Filed 8/12/20 APR Construction v. City of San Diego 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NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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

APR CONSTRUCTION, INC.,

Plaintiff and Appellant,

v.

CITY OF SAN DIEGO,

Defendant and Respondent.

D075422

(Super. Ct. No. 37-2016-00045697-

CU-BC-CTL)

APPEAL from a judgment of the Superior Court of San Diego County, Ronald L. Styn, Judge. Affirmed.

Robertson & Associates and Lesley W. Robertson for Plaintiff and Appellant.

Mara W. Elliott, City Attorney, and Jon E. Taylor, Deputy City Attorney, for Defendant and Respondent.

I.

INTRODUCTION

A jury rendered a verdict in favor of APR Construction, Inc. (APR) against the City of San Diego (the City) on APR’s breach of contract claim and two related causes of action. The contracts underlying APR’s claim relate to APR’s construction of a skate park for the City. The jury awarded APR a total of $202,000 in damages, and specified that $96,000 was for unpaid work and $106,000 was for lost profits. After the trial court entered a judgment in accordance with the jury’s verdict, the City filed a motion for judgment notwithstanding the verdict (JNOV) on the ground that APR had failed to present substantial evidence to support the jury’s award of $106,000 in damages for lost profits. The trial court granted the motion for JNOV and ordered the clerk to amend the judgment to reduce the damages to $96,000.00. APR filed a timely notice of appeal from the order granting the City’s motion for JNOV, which we broadly construe as an appeal from the amended judgment.

On appeal, APR claims that the trial court erred in granting the City’s motion for JNOV because there is substantial evidence to support the jury’s award of damages for lost profits. We affirm.

II.

FACTUAL AND PROCEDURAL BACKGROUND

A. The parties’ relationship

In 2014, APR and the City entered into two contracts related to APR’s construction of a skate park for the City. APR began work on the project in October 2014. APR had difficulties completing its work on the project due to inaccuracies in the City’s plans and the City’s failure to reasonably address issues that APR encountered in constructing the project. APR submitted invoices for work performed on the project, which the City never paid. The City terminated the contracts in June 2015.

B. The operative pleading, trial, verdict and judgment

In 2017, APR filed the operative first amended complaint against the City for (1) breach of contract; (2) breach of the covenant of good faith and fair dealing; and (3) breach of the implied warranty of correctness of plans and specifications.

The trial court conducted a jury trial in the action in 2018. The jury returned special verdicts awarding APR $96,000 for “unpaid work” and $106,000 for “lost profit” on each of its three causes of action. On October 2, 2018, the trial court entered a judgment based on the jury’s verdict in favor of APR and against the City for a total of $202,000.

C. Postjudgment proceedings

The City filed a motion for JNOV on the “ground that the verdict in favor of [APR] which included $106,000.00 in lost profits, is not supported by any substantial evidence.” The City requested that the court grant JNOV “on the issue of lost profits.”

After further briefing, the trial court held a hearing on the City’s motion. At the hearing, the trial court indicated that it would grant the motion for JNOV, reasoning that APR had failed to present evidence of its costs to perform the contract, which was necessary in order for APR to establish its entitlement to damages for lost profits.

The trial court entered a minute order on November 16, 2018 granting the City’s motion for JNOV that states in relevant part:

“Indulging [APR] with every legitimate inference which may be drawn from the evidence, the court finds there is no evidence of sufficient substantially [sic] to support an award of lost profits to [APR]. None of the evidence [APR] relies on is sufficient to establish the amount of lost profits for the project at issue in this case.

“The court directs the clerk to interlineate the amount of $202,000.00 on page 6, line 16 of the judgment . . . to reflect the total amount of $96,000.00.”

The trial clerk complied with the court’s direction that same day, and interlineated the judgment to reduce it from $202,000 to $96,000.

D. The appeal

APR timely filed a notice of appeal, which we construe as being taken from the amended judgment. (See fn. 2, ante.)

III.

DISCUSSION

The trial court properly granted the City’s motion for JNOV because the record does not contain substantial evidence to support the jury’s award of damages for lost profits

APR claims that the trial court erred in granting the City’s motion for JNOV. APR maintains that this is so because there is substantial evidence to support the jury’s award of damages for lost profits.

