Richard A. Denholm v. Houghton Mifflin Company and the Riverside Publishing Company

912 F.2d 357, 1990 U.S. App. LEXIS 14785, 1990 WL 121903

• Court: Court of Appeals for the Ninth Circuit
• Decided: August 27, 1990
• Docket: 87-5987
• Status: Published

Opinions

BRUNETTI, Circuit Judge:

Plaintiff-Appellant Richard Denholm (“Denholm”) sued his publisher, Houghton Mifflin Co. (“Houghton Mifflin”), and its wholly-owned subsidiary, Riverside Publishing Co. (“Riverside”) (collectively “Defendants-Appellees”), in Los Angeles Superior Court for tortious breach of contract and fraud arising out of a Letter Agreement to develop and publish a mathematics program for kindergarten through eighth grade. Appellees properly removed the case to the United States District Court for the Central District of California pursuant to 28 U.S.C. §§ 1441 & 1446, which had proper diversity jurisdiction under 28 U.S.C. § 1332(a).

The district court dismissed the fraud claim on judgment on the pleadings, as it was filed beyond the applicable three-year California statute of limitations for fraud claims. Cal.Civ.Proc.Code § 338(4). The court later dismissed the tortious breach of contract claim on summary judgment, as the parties did not have a special relationship as required by California law. However, the court allowed Denholm to proceed on an amended complaint alleging ordinary breach of contract claim.

Prior to trial, the court granted appel-lees’ motion in limine, excluding the presentation of evidence by Denholm of damages from lost royalties and loss of reputation. Thus, at trial the only evidence of damages presented was Denholm’s testimony as to the reasonable value of the time he had devoted to the project — $20,000. The jury returned a judgment on the verdict in favor of Denholm, awarding him $100,000, which was reduced on appellees' motion for a remittitur to $20,000. Denholm accepted the remittitur. The court issued an amended judgment vacating the judgment on the verdict and awarding Denholm $20,000 in accordance with the accepted remittitur.

Denholm timely appeals (1) the amended judgment; (2) the judgment on the verdict; (3) the pretrial order excluding evidence of damages for lost royalties and loss of reputation; (4) the summary judgment dismissal of the tortious breach of contract claim; and (5) the judgment on the pleadings dismissal of the fraud claim.¹ Defendants-Appellees have moved for dismissal of the appeal based on Denholm’s acceptance of the remittitur, relying on Donovan v. Penn Shipping Co., 429 U.S. 648, 97 S.Ct. 835, 51 L.Ed.2d 112 (1977).

Because Donovan bars the appeal of a remittitur order that a plaintiff has accepted, we dismiss Denholm’s appeal as to the amended judgment, the judgment on the verdict, and the pretrial order excluding evidence of damage for lost royalties and loss of reputation. Regarding Denholm’s remaining points of appeal, we affirm the district court’s dismissal of both the tor-tious breach of contract claim and the fraud claim.

I

ACCEPTANCE OF REMITTITUR

In Donovan the Supreme Court reaffirmed “the longstanding rule that a plaintiff in federal court, whether prosecuting a state or federal cause of action, may not appeal from a remittitur order he has accepted.” Donovan, 429 U.S. at 650, 97 S.Ct. at 837. However, Donovan only applies to an appeal attacking the correctness of the remittitur order, as a plaintiff may appeal from other parts of the judgment. 6A J. Moore & J. Lucas, Moore’s Federal Practice, ¶ 59.08[7], at 59-204 to -205 (2d ed. 1989). Determining what constitutes a part of the remittitur or another part of the judgment is a question of federal law, even in a diversity case, and state practices are not relevant. Donovan, 429 U.S. at 649, 97 S.Ct. at 836; Lanier v. Sallas, 777 F.2d 321, 325 (5th Cir.1985).

In Lanier the Fifth Circuit recently addressed the Donovan decision. A plaintiff had won a $100,000 verdict on a medical malpractice claim, but accepted a remittitur reducing the award to $50,000 rather than undergo a new trial. Lanier, 777 F.2d at 322. However, she then appealed the district court’s refusal to submit her punitive damages claim to the jury. Id. The Fifth Circuit found that the punitive damages and compensatory damages claims were “inextricably intertwined” and held that the acceptance of the remittitur barred the appeal of the court’s action regarding the punitive damages claim. Id.

