Ammari Elecs. v. Pac. Bell Directory, A126326

• Decision Date: 15 November 2011
• Docket Number: A126786,A126326
• Court: California Court of Appeals
• Parties: AMMARI ELECTRONICS et al., Plaintiffs and Appellants, v. PACIFIC BELL DIRECTORY, Defendant and Respondent.

AMMARI ELECTRONICS et al., Plaintiffs and Appellants, v. PACIFIC BELL DIRECTORY, Defendant and Respondent.

A126326

A126786

COURT OF APPEAL OF THE STATE OF CALIFORNIA FIRST APPELLATE DISTRICT DIVISION FOUR

Dated: November 15, 2011

NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

(Alameda County Super. Ct. Nos. RG05198014, RG05220096)

I.INTRODUCTION

Named plaintiffs¹ and the approximately 380,000 class members they represent (collectively, plaintiffs) entered into standardized contracts with defendant Pacific Bell Directory² (Pacific Bell) to have their advertisements put into the Yellow Pages directories (directories), and to have the directories distributed to potential customers in each plaintiff's geographic distribution area. In plaintiffs' lawsuit, it was alleged that between February 2002 and May 2004, Pacific Bell breached those contracts by failing to deliver a substantial quantity of the directories containing plaintiffs' advertisements to potential customers as agreed. After the jury awarded plaintiffs approximately$17.35 million in damages for Pacific Bell's breach of its distribution obligation under the contracts, the trial court granted judgment for Pacific Bell notwithstanding the jury's verdict (JNOV) on the ground that plaintiffs had failed to produce evidence that they suffered damage as a result of Pacific Bell's 2002-2004 delivery failures.

Plaintiffs appeal, first claiming they are entitled to a new trial because the trial court incorrectly interpreted the standardized contract entered into between Pacific Bell and plaintiffs as imposing upon Pacific Bell a " 'best efforts/good faith/due diligence' implied in fact [delivery] obligation." Plaintiffs claim that if the contract had been properly interpreted, and the jury instructed accordingly, the contract would have imposed on Pacific Bell an implied obligation to deliver the directories in accordance with the industry standard for directory deliveries. Plaintiffs believe that if the jury had been properly instructed that Pacific Bell was obligated to meet the industry standard for directory deliveries, it is likely the jury would have required delivery to at least 96 percent of intended recipients; and "the damages would likely have been double the amount of the [jury's] verdict."

If their first argument fails, plaintiffs alternatively claim the court erred in granting JNOV for Pacific Bell. Plaintiffs argue the record contains ample evidence that they were damaged as a result of Pacific Bell's breach of its contractual obligation to act in good faith and to use its best efforts in delivering directories, and that they provided the jury with sufficient evidence to calculate a reasonable estimation of their damages.

We reject plaintiffs' first argument, but conclude that plaintiffs' second argument has merit. Therefore, we reverse the judgment for Pacific Bell with directions to enter judgment on the jury's verdict. The judgment, as reinstated, is affirmed. Because Pacific Bell is no longer the prevailing party, we do not address Pacific Bell's appeal claiming the trial court erred when it held that trial-related travel expenses could not be recovered as costs.

II.FACTS AND PROCEDURAL HISTORY

For more than 50 years, Pacific Bell has published and distributed directories in separate geographic delivery areas throughout California. Pacific Bell's directories are offered free of charge to business and residential telephone customers within a directory's geographic area. Plaintiffs contracted with Pacific Bell to advertise in at least one of the geographically distinct directory districts throughout California.³ Some of the plaintiffs advertised in more than one directory.

Named plaintiffs filed this lawsuit alleging that California businesses paid Pacific Bell to advertise in the directories for the full in-service life of such directories, which is typically 12 months. However, due to massive distribution failures, a substantial percentage of directories were either not delivered or were delivered significantly late. On August 30, 2007, over Pacific Bell's objection, this lawsuit was certified as a class action on behalf of "[a]ll individuals and businesses who had written contracts with Pacific Bell Directory to purchase advertisements in the SBC yellow pages directories that were published and were supposed to be distributed in California . . . at any time between February 1, 2002 and May 30, 2004."⁴ It was alleged that during the 29-month class period, plaintiffs and over 350,000 other California businesses purchased more than $2 billion dollars worth of advertising from Pacific Bell.

