Richard A. DENHOLM, Plaintiff-Appellant, v. HOUGHTON MIFFLIN COMPANY and the Riverside Publishing Company, Defendants-Appellees.
No. 87-5987
United States Court of Appeals, Ninth Circuit
Argued and Submitted Oct. 6, 1989. Decided Aug. 27, 1990.
912 F.2d 357
Michael H. Diamond, Harriet S. Posner, Laura R. Medinnus, Skadden, Arps, Slate, Meagher & Flom, Los Angeles, Cal., for defendants-appellees.
Before TANG, HALL and BRUNETTI, Circuit Judges.
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
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.
Prior to trial, the court granted appellees’ motion in limine, excluding the presentation of evidence by Denholm of damages from lost royalties and loss of reputa
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 tortious 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 appеal 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
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 issuе on appeal is a separate and distinct cause of action from the subject of the remittitur.
Donovan clearly controls Denholm‘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 remittitur, 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
However, we do not believe that the remittitur covers Denholm‘s final two points of appeal, the dismissals of the tortious 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 сourt 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 Cаl.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. Denholm 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 contraсt damages, nor has he shown he is in any way vulnera
III
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 оf limitations.
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 discoverеd 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 discоvery, 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 thе 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. Prior 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 prоof of concealment, our review is properly limited to the contents of the complaint, Portland Retail Druggists, 662 F.2d at 647, which
Costs on appeal awarded to Houghton Mifflin and Riverside, defendants-appellees.
DISMISSED IN PART, AFFIRMED IN PART.
CYNTHIA HOLCOMB HALL, Circuit Judge, dissenting in part:
Although I concur in Parts II and III of the majority opinion as well as much of Part I, I must dissent from the conclusion in Part I that Denholm may not appeal the pretrial order excluding evidence regarding lost royalties and loss of reputation because he accepted remittitur. The majority today adopts a sweeping and unnecessarily mechanistic view of which issues on appeal are sufficiently related to a remittitur order to trigger application of the longstanding rule that a plaintiff in federal court who accepts an order of remittitur may not appeal that order. See Donovan v. Penn Shipping Co., 429 U.S. 648, 650, 97 S.Ct. 835, 837, 51 L.Ed.2d 112 (1977) (per curiam). Persuaded by the Fifth Circuit‘s decision in Lanier v. Sallas, 777 F.2d 321, 325 (5th Cir.1985), the majority opinion embraces an analysis that focuses on “whether each issue on appeal is a separate and distinct cause of action from the subject of the remittitur.” Majority Opinion at 360 (emphasis added). Unfortunately, this analysis oversimplifies both the Lanier decision and the nature of the events which occurred below in the instant case, leading to an absurd result.
I
Contrary to what the majority implies, the Fifth Circuit in Lanier never stated that only “separate and distinct cause[s] of action” from the subject matter of a remittitur order may be appealed. Instead, the Fifth Circuit began its analysis with the uncontroversial proposition that in spite of a plaintiff‘s acceptance of remittitur on one cause of action, he may appeal the district court‘s ruling on a separate and distinct cause of action. See id. at 325.1 The court then proceeded to acknowledge “the slightly broader proposition that ‘[a] plaintiff may, however, appeal from other parts of the judgment,‘” id. (quoting 6A J. Moore, Moore‘s Federal Practice ¶ 59.08[7], at 59-205 to 206 (1984)), without stating which formulation was preferable. Indeed, the Lanier court cited 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 an example of the “broader proposition” regarding appealability, and then proceeded to distinguish rather than criticize it. Lanier thus cannot be read as establishing the appealability only of “separate and distinct cause[s] of action.”
Lanier acknowledged with apparent approval that the Sealy court “permitted a plaintiff who had accepted a 50% remittitur on the award of damages to appeal the district court‘s denial of injunctive relief.” 777 F.2d at 325. Thus, the situation in Sealy was similar to the situation in the instant case in that both involve a plaintiff suing on a single cause of action yet seeking two types, or measures, of damages.2
The same could be said, of course, of the situation in Lanier itself, where a plaintiff suing on a legal malpractice theory sought
In any event, Sealy is much closer to the instant case than Lanier is. For both Sealy and this case concern a single theory of liability with two separate measures of damages, either of which can be awarded without regard to whether the other is awarded. Lanier, by contrast, concerns a single theory of liability with two interrelated measures of damages, one of which cannot be awarded unless the other is first awarded.