A. Governing law and standard of review

1. General principles of law governing a motion for JNOV and the applicable standard of review

Code of Civil Procedure section 629, subdivision (a) provides:

“The court, before the expiration of its power to rule on a motion for a new trial, either of its own motion, after five days’ notice, or on motion of a party against whom a verdict has been rendered, shall render judgment in favor of the aggrieved party notwithstanding the verdict whenever a motion for a directed verdict for the aggrieved party should have been granted had a previous motion been made.”

“ ‘ “A motion for a directed verdict ‘is in the nature of a demurrer to the evidence, and is governed by practically the same rules, and concedes as true the evidence on behalf of the adverse party, with all fair and reasonable inferences to be deduced therefrom.’ ” ’ ” (Baker v. American Horticulture Supply, Inc. (2010) 186 Cal.App.4th 1059, 1072.) Therefore, a “ ‘trial court may grant judgment notwithstanding the verdict only if the verdict is not supported by substantial evidence. The court may not weigh evidence, draw inferences contrary to the verdict, or assess the credibility of witnesses. The court must deny the motion if there is any substantial evidence to support the verdict.’ ” (Palm Medical Group, Inc. v. State Comp. Ins. Fund (2008) 161 Cal.App.4th 206, 218.)

“ ‘Substantial evidence’ is evidence of ponderable legal significance, evidence that is reasonable, credible and of solid value. [Citation] . . . Inferences may constitute substantial evidence, but they must be the product of logic and reason. Speculation or conjecture alone is not substantial evidence. [Citations.] [¶] . . . [¶] The ultimate test is whether it is reasonable for a trier of fact to make the ruling in question in light of the whole record. [Citation.]” (Roddenberry v. Roddenberry (1996) 44 Cal.App.4th 634, 651–652.)

When reviewing an order on a motion for JNOV, “an appellate court will use the same standard the trial court uses in ruling on the motion, by determining whether it appears from the record, viewed most favorably to the party securing the verdict, that any substantial evidence supports the verdict. ‘ “ ‘If there is any substantial evidence, or reasonable inferences to be drawn therefrom in support of the verdict, the motion should be denied.’ ” ’ ” (Trujillo, supra, 63 Cal.App.4th at p. 284.)

2. Substantive law

In Sargon Enterprises, Inc. v. University of Southern California (2012) 55 Cal.4th 747 (Sargon), the Supreme Court summarized the relevant law concerning damages for lost profits:

“Lost profits may be recoverable as damages for breach of a contract. ‘[T]he general principle [is] that damages for the loss of prospective profits are recoverable where the evidence makes reasonably certain their occurrence and extent.’ [Citation.] Such damages must ‘be proven to be certain both as to their occurrence and their extent, albeit not with “mathematical precision.” ’ [Citation.] The rule that lost profits must be reasonably certain is a specific application of a more general statutory rule. ‘No damages can be recovered for a breach of contract which are not clearly ascertainable in both their nature and origin.’ ” (Id. at pp. 773–774.)

“The Court of Appeal has defined lost profits as follows: ‘ “Net profits are the gains made from sales ‘after deducting the value of the labor, materials, rents, and all expenses, together with the interest of the capital employed.’ [Citation.]” ’ [Citations.] A plaintiff must show loss of net pecuniary gain, not just loss of gross revenue. [Citations.]” (Kids’ Universe v. In2Labs (2002) 95 Cal.App.4th 870, 884; accord Resort Video, Ltd. v. Laser Video, Inc. (1995) 35 Cal.App.4th 1679, 1700 [“it must be remembered that ‘[w]hen loss of anticipated profits is an element of damages, it means net and not gross profits. [Citations.] . . . ”].) A party injured by a breach of contract “is entitled to recover damages for the profits he would have made ‘by showing how much less than the contract price it will cost to do the work or perform the contract.’ ” (Stark v. Shaw (1957) 155 Cal.App.2d 171, 180 (Stark).)