In its analysis the Lanier court specifically ruled that under Donovan “the acceptance of a remittitur on one count of a complaint does not bar an appeal from an adverse judgment with respect to an entirely separate and distinct cause of action.” Id. at 325 (emphasis added).² The court then ruled that “[a] cause of action for punitive damages is not ... separate and distinct from the underlying claim for compensatory damages.” Id. (emphasis added). The court further noted that unlike the antitrust and fraud and deceit counts in Call Carl, Inc. v. BP Oil Corp., 554 F.2d 623, 625-27 (4th Cir.), cert. denied, 434 U.S. 923, 98 S.Ct. 400, 54 L.Ed.2d 280 (1977), the punitive damages claim was not distinct and could not be separately tried from the already tried compensatory damages claim. Lanier, 777 F.2d at 325-26. Rather, it was dependent on establishing liability for compensatory damages, as well as establishing malice or some other aggravating circumstance. Id. Therefore, remand of the punitive damages issue would necessitate retrial of the entire case, and under such circumstances, “acceptance of the remittitur must put an end to the litigation.” Id. at 326.³

We agree with the Fifth Circuit’s analysis and adopt the “separate and distinct” test enunciated in Lanier. Thus, in the present case we must analyze whether each issue on appeal is a separate and distinct cause of action from the subject of the remittitur.

Donovan clearly controls Den-holm’s first and second points of appeal, the amended judgment and the judgment on the verdict. The amended judgment is neither a separate nor distinct cause of action from the remittitur because it is the very subject of the remittitur, the ordinary breach of contract claim. The judgment on the verdict, like the amended judgment, is also neither a separate nor distinct cause of action; it also directly relates to the ordinary breach of contract claim. Because Denholm does not dispute his acceptance of the remittitur, he consented to the amended judgment and the vacating of the judgment on the verdict. Although Denholm strenuously argues that he reserved his right to appeal when he accepted the remit-titur, such protestations are not relevant. Donovan, 429 U.S. at 649, 97 S.Ct. at 836. Thus, under Donovan, he effectively waived his right to appeal either judgment. Therefore, we dismiss his first and second points of appeal.

The remittitur also covers Denholm’s third point of appeal, the pretrial order excluding presentation of evidence of damages from lost royalties and loss of reputation. Denholm’s amended complaint stated a single breach of contract claim and sought only one type of damages: compensatory damages. Although he attempted to present evidence of lost royalties and loss of reputation, which was rejected by the court, as well as the reasonable value of his time devoted to the project, which was admitted, all of this evidence relates to his single breach of contract claim for compensatory damages, which was resolved by remittitur.⁴ The evidence of lost royalties and loss of reputation is therefore not separate and distinct from the already litigated breach of contract claim for compensatory damages and, under such circumstances, acceptance of the remittitur must put an end to the litigation of this claim. See Lanier, 777 F.2d at 326.⁵ We therefore dismiss Denholm’s third point of appeal.

However, we do not believe that the remittitur covers Denholm’s final two points of appeal, the dismissals of the tor-tious breach of contract and fraud claims. Upon review of the procedural history of this case, we find both dismissed claims to be separate and distinct from the ordinary breach of contract claim resolved by the remittitur. The court dismissed both of these claims prior to the filing of the ordinary breach of contract claim. Moreover, these claims require different evidentiary showings from the ordinary breach of contract claim. Therefore, Denholm’s appeal of the order dismissing the tortious breach of contract claim and his appeal of the order dismissing the fraud claim are properly before this court.

II

SUMMARY JUDGMENT — TORTIOUS BREACH OF CONTRACT

Under California law, tort recovery for a breach of the covenant of good faith and fair dealing requires proof of a special relationship between the parties. Seaman’s Direct Buying Serv., Inc. v. Standard Oil Co., 36 Cal.3d 752, 768-69, 206 Cal.Rptr. 354, 362, 686 P.2d 1158, 1166 (1984); Wallis v. Superior Court, 160 Cal.App.3d 1109, 1116-18, 207 Cal.Rptr. 123, 127-29 (1984); Eichman v. Fotomat Corp., 880 F.2d 149, 169 (9th Cir.1989); Little Oil Co. v. Atlantic Richfield Co., 852 F.2d 441, 446 (9th Cir.1988). See also Foley v. Interactive Data Corp., 47 Cal.3d 654, 653, 254 Cal.Rptr. 211, 230, 765 P.2d 373, 392 (1988).

The characteristics of such a special relationship are:

(1) the contract must be such that the parties are in inherently unequal bargaining positions; (2) the motivation for entering the contract must be a nonprofit motivation, i.e., to secure peace of mind, security, future protection; (3) ordinary contract damages are not adequate because (a) they do not require the party in the superior position to account for its actions, and (b) they do not make the inferior party “whole”; (4) one party is especially vulnerable because of the type of harm it may suffer and of necessity places trust in the other party to perform; and (5) the other party is aware of this vulnerability.