Perhaps the difference, is there is one, between Lanier and Sealy is that in Lanier the evidence that would be prеsented in a claim for punitive damages would necessarily consist of largely the same evidence that had already been considered with regard to actual damages, whereas the important factors in a claim for injunctive relief in Sealy would have to go much further, encompassing traditional equitable considerations. Houghton Mifflin‘s attorney focused on this difference at oral argument; she explained Lanier as establishing that when consideration of an issue will require presentation of the same evidence that was considered in the issue that was the subject of the remittitur order, the new issuе cannot be appealed.4 But even if this reading of Lanier is correct, surely this case more closely resembles Sealy than it does Lanier, for Denholm is seeking to introduce entirely new evidence about royalties and reputation. He is not, as was the case with the appellant in Lanier, attempting to have the jury draw inferences of malice from the very same evidence that was considered in the action for compensatory damages.
II
Once the majority‘s misguided reliance on Lanier is placed to one side, it is easy to see why the “separate and distinct cause of action” requirement works a pointlessly harsh result. The district judge in this case granted appellees’ motion in limine to exclude the presentation of Denholm‘s evidence concerning damages from lost royalties and loss of reputation. At trial, Denholm made an offer of proof regarding lost royalty income, which the judge denied. At this point the judge specifically informed the jury that evidence of lost royalties or lost reputation would not be admitted. The judge‘s jury instructions also admonished the jury not to award damages for potential lost royalties. The only evidence actually presented at trial of Denholm‘s damages was testimony to the ef
Surely the jury erred, since it had not been presented with any evidence whatsoever regarding Denholm‘s damages apart from the testimony regarding $20,000. Yet I fail to see how the majority can fairly characterize the in limine motion as directly related to the remittitur order accepted by Denholm. Although the remittitur order awarded a new trial generally “on the issue of damages[] unless plaintiff accepts a remittitur of the verdict and judgment,” only by wilfully blinding itself to context can the majority disclaim that this ordеr necessarily referred only to what had been presented at trial: damages for the value of Denholm‘s time spent preparing his book series. The subject of the in limine order—whether Denholm could collect damages for lost royalties and loss of reputation—involved the same underlying breach of contract cause of action that the jury ultimately was called upon to decide, but it obviously represented an entirely different measure of damages from the reasonable-value-of-time-spent measure submitted to the jury at trial. Consequently, Judge Hauk‘s remittitur order represented a decision that the jury‘s verdict did not conform to the evidence introduced at trial regarding the value of Denholm‘s time; it did not decide anew whether lost royalties and/or loss of reputation damages were awardable.5
In short, the remittitur order concerned a breach of contract trial whose parameters were strictly limited on the question of damages to the reasonable value of plaintiff‘s time spent on the project. As such, the trial necessarily decided only two things: 1) defendants had breached their contract with Denholm; and 2) the value of Denholm‘s time spent on the project was $100,000. The court‘s remittitur order, by reducing the $100,000 to $20,000, itself necessarily also addressed only the value of Denholm‘s time. The order had nothing to do with lost royalty or loss of reputation damages.6 By concluding otherwise simply because the remittitur order was broadly worded, the majority inexplicably ignores the circumstances that led to the issuance of the order.
The majority posits a bright-line rule which is easily applied. Unfortunately, this is about all that the rule has to recommend itself. For it leaves no way for Denholm to appeal the district court‘s grant of the in limine motion in a reasonable amount of time. In the typical remittitur situation, the plaintiff has the option of having a second trial, where he may presumably offer better witnesses and more convincing evidence and hence win a favorable jury verdict that the court will not disturb. At the very least, the possibility looms that while the second jury might award an amount identical to that awarded by the first jury based upon similar evidence, the court might at that point take pause and allow the award to stand. But in the instant case, the judge made a pretrial decision to exclude certain types of evidence. It is obvious that he would exclude the identical evidence at a retrial. Thus, under the “separate and distinct cause of action” rule, the only way for an appellant like Denholm ever to obtain appellate review of the initial in limine order would be to suffer through a second trial that he knows will not help him obtain recovery for the only real damages he has ever alleged, and then appeal.7 This strikes me as a waste of time, money, judicial resources, and a disincentive to acceptance of remittitur. Cf. Aaro, Inc. v. Daewoo Int‘l (Am.) Corp., 755 F.2d 1398, 1401 n. 6 (11th Cir.1985). Denholm does not argue here that the reasonable value of the time that he devoted to thе mathematics project should properly exceed $20,000. Instead, he argues the separate issue that he was unable to present evidence to the jury concerning lost royalties and reputation damage.
I would adopt the view that plaintiffs may appeal from “an order completely unrelated to the remittitur order,” id. at 1401, in a functional sense; see 6A J. Moore & J. Lucas, Moore‘s Federal Practice, ¶ 59.08[7], at 59-204 to -205 (2d ed. 1989) (although “a plaintiff in federal court may not appeal from a remittitur order he has accepted,” he may “appeal from other parts of the judgment.“) (emphasis added). Consequently, I would allow Denholm to appeal the ruling on the in limine motion.