04/18/90 DANIEL WALLIS ET AL. v. FARMERS GROUP
||COURT OF APPEAL OF CALIFORNIA, SIXTH APPELLATE DISTRICT
269 Cal. Rptr. 299, 220 Cal. App. 3d 718
||April 18, 1990
||DANIEL WALLIS ET AL., PLAINTIFFS AND APPELLANTS,
FARMERS GROUP, INC., ET AL., DEFENDANTS AND APPELLANTS
||Superior Court of Santa Clara County, No. 553542, Frank Cliff, Judge.
||Certified for Publication May 16, 1990. A petition for a rehearing was denied May 15,
1990, and the petition of defendants and appellants for review by the Supreme Court was
denied August 15, 1990.
||Lerner & Veit, Jon S. Heim, Eric C. Shaw, Thoits, Love, Hershberger & McClean
and William J. McClean for Plaintiffs and Appellants.
||Horvitz & Levy, Barry R. Levy, Daniel Gonzalez, Mitchell & Stock and Laurence
B. Mitchell for Defendants and Appellants.
||Opinion by Cottle, J., with Agliano, P. J., and Capaccioli, J., concurring.
||The opinion of the court was delivered by: Cottle
||Marcia Wallis (Marcia) sued Farmers Group, Inc., and related entities (Farmers) after
Farmers terminated her as an insurance agent, and Daniel Wallis (Daniel) sued Farmers
after Farmers refused to approve the sale of his agency to Marcia. *fn1 Prior to trial, Farmers brought an in limine motion seeking to
exclude parol evidence to interpret a written agreement between Farmers and Marcia.
Following an evidentiary hearing, the trial court denied Farmers' motion and the matter
proceeded to trial. A jury found that Farmers terminated Marcia without good cause and
rendered a verdict in favor of Marcia on theories of breach of contract, tortious breach
of the contractual covenant of good faith and fair dealing, and fraud. It awarded her
$240,000 in compensatory damages and an additional $4,500 for emotional distress and
$200,000 in punitive damages under the tortious breach and fraud theories. The jury also
rendered a verdict in favor of Daniel on a breach of contract theory and awarded him
$175,000 in compensatory damages. The trial court rendered judgment accordingly. In
posttrial proceedings, the trial court granted Farmers a conditional new trial on the
issue of damages as to Daniel's cause of action subject to Daniel's acceptance of a
remitted judgment in the sum of $30,316, and struck from plaintiffs' memorandum of costs
the sum of $169,951 claimed for attorney's fees.
||(See fn. 2.) Farmers appeals from the judgment in favor of Marcia. *fn2 For reasons we shall explain, we reverse the judgment with respect
to the tort claims and affirm it as to the contract claim.
||Daniel cross-appeals from the order granting Farmers a conditional new trial, and
Daniel and Marcia cross-appeal from the order striking attorney's fees from their
memorandum of costs. We shall affirm both orders.
||On May 11, 1978, Marcia entered into a written agent appointment agreement (agreement)
with Farmers. The agreement is a standard form contract used by Farmers with its career
agents who sell insurance exclusively for Farmers. *fn4
Farmers' agents are independent contractors who sell Farmers' insurance
policies out of their own offices. Under the agreement, an agent is not precluded from
selling another company's insurance if Farmers does not underwrite
that particular kind of insurance or declines coverage to a prospective insured.
||On July 19, 1979, Daniel entered into an identical agreement with Farmers.
||An insurance agent earns commissions from the sale and renewal of policies. Thus, as
an insurance agent builds his agency, or "book of business," the potential of
renewal commissions gives economic value to the business.
||The agreement specifies a formula for calculating the "contract value" of an
agency based upon service commissions paid to the agent in the preceding six or twelve
months, the number of active policies attributable to the agent, and the number of years
of continuous agent service. The agreement further provides that upon termination of the
agreement Farmers will pay the agent the contract value of the agency or, if it does not,
the agent can sell the agency to an acceptable purchaser for not more than the contract
||A separate provision of the agreement conditionally permits an agent to sell his
business to a family member. This term states: "The Agent or the Agent's heirs may
sell all or any part of this Agency to a member(s) of the Agent's immediate family at any
time, provided the purchaser is acceptable to , and provided the sale price does not
exceed the proportionate share of the 'Contract Value' (as hereinafter defined) of the
Agency." The agreement further provides: "The Agent agrees to transfer and
assign all of the Agent's interest under this Agreement and Agency (including any interest
in the telephone numbers and leased or rented office location) to or any other purchaser
in the event they make payment to the Agent pursuant to [the contract value provision].
