Cal. Crane School v. Nat. Commission for Certification ( 2014 )

Filed 5/8/14
CERTIFIED FOR PARTIAL PUBLICATION*
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIFTH APPELLATE DISTRICT
CALIFORNIA CRANE SCHOOL, INC. et al.,
F063727
Plaintiffs and Appellants,
v. (Super. Ct. No. CV53859)
NATIONAL COMMISSION FOR
CERTIFICATION OF CRANE OPERATORS et OPINION
al.,
Defendants and Respondents.
APPEAL from a judgment of the Superior Court of Tuolumne County. James A.
Boscoe, Judge.
Alioto Law Firm, Joseph M. Alioto, Theresa D. Moore, Jamie Miller; Law Offices
of Jeffery K. Perkins and Jeffery K. Perkins for Plaintiffs and Appellants California
Crane School, Inc. and John Nypl.
Law Office of James M. Dombroski, James M. Dombroski; Law Offices of
Jeffery K. Perkins and Jeffery K. Perkins for Plaintiffs and Appellants Timothy Maxwell,
Jared Maxwell, Vladimir Nypl and Joshua Larsen.
Parsons Behle & Latimer, John N. Zarian and Brook B. Bond for Defendants and
Respondents.
-ooOoo-
* Pursuant to California Rules of Court, rules 8.1105(b) and 8.1110, only the
Introduction, part II.A.1. of the Discussion and the Disposition are certified for
publication.
INTRODUCTION
California requires all crane operators to be certified. (Cal. Code Regs., tit. 8,
§ 5006.1.) Respondent National Commission for Certification of Crane Operators
(NCCCO) is the only nonunion certifying entity in the state. To be certified, applicants
must pass NCCCO’s written and practical exams. NCCCO contracted with respondent
International Assessment Institute (IAI) to develop and administer the exams.
Appellant John Nypl owns and operates appellant California Crane School, Inc.
(CCS), a training facility for those seeking to pass NCCCO’s operator certification
exams. Nypl improperly obtained copies of NCCCO’s secure exams and used them to
train CCS’s students. NCCCO sued Nypl and CCS. To settle the action, Nypl and CCS
agreed to be subject to administrative sanctions that precluded Nypl from acting as a test
site coordinator and practical examiner and barred CCS from being listed as a training
facility on the NCCCO Web site. According to respondents, CCS and Nypl repeatedly
engaged in conduct to circumvent the sanctions. According to appellants, after Nypl
refused to join a price-fixing agreement with competing schools, most of whom control
NCCCO, NCCCO and IAI blocked Nypl’s legitimate attempts to operate CCS despite the
sanctions. Appellants alleged that respondents’ concerted refusals to deal with them
constituted an illegal boycott.
Appellants sued respondents for Cartwright Antitrust Act violations (Bus. & Prof.
Code,1 § 16700 et seq. (Cartwright Act)), unfair competition and related business torts.
The court sustained demurrers to the Cartwright Act and unfair competition claims and
the jury found for respondents on the remaining interference with business relationships
claim.
1 Further statutory references are to the Business and Professions Code unless stated
otherwise.
2.
Appellants appeal contending: (1) the court erred in sustaining the demurrer
because the complaint alleged an illegal group boycott;2 (2) the court abused its
discretion in refusing appellants sufficient time to put on their case; (3) the court erred in
admitting evidence of appellants’ misconduct that was “[r]eleased and [d]ischarged”
pursuant to the settlement agreement; and (4) the court erred in instructing the jury in six
regards.
We will set forth the trial evidence and address the trial issues first. We will then
address the order sustaining the demurrers. We will affirm as to the trial issues; we will
reverse the ruling on the demurrer to the antitrust causes of action.
I. FACTS AND PROCEDURAL HISTORY⃰
A. Procedural History
The trial court sustained respondents’ demurrer to the antitrust violations alleged
in the third amended complaint without leave to amend. Subsequently, the trial court
granted summary adjudication on the breach of contract cause of action and on the
interference with contract and business relationships claims of all appellants except Nypl
and CCS. Nypl and CCS went to trial on their breach of contract and interference with
business relationships claims against NCCCO and IAI only. At trial, the court granted
respondents’ motion for nonsuit on the intentional interference with contractual
relationships claim. The jury, after deliberating for not quite a day, returned a verdict in
favor of NCCCO and IAI on appellants’ interference with the business relationships
cause of action and judgment was entered accordingly.
2 Appellants do not challenge the trial court’s decision to sustain the demurrer to
their unfair competition and false advertising cause of action.
⃰ See footnote, ante, page 1.
3.
