PENNA v. TOYOTA MOTOR SALES INC

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Court of Appeal, Sixth District, California.

John Della PENNA, Plaintiff and Appellant, v. TOYOTA MOTOR SALES, U.S.A., INC., Defendant and Respondent.

No. H010493.

Decided: November 16, 1994

John Della Penna, doing business as Pacific Motors, filed suit against Lexus, a division of Toyota Motor Sales, Inc. (TMS).  He alleged claims for violation of the California Cartwright Act (Bus. & Prof.Code, § 16721) and intentional interference with prospective economic advantage.   After the trial court granted TMS's nonsuit motion on the Cartwright Act violation, the jury returned a verdict in TMS's favor on the claim of intentional interference with prospective economic advantage.

For reasons we shall explain, we reverse on the claim for intentional interference with prospective economic advantage.   We affirm the judgment on the claim for violation of the California Cartwright Act.

Facts and Procedural Background

In 1989, TMS introduced its first luxury car, the Lexus, into the American market.   Before introducing the Lexus, TMS, and its Japanese parent corporation, Toyota Motor Corporation (TMC), were concerned about the possibility of creating a resale market for the Lexus in Japan.   Even though the Lexus was manufactured in Japan, both TMS and TMC were concerned that Japanese customers would want to purchase the Lexus and that American wholesalers would take advantage of this market by exporting the cars from America back to Japan for resale.   Although TMC was manufacturing a made-for-Japan Lexus (called “Celsior”), the car would be introduced after the Lexus, heightening TMC's and TMS's concerns about a market for the Lexus automobile in Japan.

Because of these concerns, TMS inserted certain provisions into its dealership agreements with United States Lexus dealers.   The provision stated that “DEALER is authorized to sell LEXUS Motor Vehicles only to customers located in the United States.   DEALER agrees that it will not sell LEXUS Motor Vehicles for resale or use outside the United States.   DEALER agrees to abide by any export policy established by DISTRIBUTOR.”

After the Lexus was introduced into America, it became apparent that domestic supplies of the car were being diverted by exporters to foreign sales, primarily in Japan.   As a result, in 1990, the Lexus Area Managers wrote to their assigned Lexus dealers to remind the dealers of the Lexus export policy and to explain that Lexus export activity could jeopardize Lexus's vehicle supply in the United States.   In addition, TMS generated a list of “offender” individuals and entities that it believed were heavily involved in the export of Lexus automobiles to Japan.   TMS assembled the names and addresses of these individuals, referring internally to them as their “blacklist.”   TMS sent this list to its dealers in the United States.   In the correspondence, the dealers were warned that continuing to do business with the blacklisted entities would result in a series of disciplinary actions, starting with allocating fewer cars to the offending dealers and leading to possible reevaluation of the franchise agreements.

In 1989, John Della Penna (appellant), doing business as Pacific Motors, was an auto wholesaler.   In 1989 and 1990, appellant did a brisk business buying automobiles from Lexus dealers at near retail price and then exporting them to Japan.   Most of appellant's business was with Lexus of Stevens Creek.   Lexus of Stevens Creek was selling cars to appellant voluntarily and with knowledge that the cars were then being exported to Japan for resale.

By late spring 1990, appellant could no longer purchase Lexus automobiles from a dealer at retail price.   Lexus of Stevens Creek stopped selling vehicles to appellant after receiving the blacklist from TMS.   All of appellant's other sources also dried up.

By fall 1991, export sales to Japan had significantly diminished.   In late 1992, Lexus became aware that some Lexus vehicles were being exported to Hong Kong and the People's Republic of China.   In light of this development, Lexus reminded its dealers that export sales to any destination violated the no export policy.

In February 1991, appellant filed suit against TMS for unlawful restraint of trade, unfair competition, and interference with prospective economic advantage.   Before trial began, appellant abandoned his unfair competition claim.

Trial commenced.   After appellant completed his case in chief, TMS moved for nonsuit on both causes of action.   The trial court granted the motion on the Cartwright cause of action but denied it on the claim for intentional interference with prospective economic advantage.

The jury returned a verdict in TMS's favor on the intentional interference cause of action.   Appellant moved for a new trial.   The trial court denied the motion.   This appeal ensued.

Standard of Review

“A judgment or order of the lower court is presumed correct.   All intendments and presumptions are indulged to support it on matters as to which the record is silent, and error must be affirmatively shown.   This is not only a general principle of appellate practice but an ingredient of the constitutional doctrine of reversible error.”  (9 Witkin, Cal.Procedure (3d ed.1985) Appeal, § 268, p. 276.)