Wallis, 160 Cal.App.3d at 1118, 207 Cal.Rptr. at 129. See Eichman, 880 F.2d at 169 (quoting Wallis); Little Oil, 852 F.2d at 446-47 (quoting Wallis).

The relationship in the instant case fails to meet any of the five criteria. Den-holm and his publishers were of equal bargaining stature, as Denholm had been active in publishing for over twenty years and had published more than forty textbooks as of 1985. The months of negotiation required to reach the Letter Agreement further illustrate the parties’ equality. That both parties entered the relationship for profit is beyond dispute. Furthermore, Denholm offers no evidence as to the inadequacy of ordinary contract damages, nor has he shown he is in any way vulnerable or of necessity placed any trust in his publishers. We find no evidence of a special relationship as required under California law and affirm the district court’s dismissal of the tortious breach of contract claim.

Ill

JUDGMENT ON THE PLEADINGS— FRAUD

Our review of the district court's judgment on the pleadings dismissing the fraud claim is properly limited to the contents of the complaint; we must accept all allegations of fact as true and resolve all doubts in favor of the pleader. Portland Retail Druggists Ass’n v. Kaiser Found. Health Plan, 662 F.2d 641, 647 (9th Cir.1981), cert. denied, 469 U.S. 1229, 105 S.Ct. 1230, 84 L.Ed.2d 368 (1985).

Under California law, fraud claims have a three year statute of limitations. Cal.Civ.Proc.Code § 338(4). A plaintiff on a fraud claim brought over three years after the commission of the fraud must “affirmatively excuse his failure to discover the fraud within three years after it took place, by establishing facts showing that he was not negligent in failing to make the discovery sooner and that he had no actual or presumptive knowledge of facts sufficient to put him on inquiry.” Hobart v. Hobart Estate Co., 26 Cal.2d 412, 437, 159 P.2d 958, 972 (1945) (citations omitted).

Such affirmation must be in the complaint. Silver v. Watson, 26 Cal.App.3d 905, 911, 103 Cal.Rptr. 576, 580 (1972) (“To obtain the benefit of the late-discovery exception to the statute of limitations, the complaint must allege facts showing that the cause of action could not with reasonable diligence have been discovered prior to three years before the suit.” (citations omitted) (emphasis added)); Holder v. Home Savings & Loan Ass’n, 267 Cal.App.2d 91, 110, 72 Cal.Rptr. 704, 717 (1968) (“[I]t is imperative that the plaintiff plead in his complaint facts showing the time and manner of the discovery of the fraud, and the facts which excuse the plaintiff’s failure to discover the fraud sooner.” (emphasis added)).

This rule is strictly adhered to and has resulted in the dismissal of poorly pleaded fraud claims. See, e.g., Orange County Rock v. Cook Bros. Equip. Co., 246 Cal.App.2d 698, 703, 55 Cal.Rptr. 265, 268 (1966) (“ ‘Formal averments or general conclusions to the effect that the facts were not discovered until a stated date, and that the plaintiff could not reasonably have made an earlier discovery, are useless.’ ” (quoting Allen v. Ramsay, 179 Cal.App.2d 843, 851, 4 Cal.Rptr. 575, 581 (1960), quoting II Witkin, California Procedure 1465)); Jackson v. Master Holding Corp., 16 Cal.2d 824, 828, 108 P.2d 673, 675 (1940) (“[E]ven under the most liberal relaxation of the rule [where] there is no showing of any inquiry at all, and no explanation is offered for the failure to make it except the vague averment that the facts were ‘concealed’ ... [t]he pleading simply fails to meet the minimum requirements of a complaint for fraud which is filed more than three years after its commission.”).

Denholm filed his complaint, which included the fraud claim, in April, 1985, almost five years after the commission of the June 26, 1980 alleged fraud, and almost two years after the expiration of the three year statute of limitations. In the fraud claim, he merely alleges:

Plaintiff discovered the fraud in March, 1984 when he learned that Defendants published a new mathematics program employing different authors. Pri- or to March, 1984, Plaintiff had no reason to suspect that Defendants would not employ him as promised.

Denholm thus did not affirmatively allege facts in his complaint showing that he was not negligent in failing to make discovery sooner as required by California law to excuse lateness of filing, nor did he affirmatively establish facts in his complaint that he was not on inquiry notice. Although Denholm contends that extrinsic evidence, a February, 1983, letter shows proof of concealment, our review is properly limited to the contents of the complaint, Portland Retail Druggists, 662 F.2d at 647, which alleges no such concealment. Therefore, we affirm the district court’s dismissal of the fraud claim.