For the payment received, the Agent further agrees that for a period of one year following
the date of sale the Agent will neither directly nor indirectly solicit, accept, or
service the insurance business of any policyholder of record in the agencies of this
district as of the date of sale. The Agent acknowledges that all manuals, lists and
records of any kind (including information pertaining to policyholders and expirations)
are the confidential property of and agrees they shall not be used or divulged in any way
detrimental to and shall be returned to upon termination of the Agency."
||Marcia and Daniel shared an office and built their respective agencies to the point
where Marcia earned approximately $54,000 for the year 1984 through the month of October
and Daniel earned approximately $25,000 for the year 1984 through the month of June. Their
annual expenses were approximately $50,000.
||The majority of Daniel's business was generated from automobile lot referrals. In the
spring of 1984, Farmers announced that it would no longer sell insurance to individuals
referred to its agents from automobile lots. Daniel decided to leave Farmers and sought an
appointment as a Safeco agent. He also entered into a contract to sell his agency to
Marcia. Farmers learned of Daniel's intentions and communicated to Marcia and Daniel that,
if Daniel was appointed by Safeco, a conflict of interest would arise and it would
therefore refuse to accept Marcia as a purchaser of Daniel's agency and terminate Marcia's
||Daniel terminated his agency in June 1984 and contracted with Marcia to sell his
business to her. Farmers wrote Daniel that Marcia was unacceptable as a purchaser. On July
10, William Dierker, Farmers' Division Agency Manager, telephoned Marcia to make an
appointment to pick up Daniel's files. Marcia protested that the files belonged to her.
Dierker replied that Marcia would be terminated if she failed to release the files.
Dierker arrived at Marcia's office on July 12 to pick up the files. Marcia handed him a
letter from her attorney which indicated that Marcia would deliver the files subject to
the right to litigate ownership. Marcia delivered the files. Dierker then stated that
Marcia would be treated fairly and not be terminated.
||Marcia and Daniel filed this action on July 17, 1984, alleging breach of contract and
other theories of liability arising from Farmers' refusal to accept Marcia as a purchaser
of Daniel's agency.
||On August 1, 1984, Farmers terminated the agreement between it and Marcia by invoking
a three months' termination clause. The complaint in this case was then amended to include
theories of liability arising from Farmers' termination of Marcia.
||A. Marcia's Breach of Contract Claim
||Farmers contends that its agent appointment agreement, which permits termination by
either party on three months' notice, was an integrated document and, consequently, it was
error to admit extrinsic evidence contradicting the terms of the agreement and
demonstrating the contract between Farmers and plaintiff included an implied requirement
of good cause for termination. Farmers also claims that if good cause were required to
terminate Marcia's agency, then her conflict of interest with Farmers provided the
||The Parol Evidence Issue
||Preliminarily we note that in reviewing a trial court's interpretation of a written
instrument where no conflicting extrinsic evidence is received, an appellate court is not
bound by the lower court's ruling but must give the writing its own independent
interpretation. (Delucchi v. County of Santa Cruz (1986) 179 Cal. App. 3d 814, 820-821
[225 Cal. Rptr. 43].)
||In the present case, the trial court determined the agent appointment agreement was
"a partially integrated agreement as to those terms set forth, . . . the partially
integrated agreement does not cover the issue of cause on a . . . three-month notice
termination" and therefore the "terms of the partially integrated writing may be
explained or supplemented with evidence of consistent additional terms." Our review
of the agent appointment agreement leads us to the same conclusion.
||"The parol evidence rule generally prohibits the introduction of any extrinsic
evidence to vary or contradict the terms of an integrated written instrument. [Citation.]
It is based upon the premise that the written instrument is the agreement of the parties.
[Citation.] Its application involves a two-part analysis: 1) was the writing intended to
be an integration, i.e., a complete and final expression of the parties' agreement,
precluding any evidence of collateral agreements ; and 2) is the agreement susceptible of
the meaning contended for by the party offering the evidence? [Citation.]" (Gerdlund
v. Electronic Dispensers International (1987) 190 Cal. App. 3d 263, 270 [235 Cal. Rptr.
||Was the agent appointment agreement intended to be a complete and final expression of
the parties' agreement? We think not. For example, it does not cover how commissions will
be paid or earned, unquestionably an important factor in the employment or independent
contractor relationship. Additionally, it does not contain an integration clause
indicating it constitutes the entire understanding of the parties. (Compare, e.g.,
Gerdlund v. Electronic Dispensers International, supra, 190 Cal. App. 3d at p. 268. [That
contract provided: "The Agreement Complete. [para.] This agreement contains the
entire agreement between the Company and the Representative. There are no oral or
collateral agreements of any kind. . ."].) On the contrary, it provides that
"existing written addendums to such . . . Agreement and/or any other existing
supplementary written agreements . . . shall remain in force . . . ." From the
foregoing, it is clear that neither Farmers nor Marcia considered the agreement to be the
complete and final embodiment of the terms of their relationship.
||Nevertheless, the agreement exhaustively covers the subject of termination and even
provides for a termination review procedure. Both parties concede that no other written
material discusses the subject. Where, as here, a writing is intended by the parties as a
final expression of their agreement with respect to a particular subject matter or term,
the writing is integrated as to those terms which "may be explained or supplemented
by course of dealing or usage of trade or by course of performance." (Code Civ.
Proc., § 1856, subd. (c).) "When only part of the agreement is integrated, the
[parol evidence] rule applies to that part, but evidence may be used to prove elements of
the agreement not reduced to writing. [Citations.]" (Masterson v. Sine (1968) 68 Cal.
