Rosener v. Sears, Roebuck & Co.

• Decision Date: 30 September 1980
• Citation: 168 Cal.Rptr. 237,110 Cal.App.3d 740
• Parties: Frederick A. ROSENER, Helen J. Rosener, Peter F. Elkind and Sue N. Elkind, Plaintiffs and Respondents, v. SEARS ROEBUCK AND COMPANY, Defendant and Appellant. Joseph F. Hartman et al., Intervenors and Respondents. Civ. 41334.
• Court: California Court of Appeals Court of Appeals

Page 237

168 Cal.Rptr. 237

110 Cal.App.3d 740

Frederick A. ROSENER, Helen J. Rosener, Peter F. Elkind and Sue N. Elkind, Plaintiffs and Respondents, v. SEARS ROEBUCK AND COMPANY, Defendant and Appellant Joseph F. Hartman et al., Intervenors and Respondents.

Civ. 41334.

Court of Appeal, First District, Division 1, California.

Sept. 30, 1980.

Hearing Denied Dec. 10, 1980.

Boxer & Elkind, Oakland, and, Stanley Blackfield, Hayward, for plaintiffs and respondents Rosener et al.

Heller, Ehrman, White & McAuliffe, San Francisco, for defendant and appellant Sears Roebuck and Co.

Jones, Hall & Arky, Alhambra, for intervenors and respondents, Hartman et al.

NEWSOM, Associate Justice.

The present appeal is from judgments after jury trial in favor of respondents and against appellant Sears Roebuck and Company aggregating $158,000 in compensatory and $10 million in punitive damages.

It is unnecessary to engage in an exhaustive analysis of the voluminous evidentiary record compiled during the 36-day trial. Viewing that record in a light favorable to the judgment below, the following salient facts are disclosed.

In June 1970, Sears Roebuck actively promoted a national campaign called "Sears Add-A-Room," using license agreements with improvement contractors under which Sears received payment based upon 10 percent of the gross contract price between the licensed contractor and the homeowner. United Remodeling Systems, Inc. (URS) was licensed by Sears to provide such services in California, utilizing the nationally-recognized Sears logo, together with a performance bond guaranty under a collateral suretyship arrangement with Commercial Standard Insurance Co. (CSI).

During 1972, United States Financial Corporation (USFC) initiated efforts to acquire URS, and, with Sears' approval, assumed active management of its Add-A-Room program operations.

In January 1973, following USFC's decision to abandon the acquisition plan, the undercapitalized and financially shakey URS operation failed, with some 200 outstanding improvement contracts, mainly in California, in various stages of completion. Thereafter, Sears, together with CSI, reluctantly undertook to complete the unfinished work under the contract terms including the written guarantees. Rejecting CSI's adamant insistence that Sears bear equal if not full responsibility for costs of completion as a "de facto principal" on the surety bond, Sears initiated independent action by notifying program customers of URS's "bankruptcy" and advising them to press their claims for full performance against CSI without mention of the latter's liability disclaimer. Sears did, however, advise its customers that it would "cooperate in resolving this matter," while directing customer inquiries to designated Sears' executives.

By early spring, CSI had, with Sears' knowledge begun corrective and completion work on outstanding contracts in Northern California through Neway Construction, an independent entity organized by Robert Freeman, former manager of USR's regional operations.

Evidence at trial established convincingly that respondents entered into Add-A- Room contracts principally in reliance on Sears' national reputation, as well as past satisfactory relations with the company. In every instance, it appears, Sears' promotional campaign, including its standard assurance of satisfactory service, was a factor in respondents' decisions to enter into the program. Each respondent paid the full amount of the contract price immediately upon execution of the contract; six of the eight couples took out second mortgages on their residences in order to finance the improvements.

Respondents' individual experiences with URS, Sears, CSI and Neway, though widely varied, reflected a pattern of nonfeasance, shoddy workmanship, inconvenience, unreasonable delay, utter indifference, and, ultimately, attempted avoidance of responsibility.

The damages inflicted by this callous and negligent course of conduct included physical and emotional distress, unconscionable invasions of privacy, property damage, financial disruption and attendant frustration and despair. The record is replete with saddening examples of the injuries thus inflicted, varying from the loss of a family Bible caused by leaks in an unrepaired roof, to the total loss of privacy suffered by an entire family forced to sleep in the same room when the interior walls of their home were left unrepaired. Justifiable refunds were sought and consistently refused, and promises were regularly made and broken.

Withal, it is no exaggeration to describe Sears' treatment of respondents as arrogant, high-handed, and characterized by indifference to clear contractual obligations and an exclusive preoccupation with profits. ¹ It was on this general state of the evidence that punitive damages were assessed, as noted, in the amount of $10 million.

