LUNG DISEASE HAZARD. DO
NOT DISTURB WITHOUT PROPER TRAINING AND EQUIPMENT.” Or
“DANGER. ASBESTOS. CANCER AND LUNG DISEASE HAZARD.
AUTHORIZED PERSONNEL ONLY. RESPIRATORS AND PROTECTIVE
CLOTHING ARE REQUIRED IN THIS AREA.” (§ 25916, subds. (a) & (b).)
“Any owner who knowingly or intentionally fails to comply with this chapter,
or who knowingly or intentionally presents any false or misleading
14
information to employees or any other owner, is guilty of a misdemeanor
punishable by a fine of up to one thousand dollars ($1,000) or up to one year
in the county jail, or both.” (§ 25919.7.)
An “owner” includes any lessee of a building or part of a building.
(§ 25919.5.) Accordingly, plaintiff and defendants qualify as owners. An
“employee” includes “any person contracting with an owner who is required
or directed to perform services . . . in any building.” (§ 25919.3.) Thus,
plaintiff who “contract[ed] with an owner” through the lease agreement falls
within the statutory definition of employees working within the building
entitled to notice under section 25919.5. (§ 25919.3.)
2. The Jury Necessarily Found a Violation of Law
Negligence per se is a way to establish ordinary negligence by tying the
standard of care to a specific “statute, ordinance, or regulation of a public
entity.” (Evid. Code, § 669, subd. (a)(1).) “Negligence per se is an evidentiary
doctrine, rather than an independent cause of action. [Citation.] It can be
applied generally to establish a breach of due care under any negligence-
related cause of action.” (Jones v. Awad (2019) 39 Cal.App.5th 1200, 1210.)
Where the doctrine of negligence per se is applicable, the standard of conduct
established by a relevant statute or ordinance is adopted as the duty of care
for purposes of a negligence cause of action. (Ibid.) In such cases, where the
statute or ordinance is violated, the doctrine creates a rebuttable
presumption of negligence. (Ibid.)
The trial court stated “[t]he parties seem to be in general agreement
that the negligence in this case was established via the doctrine of negligence
15
per se.”5 We agree with this observation because the sole negligence theory
plaintiff presented was defendants’ alleged failure to comply with their
statutory duty to inform plaintiff of the existence of asbestos before entering
the lease, when plaintiff renovated the property, and when defendants hired
a company to repair the property. The court noted, however, that “[t]he
actual verdict provided does not specify that [defendants] violated a statute.
It also does not specify that the jury applied the negligence per se doctrine.
All the verdict form specifies is that [defendants were] indeed ‘negligent in
the use or maintenance of the property.’ ” The trial court cited no authority
that a special verdict form is required to address a negligence per se theory of
liability. Defendants also failed to cite any authority that a special verdict
form addressing negligence per se was required and we found no such
authority.
Defendants’ reliance on Myers Building Industries, Ltd. v. Interface
Technology, Inc. (1993) 13 Cal.App.4th 949, for the proposition that plaintiff
was required to obtain special verdicts on negligence per se and gross
negligence is misplaced. In Myers, by special verdict a jury found defendant
had breached its contract with plaintiff. (Id. at p. 956.) The jury also found,
by special verdict, that there had been “oppression, fraud or malice” in
defendant’s conduct toward plaintiff and awarded plaintiff punitive damages.
(Ibid.) Although plaintiff had alleged a cause of action for fraud, no special
verdict findings were submitted to the jury on this cause of action. (Id. at
p. 958.) However, the law is clear that “[a]n award of punitive damages is not
supported by a verdict based on breach of contract, even where the
5 In their motion for JNOV, defendants stated the jury found they were
“negligent per se in not disclosing to [plaintiff] the presence of asbestos in
Range 9 as called for by the Health and Safety Code.”
16
defendant’s conduct in breaching the contract was wilful [sic], fraudulent, or
malicious.” (Id. at p. 960; Civ. Code, § 3294.) Accordingly, the appellate court
struck the punitive damages award. (Myers, at p. 962; see also, Saxena v.
Goffney (2008) 159 Cal.App.4th 316, 324–329 [court could not speculate jury
found defendant committed battery where jury received no special verdict
form on battery cause of action and instructions did not address lack of
consent].) Here, unlike the fraud claim in Myers, gross negligence and
negligence per se are not separate causes of action.6
Interpreting the special verdicts in connection with the pleadings,
evidence, and instructions, the jury necessarily found defendants negligent
based on statutory violations under the doctrine of negligence per se because
this was the only theory upon which the jury could base its negligence
finding. (Woodcock, supra, 69 Cal.2d at p. 456.)
