SOUTHWESTERN FINANCIAL CORP v. KELLY JBK (1987)

FACTS AND PROCEEDINGS BELOW

The controversy involves breach of a motion picture distribution contract.   The plaintiffs are the film distributor, Ambassador Releasing, Inc., its successor in interest, Transamerica Productions, Inc., and Transamerica's parent company, Southwestern Financial Corporation.   The defendants are JBK Project I, a limited partnership, owner of the film;  John B. Kelly, the general partner;  and First American Films, another film distributor.

The distribution contract was made between Ambassador and R. John Hugh, the film's producer.   Subsequently, Transamerica became successor in interest to Ambassador's distribution rights ¹ and JBK purchased the film from Hugh subject to the contract with Ambassador.   While the contract was in effect Kelly took control of the film's original negative and refused to make it available to Ambassador.   Without the original negative Ambassador was unable to make prints of the film for distribution.

Ambassador sued JBK, Kelly and First American alleging breach of contract, wrongful inducement to breach the contract and conversion.   After a court trial the court found,

“JBK and Kelly knowingly breached the Agreement by taking the original negative and preprint materials for the film ․ from Capital Film Laboratories, Inc. ․ thereby preventing [Ambassador] from successfully distributing the film.

“By their conduct, JBK and Kelly deprived [Ambassador] of the opportunity to attempt to realize a profit from distributing the film․  Although it is impossible to measure with precision the value of this profit, a reasonable measure is 50% of the $100,000 personal fee realized by Kelly, i.e., the sum of $50,000.

“Southwestern, Transamerica and Ambassador performed all of the terms required on their respective parts to be performed under the Agreement, except to the extent such performance was prevented or excused by the conduct of JBK and Kelly.

“Kelly personally induced JBK to breach the Agreement and is liable for his actions even though he is not personally a party to the Agreement.

“By his conduct, Kelly deprived [Ambassador] of the opportunity to attempt to realize a profit from distributing the film ․ in the sum of $50,000 (which is the same, and not in addition to, the profit noted above), and caused Southwestern to lose the $58,000 of funds loaned which are attributable to the film.”

The court awarded Transamerica attorney's fees of $23,198.70 pursuant to the attorney's fees clause of the contract.   The court found no liability on the part of First American but held it was not a prevailing party under the contract.

The contentions on appeal fall into four categories:  (1) liability of JBK for breach of contract;  (2) liability of Kelly for inducing JBK to breach the contract;  (3) the amount of the attorneys' fees award;  and (4) failure to award attorney's fees to First American.

DISCUSSION

I. LIABILITY OF JBK FOR BREACH OF CONTRACT

JBK argues it cannot be liable for breach of contract because at the time of the alleged breach Ambassador had already assigned all its assets, including its interest in JBK's film, to Transamerica and was therefore unable to perform its distribution obligations.

 Whether Ambassador retained the ability to perform was a question of fact.   The trial court found Ambassador and Transamerica had the ability to perform and the evidence supports this finding.   George Craker was an executive of Ambassador and, later, Transamerica.   He testified that although Ambassador ceased operations in February 1976 he continued to work on the distribution of the film when he joined Transamerica.   Albert Seeburger, president of Transamerica, testified to efforts made to distribute the film after assignment from Ambassador.

JBK also argues even if Transamerica had the ability to distribute the film it could not do so because the distribution contract prohibits the assignment of Ambassador's obligations.

 We disagree.   The contract prohibits “[an] assignment, the effect of which would serve to release either of the parties from their duties ․ or obligations․”  This is essentially an incorporation of Civil Code section 1457 which provides, “The burden of an obligation may be transferred with the consent of the party entitled to its benefit, but not otherwise․”  Therefore, cases construing section 1457 are applicable to this provision of the contract.   Those cases hold section 1457 does not prohibit a third person assuming obligations of a contract between other parties, but only that the assignment does not relieve the assignor from its obligations without the consent of the creditor.  (E.g., Britschgi v. McCall (1953) 41 Cal.2d 138, 144, 257 P.2d 977;  Wiseman v. Sklar (1930) 104 Cal.App. 369, 374, 285 P. 1081.)   Thus, under the contract Ambassador could assign its rights, including its right to distribute the film, but could not relieve itself of obligations owed JBK such as dispersing the profits in accordance with the contract formula and using its best efforts to maximize revenues.

