Drink Tank Ventures LLC v. Soda (In re in Real Bottles, Ltd.)

• Decision Date: 10 November 2021
• Docket Number: B298881, consolidated with B302215
• Citation: 286 Cal.Rptr.3d 333,71 Cal.App.5th 528
• Parties: DRINK TANK VENTURES LLC, Plaintiff and Respondent, v. REAL SODA IN REAL BOTTLES, LTD., et al., Defendants and Appellants.
• Court: California Court of Appeals Court of Appeals

71 Cal.App.5th 528

286 Cal.Rptr.3d 333

DRINK TANK VENTURES LLC, Plaintiff and Respondent,

v.REAL SODA IN REAL BOTTLES, LTD., et al., Defendants and Appellants.

B298881, consolidated with B302215

Court of Appeal, Second District, Division 2, California.

Filed November 10, 2021

As Modified on Denial of Rehearing December 2, 2021

Felsenthal Law Firm and David B. Felsenthal, Los Angeles; Joseph S. Socher for Defendants and Appellants.

JDP and Jeff Dominic Price, Santa Monica, for Plaintiff and Respondent.

HOFFSTADT, J.

One beverage distributorship sued another for several claims, but ultimately narrowed its lawsuit to a solitary tort claim for intentional interference with a prospective economic advantage premised solely on the theory that the other had engaged in independently wrongful conduct by breaching a nondisclosure and noncircumvention agreement. This is an invalid theory as a matter of law because, as our Supreme Court has said time and again, an actor's breach of contract, without more, is not "wrongful conduct" capable of supporting a tort ( Erlich v. Menezes (1999) 21 Cal.4th 543, 551-552, 87 Cal.Rptr.2d 886, 981 P.2d 978 ( Erlich ); Cates Construction, Inc. v. Talbot Partners (1999) 21 Cal.4th 28, 54, 86 Cal.Rptr.2d 855, 980 P.2d 407 ( Cates )), including the tort of intentional interference with a prospective economic advantage ( Arntz Contracting Co. v. St. Paul Fire & Marine Ins. Co. (1996) 47 Cal.App.4th 464, 478-479, 54 Cal.Rptr.2d 888 ( Arntz ); JRS Products, Inc. v. Matsushita Electric Corp. of America (2004) 115 Cal.App.4th 168, 183, 8 Cal.Rptr.3d 840 ( JRS Products )). Unfortunately, no one—not the plaintiff, not the defendant, not the trial court—caught this error until the defendant moved for judgment notwithstanding the verdict after the jury returned a special verdict in the plaintiff's favor that was premised solely on the breach of the agreement.

We hold that where the jury's special verdict for the plaintiff is based on conduct that does not constitute an actionable tort, that verdict cannot stand. That is because, just as a trial court lacks subject matter jurisdiction to enter judgment for conduct that does not violate a criminal or civil statute (e.g., Dollenmayer v. Pryor (1906) 150 Cal. 1, 5, 87 P. 616 ( Dollenmayer ); People ex rel. Allstate Ins. Co. v. Weitzman (2003) 107 Cal.App.4th 534, 545-546, 132 Cal.Rptr.2d 165 ( Weitzman ); People v. Vasilyan (2009) 174 Cal.App.4th 443, 450, 94 Cal.Rptr.3d 260 ( Vasilyan )), a trial court also lacks subject matter jurisdiction to enter judgment for allegedly tortious conduct, fashioned by common law, that our Supreme Court has determined is not tortious. Because a party's conduct cannot confer subject matter jurisdiction upon a court, the defendant's delay in objecting is irrelevant. And because the plaintiff voluntarily whittled down its lawsuit to a solitary claim and then submitted a special verdict form requiring the jury to expressly find the invalid theory true, we may not infer other findings to "save" that verdict and must accordingly reverse that judgment and dismiss the plaintiff's case. The attorney fees order premised on the plaintiff prevailing consequently falls as well.

FACTS AND PROCEDURAL BACKGROUND

I. Facts

A. Relationship between Real Soda and Drink Tank

Both Real Soda in Real Bottles, Ltd. (Real Soda) and Drink Tank Ventures, LLC (Drink Tank) distribute beverages and other consumables to retailers and restaurants in the Southern California region. Real Soda distributes old-timey craft sodas; Drink Tank, drinks and snacks.

In early 2014, the founders of Real Soda and Drink Tank—Daniel Ginsburg (Ginsburg) and Benjamin Kim (Kim), respectively—met and became fast friends. Around the time that Drink Tank started renting space for its operations in Real Soda's large warehouse, Drink Tank made overtures about acquiring Real Soda.

In June 2014, Real Soda and Drink Tank signed a Mutual Non-Disclosure and Non-Circumvention Agreement (the NDA).¹ Among other provisions, the NDA (1) obligated the parties not to "directly or indirectly ... divert any business, relationships, contracts or other benefits, or otherwise impair any business relationship [the other] has with any third [p]arty" for a period of at least two years, and (2) provided that the "Discloser [of information] shall be entitled to reasonable attorneys’ fees and costs" "[i]n the event a dispute arises under this Agreement" "in addition to all other remedies available to the Discloser ... at law or otherwise."