C. The Limitation of Liability Clause Does Not Preclude the
Damages Award
“Generally, ‘a limitation of liability clause is intended to protect the
wrongdoer defendant from unlimited liability.’ ” (Food Safety Net Services v.
Eco Safe Systems USA, Inc. (2012) 209 Cal.App.4th 1118, 1126.) Such
clauses “have long been recognized as valid in California.” (Markborough
Cal. v. Superior Court (1991) 227 Cal.App.3d 705, 714.) Parties to a
commercial lease may agree to limit liability for breaches of covenants in the
lease. (Frittelli, Inc. v. 350 North Canon Drive, LP (2011) 202 Cal.App.4th
35, 43 (Frittelli).) To the extent an exculpatory provision also attempts to
6 We do not conclude that special verdict forms addressing gross
negligence or negligence per se are improper. We only conclude the absence
of such special verdict forms does not constitute error on this record where
the pleadings, evidence, and jury instructions allowed the trial court to draw
conclusions of law based on the jury’s negligence finding. (Code Civ. Proc.,
§ 624.)
17
shield a party from tort liability, it is subject to the public policy expressed in
Civil Code section 1668 which provides that “ ‘ “[a]ll contracts which have for
their object, directly or indirectly, to exempt anyone from responsibility for
his [or her] own fraud, or willful injury to the person or property of another,
or violation of law, whether willful or negligent, are against the policy of the
law.” ’ ” (See Frittelli, at p. 43, italics added.) Civil Code section 1668 has
been construed to invalidate contractual provisions that purport to exempt
liability for future intentional wrongs and gross negligence and prohibits
provisions exempting ordinary negligence when the public interest is
involved or a statute expressly forbids it. (Ibid.) Civil Code section 1668 also
applies “to invalidate provisions that merely limit liability.” (Health Net of
California, Inc. v. Department of Health Services (2003) 113 Cal.App.4th 224,
239.) “[C]ontractual clauses seeking to limit liability will be strictly
construed and any ambiguities resolved against the party seeking to limit its
liability . . . .” (Nunes Turfgrass, Inc. v. Vaughan–Jacklin Seed Co. (1988) 200
Cal.App.3d 1518, 1538.)
As we discussed, the jury necessarily found defendants liable for
damages based on their violations of the Health and Safety Code in failing to
disclose the existence of asbestos in Range 9 under a negligence per se theory.
(Ante, pt. II.B.2.) This finding triggered Civil Code section 1668 which
invalidates “contracts which have for their object, directly or indirectly, to
exempt anyone from responsibility for his own . . . violation of law, whether
willful or negligent. . . .” (Civ. Code, § 1668.) Accordingly, the limitation of
liability clause (section 10.6) is void to the extent it purports to shield
defendants from liability for their willful or negligent statutory violations.
The trial court, however, concluded Civil Code section 1668 did not
apply to invalidate the limitation of liability clause because even assuming
18
the jury found defendants violated the Health and Safety Code, the
“ ‘violation of law’ prong set forth in . . . [Civil Code section] 1668 applies to
cases involving the public interest, injuries to persons, or the like—it is not
designed to prevent ‘two equal bargainers’ in a commercial setting from
allocating who ‘should bear the risk of economic loss in the event of a
particular mishap,’ and ‘there is no reason for the courts to intervene and
remake the parties’ agreement’ in such situations.” We conclude the trial
court erred.
“Disclosure requirements are commonplace even for commercial
transactions between sophisticated business entities, and all such laws
reflect legislative judgments as to what information should be available for
market participants to consider when negotiating or agreeing to a contract,
even when one party ‘could easily contract to secure that information’ from
the other party.” (Beeman v. Anthem Prescription Management, LLC (2013)
58 Cal.4th 329, 362 (Beeman).) Disclosure statutes “simply require disclosure
of factual information in order to inform private or public decisionmaking in
the economic or political marketplace. We may assume that the regulated
entities would prefer not to make these disclosures, many of which run
counter to their business interests. But the Legislature has determined that
the information should be made available in order to promote informed choice
in the free market and in the development of sound public policy.” (Id. at
p. 361.)