Costs on appeal awarded to Houghton Mifflin and Riverside, defendants-appel-lees.

DISMISSED IN PART, AFFIRMED IN PART.

1 . Although Denholm’s notice of appeal did not list his appeal of the dismissal of the fraud claim, such a mistake is not fatal " 'as long as the intent to appeal a specific judgment can be fairly inferred and the appellee is not prejudiced or misled by the mistake.’ ’’ McCarthy v. Mayo, 827 F.2d 1310, 1314 (9th Cir.1987) (quoting United States v. One 1977 Mercedes Benz, 708 F.2d 444, 451 (9th Cir.1983), cert. denied, 464 U.S. 1071, 104 S.Ct. 981, 79 L.Ed.2d 217 (1984)) (citation omitted). It can reasonably be inferred that the notice of appeal intended to appeal all of the district court’s rulings. As appellees fully briefed the issue, they suffered no prejudice and were not misled. Thus, we will consider Denholm’s appeal of this issue.

2 . The Fourth Circuit also has recognized and applied a “separate and distinct” test. See Call Carl, Inc. v. BP Oil Corp., 554 F.2d 623, 625-27 (4th Cir.), cert. denied, 434 U.S. 923, 98 S.Ct. 400, 54 L.Ed.2d 280 (1977) (directed verdict on an antitrust count is appealable notwithstanding acceptance of a remittitur on a fraud and deceit count: "[T]he reasons for prohibiting direct appeals from remittiturs [do not] require such a result with respect to entirely separate and distinct causes of action once a remittitur has been accepted on one count of a complaint.” Id. at 627 (emphasis added)). See also Aaro, Inc. v. Daewoo Int'l (Am.) Corp., 755 F.2d 1398, 1400-01 (11th Cir.1985) (prior summary judgment on commissions from unshipped orders appealable notwithstanding acceptance of remittitur regarding tried claim on commissions from shipped orders: "[P]laintiffs appeal from ... an order completely unrelated to the remittitur order. Hence, the instant case is not governed by Donovan, and the plaintiffs’ appeal is proper." Id. at 1401 (footnote and citations omitted)).

3 . While we are mindful that the Lanier court did briefly discuss Ohio-Sealy Mattress Mfg. Co. v. Sealy, Inc., 585 F.2d 821 (7th Cir.1978), cert. denied, 440 U.S. 930, 99 S.Ct. 1267, 59 L.Ed.2d 486 (1979), as noted by the dissent, see dissent at 363, it endorsed and applied the "separate and distinct" test, focusing upon the inextricable intertwining of the two claims. See supra accompanying text; Lanier, 777 F.2d at 322, 325-26.

4 . The actual language of the court’s remittitur order specifically provided that "defendants’ motion for a remittitur should be, and the same hereby is, granted and defendants are awarded a new trial on the issue of damages, unless plaintiff accepts a remittitur of the verdict and judgment.” (emphasis added). This order, which addresses the trial and verdict on the single breach of contract compensatory damages claim in the complaint, necessarily encompasses all compensatory damage issues, including loss of royalties and loss of reputation.

We are unpersuaded by the dissent's position that the present case more closely resembles Sealy than Lanier. See dissent at 364. Sealy involved separate claims for both declaratory and injunctive relief, while Lanier involved a single claim and two interrelated measures of damages — compensatory and punitive. As in Lanier, the present case involves a single claim. While the dissent correctly notes that the excluded evidence of lost royalties and loss of reputation concerns separate measures of damages from the admitted evidence of the reasonable value of expended time, id., all of this evidence is directly related to the litigated breach of contract claim resolved by the accepted remittitur.

5 . As the dissent notes, Denholm could have appealed the court’s exclusion of evidence regarding lost royalties and loss of reputation if he had refused to accept the remittitur and, following the ensuing second trial, appealed the issue. sen dissent at 365-366. However, he knowingly chose to accept the remittitur, waiving his right to later appeal, and is bound by that decision.

While the dissent believes that this procedure is “a waste of time, money, judicial resources, and a disincentive to acceptance of remittitur,” see dissent at 366, the permissibility of the “either remittitur or new trial" decision has been uniformly accepted. See Dimick v. Schiedt, 293 U.S. 474, 55 S.Ct. 296, 79 L.Ed. 603 (1935); see also, 11C. Wright & A. Miller, Federal Practice and Procedure § 2815, at 100-103 (1973).