Nico Alloys, Inc. v. M

• Decision Date: 05 February 2015
• Docket Number: B251688,B253987
• Court: California Court of Appeals
• Parties: NICO ALLOYS, INC., Plaintiff, Cross-defendant, and Respondent, v. AMERICAN METAL GROUP, INC. et al., Defendants, Cross-complainants, and Appellants.

NICO ALLOYS, INC., Plaintiff, Cross-defendant, and Respondent, v. AMERICAN METAL GROUP, INC. et al., Defendants, Cross-complainants, and Appellants.

B251688

B253987

COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DIVISION TWO

February 5, 2015

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

(Los Angeles County Super. Ct. No. BC466678)

APPEAL from a judgment of the Superior Court of Los Angeles County. Alan S. Rosenfield, Judge. Affirmed in part and reversed in part.

Morgan, Franich, Fredkin & Marsh, Mark B. Fredkin and Linda MacLeod, for Defendants, Cross-complainants, and Appellants.

Carlsmith Ball LLP, James Polish and Albert H. Ebright, for Plaintiffs, Cross-defendants, and Respondents.

* * * * * * NICO Alloys, Inc. (NICO) and American Metal Group, Inc. (AMG) both deal in scrap metal. AMG was in the midst of acquiring NICO's stock and inventory when NICO's owners indicated they did not want to go forward with the proposed buyout deal. In response, AMG went into NICO's warehouse and removed over 200 tons of scrap metal. NICO sought and obtained a writ of possession to take back the scrap metal, and thereafter sued AMG and others for conversion and other torts. AMG cross-claimed for breach of the stock and inventory sales contracts. The court ruled for NICO on its claims and on AMG's cross-claims, and awarded $322,923.31 in damages, $83,941 in prejudgment interest, and $740,257.50 in attorney's fees on the cross-claims. AMG appeals these rulings. We affirm in part, reverse in part, and remand for further proceedings to recalculate damages and prejudgment interest, and to considering whether attorney's fees need to be allocated among the claims.

FACTUAL AND PROCEDURAL BACKGROUND

AMG and NICO are both companies that sell scrap metal, including high-temperature alloys. Howard Misle (Misle) owns AMG's parent company. NICO is co-owned by Larry Levine (Levine) and Denyse MacMillan (MacMillan). In 2010, Misle, Levine and MacMillan signed two contracts designed to allow AMG to acquire NICO after a "try out" period: (1) a put and call agreement, which obligated Levine and MacMillan to sell their stock in NICO, and obligated Misle to buy that stock, for $2.5 million; and (2) an exclusive sales agreement, which granted NICO the exclusive right to hold AMG's inventory of high-temperature alloys on consignment and sell that product to others.

Midway through the "try out" period, Levine informed Misle that he no longer wanted to sell NICO. In response, Misle directed AMG employees and hired laborers to enter NICO's warehouse—over the weekend and without NICO's knowledge—to relocate just over 200 tons of NICO's inventory to AMG's nearby warehouse. Among the AMG employees who participated was Chad Mueller (Mueller), AMG's operations manager and Misle's potential son-in-law.

AMG's unilateral act touched off this litigation. NICO sought and obtained a writ of possession to physically retrieve the scrap metal AMG had taken. AMG subsequently returned much of the scrap metal. NICO also sued AMG, Misle and Mueller for (1) conversion, (2) claim and delivery (replevin), and (3) intentional interference with prospective economic advantage.¹ AMG cross-complained against Levine and MacMillan for breach of the put and call agreement; against NICO for breach of the exclusive sales agreement; and against both sets of defendants for common counts.²

The case proceeded to a 15-day bench trial. As to NICO's claims, the court ruled that (1) AMG was liable for conversion, (2) AMG, Misle and Mueller were liable for replevin, (3) AMG did not intentionally interfere with NICO's prospective economic advantage, and (4) AMG did not engage in conduct warranting punitive damages. The court rejected AMG's cross-claims.

The court awarded the following damages to NICO: (1) $600,405 as the retail value of the scrap metal NICO took but did not return; plus (2) $36,462 as NICO's costs of recovering the scrap metal that was taken; plus (3) $140,000 in lost profits; plus (4) $29,360.53 as the amount AMG owed NICO for unpaid employee expenses; plus (5) $23,186 in unpaid interest on loans Levine made to AMG; less (6) $506,490.90 as what NICO owed AMG for scrap metal NICO purchased but had not yet paid for. The court also awarded an additional $83,941.55 in prejudgment interest, calculated as 7 percent of the $600,405 starting from the date the scrap metal was removed from NICO's warehouse; the court did not "set off" the $506,490.90 that NICO owed AMG before calculating prejudgment interest. The trial court made AMG, Misle and Mueller jointly and severally liable for the judgment.