The jury in this case was instructed in accordance with these principles concerning the determination of lost profits damages pursuant to a modified version of CACI No. 353 as follows:

“To recover damages for lost profits, APR must prove that it is reasonably certain it would have earned more profits but for the City’s breach of contract. To decide the amount of the damages for lost profits, you must, one, first calculate APR’s estimated total profit by determining the gross amount it would have received if the contract had been performed and then subtracting from that amount the cost including the value of the labor, materials, and expenses invested in the business APR would have had if the contract had been performed.

“Two, next calculate APR’s actual profit by determining the gross amount it actually received and then subtracting from that amount APR’s actual cost including the labor, materials, and expenses invested in the business; and three, then subtract APR’s actual profit, which you determined in the second step, from its estimated total profit, which you determined in the first step. The resulting amount is APR’s lost profit.

“You do not have to calculate the amount of lost profits with mathematical precision, but there must be a reasonable basis for computing the loss.”

3. Application

APR contends that the testimony of Eric Scarborough, APR’s principal, as well as documentary evidence presented at trial, constitutes substantial evidence to support the jury’s award of damages for lost profits.

APR notes that Scarborough testified that APR had previously been awarded contracts for at least 25 to 30 public works projects. Scarborough knew that APR’s prior projects had been profitable based on job costing, i.e., applying a formula to calculate labor, materials and unforeseen costs. Specifically, Scarborough stated:

“[W]e do something called job costing, which the surety and the bond agent wants you to do. And so what happens is in the job costing, there’s a formula where they calculate your money you spent for labor, for materials, and any other unforeseen costs, and it all gets totaled down on a piece of paper, and at the end of the day, it lets you know what kind of percentage you might have made in profit. And that eventually gets submitted to your CPA. We have to do special audited reviews or compilations for bonding.”

Scarborough explained that job costing is a required component of performing public works projects.

Scarborough estimated that APR’s average profit margin on public works projects was “at least 25 to 30 percent.” When asked whether he believed the skate park project with the City would have been profitable if APR had been able to finish the project, Scarborough stated that the project was an “ideal project” for him, personally, as well as for APR.

APR notes that the jury was presented with documentary evidence and additional trial testimony from which the jury could determine the total value of APR’s contracts with the City for the project at issue, as well as the amount that APR had not been paid for work performed pursuant to the contracts.

From such testimonial and documentary evidence, APR argues that the jury could have reasonably calculated damages based on lost profits as follows:

“[O]ne possible way the jury could have reached its award determination on the lost profits damages is as follows: Starting with the total amount of the contracts for Phases I and II ($1,067,420), less the amounts APR acknowledges it was paid for Phases I and II ($122,225.69), less the amount the jury determined APR had not been paid for work performed ($96,000) results in the total of $849,194.31 ($1,067,420 – $122,225.69 – $96,000 = $849,194.31). This figure essentially represents the value of the contract APR was not able to perform due to the City’s breach. Based on Mr. Scarborough’s testimony that APR typically made a profit margin of about 25-30% on public works projects [citation], this would result in an expected profit at 25% of $212,298.58 for this portion of the remaining contract amount. It is possible that based on the testimony regarding unexpected problems with the Projects, the jury discounted the amount of anticipated profit by half, reaching an approximate total for lost profit damages of $106,000, the amount awarded by the jury to APR.”

While APR acknowledges that “there is no way to determine whether this was ultimately the way the jury did reach its award amount to APR for lost profits,” APR contends that such a calculation demonstrates the existence of substantial evidence to support the jury’s award of damages for lost profits.

We are not persuaded. Pursuant to the modified version of CACI No. 353 given to the jury in this case, in order to determine an amount to award as damages for lost profits, the jury was required to calculate both: 1) “the value of the labor, materials, and expenses invested in the business APR would have had if the contract[s] had been performed,” and 2) “APR’s actual cost including the labor, materials, and expenses invested in the business . . . .” Yet, APR has not cited any evidence from which the jury could have determined the “value of the labor, materials, and expenses” that APR would have borne if the contracts had been performed, or the amounts that APR expended in partially performing the contracts, and our review of the record has not revealed any such evidence. (Compare with Stark, supra, 155 Cal.App.2d at p. 181 [reviewing evidence of plaintiff roofing company’s costs in performing a contract and stating, “the court could determine with reasonable certainty the roofing company’s costs under the contract”]; De Flavio v. Estell (1959) 173 Cal.App.2d 226, 232–233 [affirming award of damages for lost profits in case in which “[t]he trial court had before it all of the items of expense likely to be incurred in the performance of the contract and thus could determine with reasonable certainty [plaintiff’s] costs and ascertain the fact of a profit and the amount thereof”].)