In reviewing a challenge to the sufficiency of the evidence, we are bound by the substantial evidence rule.   All factual matters must be viewed in favor of the prevailing party and in support of the judgment.   All conflicts in the evidence must be resolved in favor of the judgment.  (Nestle v. City of Santa Monica (1972) 6 Cal.3d 920, 925-926.)

In reviewing a judgment of nonsuit, we review the evidence in a light most favorable to the plaintiffs.   The court must give “ ‘ “to the plaintiff['s] evidence all the value to which it is legally entitled, ․ indulging every legitimate inference which may be drawn from the evidence in plaintiff['s] favor.” ’ ”  (Nally v. Grace Community Church (1988) 47 Cal.3d 278, 291.)   The judgment will be sustained unless viewing the evidence most favorably to plaintiff's case and against defendant, and construing all presumptions, inferences, and doubts in favor of the plaintiff, a judgment for the defendant is required as a matter of law.  (Ibid.)

Discussion

I. Interference with Prospective Economic Advantage

Appellant argues that the jury instructions improperly required that appellant prove that TMS's acts were wrongful.   We agree that the jury instruction was incorrect and that the error requires reversal.

A. Jury Instructions

BAJI No. 7.82 provides, in pertinent part, that “[t]he essential elements of [a claim for interference with prospective economic advantage] are:  [¶] 1.   An economic relationship existed between the plaintiff and _, containing a probable future economic benefit or advantage to plaintiff;  [¶] 2.   The defendant knew of the existence of the relationship;  [¶] 3.   The defendant intentionally engaged in acts or conduct designed to interfere with or disrupt this relationship;  [¶] 4.   The economic relationship was actually interfered with or disrupted;  and [¶] 5.   The acts of the defendant caused damage to the plaintiff.”  (Emphasis added)

Although the jury was instructed according to BAJI No. 7.82, one change was made.   With respect to the third element, the jury was instructed, over appellant's objection, as follows, “The defendant intentionally engaged in wrongful acts or conduct designed to interfere with or disrupt the relationship.”  (Emphasis added)

Appellant argues that this change was prejudicial error.

B. Interference With Prospective Economic Advantage

The common law has always favored free competition.   For this reason, engaging in competition for prospective gain is proper so long as the means used are not improper.  (Prosser & Keeton, The Law of Torts, (5th ed.1984) p. 1012.)  “In short, it is no tort to beat a business rival to prospective customers.”  (Ibid.)

In certain circumstances, however, a person's manner of conducting business may be tortious.   In order to protect stable economic relationships, the law has provided a remedy for such situations.  (Pacific Gas & Electric Co. v. Bear Stearns & Co. (1990) 50 Cal.3d 1118, 1126.)   The remedy is the tort of intentional interference with prospective economic advantage.

The tort has five elements.   These are “(1) an economic relationship between the plaintiff and some third party, with the probability of future economic benefit to the plaintiff;  (2) the defendant's knowledge of the relationship;  (3) intentional acts on the part of the defendant designed to disrupt the relationship;  (4) actual disruption of the relationship;  and (5) economic harm to the plaintiff proximately caused by the acts of the defendant.”   (Youst v. Longo (1987) 43 Cal.3d 64, 71, fn. 6;  see also Blank v. Kirwan (1985) 39 Cal.3d 311, 330;  Seaman's Direct Buying Service, Inc. v. Standard Oil Co. (1984) 36 Cal.3d 752, 766.)   As evidenced above, “wrongfulness” is not included as an element of the cause of action.

A defendant's motive or purpose may prove pivotal to a cause of action for intentional interference with prospective economic advantage.  “ ‘[T]he cases have turned almost entirely upon the defendant's motive or purpose, and the means by which he has sought to accomplish it.   As in the case of interference with contract, any manner of intentional invasion of the plaintiff's interests may be sufficient if the purpose is not a privileged one.   Apart from this, however, the means adopted may be unlawful in themselves;  and violence or intimidation, defamation, injurious falsehood or other fraud, violation of the criminal law, and the institution or threat of groundless civil suits or criminal prosecutions in bad faith, all have been held to result in liability.  [Citation.]’ ”  (A.F. Arnold & Co. v. Pacific Professional Ins., Inc. (1972) 27 Cal.App.3d 710, 716.)

TMS relies exclusively upon Rickel v. Schwinn Bicycle Co. (1983) 144 Cal.App.3d 648 to argue that wrongfulness is an element of the tort.   We examine this opinion below.

