Filed 6/22/20 Wallack v. Wright CA4/1

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

SETH WALLACK,

Plaintiff and Appellant,

v.

MATTHEW WRIGHT et al.,

Defendants and Respondents.

D075283

(Super. Ct. No. 37-2017-00008054-
CU-BC-CTL)

APPEAL from a judgment of the Superior Court of San Diego County, Randa Trapp, Judge. Affirmed.

Williams Iagmin and Jon R. Williams on behalf of Plaintiff and Appellant.

Mattheus E. Stephens on behalf of Defendants and Respondents.

I

INTRODUCTION

Seth Wallack appeals a judgment entered against him and in favor of his former business partners, Matthew Wright and Stephen Walters (defendants), on Wallack’s complaint for breach of express indemnity and request for declaratory relief. Wallack asserted an indemnity clause contained in a stock repurchase agreement, in which Wallack sold his interest in DVMInsight, Inc. (DVMI), required defendants to defend and indemnify him in a cross-action filed by a third party in a dispute regarding ownership of a registered trademark, DVMInsight (trademark). The trial court concluded there was no triggering event under the terms of the indemnity clause because Wallack did not meet his burden to establish acts or omissions of DVMI gave rise to the third-party action. Wallack contends the trial court erred in interpreting the indemnity agreement and improperly applied the standard for nonsuit to conclude there was no evidence to support Wallack’s claims.

We conclude there is no merit to Wallack’s contentions. We agree with the court’s legal interpretation of the indemnity clause and conclude the court did not grant nonsuit, but entered judgment in favor of defendants based on substantial evidence. Accordingly, we affirm the judgment.

II

BACKGROUND

A

Wallack is a veterinary radiologist. He started a company in 2002 called San Diego Veterinary Imaging, Inc. (SDVI). Using this company name, Wallack provided mobile radiology services, which involved traveling to veterinary facilities throughout the San Diego area to read ultrasound and radiology studies.

When digital imaging became available, Wallack started looking at digital x-ray systems to lease to veterinary hospitals. He conceived of a Web site to enable veterinary facilities to upload digital images so a radiologist in another location could read the images and create a report. He needed someone to build the Web site and he wanted a name for the Web site that was not bound to a geographic location.

Wallack met Walters at a veterinary hospital where Wallack reviewed radiology cases. Since Walters had an interest in programming, Wallack asked Walters in 2004 to build the Web site. Walters built the Web site with the ability to receive radiology images and to create a work list so radiologists could review the images and generate reports for the veterinary hospitals. Walters claimed the intellectual property for building the Web site.

They decided to use the name DVMInsight for the Web site and the teleradiology business. They also used the name DVMInsight for digital x-ray leases.

SDVI performed teleradiology services under the name DVMInsight in 2005 and 2006.

Wallack asked a lawyer friend to trademark the name DVMInsight. The friend filed the trademark application in April 2005 and listed SDVI as the proposed registered owner of the trademark. DVMInsight.com was registered as the domain name for the Web site. Walters did not know the trademark application listed SDVI as the registered owner when it was filed.

In 2005, Wallack met Matthew Wright, another veterinary radiologist. Wallack asked Wright to join DVMI and to help get things organized because they were “loosey-goosey.” When Wright asked Wallack if DVMI had the trademark, Wallack said he had a friend who would take care of it. Wallack admitted that DVMI was in the process of obtaining a registered ownership of the trademark.

DVMI filed articles of incorporation in September 2006. Wallack and Wright each owned 40 percent of DVMI and Walters owned the remaining 20 percent. SDVI did not contribute to capitalization for the incorporation of DVMI. DVMI was incorporated approximately 17 months after SDVI applied for trademark registration. Wallack did not mention the issue of ownership of the trademark.

Wallack wanted DVMI to take the software, build the teleradiology business, and provide a platform for other veterinary radiologists to use. The platform was successful and launched online. In 2007, DVMI began using a second version of the software Walters wrote from the ground up.

A declaration of service mark use was filed in February 2007. Wallack said SDVI paid the filing fee for the trademark declaration. The trademark was registered in 2007 listing SDVI as the owner.

In 2008, Wright wrote a check at Wallack’s request to cover attorney fees. Wallack said the check was for the “DVMInsight trademark.”

DVMI used the trademark through 2011 with no objection by Wallack or SDVI. According to Wallack, DVMI used the trademark by license as a related or affiliated business. There was no written license agreement.