B. Trial Evidence
1. The Parties
Appellants are CCS; John Nypl, who owns and operates CCS; Timothy Maxwell,
a friend of Nypl’s who worked for CCS, whose application to be a NCCCO test site
coordinator was denied; Jared Maxwell, Timothy Maxwell’s son, who assisted Nypl at
CCS and whose status as a test site coordinator and accredited practical examiner for
NCCCO was suspended; Joshua Larsen, who assisted Nypl and operated AAA Crane
School, and whose status as a test site coordinator and accredited practical examiner for
NCCCO was revoked; and Vladimir Nypl, Nypl’s brother, whose application to be a
NCCCO accredited practical examiner was denied.
Respondents are NCCCO, a nonprofit industry organization that administers crane
operator exams and certification programs in several states, including California; Graham
Brent, the executive director of NCCCO, and Robert Hornauer, who is NCCCO’s
manager of test integrity; IAI, a for-profit company that assists in the development and
administration of NCCCO’s written and practical examinations, and IAI’s president,
Anthony Mitchell, Ph.D.
2. Crane Operator Certification
a. Applicable regulations
In 2005, pursuant to Labor Code section 142.3, subdivision (a)(1), the California
Occupational Safety and Health Standards Board (Cal-OSHA) adopted California Code
of Regulations, title 8, section 5006.1, which prescribes crane operator qualifications and
certification. To be certified, a crane operator must pass a written examination
“developed, validated, and administered in accordance with [specified standards],” which
tests the knowledge and skills necessary for safe crane operations. A crane operator must
also pass a practical examination to demonstrate proficiency in operating the specific type
of crane for which certification is sought. (Cal. Code Regs., § 5006.1, tit. 8, subd. (a)(3)
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& (4).) Certificates are valid for five years and crane operators must recertify every five
years. (Id., subds. (b) & (d).)
Cal-OSHA does not certify crane operators. Rather, it accepts crane operator
certifications issued by NCCCO as sufficient evidence of compliance with its California
Code of Regulations, title 8, section 5006.1 minimum proficiency requirements.
California Code of Regulations, title 8, section 5006.1, subdivision (c), specifies
that an “Accredited Certifying Entity” shall issue the certificate of competency. The
regulation defines an accredited certifying entity as “any organization whose certification
program is accredited by either the National Commission for Certifying Agencies
(NCCA), or the American National Standards Institute (ANSI).” NCCCO, which is
accredited by NCCA and ANSI, is one of two accredited entities that issues certificates to
operate commercial cranes in California pursuant to the Cal-OSHA regulations. The
other accredited entity issues certificates only to its labor union members.
To maintain their accreditation with ANSI, NCCCO is subject a rigorous annual
audit of its certification process.
b. California Code of Regulations, title 8, section 5006.1
California Code of Regulations, title 8, section 5006.1, subdivision (a)(4),
provides that crane operator certificates shall be issued to operators who “[p]ass a ‘hands-
on’ examination to demonstrate proficiency in operating the specific type of crane, which
at a minimum shall include pre-start and post-start inspection, maneuvering skills,
shutdown, and securing procedures.”
NCCCO does not test prestart and poststart inspections during the practical exam.
It tests those elements as part of the written exam. While NCCCO does not comply with
“the literal statement of the code,” it follows the regulation as interpreted by Cal-OSHA.
NCCCO has worked closely with Cal-OSHA over the years. Hornauer attends the
monthly Cal-OSHA Standards Board meetings. The Standards Board oversees the
development and adherence to regulations in California. NCCCO has never been told
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that its testing program does not comply with California Code of Regulations, title 8,
section 5006.1. Larry McCune, the Principal Safety Engineer for California, confirmed
that NCCCO’s testing program met the California requirement. Specifically, prestart and
poststart inspections may be tested on either the practical or the written exam.
c. NCCCO and IAI
NCCCO’s primary mission is to improve the safety of crane operations. NCCCO,
a nonprofit organization, has an unpaid nine member board of directors. The board
develops the strategic plan for the organization, monitors the performance of its
programs, approves the decisions of committees and task forces, and sets the testing fees
for its exams. Board members are selected by NCCCO’s commissioners. No crane
school operators served as board members at the time of trial, but some commissioners
were involved in crane operator training.
Pursuant to its by-laws, NCCCO’s commissioners are composed of individuals
associated with labor, crane users, crane manufacturers, owners, insurance companies,
government, regulatory and standard setting agencies and the public. NCCCO has no
members or shareholders. It is administered and managed by an executive director.
Brent has been NCCCO’s executive director since 1996.