As examples of such disclosure statutes, in Beeman, the Supreme Court
cited several statutes, including subdivision (a) of section 25359.7 which
requires an owner of nonresidential real property to give written notice to
buyers, lessors, or renters regarding the presence of hazardous substances.
(Beeman, supra, 58 Cal.4th at p. 362.) Accordingly, to the extent the
19
limitation of liability clause purports to release defendants for liability for
failing to disclose asbestos it violates public policy.
The trial court’s reliance on Tunkl v. Regents of University of Cal.
(1963) 60 Cal.2d 92 was misplaced because Tunkl only addressed the validity
of contractual clauses seeking to avoid responsibility for ordinary negligence.
(Id. at pp. 94, 101.) As the court in Capri v. L.A. Fitness International, LLC
(2006) 136 Cal.App.4th 1078 (Capri) explained: “Tunkl did not, however, add
a ‘public interest’ requirement where the contract purports to avoid liability
for fraud, willful injury, or violation of law, whether intentional or negligent.
The plain language of [Civil Code] section 1668 renders such exculpatory
provisions invalid as against public policy, and nothing in Tunkl alters that.
‘It is now settled—and in full accord with the language of the statute—that
notwithstanding its different treatment of ordinary negligence, under [Civil
Code] section 1668, “a party [cannot] contract away liability for his
fraudulent or intentional acts or for his negligent violations of statutory law,’
regardless of whether the public interest is affected.’ ” (Id. at p. 1084.) Here,
because the jury found a violation of statutory law, Tunkl’s public interest
requirement does not apply.
The trial court similarly misplaced its reliance on CAZA Drilling
(California), Inc. v. TEG Oil & Gas U.S.A., Inc. (2006) 142 Cal.App.4th 453,
Farnham v. Superior Court (1997) 60 Cal.App.4th 69, and Peregrine Pharms.,
Inc. v. Clinical Supplies Mgmt. (C.D. Cal. 2014) 2014 U.S. Dist. LEXIS
105756 (Peregrine). Caza is distinguishable because appellants failed to
identify a specific statutory or regulatory violation that led to their injury
that would trigger the application of Civil Code section 1668. (Caza, at
p. 476.) Thus, no basis existed to invalidate the exculpatory provisions in the
parties’ contract. (Ibid.) In contrast here, plaintiff proved a violation of the
20
Health and Safety Code. Farnham is distinguishable because the contract
limited the liability of corporate directors for defamation arising out of their
roles as directors while allowing the injured party to seek full redress from
the corporation. (Farnham, at p. 77.)
In Peregrine, supra, 2014 U.S. Dist. LEXIS 105756,7 the court
concluded the limitation on damages provisions shielded defendant for
passive negligence, not active negligence which includes “ ‘knowledge of or
acquiescence in negligent conduct, or failure to perform specific duties.’ ” (Id.
at p. 42.) In contrast, this case involves gross (active) negligence. Peregrine
is also distinguishable because the parties, two pharmaceutical companies,
foresaw the importance of compliance with FDA regulations and apportioned
the risk for violations of law. (Id. at p. 51.) In contrast here, the limitation of
liability clause does not address asbestos and defendants do not explain how
two commercial actors can fairly allocate risk for asbestos where one of the
parties did not even know of the risk.
In summary, defendants’ failure to comply with disclosure
requirements contained in the Health and Safety Code prevented plaintiff
from knowing about latent hazardous materials at the premises which
plaintiff had no way of discovering on its own. Defendants’ statutory
violations led directly to plaintiff’s financial losses. Thus, to the extent the
limitation of liability clause exculpates defendants for their violations of the
Health and Safety Code, it is invalid under Civil Code section 1668.
Accordingly, the trial court erred in granting JNOV in defendants’ favor.
7 “Although not binding, unpublished federal district court cases are
citable as persuasive authority.” (Aleman v. Airtouch Cellular (2012) 209
Cal.App.4th 556, 576, fn. 8.)
21
III. DEFENDANTS’ APPEAL
A. Additional Background
Brian Brinig, a certified public accountant who specializes in forensic
accounting, testified regarding plaintiff’s alleged economic losses due to the
loss of its orchid inventory in March 2017. He determined plaintiff generated
approximately $478,000 in gross sales income in 2015 and $485,000 in 2016.
