Prince v. Invensure Ins. Brokers, Inc.

• Decision Date: 18 May 2018
• Docket Number: G052060,G051996,G052122
• Citation: 232 Cal.Rptr.3d 887,23 Cal.App.5th 614
• Court: California Court of Appeals Court of Appeals
• Parties: Duncan E. PRINCE, Plaintiff, Cross-defendant and Appellant, v. INVENSURE INSURANCE BROKERS, INC., Defendant, Cross-complainant and Appellant; ERM Insurance Brokers, Inc., Cross-defendant and Appellant.

23 Cal.App.5th 614

232 Cal.Rptr.3d 887

Duncan E. PRINCE, Plaintiff, Cross-defendant and Appellant,

v.INVENSURE INSURANCE BROKERS, INC., Defendant, Cross-complainant and Appellant;

ERM Insurance Brokers, Inc., Cross-defendant and Appellant.

G051996

G052060

G052122

Court of Appeal, Fourth District, Division 3, California.

Filed May 18, 2018

Certified for Partial Publication.^*

Silverstein & Huston, Steven A. Silverstein, Orange, Mark W. Hutson and Robert I. Cohen for Defendant, Cross-complainant and Appellant.

Law Offices of Andrew D. Weiss and Andrew D. Weiss, Lake Forest; and R. Donald McIntyre for Plaintiff, Cross-defendant and Appellant Duncan E. Prince, and for Cross-defendant and Appellant ERM Insurance Brokers, Inc.

OPINION

MOORE, ACTING P. J.

The parties appeal and cross-appeal a judgment after a jury trial in this business dispute. Plaintiff and cross-defendant Duncan E. Prince obtained a judgment of $647,706.48 against defendant and cross-complainant Invensure Insurance Brokers, Inc. (Invensure). Invensure took nothing on its cross-complaint against Prince and his related business entity, cross-defendant ERM Insurance Brokers, Inc. (ERM).

Invensure appeals from the judgment, arguing the trial court wrongly decided issues related to the statute of limitations and numerous issues with respect to substantial evidence to support the judgment. It also claims the court abused its discretion when admitting certain evidence.

Prince and ERM also appeal from two postjudgment orders, arguing the court erroneously granted a motion to tax costs and to deny them attorney fees. We find the court erred with respect to the validity of Prince's offer to compromise under Code of Civil Procedure section 998,¹ and remand that issue for further consideration by the trial court. We authorize publication with respect to our discussion of this issue only.

With respect to attorney fees, Prince argues he is entitled to attorney fees under Penal Code section 502. Invensure asserted a cause of action against him for violating this section, which includes an attorney fee provision. The court denied the motion, deciding the attorney fees under the Penal Code section 502 cause of action and the cross-complaint's remaining claims could not be apportioned. We disagree, concluding the causes of action in the cross-complaint all related to a common core of facts. Accordingly, we reverse the order denying attorney fees.

IFACTS

A. Underlying Facts

As of 2003, Prince and Dick Fleming were the owners of an insurance agency, Prince & Fleming Insurance Brokers, Inc. (Prince & Fleming).² Prince focused on commercial insurance, while Fleming's specialty was life insurance and employee benefits. Similarly, Richard Sherman and Robert Parent were the owners of Sherman Parent Insurance Brokers (Sherman Parent). Their company did predominantly commercial property and casualty, personal home and auto, and employee benefits. Each of the four principals owned 50 percent of their respective agency.

In 2001 or 2002, representatives met and discussed a merger. They eventually hired Marsh, Berry & Company, Inc. (Marsh), to value both companies and assist in the merger. Marsh's initial report appraised Prince & Fleming at $3.2 million and Sherman Parent at $1.7 million as of December 31, 2002.

The companies discussed how to deal with the difference in valuation, but an agreement was not reached. The parties had agreed to have Marsh update its appraisal on the next year end date, December 31, 2003, and use that as the valuation date for tangible net worth. The initial appraisal date of December 31, 2002, would be used as a valuation date for the book of business.³ Sherman later testified he agreed to this because he thought Sherman Parent's value had increased during 2003.

The new appraisal valued Prince & Fleming at approximately $3.3 million, and Sherman Parent at approximately $1.5 million.

Thus, Sherman Parent's value had actually decreased.

The companies decided to proceed with the merger anyway. Effective January 1, 2004, they entered into a contribution agreement to turn over all the stock in the respective companies to a new company, which eventually was named Invensure Insurance Brokers, Inc. In return, each principal received 25 percent of Invensure's common stock. The contribution agreement did not include an express provision addressing an adjustment for the value disparity between the two companies (disparity adjustment).