On appeal, Sears advances several arguments supporting reversal: (1) that the punitive damage award is improper and excessive; (2) that the compensatory damage awards were unsubstantiated and excessive; and (3) that certain procedural and instructional errors were committed.

I

Appellant challenges the $10 million punitive damage award on the grounds that it is not based upon sufficient evidence of fraud or malice, and that it is excessive as a matter of law. For reasons we now state, we conclude that the award is based upon substantial evidence, but find merit in appellant's claim that the amount is excessive, and accordingly vacate the amount and remand with directions.

The jury returned special verdicts finding that Sears committed fraud by misrepresenting itself as a party to the Add-A-Room contracts, and by promising to guarantee performance of those contracts without intending to honor the promise.

Appellant correctly notes that a punitive damage award must be based upon a finding of malice as well as fraud. (Ebaugh v. Rabkin (1972) 22 Cal.App.3d 891, 894, 99 Cal.Rptr. 706.) Even without a showing of personal animus, however, "malice in fact" may be established. As explained in Schroeder v. Auto Driveaway Co. (1974) 11 Cal.3d 908 at page 922, 114 Cal.Rptr. 622 at page 631, 523 P.2d 662 at page 671: " . . . 'intent,' in the law of torts, denotes not only those results the actor desires, but also those consequences which he knows are substantially certain to result from his conduct. (Rest.2d Torts, § 8a; Prosser, Torts (4th ed. 1971) pp. 31-32.) The jury in the present case could reasonably infer that defendants acted in callous disregard of plaintiffs' rights, knowing that their conduct was substantially certain to vex, annoy, and injure plaintiffs. Such behavior justifies the award of punitive damages. As stated in Toole v. Richardson-Merrell Inc. (1967) 251 Cal.App.2d 689, 713 (60 Cal.Rptr. 398) . . . : 'malice in fact, sufficient to support an award of punitive damages . . . may be established by a showing that the defendant's wrongful conduct was wilful, intentional, and done in reckless disregard of its possible results.' (Accord: Black v. Shearson, Hammill & Co. (1968) 266 Cal.App.2d 362, 369 (72 Cal.Rptr. 157) . . ..)" Further, "When there is express fraud there is evil motive (malice)." (Walton v. Anderson (1970) 6 Cal.App.3d 1003, 1010, 86 Cal.Rptr. 345, 350.) And it is well established that a promise made without an intention of performing it constitutes actionable fraud. (Fowler v. Fowler (1964) 227 Cal.App.2d 741, 748, 39 Cal.Rptr. 101; Shyvers v. Mitchell (1955) 133 Cal.App.2d 569, 574, 284 P.2d 826.) " . . . it has been repeatedly stated that '(w)ithout the consideration of other evidence, subsequent failure to perform (a promise) warrants the inference that the promisor did not intend to perform when (he) promised.' (Citations.)" (Kuffel v. Seaside Oil Co. (1970) 11 Cal.App.3d 354, 360, 90 Cal.Rptr. 209, 212.)

Appellant's conduct both prior to and following the default of URS evidenced an unwillingness to act in accordance with its promises and representations, and belied its insistence that its conduct merely establishes the negligent performance of its remedial program rather than an intent to ignore its promises at the time they were made. Sears' contractual arrangements with URS and its bonding company, its entirely inadequate responses to legitimate customer complaints, its dilatory and evasive referral of those problems to URS and the bonding company, and its stubborn insistence that it had no remedial obligations, all support the conclusion that-contrary to its earlier representations-from the first Sears intended to divorce itself from responsibility for the Add-A-Room program.

We therefore conclude, in light of the entire record, that the findings of fraud and malice which justify imposition of punitive damages are supported by substantial evidence. (Beck v. State Farm Mut. Auto. Ins. Co. (1976) 54 Cal.App.3d 347, 354, 126 Cal.Rptr. 602.)

We agree with appellant, however, that even though the evidence justified some award of punitive damages, the amount fixed by the jury was excessive as a matter of law. In making this argument, appellant has primarily focused on the lack of relationship between the punitive and compensatory damages; the punitive damage award is 63 times greater than the total compensatory verdict. Our conclusion, however, is based only in part on the disproportion between compensatory and punitive damages: other factors support it as well.

We recognize that our review of punitive damage awards is guided by the " 'historically honored standard of reversing as excessive only those judgments which the entire record, when viewed most favorably to the judgment, indicates were rendered as the result of passion and prejudice. . . .' (Citation.)" (Neal v. Farmers Ins. Exchange (1978) 21 Cal.3d 910, 927, 148 Cal.Rptr. 389, 399, 582 P.2d 980, 990; Bertero v. National General Corp. (1974) 13 Cal.3d 43, 65, fn. 12, 118 Cal.Rptr. 184, 200 fn. 12, 529 P.2d 608,...