Further, APR has not shown that, in awarding damages for lost profits, the jury could have reasonably “discounted the amount of anticipated profit by half,” due to problems on the project. (Italics added.) The record contains no evidence to support APR’s speculation, which amounts to little more than an arbitrary selection of a percentage discount that the jury might have employed. Thus, the record does not contain substantial evidence from which the jury could have calculated an award pursuant to CACI No. 353.

APR’s contention that the jury could have calculated lost profits based on Scarborough’s testimony pertaining to APR’s average profit margin of “at least 25 to 30 percent” with respect to public works contracts generally is contrary to CACI No. 353, which requires evidence of expenses associated with performance of the contracts at issue. (See also S. C. Anderson, Inc. v. Bank of America (1994) 24 Cal.App.4th 529, 537 [concluding that contractor was not entitled to recover lost profit damages caused by harm to bonding capacity that prevented contractor from obtaining job, reasoning, “[m]any factors might have operated to reduce or eliminate [contractor’s] anticipated 5 percent profit had it been awarded the job”]; Stark, supra, 155 Cal.App.2d at p. 181 [in discussing roofing company’s damages for lost profits premised on breach of contract to roof house, stating, “[t]he problem is not whether the roofing company has made profits in the past, or whether, as a business, it will produce profits in the future; rather, the issue to be determined is whether the company was reasonably certain to make a profit under this particular contract”].)

We are not persuaded by APR’s argument that the jury’s award of damages for lost profits may be upheld because, under Sargon, an “established business such as APR,” may establish damages for loss of profits “based on [its] past volume of business.” In Sargon, the Supreme Court stated in relevant part:

“Regarding lost business profits, the cases have generally distinguished between established and unestablished businesses. ‘[W]here the operation of an established business is prevented or interrupted, as by a . . . breach of contract . . . , damages for the loss of prospective profits that otherwise might have been made from its operation are generally recoverable for the reason that their occurrence and extent may be ascertained with reasonable certainty from the past volume of business and other provable data relevant to the probable future sales.’ [Citation.] . . . . ‘Historical data, such as past business volume, supply an acceptable basis for ascertaining lost future profits. [Citations.] In some instances, lost profits may be recovered where plaintiff introduces evidence of the profits lost by similar businesses operating under similar conditions. [Citations.]’ [Citation.]” (Sargon, supra, 55 Cal.4th at p. 774.)

Even assuming that APR is correct that Scarborough’s testimony regarding APR’s average profit margins and prior job experiences constitutes “historical data,” Sargon does not stand for the proposition that any evidence of a business’s historical performance will demonstrate proof of lost profits on specific contracts, notwithstanding the lack of evidence required to calculate lost profits pursuant to CACI No. 353.

Moreover, the Sargon court made its observations concerning “ ‘business volume’ ” and “[h]istorical data” (Sargon, supra, 55 Cal.4th at p. 774) in a context vastly different from that present in this case. In Sargon, the Supreme Court considered the admissibility of expert testimony offered by a certified public accountant to prove damages for loss of future profits stemming from a breach of contract that allegedly harmed a business’s market share in the global marketplace. (Id. at pp. 775–776.) The Sargon court observed that “[a]n expert might be able to make reasonably certain lost profit estimates based on a company’s share of the overall market.” (Id. at p. 776.) However, Scarborough’s testimony that APR’s average profit margin was “at least 25 to 30 percent” bears no resemblance to the type of evidence that the Sargon court was discussing in referring to “ ‘business volume’ ” and “[h]istorical data” (id. at p. 774; see also id. at p. 776 [“ ‘While lost profits can be established with the aid of expert testimony, economic and financial data, market surveys and analysis, business records of similar enterprises and the like, the underlying requirement for each is “ ‘a substantial similarity between the facts forming the basis of the profit projections and the business opportunity that was destroyed’ ” ’ ”].)

