Freeman & Mills, Inc. v. Belcher Oil

CourtCalifornia Court of Appeals
Citation33 Cal.Rptr.2d 585,28 Cal.App.4th 282
Decision Date12 September 1994
Docket NumberNo. B069559,B069559
PartiesPreviously published at 28 Cal.App.4th 282, 33 Cal.App.4th 837 28 Cal.App.4th 282, 33 Cal.App.4th 837 FREEMAN & MILLS, INCORPORATED, Plaintiff and Appellant, v. BELCHER OIL COMPANY, Defendant and Appellant.

[33 Cal.App.4th 840] McClintock, Weston, Benshoof, Rochefort, Rubalcava & MacCuish, John M. Rochefort, Martha Schreiber, and Saman Zia-Zarifi, Los Angeles, for plaintiff and appellant.

Sands Narwitz Forgie Leonard & Lerner, and Arthur A. Leonard, Los Angeles, Stanley E. Crawford, Jr., Houston, TX, for defendant and appellant.

MIRIAM A. VOGEL, Associate Justice.

In a breach of contract action masquerading as a tort claim, we reverse a judgment in favor of the plaintiff and remand for a limited new trial on the issue of breach of contract damages. Along the way, we suggest it is time for the Supreme Court to reexamine the tort of "bad faith denial of contract."


In June 1987, Belcher Oil Company retained Morgan, Lewis & Bockius to defend it in a Florida lawsuit. Pursuant to a letter of understanding signed by Belcher Oil's general counsel (William Dunker) and a Morgan, Lewis partner (Donald Smaltz), Belcher Oil was to pay for costs incurred on its behalf, including fees for accountants. In February 1988, after first obtaining Dunker's express authorization, Smaltz hired the accounting firm of Freeman & Mills, Incorporated, to provide a financial analysis and litigation [33 Cal.App.4th 841] support for Belcher Oil in the Florida lawsuit. In March, an engagement letter was signed by Morgan, Lewis and Freeman & Mills. At about this time, William Dunker left Belcher Oil and was replaced by Neil Bowman.

In April 1988, Bowman became dissatisfied with Morgan, Lewis's efforts and the lawyers were fired. Bowman asked Morgan, Lewis for a summary of the work performed by Freeman & Mills and, at the same time, directed Smaltz to have Freeman & Mills stop their work on Belcher Oil's matter. Smaltz did as he was asked. Freeman & Mills' final statement was for $70,042.50 in fees, plus $7,495.63 for costs, a total of $77,538.13.

Freeman & Mills billed Morgan, Lewis, but no payment was forthcoming. Freeman & Mills then billed Belcher Oil directly and, for about a year, sent monthly statements and regularly called Bowman about the bill, all to no avail. In August 1989, Smaltz finally told Freeman & Mills that Belcher Oil refused to pay the accounting firm's bill. Freeman & Mills then wrote to Bowman asking that the matter be resolved. In September 1989, Bowman responded, complaining that Belcher Oil had not been consulted about the extent of Freeman & Mills' services and suggesting Freeman & Mills should look to Morgan, Lewis for payment of whatever amounts were claimed due.

Ultimately, Freeman & Mills filed this action against Belcher Oil, alleging (in its second amended complaint) causes of action for breach of contract, "bad faith denial of contract" and quantum meruit. Belcher Oil answered and the case was presented to a jury

in a bifurcated trial, with punitive damages reserved for the second phase. According to the evidence presented during the first phase, the amount owed to Freeman & Mills (as indicated on their statements) was $77,538.13

When the first phase was submitted to the jury, a multi-part special verdict form asked, with regard to the breach of contract claim, "5. What amount of damages, if any, was suffered by [Freeman & Mills] as a result of [Belcher Oil's] breach of contract?" 1 During the afternoon of its first day of deliberations, the jury submitted two questions to the trial court. The first asked, "Could we have in 'layman's terms' the instructions to: Part I, Question 5." The second asked, "In response to Question 5 in Part One--the 'damages' mentioned is the $77,538.13 in billing??" In the presence of the jurors and the attorneys, the trial court read both questions aloud and then inquired of the foreman:

[33 Cal.App.4th 842] "THE COURT: ... Is your question, do the damages have to be the amount of the billing of $77,538.13? Is that your question? ... [p] THE FOREPERSON: No. We just wanted what--to tell us what damages were, because we seem to--we went in there thinking we were to fill out three figures.... [p] And we're--maybe we don't have to put down the seventy-seven because it's already implied with how we answer."