2d 222, 225 [65 Cal. Rptr. 545, 436 P.2d 561].) We conclude that while the agreement as a
whole was not integrated, it was integrated with respect to the subject of termination.
||We now move to the second part of our analysis: is the agreement susceptible of the
meaning urged by the party offering the evidence? The provision permitting termination
upon three months' notice is silent as to whether good cause is required, stating simply
that the agreement "may be terminated by either the Agent or on three (3) months
written notice." Farmers contends that this means that no cause is required to invoke
the three month termination procedure. Marcia, on the other hand, contends that Farmers
had both an express oral agreement and an implied-in-fact agreement that she would be
discharged only for cause. *fn7 We determine that
the language of the parties' agreement was reasonably susceptible of either of these
meanings. Consequently, extrinsic evidence was admissible to ascertain the meaning of the
written instrument. (Pacific Gas & E. Co. v. G. W. Thomas Drayage etc. Co. (1968) 69
Cal. 2d 33, 37 [69 Cal. Rptr. 561, 442 P.2d 641, 40 A.L.R.3d 1373].) *fn8
||Labor Code section 2922 establishes a presumption of at-will employment where the
parties have made no oral or written agreement specifying the length of employment or the
grounds for termination. (Foley v. Interactive Data Corp. (1988) 47 Cal. 3d 654, 677 [254
Cal. Rptr. 211, 765 P.2d 373].) This presumption, however, may be rebutted by extrinsic
evidence of an implied agreement that the employment relationship will continue
indefinitely, pending the occurrence of some event such as the employer's dissatisfaction
with the employee's services or the existence of some "cause" for termination.
(Pugh v. See's Candies, Inc. (1988) 203 Cal. App. 3d 743, 751 [250 Cal. Rptr. 195].)
||The evidence Marcia offered to demonstrate the existence of an implied-in-fact
requirement of good cause for termination was provided primarily through the deposition
testimony of Farmers' officers. *fn9 Gary
McCarter, its regional manager, stated that, as long as he knew, the policy of Farmers was
that no agent was ever terminated without cause. William Braddock, a vice-president of
sales, replied, "well, certainly" when asked: "But you tried to have a good
reason to terminate somebody before you terminated them?" Another vice-president of
sales, Morris Samuels, stated that Farmers does not make a practice of terminating agents
without cause and has a policy to have cause when it terminates an agent. Martin
Feinstein, a director of sales support, stated that he believed Farmers always had a
reason when it terminated an agent and replied "Not to my knowledge" when asked
whether Farmers terminated agents without good cause.
||Feinstein opined that the drafters of Farmers' January 1977 agency appointment
agreement intentionally omitted from the form a provision stating whether good cause was
required for termination. An earlier form, introduced in 1965, provided: "This
Agreement and the Agencies created hereby shall terminate upon the death of the Agent, and
may be cancelled without cause by either the Agent or on 30 days' written notice."
Feinstein stated: "I think the writers of the contract left the cause out, the
statement about cause out when they rewrote the contract and included the rights to the
termination review board hearing and extended the period of time from thirty days to
||Marcia argued to the jury that the presence of the words "without cause" in
the 1965 form and the absence of such words in the 1977 form was significant. In
substance, she argued the fact that Farmers "removed" the words "without
cause" from the 1977 form implied that the agreement at issue required good cause to
invoke the three months' termination clause.
||Marcia also pointed out that if the provision for termination upon three months'
notice does not require good cause for its invocation, then the agreement's termination
review procedure is rendered meaningless. That provision provides: "In the event this
Agreement is terminated by , the Agent may within ten (10) days of receiving the notice of
termination request a review of the termination by a termination review board. [para.] The
termination review board will be composed of [a Farmers agent selected by the Agent, the
Regional Manager, and a third party mutually selected by the other two]. . . . [para.] The
Board will submit a summary of the hearing and its recommendations to the Executive Home
Office. [para.] The chief executive officer and staff will review the summary and
recommendations, reach a decision and promptly advise the Agent of that decision." If
no cause were required to invoke the three-month termination clause, Marcia argued, then a
board reviewing the termination would only need to count the days rather than conduct a
||The Good Cause Issue
||Having determined that parol evidence was admissible, we next consider whether the
evidence supports the jury's verdict -- first, that good cause was required and, second,
that Farmers did not have it. We begin by observing that, on appeal, all factual matters
will be viewed most favorably to the prevailing party and in support of the judgment.
(Nestle v. City of Santa Monica (1972) 6 Cal. 3d 920, 925 [101 Cal. Rptr. 568, 496 P.2d
480].) The determination of the trier of fact will be binding on appeal "unless the
contrary conclusion is the only one that can reasonably be drawn from the evidence."
(Mehl v. People ex rel. Dept. Pub. Wks. (1975) 13 Cal. 3d 710, 715-716 [119 Cal. Rptr.