Furthermore, the contract contemplates others may be involved in distribution of the film.   Paragraph 11.A recognizes Ambassador's right, within the licensed territory, to “license or authorize any other person or company ․ to produce, distribute, or exhibit the film.”   Paragraph 9 recognizes Ambassador's “right to enter into such arrangement or association as it shall deem advisable in connection with the financing of the distribution ․ of the film․”

We conclude, therefore, JBK's breach of contract was not excused by inability to perform on the part of Ambassador.

JBK next argues even if it did breach the contract with Ambassador there was no evidence of damage to Ambassador and certainly no evidence to support the $50,000 awarded by the trial court.   We find there was sufficient evidence JBK's breach of contract resulted in lost profits and that the trial court reasonably calculated the damages based on the best evidence available.

 Marketing a new film is like starting a new business:  both activities involve a degree of risk and profit is speculative to a greater or lesser degree depending on the circumstances.   Nevertheless, courts have upheld damage awards for loss of prospective profits on new businesses and new films where there is reasonably reliable evidence profits would have accrued but for defendant's breach of contract.  (A & M Produce Co. v. FMC Corp. (1982) 135 Cal.App.3d 473, 494, 186 Cal.Rptr. 114;  Skirball v. RKO Radio Pictures, Inc. (1955) 134 Cal.App.2d 843, 865, 286 P.2d 954.)   The likelihood of profit can be shown by the plaintiff's experience in the field, the quality of the product and by expert opinion.  (A & M Produce Co., supra, 135 Cal.App.3d at p. 494, 186 Cal.Rptr. 114;  Skirball, supra, 134 Cal.App.2d at p. 865, 286 P.2d 954;  S. Jon Kreedman & Co. v. Meyers Bros. Parking-Western Corp. (1976) 58 Cal.App.3d 173, 185, 130 Cal.Rptr. 41.)   Here, the evidence showed George Craker, who was in charge of distribution at Ambassador, was an experienced film distributor.   He had ten years' experience in motion picture distribution including four years as executive vice-president of Ambassador.   The film starred known actors, Carl Betz and Dina Merrill, and was in the genre of films about the rich and powerful which was popular at the time.   Furthermore, it was Craker's opinion the film would make a profit in theatrical release if certain changes were made.   The trial court found Ambassador never had the opportunity to obtain these changes and distribute the film because JBK, through Kelly, took the original negative and breached its contract with Ambassador.   Even without these changes, the evidence shows Ambassador did enter into a television distribution agreement for the film.   Thus, there was sufficient evidence for the trial court to find the film would have made a profit if Ambassador had been allowed to perform under the contract.

Although the law requires the fact of damage be proved with reasonable certainty it does not require the same certainty as to proof of the amount of damages.  (Milton v. Hudson Sales Corp. (1957) 152 Cal.App.2d 418, 434, 513 P.2d 936.)  “ ‘The most elementary conceptions of justice and public policy require that the wrongdoer shall bear the risk of the uncertainty which his own wrong has created․’ ”  (Speegle v. Board of Fire Underwriters (1946) 29 Cal.2d 34, 46, 172 P.2d 867, quoting Bigelow v. RKO Radio Pictures, Inc. (1946) 327 U.S. 251, 265, 66 S.Ct. 574, 580, 90 L.Ed. 652.)   This does not authorize an award of damages based entirely on speculation or guesswork.  (Broadway Photoplay Co. v. World Film Corp. (1919) 225 N.Y. 104, 121 N.E. 756, 758 [Cardozo, J.].)   It does authorize an award based on the best evidence that can be adduced given the nature of the case.  (Record Machine & Tool Co. v. Pageman Holding Corp. (1955) 132 Cal.App.2d 821, 824, 283 P.2d 724.)   As Justice Cardozo observed, “The rule of damages must give true expression to the realities of life.”  (Broadway Photoplay, supra, 121 N.E. at p. 757.)   And, as our Supreme Court observed, “In these situations, trial courts must do the best they can and use all available facts to approximate the fair and reasonable damages under all the circumstances.”  (Green v. Superior Court (1974) 10 Cal.3d 616, 639, 111 Cal.Rptr. 704, 517 P.2d 1168.)   Thus, the law will allow reasonably calculated damages even if the result is only an approximation.  (Guntert v. City of Stockton (1976) 55 Cal.App.3d 131, 143, 126 Cal.Rptr. 690, 127 Cal.Rptr. 602.)