Brinig assumed that in 2017, 2018, and 2019, the business would have
produced the same level of revenue it produced in the year prior to the
inventory loss. He averaged the revenue amount for the prior two years and
estimated $480,000 in gross sales for these years. Based on prior sales and
profits, Brinig subtracted 35 percent from lost revenue to calculate lost profit.
That resulted in net lost profit of $83,000 in 2017, $165,000 in 2018, and
$121,000 in 2019.” Total net lost profit for “all three of those years is
$368,933” under Brinig’s preferred calculation method.
As a second method of calculating lost profits, Brinig multiplied the
number of plants lost by the value of each plant. In March 2017, plaintiff had
approximately 16,200 orchid plants growing at Range 9 valued at $18.50 to
$22.50 each, of which, 50 percent were in bloom and ready for sale. Mr. Le
lacked inventory records confirming this amount and indicated there may
have only been 12,000 plants at Range 9. Brinig testified that if plaintiff had
12,000 plants at an average of $20 per plant, plaintiff lost $240,000. If
plaintiff had 16,200 plants, then it lost $324,000.
Under a third approach, Brinig took the lost profit for each year “and
you add that calculation of lost profit back to the adjusted net income for the
business in each of the years 2017, ’18, and ’19.” The adjusted net income in
2016 was $116,000, in 2017 it was around $50,000, or $133,000 when added
to Brinig’s estimate of the loss for that year ($82,000). In 2018 the adjusted
22
net income was $135,000 and $161,000 for 2019. Those three numbers add
up to over $400,000.
Mr. Le claimed plaintiff’s losses exceeded what Brinig calculated
because Brinig’s method only reflected profits and losses from plaintiff’s tax
returns. Additionally, plaintiff sold orchid stems, which can take eight
months or so to fully bloom. Mr. Le estimated that about 60 percent of the
plants cultivated get used multiple times for cut stems. One cut stem, which
a single plant can produce multiple times, sells for $9 to $12 per stem.
Additionally, plaintiff had buyers for the asbestos-contaminated orchids and
had to replace these plants at almost triple the cost which also impacted
plaintiff’s net profit.
Defendants also presented a damages expert who reviewed Brinig’s
work product and testimony. Defendants’ expert opined that Brinig’s
calculations were unsupported mathematical exercises that did not reflect
plaintiff’s actual damages. He also opined that Brinig’s damage calculations
were not consistent with what he believed were plaintiff’s potential losses.
Finally, he concluded Brinig had not received “sufficient and accurate
accounting and financial information” to support his opinions regarding
plaintiff’s damages. Defendants’ expert criticized Brinig for not taking into
account that some of the lost plants were intended to be retained for cut
stems. As an example, if 50 percent of the lost plants were intended to be
retained, then the total lost sales would be about $125,000. Defendants’
expert also criticized Brinig for not analyzing whether plaintiff could have
mitigated its damages.
The trial court instructed the jury that plaintiff sought economic
damages resulting from lost profits. In deciding lost profits, the jury was told
it needed to determine the gross amount plaintiff would have received but for
23
defendants’ conduct and subtract from that the amount of additional costs
plaintiff would have had if defendants’ conduct had not occurred.
Additionally, the jury was informed that “[t]he amount of the lost profits need
not be calculated with mathematical precision, but there must be a
reasonable basis for computing the loss.” The verdict form contained blank
spaces for “[l]ost profits” and “[o]ther past economic loss.” The jury awarded
damages $144,300 as lost profits and $77,700 as other past economic loss, for
a total damages award of $222,000.
Defendants requested a partial JNOV challenging the jury’s award of
$77,700 for “other past economic loss” on the ground plaintiff submitted no
damage evidence except for “lost profits,” and there is no evidentiary support
in the record for “other past economic loss.” The trial court disagreed with
defendants’ argument but ruled the issue was moot based on the limitation of
liability clause.
B. Substantial Evidence Supports the Damages Award
Defendants note that Brinig presented a lost profits model of damages
and the record contains no evidence of any damages besides lost profits.
Accordingly, they contend substantial evidence does not support the jury’s
award of $77,700 in “other past economic loss.” Indulging all inferences in
favor of the jury’s verdict, plaintiff asserts the evidence supported the “other
past economic loss” damage award. Because the record contains evidence
showing it suffered over $300,000 in damages, plaintiff argues the jury’s
$220,000 damages award should be affirmed.