625, 532 P.2d 489].) Applying this standard, it is clear that the evidence presented at
trial -- in particular the evidence that Farmers officers themselves believed that good
cause was required -- was sufficient to support the finding of an implied-in-fact promise
that Marcia would not be terminated without cause.
||The more difficult question is whether Farmers' motives in this case satisfied the
good cause requirement. According to Pugh v. See's Candies, Inc., supra, 203 Cal. App. 3d
at page 752, good cause for termination of employment connotes a fair and honest cause or
reason, regulated by good faith on the part of the employer. At trial, Farmers presented
evidence that as early as March 1984 (three months before Daniel left Farmers), Farmers
management was soliciting advice on how to resolve conflict of interest situations
"where our agent shares an office or is married to an independent insurance
broker." This memo was followed by another in May 1984 in which Farmers' regional
manager announced that "ituations wherein a spouse is licensed with another company
and the other spouse is licensed with Farmers will be considered a conflict of
interest." Farmers points out that numerous courts, including this one, have held
that "'here is no more elemental cause for discharge of an employee than disloyalty
to his employer.'" (Fowler v. Varian Associates, Inc. (1987) 196 Cal. App. 3d 34, 43
[241 Cal. Rptr. 539], quoting Labor Board v. Electrical Workers (1953) 346 U.S. 464, 472
[98 L.Ed. 195, 74 S.Ct. 172].)
||While we agree that the conflict of interest situation might have provided sufficient
cause to justify Marcia's termination, we cannot declare so as a matter of law. If the
evidence is uncontradicted and permits only one conclusion, then the issue is legal, not
factual. (County of Los Angeles v. Kranz (1977) 65 Cal. App. 3d 656, 659 [135 Cal. Rptr.
473].) Where, however, as here, the evidence is contradicted, the issue is one for the
trier of fact to decide. In the present case, the jury accepted Marcia's contention that
Farmers terminated her because she filed a lawsuit against them and it rejected Farmers'
contention that the termination was for a conflict of interest. As noted earlier, the
determination of the trier of fact is binding on appeal "unless the contrary
conclusion is the only one that can reasonably be drawn from the evidence." (Mehl v.
People ex rel. Dept. Pub. Wks., supra, 13 Cal. 3d at pp. 715-716.) We conclude that
substantial evidence supports the jury's finding that Farmers lacked good cause for
terminating Marcia's agency.
||B. Marcia's Tortious Breach of the Covenant of Good Faith and Fair Dealing Claim
||With regard to Marcia's second theory, Foley v. Interactive Data Corp., supra, 47 Cal.
3d 654, 700, has done away with any cause of action for a tortious breach of the implied
covenant of good faith and fair dealing as an independent source of job security. Foley is
retroactive. (Newman v. Emerson Radio Corp. (1989) 48 Cal. 3d 973 [258 Cal. Rptr. 592, 772
||C. Marcia's Fraud Claim
||Marcia's fraud theory is predicated upon Dierker's statements and actions. Marcia
summarizes this claim as follows: "Viewing Marcia's conversations with Dierker on
July 10 and 12 in their entirety and in context, the jury reasonably could conclude that:
1) Dierker said that if the files were not turned over, Marcia would be terminated; 2)
Marcia properly viewed this as a threat to her job, to which her attorney referred in the
letter; 3) Marcia was told that if she did cooperate and turn over the files she would be
treated fairly like any other Farmers agent and would not be terminated; and 4) Dierker
was allowed to leave with the files on July 12 because he confirmed Marcia would not be
terminated. Accordingly, the jury could conclude that Marcia turned over the files only in
reliance on statements, ultimately false, that she would keep her job."
||In an action for fraud, damage is an essential element of the cause of action.
(Committee on Children's Television, Inc. v. General Foods Corp. (1983) 35 Cal. 3d 197,
219 [197 Cal. Rptr. 783, 673 P.2d 660].) We conclude that Marcia has suffered no legal
injury as a consequence of Dierker's statements and actions.
||The agreement between Farmers and Daniel specified that Daniel's files belonged to
Farmers and were to be returned to Farmers upon termination of the agreement. Daniel
terminated the agreement. Farmers was accordingly entitled to Daniel's files. Marcia was
entitled to Daniel's files only if Farmers approved her as Daniel's transferee. Farmers
did not do so. Thus, in turning over Daniel's files to Farmers, Marcia did what she was
legally obligated to do. Her reason for doing so is irrelevant. It is axiomatic that
performance of a legal obligation cannot constitute a legal injury. (Cf. Abbot v. Stevens
(1955) 133 Cal. App. 2d 242, 247 [284 P.2d 159] [payment of a lawful exaction cannot
constitute a legal injury].) Thus, Marcia's fraud theory necessarily fails.
||D. Exhaustion of Administrative Remedies
||On appeal, Farmers invokes for the first time the doctrine of exhaustion of
administrative remedies (the termination review board procedure) to bar Marcia's action.