The parties concur that an agreement was reached on the disparity adjustment after the merger. On July 27, 2004, the parties met with Christopher Darst of Marsh, to discuss the matter. According to a letter from Darst to the principals, the agreement they reached was that Prince and Fleming would each receive an additional $125,000 each annually for six years. Prince's understanding was that the payments would begin sometime in the next 12 months following Darst's letter, which was dated August 6, 2004. No further actions were required by Prince or Fleming to be entitled to the payments. Thereafter, no objections were voiced by Sherman or Parent regarding this agreement. Both parties referred to this agreement as the "disparity note."

Invensure made the first payments to Prince and Fleming "at the end of 2004." They were paid through payroll. There were no payments in 2005, as agreed upon by the principals, due to decreased revenue. Prince and Fleming's understanding was that the payment would be made up later, and it was not their intent to waive the payment. From 2006 to 2009, Invensure made payments to Prince in various amounts, totaling $409,000, which included the 2004 payment. Assuming an agreement with Prince to pay $125,000 a year, the total Invensure owed to Prince for six years was $750,000, leaving a principal shortfall of $341,000.

In 2007, Fleming began talking about reducing his role in the business. In 2008, with the agreement of the remaining principals, Invensure paid Fleming the amount due under the disparity note. Prince testified that he, Sherman, and Parent agreed to pay Fleming eight percent in interest on the amount due. Fleming also testified that interest was paid on the amount due on the disparity note. Thereafter, Invensure bought out Fleming's interest in the company, leaving Sherman, Parent, and Prince each one-third shareholders.

By November 2011, Prince had started to fall out with his fellow principals, and expressed his interest in leaving Invensure and starting his own brokerage. Marsh was brought in to do an appraisal, and appraised Prince's interest at $658,000. Marsh's reports also stated that Invensure still owned Prince "approximately $500,000" on the disparity note.

Attorneys for the parties began corresponding. On March 13, 2012, Thomas R. Kroesche, Invensure's attorney, sent a letter to R. Donald McIntyre, Prince's attorney, with proposed terms for a Letter of Understanding regarding Prince's departure from Invensure. McIntyre responded with some objections and questions on March 19. Kroesche replied with a counter-proposal on April 17. The letters were professional and did not appear to reflect that either party was contemplating litigation at the time.

Sherman and Parent agreed some money was due Prince under the disparity note. Sherman, with the help of an accountant, produced a spreadsheet entitled "Amortization Schedule of Duncan Prince Disparity Amount," which calculated the amount Invensure owed Prince at $485,357.61, which reflected the principal, interest of eight percent for 60 months and three percent thereafter. (This spreadsheet was attached to the April 17 letter from Kroesche to McIntyre.)

Although Prince and Invensure seemed to substantially agree on many material points, negotiations did not lead to a sale of Prince's interest. Eventually, Invensure removed Prince from his director and officer positions, and fired him as an employee. During the time he was attempting to separate himself from Invensure, Prince founded ERM, a competing insurance brokerage.

B. Procedural History

Prince filed his initial complaint against Invensure for breach of contract, book account, and account stated on March 19, 2013. On July 1, he filed a first amended complaint (the complaint) stating the same three causes of action. The breach of contract claim was for alleged breach of the disparity note, and Prince attached the Marsh letter of August 6, 2004, as the written agreement. The remaining causes of action were different methods of pleading that Invensure owed Prince money on the disparity note.

Invensure cross-complained against Prince and ERM. We will discuss the cross-complaint in more detail in our analysis of the cross-appeal, but the common thread in its eight causes of action was unauthorized computer access and theft of trade secrets. Of the eight causes of action, four were submitted to the jury: breach of fiduciary duty; misappropriation of trade secrets ( Civ. Code, § 3426 et seq. ), violation of Penal Code section 502, and "breach of confidence." Invensure also asserted unauthorized computer access in its answer to Prince's complaint, alleging it was entitled to a setoff by way of an affirmative defense. Further, Invensure asserted that Prince's claims had been filed after the statute of limitations had run.

At the conclusion of a trial that lasted five weeks, the jury returned a general verdict form with a unanimous verdict in favor of Prince in the amount of $647,706.48. Invensure took nothing on its cross-complaint. On Invensure's equitable claims, the trial court denied relief and awarded judgment to Prince and ERM. At Invensure's request, the court issued a statement of decision on the statute of limitations issue, which it had decided in Prince's favor. Invensure's motion for judgment notwithstanding the verdict or a new trial was subsequently denied.

Prince submitted a costs bill of $177,053.37, which included $134,682.53 in expert witness fees. Invensure filed a motion to tax costs, arguing, as...