In Rickel, the plaintiffs owned a bicycle store.   They sued Schwinn, alleging that Schwinn interfered with their prospective economic relations with potential purchasers of their bike shop.   The trial court granted summary judgment for Schwinn.   In its memorandum opinion, the trial court stated that a plaintiff in a suit for interference with prospective economic advantage must allege that the defendant's conduct was not justified or privileged.   On appeal, plaintiffs claimed this was error.   They contended that nonjustification was an affirmative defense which need not be pleaded by plaintiff.  (Rickel v. Schwinn Bicycle Co., supra, 144 Cal.App.3d at p. 652.)

The appellate court affirmed.   It held that “plaintiff's only responsibility is to plead that defendant's interference is somehow wrongful.  [A plaintiff] can plead this by alleging nonjustification, but he is under no obligation to do so, as long as he alleges some facts that take defendant's actions out of the realm of legitimate business transactions.”  (Rickel v. Schwinn Bicycle Co., supra, 144 Cal.App.3d at pp. 657-658.)   The court further explained, “The drafting of most complaints for interference with contract or prospective advantage is not affected by this requirement that a plaintiff allege some wrongful method or motive.   This is so because most cases involving these torts entail some patently wrongful conduct on the part of the defendant.   Thus, a typical example of the tort occurs when the defendant induces a third party to breach a contract with the plaintiff.   In such a case, the defendant's wrongful method-procuring the breach of a legally protected relationship-is apparent from the allegations of fact.”  (Id. at p. 659, emphasis added.)

TMS relies upon Rickel to argue that the jury was properly instructed.   According to TMS, Rickel establishes that wrongfulness is an element of the tort.   We disagree.   As the quoted excerpts from the opinion make clear, Rickel concerned pleading requirements, determined that the defendant's conduct must be “wrongful,” and noted that “wrongfulness” was often apparent from the allegations of fact pleaded in the complaint.   The court expressly found that justification and privilege were not an element of the offense, but constituted an affirmative defense.  (Rickel, supra, at p. 659.)

Thus, Rickel simply does not establish that wrongfulness is an element of the tort.   Because Rickel did not hold that wrongfulness is an element of the tort, and because there is no other authority to support TMS's argument, we conclude that the jury instructions were incorrect.   Wrongfulness should not have been included as an element of the tort.   Instead, the jury should have been instructed under BAJI No. 7.82.

Our conclusion is supported by other BAJI instructions.   For example, BAJI No. 7.86 concerns the privilege of competition.   It expressly states that the privilege of competition is an affirmative defense.   It further provides that wrongfulness is an element of the privilege:  “The essential elements of the privilege of competition are:  ․  [¶] 3.   The defendant did not use wrongful means;  ․”  (Emphasis added.)   In addition, BAJI No. 7.86.1 defines “wrongful means” as used in BAJI No. 7.86 and lists conduct that may be deemed wrongful.

The BAJI instruction scheme makes it clear that wrongfulness relates to the affirmative defense-the privilege of competition.   In other words, although the BAJI instructions refer to wrongfulness, they do so in the context of defining the affirmative defense.   Thus, to include “wrongfulness” as an element of the tort would throw the entire BAJI scheme into disarray.   Accordingly, not only is there no authority to support TMS's argument that wrongfulness is an element of the tort, there is also authority to the contrary, in the form of the BAJI instruction scheme.

Having concluded that the trial court erred in instructing the jury, we next consider whether reversal is required.   Reversal is only required if the error results in a miscarriage of justice.   If an error in jury instruction likely misleads the jury and affects its verdict, then the error is prejudicial and grounds for reversal.  (Henderson v. Harnischfeger Corp. (1974) 12 Cal.3d 663, 670;  see also Pool v. City of Oakland (1986) 42 Cal.3d 1051, 1070.)

Factors to be considered in determining whether prejudice exists are:  (1) the conflict in the evidence;  (2) the misleading effect of defendant's arguments to the jury;  (3) whether the jury asked that the instruction or related evidence be reread;  (4) the closeness of the jury's verdict;  and (5) whether other instructions might have remedied the error.  (LeMons v. Regents of University of California (1978) 21 Cal.3d 869, 876;  see also Pool v. City of Oakland, supra, 42 Cal.3d at p. 1070.)

In this case, there was conflicting evidence on wrongfulness.   Indeed, the issue of wrongfulness was the key issue in the case.   Further, although the jury did not ask for the instruction to be reread, the verdict was close.   The verdict was 9 to 3 in favor of TMS.

In addition, in closing argument, TMS emphasized that appellant was required to prove wrongfulness, and thereby contributed to the misleading effect of the instruction.   Defense counsel stated, “the thing I want you to keep in mind, what the jury instructions tell you is that plaintiff has to prove that the conduct we're talking about here, the export policy itself and the steps taken to enforce it was wrongful conduct.”  (Emphasis added.)