We hold that Farmers' failure to raise this issue below precludes it from raising it on
||We begin by pointing out that as a general rule, "where an administrative remedy
is provided by statute, relief must be sought from the administrative body and this remedy
exhausted before the courts will act." (Abelleira v. District Court of Appeal (1941)
17 Cal. 2d 280, 292 [109 P.2d 942, 132 A.L.R. 715].) An analogous rule applies to
situations where, as here, a plaintiff has an internal remedy for adjusting grievances and
fails to pursue it before seeking judicial relief. (American Society of Composers, Authors
& Publishers v. Superior Court (1962) 207 Cal. App. 2d 676, 684 [24 Cal. Rptr. 772].)
||The question of whether failure to exhaust administrative or internal remedies is
jurisdictional, however, is a matter of some debate. *fn10 We believe that the correct rule was that stated in Green v. City
of Oceanside, supra, 194 Cal. App. 3d 212, i.e., that the doctrine of exhaustion of
remedies does not implicate subject matter jurisdiction (which may not be waived and which
can be raised for the first time on appeal) but "rather is 'a procedural
prerequisite' 'originally devised for convenience and efficiency' and now 'followed under
the doctrine of stare decisis.'" (Id. at p. 222.) It is jurisdictional only in the
sense that a court's failure to apply the rule in a situation where the issue has been
properly raised can be corrected by the issuance of a writ of prohibition. (Ibid.)
||As the court stated in Green, exhaustion "is not the sort of issue which should
fall outside the general rule of civil litigation that arguments and objections not raised
and preserved in the trial court are waived on appeal. . . . We think it would be grossly
unfair to allow a defendant to ignore this potential procedural defense at a time when
facts and memories were fresh and put a plaintiff to the time and expense of a full trial,
knowing it could assert the failure to exhaust administrative remedies if it received an
adverse jury verdict. The exhaustion doctrine is simply a 'procedural prerequisite' . . .
[Citation.]" (194 Cal. App. 3d at pp. 222-223.)
||Accordingly, we hold that Marcia's failure to invoke the termination review board
procedure does not preclude her action at law.
||E. Alleged Instructional Error
||Farmers contends that it should be entitled to a new trial because of alleged
instructional error. The first of these was the court's refusal to instruct the jury, as
requested by Farmers, that when an insurance sales agent occupies a sensitive or
confidential position, the company must of necessity be allowed substantial scope for the
exercise of subjective judgment in deciding whether to terminate for conflict of interest.
||We see no error in the court's refusal to give this instruction. While the law is
settled that where "'the employee occupies a sensitive managerial or confidential
position, the employer must of necessity be allowed substantial scope for the exercise of
subjective judgment'" (Pugh v. See's Candies, supra, 203 Cal. App. 3d at p. 761),
this case is not about an employee who occupies a sensitive managerial or confidential
position. Indeed, this case is not about an employee at all. Marcia's only connection with
Farmers was as an independent contractor.
||Farmers next argues that the trial court erred by instructing the jury that the
promise of good faith and fair dealing implied in every contract was a factor to consider
in determining whether Farmers needed good cause to terminate Marcia's agency agreement.
The actual instruction given read: "And in every contract there is an implied promise
of good faith and fair dealing. This means that each party impliedly agrees not to do
anything to destroy or injure the right of the other party to receive the benefits of the
contract. Thus, each party has the duty not to prevent or hinder performance by the other
party." As Farmers concedes, "the language correctly stated the implied-in-law
covenant of good faith and fair dealing, and such instruction was certainly pertinent (at
the time of trial) to Marcia's claim of tortious breach of contract. (But see Foley v.
Interactive Data Corp., supra, 47 Cal. 3d 654.)" The problem with the instruction,
Farmers argues, is that it misled the jury: "Obviously, Farmers could do nothing more
likely to 'destroy or injure the right of to receive the benefits of contract' or to
'prevent . . . performance' than to terminate her agency! That said, there was little more
for the jury to consider: termination was a breach of the implied covenant and, by
implication, also a breach of contract." (Italics deleted.)
||Again, we disagree. We note that the Supreme Court in Foley laid to rest the notion
that the implied covenant of good faith and fair dealing somehow created an independent
source of job security rights. "After all, when an employment relationship is -- as a
matter of agreement -- terminable at will, terminating an employee without good cause does
not deprive the employee of the benefits of the agreement." (Kuenzel, Employment
"At Will," Employers at Risk: Managing the Challenges of Firing Decisions In the
Post- Foley Era (Prentice Hall 1989) p. 23.) Thus, the instruction did not, as Farmers
claims, virtually guarantee a finding that Farmers breached its contract with Marcia.
||Farmers' third claimed error relates to Marcia's tortious breach of the covenant of
good faith and fair dealing cause of action. In view of our holding in section B, ante,
this issue is moot.
||Finally, Farmers contends that the court gave an erroneous instruction on the limit of
damages recoverable for breach of contract. We agree that the instruction was incorrect
but conclude that the error was not prejudicial.
||As Farmers correctly observes, under California law a plaintiff in a breach of
contract action is entitled to damages "which will compensate the party aggrieved for
all the detriment proximately caused thereby, or which, in the ordinary course of things,
would be likely to result therefrom." (Civ. Code, § 3300.) The detriment that is
"likely to result therefrom" is that which is foreseeable to the breaching party
at the time the contract is entered into. (Coughlin v. Blair (1953) 41 Cal. 2d 587, 603
[262 P.2d 305].)
||Rather than limiting the damages recoverable to that which was foreseeable, the court
instructed the jury that Marcia was entitled to compensation for "all loss and harm
that the particular breach caused . . . with respect to . . . her Farmers agency insurance
book of business, both to date and in the future."