Before trial, plaintiffs dismissed certain causes of action and the court granted Pacific Bell's motion for summary adjudication as to others, leaving for trial only plaintiffs' cause of action for breach of contract. This claim alleged that Pacific Bell breached the standardized form "Advertising Contract" (contract) entered into with each plaintiff and class member containing Pacific Bell's promise to "deliver[] its directorieswithin the related directory areas to business and residential telephone customers . . . ."⁵ The trial commenced on May 12, 2009, and was conducted in two phases. The court first held a bench trial before a jury was empanelled to interpret the contract, and to determine the contractual standard by which Pacific Bell's delivery performance should be measured. In a written decision, the court held that "the rules of contract interpretation and the extrinsic evidence support the 'best efforts/good faith/due diligence' obligation and do not support an obligation to achieve a quantitative result . . . ."

The case then proceeded to a five-week jury trial. Every facet of Pacific Bell's complex system for delivering directories was described for the jury. Briefly summarized, in order to deliver approximately 30 million directories every year to a vast variety of locations in California, Pacific Bell uses third-party distribution vendors. During the class period, Pacific Bell contracted with two such vendors—Product Development Corporation (PDC) and ClientLogic. ClientLogic, in turn, subcontracted with Turtle Ridge Media Group to perform the hand distribution of California directories. Pacific Bell stipulated that it was legally responsible for the delivery performance of its third-party distribution vendors.

Each time Pacific Bell published a new edition of a directory in a particular area, which was usually every 12 months, Pacific Bell contractually required its third-party distribution vendor to hand deliver a copy of the new directory to all business and residential telephone customers in the directory district. This is known as the "primary delivery" or "initial distribution," and usually takes from 7 to 30 days to complete. After the initial distribution, there is a "secondary distribution," which is used to distribute directories to "new connects" (telephone customers who move to the directory area after initial distribution), telephone booths, access stands (locations where directories are made available to the public for pickup), and to people or businesses who call to requestdirectories during the year. It was estimated that approximately 20 percent of the directories are delivered during secondary distribution.

Throughout the timeframe relevant to this litigation, Pacific Bell paid Certified Audit of Circulations (CAC), a third-party nonprofit auditor, to conduct delivery verification surveys to gauge the success of the distribution for each directory published and distributed in California. CAC performed surveys not only for Pacific Bell, but also for other phone book companies, newspapers, and advertisers. CAC performed each survey after notification that the initial delivery had been completed. The same audit methodology was used throughout California. After the third-party distribution vendor completed the initial delivery, CAC telephoned a random sample of residences and businesses within the directory area. Among other things, the survey respondents were asked whether or not they received a directory. CAC expressed the survey results as a percentage of businesses and residences who received directories in each directory district. CAC ensured that the number of calls provided statistically significant audit results with a two to three percent margin of error. Plaintiffs' statistical and survey expert, Michael Sullivan, Ph.D., confirmed that CAC's methodology conformed to generally accepted survey practice, and that the CAC scores were valid and reliable measures of the percentage of directories that were actually delivered in each directory district.

There was overwhelming evidence that Pacific Bell relied on these CAC delivery verification surveys for various purposes, including to measure the effectiveness of its third-party distribution vendor's performance. Many documents showed that Pacific Bell required its distribution vendor to ensure that at least 96 percent of the telephone customers in each directory district receive a directory as measured by the CAC scores.

Whether or not Pacific Bell breached its delivery obligation to plaintiffs during the relevant timeframe was a hotly contested issue at trial. However, on appeal, Pacific Bell does not challenge the jury's finding that with respect to certain directory districts, Pacific Bell breached its delivery obligation. In its own words, Pacific Bell concedes that considering the evidence presented at trial "the jury could have properly found" thatPacific Bell failed to "use[] good faith and best efforts in delivering its directories." This concession reflects the fact that there was...