On December 11, 2014, Real Soda and Drink Tank signed a letter of intent regarding the potential acquisition.

No acquisition occurred because Ginsburg thought Drink Tank's asking price was too low.

B. So Cal Beverage plays Real Soda and Drink Tank against each other

Enter Tico Group Inc., a company in the business of distributing beer, wine, and spirits in the Southern California region under the name So Cal Beverage Distributor (So Cal Beverage).

In the fall of 2014, Drink Tank started negotiating with Joseph Tchan (Tchan)— Tico Group, Inc.’s operator—to acquire So Cal Beverage. On December 2, 2014, Drink Tank and So Cal Beverage signed a letter of intent regarding a potential acquisition that obligated each not to negotiate with anyone else for 60 days. Drink Tank and So Cal Beverage exchanged a barrage of draft purchase agreements. Drink Tank consistently offered $240,000 to acquire So Cal Beverage.

In late February 2015, Tchan approached Ginsburg. Within a few weeks, Real Soda started negotiating to acquire So Cal Beverage. On April 2, 2015, Real Soda and So Cal Beverage signed a letter of intent regarding a potential acquisition for $250,000. Pursuant to that letter, Real Soda gave So Cal Beverage a deposit of $5,000 on April 2 and a further payment of $125,000 on April 23, when the two companies signed a purchase agreement.

As the trial court aptly observed, Tchan was "play[ing] both sides" by negotiating with both Drink Tank and Real Soda simultaneously. From emails with Kim, Ginsburg knew about the December 2014 letter of intent between Drink Tank and So Cal Beverage, and knew that those negotiations were still ongoing in mid-March 2017 (because one of Drink Tank's investors flew to California regarding the possible deal). But Tchan assured Ginsburg that he had become dissatisfied and upset with the state of negotiations with Drink Tank, and that he had advised Drink Tank that the negotiations were effectively over. As a result, Tchan and Ginsburg did not inform Drink Tank about their negotiations. At the same time, however, Tchan never told Drink Tank that he was dissatisfied; instead, he kept negotiating with Drink Tank by continuing to provide feedback on draft purchase agreements—up to and even after he accepted the deposits from Real Soda.

C. Real Soda acquires So Cal Beverage

Real Soda ended up paying the full $250,000 purchase price, and acquired So Cal Beverage.²

II. Procedural Background

A. Pleadings

In March 2017, Drink Tank sued Real Soda and Ginsburg for (1) breach of contract and two torts regarding their alleged interference with a contract or potential contract between Drink Tank and a water supplier,³ and (2) intentional interference with a prospective economic advantage—namely, Drink Tank's possible acquisition of So Cal Beverage—because Real Soda and Ginsburg (a) "breach[ed]" the NDA, and (b) otherwise "tortiously interfer[ed] in [Drink Tank's] economic relationship and negotiations with" So Cal Beverage.

Drink Tank prayed for actual damages from Real Soda and Ginsburg exceeding $1.3 million as well as punitive damages.

B. Trial

On the first day of trial, Drink Tank narrowed its lawsuit to its intentional interference with a prospective economic advantage claim involving So Cal Beverage.

Drink Tank also narrowed its theory of liability on that claim to the theory that Real Soda and Ginsburg had breached the NDA.⁴ The court instructed the jury that Drink Tank had to prove "that Real Soda ... and/or [ ] Ginsburg ... engage[d] in conduct that violated the written [NDA]." The trial court kept for itself the legal question whether that conduct was "wrongful." Consistent with these instructions, Drink Tank argued in opening and closing statements that its claim "involve[d] ... the solemnity of a contract" and that Real Soda and Ginsburg had violated the NDA by "diverting ... business, diverting relationships" away from Drink Tank and to themselves. Although the trial court did not expressly find that Real Soda and Ginsburg's conduct in breaching the NDA was "wrongful," it implicitly did so by submitting the case to the jury. Real Soda and Ginsburg did not object to the trial court's handling of these issues.

After the trial court dismissed the punitive damages allegations, the jury returned a verdict awarding Drink Tank $250,000 in lost business opportunity damages and $100,000 in lost profits. In its special verdict, the jury found that "Real Soda ... or ... Ginsburg ... engage[d] in conduct that violated the written [NDA]." There were no other special verdict findings regarding other possible wrongful conduct by Real Soda or Ginsburg.

The trial court entered judgment for Drink Tank in mid-March 2019.

C. Motion for judgment notwithstanding the verdict (JNOV)

In April 2019, Real Soda and Ginsburg filed a JNOV motion on the ground, as pertinent here, that the intentional interference verdict is invalid because the breach of a contract (such as the NDA) is not "wrongful" conduct capable of supporting such a claim. Following briefing and a hearing, the trial court denied the motion in May 2019. The court cited three reasons for denying relief on this ground: (1) Real Soda and Ginsburg's challenge to the wrongfulness of the conduct is not a challenge to the sufficiency of the evidence , and thus is properly raised in a motion for new trial (and not a motion for JNOV); (2) Real Soda and Ginsburg cannot raise this challenge in a JNOV motion because they had made the ...