||The trial court admitted that the instruction was erroneous on its ruling on Farmers'
motion for a new trial. (The court stated: "Under these instructions, the jury was
not required to consider foreseeability as a legal limitation on the amount of contract
damages. . . . Although did not object to this given instruction, and did not request such
an additional instruction . . . , the court concludes that such a limitation was required
sua sponte." The trial court then determined that its erroneous instruction was
prejudicial with respect to Dan's contract claim but not with respect to Marcia's. We
||By limiting the damages caused by the breach to Marcia's "Farmers agency
insurance book of business," her award was limited to the loss of the value of her
agency. There is simply no evidence to support Farmers' contention that the award may have
included damages "for the overall drop in [Marcia's] standard of living about which
she complained at trial."
||A. Reduction of Jury's Damages Award
||Daniel and Marcia executed two written contracts transferring Daniel's agency to
Marcia. The first one was dated June 11, 1984, and specified a sales price of $200. The
second was dated June 25, 1984, and specified a sales price of $24,000.
||Before trial, the trial court granted Daniel's motion to amend his cause of action to
allege general contract damages in the amount of $23,700 plus interest from June 25, 1984.
Daniel's counsel stated that the amount represented "ost benefits of a
contract." He further stated, "It's 23, 7 is all there is."
||During trial, Daniel introduced expert testimony on the subject of the market value of
his business. The expert rendered an opinion on this subject based upon Daniel's past
production, data regarding renewal commissions, estimates of Daniel's "working
life," and the like. Daniel's counsel argued to the jury that this evidence justified
a verdict for Daniel in a range from $301,000 to $879,000.
||The trial court's order granting a conditional new trial was granted on one ground,
excessive damages. The trial court's order explained that Daniel's cause of action was
submitted to the jury on the theory of breach of the provision in the agency appointment
agreement between Daniel and Farmers regarding a conditional sale of the agency to a
family member. The order noted that the jury was instructed that a commercially reasonable
justification was required of Farmers for Farmers to refuse to approve Daniel's sale to
Marcia. The order observed that the agreement limited any sales price of Daniel's agency
to the contractually defined contract value. It also observed that Daniel offered no
evidence which indicated that the parties intended the compensation upon termination to be
any amount other than contract value.
||In essence, the trial court believed it admitted irrelevant evidence on the issue of
Daniel's contract damages.
||The trial court's order also opined that certain jury instructions in conjunction with
the irrelevant evidence lead the jury to award excessive damages. It noted that the
undisputed evidence at trial demonstrated the contract value of Daniel's agency on the
date he terminated his agreement was $30,316. The trial court rendered its order
||Daniel contends that the trial court erred because "There is no question but that
Dan's agency had a market value in excess of 'contract value,'" "Farmers'
argument that Dan's damages for its breach of the family sale provision must be limited to
'contract value' is fundamentally unfair," and "Denial of a right on Dan's part
to recover such damages also would result in Farmer's [ sic ] unjust enrichment."
||The principles applicable to a motion for a new trial on the ground of excessive
damages are well settled. The trial court may, in its discretion, order a new trial
limited to the issue of damages and may condition its order so that the motion is denied
if the party in whose favor the verdict has been rendered consents to a reduction of so
much thereof as the court in its independent judgment determines from the evidence to be
fair and reasonable. (Code Civ. Proc., § 662.5.) In ruling on a motion for a new trial
for excessive damages, the trial court does not sit in an appellate capacity but as an
independent trier of fact. (West v. Johnson & Johnson Products, Inc. (1985) 174 Cal.
App. 3d 831, 876 [220 Cal. Rptr. 437, 59 A.L.R.4th 1].) "A new trial shall not be
granted upon the ground of . . . excessive . . . damages, unless after weighing the
evidence the court is convinced from the entire record, including reasonable inferences
therefrom, that the court or jury clearly should have reached a different verdict or
decision." (Code Civ. Proc., § 657, subd. 7.) An order granting a new trial on the
ground of excessive damages shall be reversed only if there is no substantial basis in the
record for the reasons given for the order. (Ibid.) Stated another way, an appellate court
may reverse an order granting a new trial for excessive damages only when the reasons
given by the trial court reflect a manifest and unmistakable abuse of discretion. (West v.
Johnson & Johnson Products, Inc., supra, 174 Cal. App. 3d at p. 876.)
||"While the concept 'abuse of discretion' is not easily susceptible to precise
definition, the appropriate test has been enunciated in terms of whether or not the trial
court exceeded '"the bounds of reason, all of the circumstances before it being
considered. . . ."' [Citations.]" (Troxell v. Troxell (1965) 237 Cal. App. 2d
147, 152 [46 Cal. Rptr. 723].)
||It is apparent from the order that the trial court listed the factors it considered,
weighed those factors, and exercised its independent judgment in deciding what was fair
and reasonable in terms of compensatory damages. It considered the agency appointment
agreement which entitled Daniel to compensation upon termination of his agency in an
amount calculated as the contract value of the agency. Then it considered the evidence
introduced at trial which indicated that the agency had a market value in excess of
contract value. The evidence of market value has significance only if the contractual
limitation on the amount of compensation upon termination is ignored. However, the trial
court observed that no evidence was introduced at trial to challenge the contractual
limitation. The trial court thus discounted the evidence of market value and decided that
contract value was fair and reasonable in terms of compensatory damages.