At side-bench, Freeman & Mills' attorney expressed his view of the jury's confusion: "The instructions have to do with three causes of action, contract, the tort claim and the quantum meruit claim.... And I think they are confused because they are thinking that they have to find damages for three separate cause[s] of action[,] and in light of that question I think it would be appropriate to tell them that the damages for the breach of contract and the bad faith denial of contract are measured as one[,] and only one entry is to be made which is what I tried to do on this[,] and if they find breach of contract they are not to consider quantum meruit which is what the ... verdict says." Belcher Oil's attorney agreed, with the caveat that the amount did not have to be the invoice amount.

After a few false starts and further bench conferences, the trial court told the jury: "[Freeman & Mills'] standard hourly rates applied to the hours recorded by [Freeman & Mills] in working on the Florida ... matter and expenses was $77,538.13, the damages, if any, for breach of contract and for bad faith denial of contract, if any, is this sum or such lesser amount that you find to be reasonable as provided in the instructions." [Sic.] When asked whether that answered the questions, the jurors all nodded affirmatively. 2 The jurors resumed their deliberations.

The next morning, the jury returned its first phase verdict. On Freeman & Mills' breach of contract claim, the jury found that Belcher Oil had authorized Morgan, Lewis to retain Freeman & Mills on Belcher Oil's behalf, that Freeman & Mills had performed its obligations under the contract, that Belcher Oil had breached the contract, and that the amount of damages suffered by Freeman & Mills (Question No. 5) was $25,000. The jury also answered affirmatively the questions about whether Belcher Oil had denied the existence of the contract and had acted with oppression, fraud or malice. When polled, the jurors were unanimous in their answers to all of the questions except one--Question No. 5, for which the vote was nine to three.

[33 Cal.App.4th 843] Phase two evidence (Belcher Oil's net worth) was then presented. In closing arguments, both attorneys referred to the $25,000 award of compensatory damages. Freeman & Mills' lawyer assured the jury he and his client were "proud" of the jurors' service and would "stand by it" but pointed out that "the

compensatory award ... was about one-third of what our bills were, and that does not make us--that hardly even pays our costs ... to do the work. But that's behind us.... And that was your decision and, as I say, we will live with that. [p] What I would like you to consider when you do consider this relationship [of punitive to compensatory damages] is not to be limited just in concept to that $20,000 [sic ] compensatory award. I want you to consider the total harm."

Belcher Oil's lawyer told the jury that punitive damages "must bear a reasonable relation to the damages actually suffered by the plaintiff, and you have already rendered your verdict that the reasonable damages actually suffered are $25,000." After assuring the jury that Belcher Oil had learned its lesson simply from the finding of bad faith conduct and that no monetary award was needed to make the point, counsel closed by asking that, if an award was made, it be limited just as the award of compensatory damages had been limited. In closing, Freeman & Mills' attorney reiterated the fact that the $25,000 award did not cover his client's expenses but suggested the jury should not reconsider that amount--"unless you think there was a mistake and you can communicate to the judge, but I want you to consider the entire harm caused here."

Within minutes after the jury began its second phase deliberations, it sent a note to the trial court: "1) According to our verdict allready [sic ] submitted, is [Freeman & Mills] receiving $77,_ _ _-- + $25,000.00 or just $25,000.00?? [p] 2) Do both sides attorneys' fees get paid by losing side??" The court responded thus: "Well, the answer to the first question, according to your verdict already submitted, ... is just $25,000. In answer to the second question, ... with regard to the attorneys' fees, this is not a matter that the jury should be concerned with." Two hours later, the jury (by a vote of 11 to 1) returned its verdict awarding $477,538.13 in punitive damages and judgment was entered on the verdict. 3

In three post-trial motions, Freeman & Mills asked for orders (1) "correcting" the jury's verdicts and the court's judgment to reflect compensatory damages of $77,538.13 and punitive damages of $425,000 (on the ground [33 Cal.App.4th 844] that the jury's questions showed this was its true intent); 4 (2) awarding attorneys' fees as sanctions for the litigation tactics of Belcher Oil's attorneys; and (3) awarding prejudgment interest on the compensatory damage award. Over Belcher Oil's opposition, all three motions were granted--but with some changes in the course of correcting the judgment--by giving Freeman & Mills $131,614.93 in compensatory damages (the $25,000 actually awarded by the jury, plus the $77,538.13 included in the punitive damage award, plus $29,076.80 for prejudgment interest), and $400,000 (not $425,000 as requested) in punitive damages.

Belcher Oil appeals from the "corrected" judgment. Freeman & Mills appeals from a mid-trial order denying its request to amend its complaint to add a cause of action for fraud.


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  • Freeman & Mills, Inc. v. Belcher Oil Co.
    • United States
    • California Supreme Court
    • 15 d4 Dezembro d4 1994
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