The trial court calculated damages on the basis of the $100,000 fee Kelly charged the partnership for his services as a general partner.   The court awarded Ambassador 50 percent of the fee.   We disapprove this calculation because it bears no rational relationship to Ambassador's lost profits.   Although Ambassador attempts to state a rationale for the award that attempt is based on a combination of speculation and facts not in evidence.   The court's rationale bears some resemblance to a calculation of punitive damages but punitive damages are not generally allowed in a breach of contract action.   (Civ.Code, § 3294.)   The court did not find Kelly guilty of oppression, fraud or malice.

Our disagreement with the trial court's method of calculating damages, of course, does not compel us to reverse the judgment.  (D'Amico v. Board of Medical Examiners (1974) 11 Cal.3d 1, 18–19, 112 Cal.Rptr. 786, 520 P.2d 10.)   We uphold the damage award because there is sufficient evidence to support it as a reasonable approximation of Ambassador's lost profits.   George Craker testified it was his opinion the film could net $200,000 profit to Ambassador if certain changes were made.   He estimated the changes would cost between forty and sixty thousand dollars.   Albert Seeburger, president of Transamerica, also testified in his opinion the film would net a $200,000 profit to Ambassador.   Cracker and Seeburger's opinions are admissible on the issue of the amount of lost profits.  (Cf. Skirball v. RKO Radio Pictures, Inc., supra, 134 Cal.App.2d at p. 865, 286 P.2d 954.)

 Reducing the original profit estimate by the cost of the suggested changes and reducing it still further on the basis the film may have been a real turkey, as one expert testified, the sum of $50,000 is a reasonable approximation of the profit Ambassador could have earned from the film.

II. LIABILITY OF KELLY FOR INDUCING JBK TO BREACH THE CONTRACT

 This case presents a question of first impression in California:  can the general partner of a limited partnership commit the tort of inducing his own partnership to breach a contract?   Here, the trial court found the general partner, Kelly, personally liable for inducing the limited partnership, JBK, to breach its contract with Ambassador.   For the reasons discussed below, we hold, as a general rule, a general partner cannot be held liable for inducing the partnership to breach its contract.²

It was established in Dryden v. Tri-Valley Growers (1977) 65 Cal.App.3d 990, 998–999, 135 Cal.Rptr. 720, an action for inducing a breach of contract will not lie against a party to the contract.   It is also the rule in California, generally, a limited partnership is not a legal entity, but an association of individuals.  (Bedolla v. Logan & Frazer (1975) 52 Cal.App.3d 118, 127, 125 Cal.Rptr. 59;  Donroy, Ltd. v. United States (9th Cir.1962) 301 F.2d 200, 206–207.) ³  Within this association of individuals, management and control is trusted to the general partner.  (Bedolla, supra, 52 Cal.App.3d at p. 126, 125 Cal.Rptr. 59.)   If the partnership is an aggregation of parties and the general partner their mutual agent, we cannot consider Kelly a separate party to this litigation.   Kelly is a party to the contract and cannot induce his own breach.   Our holding is consistent with the result reached by courts in other jurisdictions which have considered this issue.  (Cf. Gulickson v. Forest, supra, 290 F.Supp. at p. 468;  Battista v. Lebanon Trotting Ass'n. (6th Cir.1976) 538 F.2d 111, 116;  Braden v. Perkins (1940) 174 Misc. 885, 22 N.Y.S.2d 144.)