B

Wallack’s relationship with Wright and Walters fractured by 2009. The parties signed a stock repurchase agreement in December 2009 in which DVMI bought Wallack’s 40 percent stock ownership. The agreement included a provision requiring DVMI to indemnify and defend Wallack from any claim or demand asserted against him “for any act taken or omitted to be taken by [DVMI] from the [e]ffective [d]ate of the agreement onward.”

DVMI made payments totaling $274,500 for the repurchase of Wallack’s shares. It also paid $30,000 payment for settlement and release of all claims.

Counsel for DVMI, Michael Christian, did not know SDVI was the registered owner of the trademark when the stock repurchase agreement was drafted and negotiated. There was no discussion regarding the trademark before the agreement was signed. SDVI was not a party to the stock repurchase agreement. The agreement was thoroughly negotiated between the parties and their attorneys. Neither Wallack nor his attorney disclosed that SDVI had the registration for the trademark.

Attorney Christian believed DVMI had a right to use the trademark since it used the trademark before incorporation and through the time of both the stock repurchase and the later asset sale. Christian thought the trademark was registered to DVMI.

C

In 2011, DVMI sold its assets to IDEXX Reference Laboratories, Inc. (IDEXX). Before the asset purchase agreement with IDEXX was executed, Wright was surprised to discover the DVMI trademark was registered to SDVI.

Attorney Christian was “enormously” surprised when Wright told him he discovered that DVMI did not have the trademark registration. Christian assumed it was a mistake. He thought Wallack and his counsel would have disclosed the issue with the trademark registration at the time of the stock repurchase if they knew about it, “unless they were scoundrels.”

Christian told DVMI to disclose the issue to IDEXX. The agreement with IDEXX was intended to transfer the assets of DVMI, which included intellectual property. The asset purchase agreement excluded the DVMI trademark and disclosed the trademark was registered in the name of SDVI “as a result of an error made at the time of [s]eller’s incorporation.”

D

Wallack met for drinks with two representatives from IDEXX during a veterinary conference in 2011. Toward the end of the discussion, one of the IDEXX representatives said they had recently purchased the assets of DVMI. They asked Wallack to sign an agreement to transfer ownership of the trademark to IDEXX. The IDEXX representative said the trademark was included with the asset purchase of DVMI. Wallack did not sign the agreement and refused IDEXX’s offer of $5,000 for the trademark.

After the meeting, in November 2011, Wallack registered the domain name DVMInsight.info and put up a new Web site using that name. The contact form sought information from potential customers to contact Wallack’s new service.

IDEXX challenged the ownership of the DVMI trademark by filing an application with the United States Patent and Trademark Office in November 2011. IDEXX’s counsel sent a letter to Wallack’s counsel in December 2011 stating Wallack breached the stock repurchase agreement and his rights in DVMI, including the trademark and substantial goodwill associated with the mark, were sold as part of the stock repurchase agreement. It asserted his continued use of the mark constituted a trademark infringement, unfair competition, and a deceptive business practice. It also asserted he fraudulently filed statements with the patent office stating SDVI used and owned the trademark.

Wallack and SDVI filed a lawsuit in federal court on December 22, 2011. SDVI sued IDEXX for trademark infringement. Wallack sued the defendants for fraud and breach of fiduciary duty based on conduct he alleged occurred prior to the stock repurchase. Both SDVI and Wallack sought declaratory relief regarding use of the trademark.

IDEXX filed a counterclaim in May 2014 against Wallack and SDVI asserting the same allegations as those asserted in the December 2011 letter. IDEXX sought declaratory relief regarding the use of the trademark as well as cancellation and rectification of the owner of the trademark.

Wallack’s attorneys tendered the defense related to the counterclaim to DVMI based on the indemnity agreement. DVMI’s counsel denied the defense.

The defendants prevailed on summary judgment in the federal action and the judgment was affirmed on appeal. (Wallack v. Idexx Labs. (9th Cir. 2018) 726 F.App’x 567, 568; Wallack v. Idexx Labs., Inc. (S.D.Cal. Apr. 15, 2015, No. 11cv2996-GPC(KSC)) 2015 U.S.Dist.LEXIS 49727, at *1.) IDEXX paid Wallack $600,000 to settle the matter.

E

Wallack filed this action against the defendants for breach of express indemnity, breach of contract, and declaratory relief regarding the duty to defend and indemnify him in the IDEXX litigation. Wallack claimed he was owed indemnity and defense under the stock repurchase agreement because Wright and Walters made false statements to IDEXX, which caused Wallack to be involved in a suit. He did not argue that the indemnity provision applied to SDVI.

The defendants each testified they made no false representations to IDEXX and were not involved with IDEXX’s actions with respect to the trademark dispute with Wallack.