||Daniel's arguments amount to no more than the trial court should have, without reason,
ignored the contractual limitation. The arguments manifestly fall short of demonstrating
that the trial court's decision exceeded the bounds of reason. Daniel has simply failed to
carry his burden on appeal.
||"e must be constantly aware of the different functions performed by the superior
court and ourselves. Unless, ultimately, each case of this nature is to be decided by the
Court of Appeal as if no trial court had ever acted . . . , we must be careful to preserve
the area of the superior court's discretion and we must do this in fact, as well as in
words." (Bennett v. City of Los Angeles (1970) 12 Cal. App. 3d 116, 120 [90 Cal.
||B. Attorney's Fees
||Daniel and Marcia contend they were entitled to attorney's fees under Brandt v.
Superior Court (1985) 37 Cal. 3d 813 [210 Cal. Rptr. 211, 693 P.2d 796] and under Code of
Civil Procedure section 1021.5. We conclude, as did the trial court, that their reliance
on these rules is misplaced.
||It is well settled in California that attorney's fees are not recoverable in the
absence of a statutory or contractual provision for the recovery of same. (Code Civ.
Proc., § 1021.) In Brandt, supra, 37 Cal. 3d 813, the Supreme Court recognized a narrow
exception to this rule regarding legal fees incurred by a client in a tort action. The
court held that where an insurer tortiously (i.e., in "bad faith") withholds
policy benefits due its insured, forcing the insured to incur attorney's fees to recover
such benefits, then the legal fees incurred are an additional item of damages recoverable
against the insurer much like medical fees are damages in a personal injury action. (37
Cal. 3d at p. 817.) In the instant case, however, the fees were incurred in a contract,
not a tort action. As noted earlier, the Supreme Court in Foley v. Interactive Data Corp.,
supra, 47 Cal. 3d 654, 700, held that a breach of the implied covenant of good faith and
fair dealing implied in an employment agreement gives rise only to contract damages. Thus,
Brandt is inapplicable to this action.
||Alternatively, Daniel and Marcia claim they are entitled to an award of attorney's
fees pursuant to Code of Civil Procedure section 1021.5, the "private attorney
general" doctrine. In order to invoke this doctrine, the litigation must have
resulted in the "enforcement of an important right affecting the public
interest," "a significant benefit" must have been conferred on the general
public or a large class of persons, the financial burden of private enforcement must make
an award of fees appropriate, and justice must require that the attorney's fees be paid by
the opposing party rather than out of the litigation proceeds. (Serrano v. Priest (1977)
20 Cal. 3d 25, 35 [141 Cal. Rptr. 315, 569 P.2d 1303].)
||This statute is inapplicable on its face. "Section 1021.5 was not designed as a
method for rewarding litigants motivated by their own pecuniary interests who only
coincidentally protect the public interest." (Beach Colony II v. California Coastal
Com. (1985) 166 Cal. App. 3d 106, 114 [212 Cal. Rptr. 485].) We find no abuse of
discretion in the trial court's order denying attorney's fees.
||The judgment in favor of Marcia, to the extent it is based on the tort causes of
action, is reversed. The judgment in favor of Marcia, in the amount of her contract claim,
$240,000, is affirmed. The trial court is directed to enter a new judgment accordingly.
Farmers' appeal from the judgment in favor of Daniel is dismissed. The orders granting
Farmers a conditional new trial and striking attorney's fees are affirmed. Each side shall
bear its own costs on appeal.
||*fn1 For convenience, we adopt the parties'
method of referring to the plaintiffs by their first names.
||*fn2 Farmers also appealed from the judgment
in favor of Daniel, orders denying its motions for judgment notwithstanding the verdict as
to both Marcia and Daniel, and the order granting a conditional new trial insofar as a new
trial was unconditionally denied. Farmers raises no issues concerning its appeals as to
the judgment in favor of Daniel and the orders denying its motions for judgment
notwithstanding the verdict. We therefore treat the points as waived. (9 Witkin, Cal.
Procedure (3d ed. 1985) Appeal, § 479, p. 469.) An order denying a motion for a new trial
is nonappealable. (Id., § 92, p. 113.) We therefore dismiss Farmers' appeal from the
order denying its motion for a new trial with respect to Daniel's cause of action.
||*fn3 A substantial portion of the parties'
presentation at trial concerned Farmers' reasons for terminating Marcia and refusing to
approve Daniel's proposed sale to Marcia. The details of these matters are not directly
pertinent to our analysis. We therefore summarize the background of this case only to the
extent necessary. We note that the facts are essentially undisputed.
||*fn4 The agreement contains 10 separate
provisions. The first relates to Farmers' obligations to pay commissions according to
commission schedules established by Farmers and in effect on the effective date of a
commission transaction, arrange medical insurance, provide manuals and forms, provide
advertising assistance, and make available education and training programs; the second
specifies four obligations of an agent in connection with selling Farmers' policies; the
third provides three methods by which the agreement may be terminated; the fourth sets
forth a procedure by which an agent can request review of a termination; the fifth
provides for certain payments to the agent in the event of termination; the sixth provides
for transfer of the agency business from the agent to another; the seventh outlines a
formula for calculating the value of an agency; the eighth states a procedure for transfer
of an agency and payment therefor; the ninth affirms that an agent is an independent
contractor; and the tenth states that the agreement supersedes other agreements and may
not be modified other than by a writing.
||*fn5 The agent also has the option of
refusing contract value, retaining ownership of his or her business, and competing with
Farmers. (Heston v. Farmers Ins. Group (1984) 160 Cal. App. 3d 402, 415 [206 Cal. Rptr.