Ambassador argues a separate contract existed between it and Capital Film Laboratories pertaining to Ambassador's right of access to the negative and other preprint materials for the film.   It argues JBK was not a party to this access agreement and, therefore, Kelly could be liable for inducing Capital to breach this agreement with Ambassador.

This argument is inconsistent with Ambassador's complaint and the trial court's finding.   The complaint does not allege separate access agreements.   It alleges R. John Hugh, JBK's predecessor in interest, “entered into an Access Agreement with Ambassador and Capital․”  The trial court found there was an “agreement” and “JBK and Kelly knowingly breached the Agreement by taking the original negative and preprint materials for the film ․ from Capital Film Laboratories.”   Obviously, Kelly could not have breached an agreement to which he was not a party.   If he was a party, as the court found, he could not induce his own breach.   Furthermore, we find no support for the notion that because a contract has three parties it is necessarily three separate contracts.   Finally, we note that while the trial court found “Kelly personally induced JBK to breach the Agreement” it made no finding Kelly induced Capital to breach the agreement.

III. THE AMOUNT OF ATTORNEY'S FEES TO TRANSAMERICA

Pursuant to the contract and Civil Code section 1717, the trial court awarded attorney's fees to Transamerica on its breach of contract claim.   Kelly objects to the award on the grounds he was not given an adequate opportunity to contest the amount sought by Transamerica and the award includes compensation for fees unrelated to issues involving the breach of contract claim.

Section 1717, subdivision (a) provides “[r]easonable attorney's fees shall be fixed by the court, upon notice and motion by a party․”  This provision clearly contemplates an opportunity for objection by opposing parties but neither section 1717, the California Rules of Court, nor the Los Angeles Superior Court Rules specify a time within which such objection must be filed.   While this is a problem which should be addressed by the Legislature or a court in an appropriate case it is not a concern in the case at bar because the record shows a notice and motion for attorney's fees was filed and served on Kelly, and Kelly was given the opportunity to object to the amount of attorney's fees through his motion to vacate the judgment.   In any event, if there was procedural error it is irrelevant.   We are reversing the attorney's fees award because it plainly includes compensation for fees not compensable under the contract.

Initially, we have determined the objection to the amount of the award is properly before us on appeal.   The issue was preserved by Kelly's motion to vacate the judgment in which he argued the attorney's fees award included compensation for time spent on issues unrelated to Transamerica's breach of contract claim.   The evidence necessary to support the objection is contained in the record.   The objection is included in Kelly's opening brief and responded to in Transamerica's reply brief.

 “Where a cause of action based on the contract providing for attorney's fees is joined with other causes of action beyond the contract, the prevailing party may recover attorney's fees under section 1717 only as they relate to the contract action.”  (Reynolds Metals Co. v. Alperson (1979) 25 Cal.3d 124, 129, 158 Cal.Rptr. 1, 599 P.2d 83.)   Transamerica's complaint contained seven causes of action.   Only three were pursued at trial:  breach of contract, wrongful inducement to breach the contract and conversion.   The latter two causes of action are not related to enforcing the contract, yet the record reflects they consumed a substantial amount of trial and post-trial time.   They must have consumed substantial pretrial time as well.   Because the trial court awarded compensation for all the attorney time spent on the case, we can only conclude the court impermissibly compensated Transamerica for attorney's fees not recoverable under the contract.   The only other possibility is the trial court ignored Transamerica's time records and determined the amount of the award for the contract claim on the basis of what it deemed reasonable from its own experience and knowledge which, by coincidence, was the same amount, to the penny, claimed by Transamerica for the entire litigation.   For obvious reasons, we reject this possibility.