After hearing the evidence from the key parties and closing statements, the court made findings and rulings from the bench, which are reflected in the statement of decision. The court concluded DVMI was the entity responsible to provide indemnity under the terms of the indemnity agreement. However, there were no acts or omissions on the part of DVMI or the defendants to trigger a duty to defend or indemnify. The court concluded Wallack failed to meet his burden of proof as to the duty to indemnify or defend.

The court found defendants more credible than Wallack. The court found DVMI’s attorney, Christian, “to be the most credible of all.” The court believed the attorney was “enormously” surprised that DVMI did not have the registration at the time of the stock repurchase agreement. The court also believed him when he said Wallack should have disclosed the issue with the trademark if he knew it was not registered to DVMI. The court found this testimony “powerful.” The court believed Christian immediately advised his clients to disclose the issue to IDEXX and exclusions were included in the asset purchase agreement disclosing a problem with the trademark.

The court found IDEXX was not misled regarding the trademark. The court determined IDEXX was ably represented by counsel and “knew exactly what they were doing.” The court found they were not “taking any cues or advice from the defendants in this case.”

The court considered and rejected Wallack’s argument that DVMI misrepresented to IDEXX that there was an error in the trademark certificate and “gave IDEXX the notion that the substantial goodwill in the stock repurchase agreement conveyed the trademark to defendants and, therefore, to IDEXX through the asset purchase agreement.” The court found there was “absolutely no evidence of either. It is all sheer speculation.” The court concluded “the exclusion that is carved out in the stock repurchase agreement couldn’t be clearer to put IDEXX on notice that there was … a clear problem with the trademark and the ownership of that trademark.” As a result, the court found there was no duty to indemnify or defend.

The court alternatively found that SDVI’s voluntary lawsuit against IDEXX triggered the counterclaim against SDVI and Wallack. The court concluded there was no duty to indemnify or defend “when [Wallack] triggered the compulsory counterclaim against himself and SDVI.”

Finally, the court found defendants had no control over IDEXX or its attorneys and there was no evidence, only speculation, that defendants encouraged IDEXX to send the letter threatening litigation over the trademark. Therefore, the court concluded there was no event triggering the indemnity provision so there was no duty to indemnify or defend Wallack.

III

DISCUSSION

A

Wallack contends the court erred in interpreting the indemnity provision when it found no obligation to defend and indemnify Wallack on the counterclaims asserted against him by IDEXX. Wallack specifically challenges the court’s finding that the indemnity and defense provision was not triggered because SDVI voluntarily sued IDEXX and that action drew the compulsory counterclaim by IDEXX against Wallack. We need not reach the merits of this alternative finding by the trial court because we agree with its first and more general finding that “there was no triggering event for indemnification” under the indemnity provision and, accordingly, “there is no duty to defend either [Wallack] or SDVI.”

We independently interpret written instruments where no extrinsic evidence was presented to resolve an ambiguity or there is no conflict in such evidence. (Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 865.) Further, we may affirm the judgment if the trial court is correct on any legal ground. (D’Amico v. Board of Medical Examiners (1974) 11 Cal.3d 1, 19.)

Parties to a contract may agree to require a party to indemnify another for money paid or expenses incurred “from a legal consequence of the conduct of one of the parties, or of some other person.” (Civ. Code, § 2772; Crawford v. Weather Shield Mfg., Inc. (2008) 44 Cal.4th 541, 551 (Crawford).) “They may also assign one party, pursuant to the contract’s language, responsibility for the other’s legal defense when a third party claim is made against the latter.” (Crawford, at p. 551, italics omitted.) “[S]ubject to public policy and established rules of contract interpretation, the parties have great freedom to allocate such responsibilities as they see fit.” (Ibid.)

Generally, “such an agreement is construed under the same rules as govern the interpretation of other contracts. Effect is to be given to the parties’ mutual intent ([Civ. Code,] § 1636), as ascertained from the contract’s language if it is clear and explicit ([Civ. Code,] § 1638). Unless the parties have indicated a special meaning, the contract’s words are to be understood in their ordinary and popular sense.” (Crawford, supra, 44 Cal.4th at p. 552.)

A duty to defend arises only “in respect to the matters embraced by the indemnity.” (Civ. Code, § 2778, subd. 4; Crawford, supra, 44 Cal.4th at p. 554.) The Crawford court interpreted the phrase “embraced by the indemnity” to include a duty to defend claims “which, at the time of tender, allege facts that would give rise to a duty of indemnity.” (Crawford, at p. 558.)