585].) Marcia elected this option after Farmers terminated the agreement.
||*fn6 The evidence at trial is subject to the
inference that Daniel was, in fact, planning to use his relationship with Marcia to access
for his own benefit to the detriment of Farmers information which the agreement specified
was confidential. Unknown to Farmers until the discovery phase of this litigation, Daniel
dictated and Marcia transcribed a document entitled "Marketing Strategy for
Safeco." Daniel gave this document to Safeco in May, 1984. The document states, in
part: "What is Safeco going to get from me? I have access to over 500 [Farmers
automobile] policies from my wifes [ sic ] book of business that qualify or will qualify
for Safeco. They were put in [a Farmers company] because they had no prior liability.
After one years [ sic ] period of time I can go after [these policies]. [para.] People
that are referred to me are referred to Dan Wallis not Farmers Insurance.
[para.] I will quote all of Marcia's Farmers renewals and try to place them with Safeco.
Again, after a year I will go after my Farmers policies." At trial Daniel denied he
intended to use the information in Marcia's possession to appropriate business Marcia
placed with Farmers. He explained that the purpose of the marketing strategy document was
merely to interest Safeco in himself.
||*fn7 In her complaint, Marcia alleged that
"defendants promised that plaintiff's appointment as an insurance agent would
continue indefinitely, that defendants and their agents and employees would not act
arbitrarily in dealing with plaintiff, and that plaintiff's position as one of defendants'
insurance agents would not be terminated except for good, just and legitimate cause or
reason. Said promises were made expressly to plaintiff by defendants, both at the time of
plaintiff's initial appointment as an insurance agent and thereafter, and were implied by
the conduct and activities of defendants and their agents and employees. In particular,
said promises were implied in the content of defendants' personnel policies and practices,
by the longevity and continued nature of plaintiff's role as one of defendants' insurance
agents, by the actions of defendants and their agents and employees in consistently rating
plaintiff's performance satisfactory or better, and issuing commendations to plaintiff for
job performance, all of which, together with the communications of defendants' agents and
employees in connection therewith reflect defendants' assurances that plaintiff would
continue as one of defendants' insurance agents, unless there was good, just and
legitimate cause or reason for her termination."
||*fn8 Several appeal courts, confronted with
termination clauses similar to the one before this court, have allowed in extrinsic
evidence after finding the clauses reasonably susceptible to an interpretation requiring
good cause for termination. (See, e.g., Bert G. Gianelli Distributing Co. v. Beck &
Co. (1985) 172 Cal. App. 3d 1020, 1037 [219 Cal. Rptr. 203] [termination clause read:
"This agreement will continue in effect unless and until terminated . . . by thirty
days written notice by either party to the other."]; Sherman v. Mutual Benefit Life
Ins. Co. (1980) 633 F.2d 782, 783 [termination clause read: "' Basis of Termination.
This Agreement may be terminated at any time by either party, by giving the other sixty
days' notice to that effect; or it may be terminated immediately by the Company if in its
judgment its interests so require.'"]; Brawthen v. H & R Block, Inc. (1972) 28
Cal. App. 3d 131, 134 [104 Cal. Rptr. 486] [contract provided for automatic renewal from
year to year "'unless either party gives written notice of termination ninety days
prior to renewal date.'"])
||*fn9 Marcia also argued that Farmers had an
express oral agreement that it could terminate her only for "he five reasons on the
contract: embezzlement, switching insurance, abandonment of the agency, conviction of a
felony, and willful misrepresentation." Her testimony on this point, however, must be
disregarded because it contradicts an express provision of the agent appointment agreement
which gives Farmers the right to terminate not only for the five listed reasons but also,
on one month's notice, for other breaches of the agreement and, on three months' notice,
for further reasons (or possibly for no reason at all).
||*fn10 Opinions holding that it is include
American Society of Composers, Authors & Publishers v. Superior Court, supra, 207 Cal.
App. 2d 676 and Jacobs v. Retail Clerks Union, Local 1222 (1975) 49 Cal. App. 3d 959, 963
[123 Cal. Rptr. 309]. Opinions holding that it is not include Green v. City of Oceanside
(1987) 194 Cal. App. 3d 212 [239 Cal. Rptr. 470], disapproved on another ground in
Kemmerer v. County of Fresno (1988) 200 Cal. App. 3d 1426, 1434, footnote 3 [246 Cal.
Rptr. 609], and Doster v. County of San Diego (1988) 203 Cal. App. 3d 257, 260 [251 Cal.
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