Reduced to its essence, defendants argue that because the special
verdict form included two blanks, one for “[l]ost profits” and another for
“[o]ther past economic loss” that “[o]ther past economic loss” must be
something other than lost profits. Stated differently, the special verdict form
24
is ambiguous as to whether “[o]ther past economic loss” is something
different than lost profits. Defendants, however, did not object to the
question regarding “[o]ther past economic loss” in the trial court.8 Moreover,
any confusion as to whether “[o]ther past economic loss” is something
different than lost profits could have been clarified after the jury returned its
verdict and before the jury was discharged. (See Code Civ. Proc., § 619
[“When the verdict is announced, if it is informal or insufficient, in not
covering the issue submitted, it may be corrected by the jury under the advice
of the Court, or the jury may be again sent out.”].) Instead, defendants
gained a tactical advantage by waiting to raise this issue for the first time in
its motion for JNOV.
In any event, any ambiguity as to whether “[o]ther past economic loss”
is something different than lost profits must be resolved considering the
pleadings, evidence, and instructions. (Woodcock, supra, 69 Cal.2d at p. 456.)
As defendants correctly note, Brinig presented only a lost profits model of
damages and calculated plaintiff’s damages at a minimum of $240,000 and
over $360,000 using three different methods to determine plaintiff’s lost
profits. The instructions informed the jurors that plaintiff sought only lost
profit damages. We are required to presume the jury followed the trial
court’s instructions in the absence of contrary evidence. (Cassim, supra, 33
Cal.4th at pp. 803–804.) Neither party submitted a proposed jury instruction
defining “[o]ther past economic loss” and the jury received no such
instruction. Thus, the jury could have reasonably concluded from the
8 The proposed damages verdict forms submitted by both plaintiff and
defendants included two blank spaces, one for “[l]ost profits” and another for
“[o]ther past economic loss.”
25
instructions that “[o]ther past economic loss” was simply a different form of
lost profits.
Significantly, under Brinig’s third approach, he calculated damages by
taking lost profits for 2017, 2018, and 2019 and adding that to the adjusted
net income for the business for each of these three years. Under this
approach, and crediting the evidence that 60 percent of the plants plaintiff
grew were for cut stems, the jury could have reasonably interpreted “[o]ther
past economic loss” as being plaintiff’s lost profits for 2017 when plaintiff lost
its plant inventory and “[l]ost profits” as being plaintiff’s lost profits after
2017, or the value of the cut stems.
In summary, the evidence presented to the jury was sufficient to
provide a reasonable basis for calculating the amount of plaintiff’s lost
profits. That defendants agreed to a special verdict form containing a blank
space for “other past economic loss” without requesting a jury instruction
defining this term is a problem of their own making. Indulging in every
legitimate inference to support the verdict, as we must, substantial evidence
supports the damages awarded for “other past economic loss.” Thus, the trial
court properly denied defendants’ motion for partial JNOV.
26
DISPOSITION
On plaintiff’s appeal, the order granting JNOV in defendants’ favor is
reversed. On defendants’ cross-appeal, the order denying partial JNOV on the
issue of damages is affirmed. The matter is remanded for further proceedings
consistent with this opinion. Plaintiff is awarded its costs on appeal.
KELETY, J.
WE CONCUR:
HUFFMAN, Acting P. J.
O’ROURKE, J.
27
Filed 1/25/24
CERTIFIED FOR PUBLICATION
COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
EPOCHAL ENTERPRISES, INC., D079905
Plaintiff, Cross-defendant and
Appellant, (Super. Ct. No. 37-2018-
00027797-CU-CO-NC)
v.
LF ENCINITAS PROPERTIES, LLC et ORDER CERTIFYING
al., OPINION FOR
PUBLICATION
Defendants, Cross-complainants
and Appellants.
THE COURT:
The opinion in this case filed on January 12, 2024, was not certified for
publication. It appearing the opinion meets the standards for publication
specified in California Rules of Court, rule 8.1105(c), the request pursuant to
rule 8.1120(a) for publication is GRANTED.
IT IS HEREBY CERTIFIED that the opinion meets the standards for
publication specified in California Rules of Court, rule 8.1105(c); and
ORDERED that the words “Not to Be Published in the Official Reports”
appearing on page one of said opinion be deleted and the opinion herein be
published in the Official Reports.
HUFFMAN, Acting P. J.
Copies to: All parties
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