In this case, the parties agreed to the following indemnity provision: “The Company shall indemnify, defend, and hold [Wallack] harmless from any claim, judgment or demand asserted against [Wallack] for any act taken or omitted to be taken by the Company from the [e]ffective [d]ate of the agreement onward. The duty to defend shall include any payment, attorney’s fees or costs of suit that [Wallack] reasonably incurs in order to defend himself against or defray any claim, judgment or demand asserted against him as to which the [c]ompany owes an obligation to hold him harmless.” (Italics added.)

This indemnity clause provided that DVMI would indemnify and defend Wallack from any claim based on an act or omission by DVMI after the effective date of agreement onward. This interpretation is consistent with the testimony of Walters who stated he understood the purpose of the indemnity provision was to protect Wallack if DVMI did something that caused Wallack to be sued. Walters gave a hypothetical example of a malpractice lawsuit filed against Wallack based on a problem with DVMI’s radiology system.

The cross-complaint by IDEXX alleged no acts or omissions by DVMI after the stock repurchase agreement that gave rise to any of its counterclaims against Wallack. Rather, IDEXX’s cross-complaint alleged Wallack made false representations regarding the ownership of the trademark on the trademark application and use declaration. The cross-complaint further alleged Wallack’s conduct, as well as that of SDVI, in allowing DVMI to use the trademark without any objection or clarification of ownership before and after the stock repurchase gave rise to the dispute with IDEXX over the use of the trademark. Thus, based on the plain language of the indemnity clause, IDEXX’s counterclaim was not embraced by the indemnity agreement and no duty to defend was triggered under the provision.

At oral argument, Wallack contended a duty to defend arose because the allegations made in IDEXX’s cross-complaint must have been based on misrepresentations by DVMI regarding the ownership of the trademark. We are not persuaded. Schedule 1.1(c) of the asset purchase agreement, which listed various items of intellectual property stated, “Exclusion: The trademark ‘DVMInsight’ is registered in the name of [SDVI], as a result of an error made at the time of the [s]eller’s incorporation.” Other references to the trademark in this agreement refer back to this schedule. This language does not indicate there was an error in the trademark registration, but an error at the time of DVMI’s incorporation, perhaps in failing to ensure it acquired ownership of the trademark or written licensure of the trademark. In any event, the asset purchase agreement does not suggest an act or omission by DVMI that could have triggered a duty to defend Wallack in a cross-action by IDEXX.

To the extent Wallack’s appeal could be viewed as a challenge to the sufficiency of the statement of decision regarding the lack of a triggering event, such a challenge fails because Wallack did not object to the statement of decision. If a party does not object to a statement of decision or bring deficiencies to the trial court’s attention, he or she waives the “right to claim on appeal that the statement was deficient in these regards, and hence the appellate court will imply findings to support the judgment.” (In re Marriage of Furie (2017) 16 Cal.App.5th 816, 827 (Marriage of Furie).) We imply the court found the counterclaim allegations by IDEXX against Wallack were not based on an action or omission by DVMI. Therefore, the court correctly determined there was no triggering event for the indemnity and defense provision.

B

Wallack next contends the court improperly applied the standard for nonsuit and the judgment should be reversed because he presented prima facie evidence to support his indemnity claims. We disagree with Wallack’s contention and his characterization of the procedural posture of the case.

The court denied a motion for nonsuit after Wallack’s opening statement. When the defense moved again for nonsuit after Wallack’s testimony, the court asked to hear all of Wallack’s case before considering the motion. After Wallack, Christian, Walters, and Wright testified, Wallack rested. Thereafter, the defense sought “judgment.”

“After a party has completed his presentation of evidence in a trial by the court, the other party … may move for a judgment. The court as trier of the facts shall weigh the evidence and may render a judgment in favor of the moving party, in which case the court shall make a statement of decision.” (Code Civ. Proc., § 631.8, subd. (a).)

” ‘ “The purpose of Code of Civil Procedure section 631.8 is ‘to enable the court, when it finds at the completion of plaintiff’s case that the evidence does not justify requiring the defense to produce evidence, to weigh evidence and make findings of fact.’ [Citation.] Under the statute, a court acting as trier of fact may enter judgment in favor of the defendant if the court concludes that the plaintiff failed to sustain its burden of proof. [Citation.] In making the ruling, the trial court assesses witness credibility and resolves conflicts in the evidence.” ‘ [Citation.] ‘ “Because the trial court evaluates the evidence as a trier of fact, it may refuse to believe some witnesses while crediting the testimony of others.” ‘ ” (Orange County Water Dist. v. MAG Aerospace Industries, Inc. (2017) 12 Cal.App.5th 229, 239 (MAG Aerospace).)