We recognize Transamerica is entitled to compensation for attorney time on issues which overlap compensable and non-compensable claims.  (Reynolds, supra, 25 Cal.3d at pp. 129–130, 158 Cal.Rptr. 1, 599 P.2d 83.)   There have been cases where the claims for relief are so intertwined it would be impracticable, if not impossible, to separate the attorney's time into compensable and non-compensable units.  (See, e.g. Fed-Mart Corp. v. Pell Enterprises, Inc. (1980) 111 Cal.App.3d 215, 227, 168 Cal.Rptr. 525.)   This is not such a case.   There are very few issues overlapping Transamerica's contract and tort claims.   Nor is there any showing, as there was in Fed-Mart, the trial court could not make an intelligent segregation of the hours spent on non-compensable issues.  (Id., at pp. 222–223, 168 Cal.Rptr. 525.)

IV. FIRST AMERICAN FILMS IS NOT ENTITLED TO ATTORNEY'S FEES UNDER THE DISTRIBUTION CONTRACT

 The distribution contract provides “the party in default agrees to pay any and all costs and expenses connected with the enforcement [of the contract], including a reasonable attorney's fee.”   First American is not entitled to attorney's fees under this provision because it did not defend against liability under the contract.   The complaint does not allege any connection at all between First American and the film distribution contract.

First American cites Manier v. Anaheim Business Center Co. (1984) 161 Cal.App.3d 503, 507, 207 Cal.Rptr. 508, for the general rule a litigant can recover contractual attorney's fees even if “the court determines the prevailing litigant was not a party or signatory to the contract․”  First American ignores the fact that in making this statement the court was referring to “[t]he prevailing party in an action based on a contract․”  (Ibid.;   italics added.)   It also ignores the rationale for the rule:  the plaintiff, having caused the defendant to defend against liability under the contract, is estopped to deny the defendant was a party to the contract.  (Ibid., and see Pas v. Hill (1978) 87 Cal.App.3d 521, 535–536, 151 Cal.Rptr. 98.)   Here, First American was not called upon to defend against an allegation it breached the film distribution contract.   Therefore it has no claim to attorney's fees under that contract.

DISPOSITION

The judgment for Transamerica is affirmed as to principal but reversed for redetermination of attorney's fees.   The judgment for Southwestern is reversed.   Each party shall bear its own costs on appeal.

FOOTNOTES

1.   Unless the context requires otherwise we will refer to the film distributor as Ambassador.

2.   In the case before us there were no findings Kelly conspired with others to induce the breach or that he acted in bad faith as to the partnership.   There are cases and commentaries suggesting either of these factors would result in the general partner's liability.  (See, e.g., Olivet v. Frischling (1980) 104 Cal.App.3d 831, 838, 164 Cal.Rptr. 87 [board of directors may be liable for conspiring to interfere with corporation's business relationship with plaintiffs];  The Savage Is Loose Co. v. United Artists, etc. (S.D.N.Y.1976) 413 F.Supp. 555, 560 [partner may be liable if he induces the breach for his own benefit or acts in bad faith];  Gulickson v. Forest (E.D.N.Y.1968) 290 F.Supp. 457, 468 [same];  Avins, Liability For Inducing A Corporation To Breach Its Contract (1957) 43 Cornell L.Rev. 55;  Note, Civil Conspiracy And Interference With Contractual Relations (1975) 8 Loyola L.Rev. 302.)   Because neither of these factors are present in this case we express no view on how their presence would affect a general partner's liability.

3.   There have been cases where a limited partnership was treated as a separate entity where necessary to effectuate the purposes of the partnership laws.  (See, e.g., Evans v. Galardi (1976) 16 Cal.3d 300, 128 Cal.Rptr. 25, 546 P.2d 313.)   But apart from “exceptional situations,” a partnership is not considered an entity.  (Reed v. Industrial Acc. Com. (1937) 10 Cal.2d 191, 192, 73 P.2d 1212.)

JOHNSON, Associate Justice.

LILLIE, P.J., and THOMPSON, J., concur.