Not only does APR’s argument find no support in California law, but case law from other states supports the conclusion that Scarborough’s testimony as to APR’s average profit margin on public works contracts is not sufficient to support an award of lost profits damages. In ADC Fairways Corp. v. Johnmark Constr., Inc. (Va.1986) 343 S.E.2d 90 (ADC Fairways Corp.), the Supreme Court of Virginia considered whether a trial court had erred in awarding a contractor (Johnmark) lost profits on a breached agreement to rehabilitate various apartment units. The court noted that Johnmark presented the following evidence in support of its claim for lost profits:

“Johnmark’s president, Richard McCarty, described how lost profits were calculated on the work it did not complete because of the dispute with ADC. He said, on direct examination, that the units were to be rehabilitated for a price of $2,562.50 per unit, a figure which he had bid to secure the contract with ADC. He testified further that in his bid he computed ‘[a]pproximately 15 percent’ of the $2,562.50 as profit. He went on to say that the contract called for the completion of 171 units. Thus, profits were calculated by taking 15% of $2,562.50 and multiplying that number by 171.” (Id. at p. 92.)

The ADC Fairways Corp. court rejected Johnmark’s argument that this testimony constituted sufficient evidence to allow the court to estimate Johnmark’s lost profits with reasonable certainty:

“Lost profits should not have been awarded in this case. They were completely speculative. The $47,781.13 figure was nothing more than the profit Johnmark hoped to make at the time of the bid. There was no evidence to establish that this is the profit that would have been made had Johnmark completed the project. Indeed, there was evidence from Johnmark’s president that on a similar rehabilitation project for the same developer no profit had been made whatever.

“We said in Boggs v. Duncan, 202 Va. 877, 883, 121 S.E.2d 359, 363 (1961), that ‘It is well settled that damages are recoverable for loss of profits prevented by a breach of contract “only to the extent that the evidence affords a sufficient basis for estimating their amount in money with reasonable certainty.” ’ (Citations omitted.) That standard was not met in this case. We hold, therefore, that the trial court erred in awarding Johnmark lost profits of $47,781.13.” (ADC Fairways Corp., supra, 343 S.E.2d at p. 93.)

 

Similarly, in Marshall Constr., Ltd. v. Coastal Sheet Metal & Roofing, Inc. (Fla.Ct.App. 1990) 569 So.2d 845, the court concluded that the testimony of the president of a roofing company to the effect that his company would have received a profit of 10 percent of the bid contract price did not constitute a sufficient basis on which to award damages for lost profits:

“Jones . . . testified that the company would have received a profit consisting of 10 percent of the contract price based upon its bid. This evidence standing alone is legally insufficient to support an award of lost profits. See U.S. Home Corp. v. Suncoast Utilities, Inc., 454 So.2d 601 (Fla. 2d DCA 1984) (where the only evidence of profit was an estimate based upon a percentage of the contract price which the court rejected as speculation). [Fn. omitted.] Without evidence of Coastal’s expenditures up to the time it left the job, and an amount for reasonably expected expenditures had the job been completed, there is no way for a prudent impartial person to determine whether Coastal would have earned any profit. Evidence based upon a percentage of work completed and work yet to be performed is legally insufficient to support a damages award.” (Id. at pp. 847–848.)

In sum, damages for lost profits “must ‘be proven to be certain both as to their occurrence and their extent,’ ” (Sargon, supra, 55 Cal.4th at p. 774.) Having reviewed the record in this case, we conclude that there is not substantial evidence in the record from which the jury could have reasonably found such damages to have been proven. We therefore conclude that the trial court properly granted the City’s motion for JNOV.

IV.

DISPOSITION

The judgment, as amended by way of interlineation on November 16, 2018, is affirmed. APR is to bear costs on appeal.

AARON, J.

WE CONCUR:

MCCONNELL, P. J.

HALLER, J.