Defense counsel further stated, “Now, let's go on and talk about item three, which is really, I think, the guts of the case ․  [¶] The defendant intentionally engaged in wrongful acts or conduct designed to interfere with or disrupt the relationship.”  (Emphasis added.)

Further, defense counsel argued that “I submit to you that even if we have the burden of proof on that [justification], these are really the same elements that go into wrongful.”  (Emphasis added.)

Finally, other instructions contributed to the prejudicial effect.   For example, instruction number 22 elaborated on the requirement that appellant prove wrongfulness.   It stated that, “one of the essential elements that Pacific Motors must prove ․ is that the Lexus Division intentionally committed wrongful acts ․  Conduct is wrongful if it is outside the realm of legitimate business transactions․  Wrongfulness may lie in the method used or by virtue of an improper motive.”  (Emphasis added.)

Instructions relating to the affirmative defense of privilege may have further confused the jury.   Even though the jury was instructed that appellant was required to prove that TMS's conduct was wrongful, it was also instructed that TMS had to prove justification or privilege.   Since the jury instructions explained justification or privilege in terms of wrongfulness, the jurors may have ended up hopelessly confused.

In sum, the issue of wrongfulness was, as defense counsel himself stated, “the guts of the case.”   Defense counsel emphasized the issue in closing argument, the jury verdict was close, 9 to 3, and other instructions likely contributed to the error.   In these circumstances, we cannot say that the error did not affect the jurors' verdict.   For this reason, reversal is required.1

II. Cartwright Act

Appellant argues that the trial court erred in granting TMS's nonsuit motion of the cause of action for violation of the California Cartwright Act.   We disagree.

Business and Professions Code section 16721 provides, in pertinent part, “(a) No person within the jurisdiction of this state shall be excluded from a business transaction on the basis of a policy expressed in any document or writing and imposed by a third party where such policy requires discrimination against that person on the basis of the person's sex, race, color, religion, ancestry or national origin or on the basis that the person conducts or has conducted business in a particular location.  [¶] (b) No person within the jurisdiction of this state shall require another person to be excluded, or be required to exclude another person, from a business transaction on the basis of a policy expressed in any document or writing which requires discrimination against such other person on the basis of that person's sex, race, color, religion, ancestry or national origin or on the basis that the person conducts or has conducted business in a particular location.”  (Emphasis added)

Appellant contends that TMS's no export policy violated section 16721 because it was discrimination based upon the fact that appellant “conducts or has conducted business in a particular location.”  (Bus. & Prof.Code, § 16721.)   The trial court disagreed, and granted TMS's nonsuit motion.   We conclude that the trial court did not err.

By its express terms, the dealer agreement provides that “DEALER is authorized to sell LEXUS Motor Vehicles only to customers located in the United States.   DEALER agrees that it will not sell LEXUS Motor Vehicles for resale or use outside the United States.   DEALER agrees to abide by any export policy established by DISTRIBUTOR.”

Plainly, this policy is directed at the destination of the vehicle sold to the customer.   It is not directed at the “particular location” in which the customer conducts business.   The trial court found this to be true:  “The policy, itself, ․ is really just neutral.  [It h]as nothing to do with these things [listed in Section 16721].  [It s]imply [provides] no export anywhere out of the continental region.”

Further, appellant conducts his business in the United States.   As his complaint alleges, “Pacific Motors has developed a strong market for the sale of Lexus automobiles in the United States for subsequent export․  Pacific Motors' customers ․ purchase the cars in the United States, ․”

Finally, appellant has not cited any case applying section 16721 in these type of circumstances.   There is simply no authority to support his argument.   For these reasons, we conclude that the trial court did not err in granting TMS's nonsuit on the cause of action for violation of the California Cartwright Act.

Conclusion

The judgment entered against appellant on the claim for intentional interference with prospective economic advantage is reversed.   The judgment entered against appellant on the cause of action for violation of the California Cartwright Act is affirmed.   Costs on appeal to appellant.

FOOTNOTES

1.   Appellant submitted juror declarations with his motion for a new trial.   The trial court struck substantial portions of these declarations.   We have held that declarations which impugn jurors' mental processes or reasons for agreeing to the verdict or which attempt to show that the jurors did not make findings as to certain matters are inadmissible under Evidence Code section 1150.  (Gorman v. Leftwich (1990) 218 Cal.App.3d 141, 146.)   The portions of the declarations which the trial court struck plainly relate to these matters.   Accordingly, we affirm the trial court's ruling in this regard.

ELIA, Associate Justice.

COTTLE, P.J., and BAMATTRE-MANOUKIAN, J., concur.

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