NICO, Levine and MacMillan then sought attorney's fees for prevailing on AMG's contract-based cross-claims under Civil Code section 1717³, as each contract had a provision awarding fees to any "prevailing party." They sought all fees incurred in the litigation, including their conversion and claim-and-delivery claims, except for fees incurred (1) in opposing a writ of attachment, (2) in objecting to the trial court's statement of decision, (3) in litigating Mueller's liability, and (4) in opposing the new trial motion. AMG opposed the motion, arguing that NICO was not the prevailing party on the exclusive sales agreement and that the trial court was required to sort out the fees incurred on the contract-based cross-claims from the fees incurred in NICO's tort-based lawsuit. Without any hearing, the court issued a one-sentence ruling that, without elaboration, awarded NICO all of the fees it requested.

AMG timely but separately appealed the judgment and attorney's fees ruling. We address both appeals in this consolidated opinion.

DISCUSSION

I. Liability of Mueller and Misle

A. Claim and delivery (replevin)

The trial court found that Mueller had acted at the direction of AMG and Misle, but that his position as AMG's "operations manager" meant Mueller had "operational authority over" the scrap metal he was ordered to relocate. Based on these findings, the court ruled that Mueller was not liable for conversion, but was liable for claim and delivery. Mueller attacks this ruling. Because this question turns on the application of undisputed facts to the law, our review is de novo. (Martinez v. Brownco Construction Co. (2013) 56 Cal.4th 1014, 1018.)

In an action for claim and delivery (or replevin), the plaintiff may (1) physically recover the property taken (Code Civ. Proc., § 511.010 et seq.), and (2) collect damages for any property not recovered as well as "damages for detention" of the property (Id., § 667.) (See generally Simms v. NPCK Enterprises (2003) 109 Cal.App.4th 233, 241.)However, an action for claim and delivery lies only against the person or entity who actually or constructively possessed the property at issue. (Phillips Aviation Co. v. Superior Court (1966) 246 Cal.App.2d 46, 53.) An agent who held the property for his or her principal is not considered to have been in actual possession. (Ibid. [collecting cases].)

In this case, the trial court's finding that Mueller was only acting at the behest of Misle and AMG is a finding that he was acting as their agent. (See § 2295 ["An agent is one who represents another, called the principal, in dealings with third persons."].) Nothing in the record indicates that Mueller was doing anything beyond following the orders of his principal. Indeed, the trial court found that Mueller was not acting for personal gain. The court's reason for holding Mueller liable—and subjecting him to the same damages as for the conversion claim for which Mueller was not found liable—was that Mueller was high up enough in AMG that he could have disobeyed the direct order of Misle. However, Mueller had no greater right—and no greater ability—to disobey his boss than any other AMG employee. Mueller's position in AMG's organizational chart accordingly provides no basis for treating him differently for purposes of "agency." Indeed, if an agent's ability to disobey his principal were enough to preclude agency, there would no longer be any "agents" for the purposes of claim and delivery, and Phillips Aviation would no longer be the law. (Accord, Simonian v. Patterson (1994) 27 Cal.App.4th 773, 780-782 [fact that person who moves items on another's behalf could refuse to do so is not a basis for imposing liability for conversion].)

We conclude that the trial court erred in holding Mueller liable for claim and delivery (replevin).

B. Payroll expenses

By making Misle and Mueller jointly and severally liable for the full amount of the judgment against AMG, the trial court made Misle and Mueller liable for the $29,360.53 in payroll expenses AMG owed NICO. This payroll debt is AMG's, not Misle's or Mueller's. Imposing liability on them was error.

II. Damages on NICO's claims

AMG raises three challenges to the trial court's calculation of damages. We review those calculations for substantial evidence. (Baker v. Pratt (1985) 176 Cal.App.3d 370, 382 (Baker).) In so doing, we "'"must accept as true all evidence tending to establish the correctness of the finding as made, taking into account, as well, all inferences which might reasonably have been thought by the trial court to lead to the same conclusion." [Citations.]'" (Ibid.)

A. Miscalculation of value of inventory

The trial court calculated the damages reflecting the scrap metal that ultimately went missing from NICO's warehouse in a four-step process: (1) the court sorted the inventory into different grades (or types) of scrap metal; (2) for each grade, the court calculated the quantity missing as (a) the quantity of scrap metal originally in NICO's warehouse, (b) less the quantity not taken by AMG, and (c) less the...