“The trial court’s ability to weigh the evidence and consider witness credibility distinguishes a motion for judgment from a motion for nonsuit during a jury trial, which also challenges a plaintiff’s evidence at the close of the plaintiff’s case-in-chief. When considering a motion for nonsuit, a trial court must deny the motion ‘if the evidence presented by the plaintiff would support a jury verdict in the plaintiff’s favor.’ [Citation.] In other words, to avoid a nonsuit, a plaintiff must introduce evidence sufficient to establish a prima facie case. [Citations.] If a plaintiff makes out a prima facie case, a motion for nonsuit must be denied. When considering a motion for judgment during a bench trial, a trial court is not so limited. Even if a plaintiff introduces evidence sufficient to establish a prima facie case, the trial court may still conclude the plaintiff has not carried his or her burden of proof and grant judgment in favor of the moving defendant.” (MAG Aerospace, supra, 12 Cal.App.5th at p. 239.)

Understanding the correct procedural posture of the case illuminates the correct standards of review we must apply on appeal. We review a judgment entered pursuant to Code of Civil Procedure section 631.8 the same as we would if the court rendered judgment after a completed trial. We review questions of fact for substantial evidence, but we independently review questions of law. (MAG Aerospace, supra, 12 Cal.App.5th at pp. 239–240.) The substantial evidence standard of review requires us to determine, based on the entire record, whether there is substantial evidence, contradicted or uncontradicted, to support the judgment, including reasonable inferences from the facts. ” ‘ “If such substantial evidence be found, it is of no consequence that the trial court believing other evidence, or drawing other reasonable inferences, might have reached a contrary conclusion.’ [Citation.] The substantial evidence standard of review is applicable to appeals from both jury and nonjury trials. [Citation.]’ ” (Piedra v. Dugan (2004) 123 Cal.App.4th 1483, 1489 (italics omitted).)

“Where [a] statement of decision sets forth the factual and legal basis for the decision, any conflict in the evidence or reasonable inferences to be drawn from the facts will be resolved in support of the determination of the trial court decision.” (In re Marriage of Hoffmeister (1987) 191 Cal.App.3d 351, 358.) Again, since Wallack did not object to the statement of decision, we imply any findings necessary to support the judgment. (Marriage of Furie, supra, 16 Cal.App.5th at p. 827.)

Whether the evidence Wallack points to on appeal could meet his prima facie burden to avoid nonsuit is of no consequence because the court did not apply this standard when it found there was no evidence to support Wallack’s claims for indemnity and defense. The court heard and considered evidence from the key parties to the indemnity provision. The court weighed that evidence, made credibility findings, and drew legal conclusions.

The court found there was no affirmative evidence to support Wallack’s speculation that DVMI, Walters, or Wright represented to IDEXX that there was an error in the trademark registration or otherwise “gave IDEXX the notion” that substantial goodwill conveyed in the stock repurchase agreement conveyed the trademark to DVMI and then on to IDEXX. The court found IDEXX, who was represented by counsel, “knew exactly what they were doing” and did not take “any cues or advice” from Walters and Wright.

The court’s findings are supported by substantial evidence. The fact that Wright and Walters believed DVMI owned the trademark and were surprised to discover it did not when they were in the process of selling the assets to IDEXX does not reasonably suggest or infer they made misrepresentations to IDEXX based upon which IDEXX sued Wallack. To the contrary, when Wright discovered the problem, he told Christian who told them to disclose the issue. When Wright told IDEXX about the trademark issue, IDEXX drafted the exclusion language of the asset purchase agreement indicating the registration was in error. Wright stated, “This was the language they chose to use. We all knew what it meant. And what it meant was the trademark was not included.” Thereafter, IDEXX took charge of the trademark issue. Defendants both testified they were not involved with and had no influence on how IDEXX chose to handle the trademark issue with Wallack.

The court correctly determined the inferences Wallack wanted the court to draw from the evidence were based on nothing more than speculation and were insufficient to sustain his burden of proof for indemnity or defense. Since IDEXX’s counterclaim was not based on any act or omission of DVMI, there was no event to trigger the indemnification provision and, thus, defendants had no duty to defend or indemnify Wallack.

IV

DISPOSITION

The judgment is affirmed. Defendants and respondents shall recover their costs on appeal.

McCONNELL, P. J.

WE CONCUR:

HUFFMAN, J.

O’ROURKE, J.