IAI is a for-profit company that provides testing services. Mitchell has been IAI’s
president since 1997. Since 2002, IAI has provided testing services to NCCCO
exclusively. IAI agreed not to provide testing services to any competitor of NCCCO.
The services IAI provides include developing and maintaining the exams, accepting
applications from candidates, establishing test sites, assigning proctors and chief
examiners to administer the exams at the test sites, scoring the exams, providing the
results of the exams to the candidates, and maintaining records of the candidates and their
exam scores. IAI receives a portion of the testing fees each candidate pays to take the
various exams. IAI charges additional fees for late or incomplete applications and
cancellations, which IAI retains. IAI may refuse to score an exam, in consultation with
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NCCCO, if it suspects cheating or some other irregularity. IAI administers about 30,000
crane exams a year.
Neither NCCCO nor IAI are involved directly in the training of crane operators.
NCCCO’s and IAI’s only interest in the specific courses offered by training providers is
that the providers comply with NCCCO’s policies and procedures. NCCCO lists
approved training providers on its Web site. Placement on the NCCCO Web site is
important to a crane training school.
NCCCO has volunteer subject matter experts from the crane industry who write
the certifying exams. A very small percentage of them operate crane schools. Others
involved in the NCCCO certification testing process include test site coordinators and
accredited practical examiners. Test site coordinators act as liaison between NCCCO,
IAI and the training provider in arranging the written and practical examinations. They
collect candidate applications and ensure the test site is set up in compliance with
NCCCO’s requirements. NCCCO’s test site coordinators agree, in writing, to prepare the
test site in accordance with NCCCO’s directions, to comply with NCCCO’s policies and
procedures, to remain at the test site throughout the exam, and to not disclose any
confidential information they receive as a result of serving as coordinator.
The accredited practical examiners conduct practical exams in compliance with
NCCCO’s rules and policies, which are designed to keep the testing process standardized,
fair and reliable. To become an accredited practical examiner, a certified crane operator
must attend a three-day workshop where the practical examiner process is taught.
NCCCO conducts the workshop and supplies the instructor and course materials at the
workshop host’s site. Usually, companies who want their employees or representatives
accredited as practical examiners host the workshops. Once accredited by NCCCO, a
practical examiner works independently. NCCCO does not set fees for the practical
examiner’s services. The fees are agreed upon between the examiner and the crane
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operator candidate. For safety reasons, accredited practical examiners should be
proficient operators with significant crane experience.
NCCCO is required under the terms of its accreditation by NCCA and ANSI to
monitor the test site coordinators and accredited practical examiners. ANSI requires
NCCCO to conduct surveillance on the training providers. One of the methods NCCCO
uses to monitor quality control is to place a “secret shopper” at the test site. The secret
shopper attends the training course and takes the exams as if he were a regular candidate
without revealing his status.
NCCCO lists training schools or providers on its Web site as a public service. The
schools listed are not a formal part of the NCCCO program. Generally, the only contact
NCCCO has with training providers is if the providers act as test site coordinators or
practical examiners.
d. Crane operator certification process
To obtain certification from NCCCO, a crane operator must pass the relevant
NCCCO written exams. There is a basic core examination and a number of specialty
examinations that focus on the operation of various types of cranes. NCCCO’s exams are
“[s]ecure.” They are not intended to be shared with third parties. NCCCO does not
administer the exams itself but contracts with IAI, which develops and administers the
written and practical exams.
The process is as follows. A crane operator training school conducts the
classroom preparation, which can last from several days to a week. At the conclusion of
the classroom instruction, IAI sends an independent examiner to the class site to
administer the written exam and return the completed exams to IAI.
The test site coordinator, who usually is an individual associated with the crane
school or business conducting the training, acts on NCCCO’s behalf. The coordinator is
the point person at the test site. Generally, the test site coordinator collects the
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candidates’ applications, arranges the testing site, and ensures the site is set up in
compliance with NCCCO requirements.
While CCS and Nypl preferred to use their training classroom as the written test
site for CCS students, there were many “open” written test sites available where CCS
students could have tested throughout the state. In addition, the National Assessment
Institute operated monthly open test sites in Fairfield, Bakersfield and Orange County
where CCS students could test.
IAI’s role in the testing process included processing the applications of candidates
who applied to test at a particular place and time, preparing a roster of the test applicants
and the exams they were taking, and shipping the roster and exams to a chief examiner.
The chief examiner traveled to the test site, distributed the exams to the candidates, timed
and proctored the exam, collected the completed exams and returned them to IAI, who
scored them and reported the scores to the candidates.
The practical exams were generally scheduled after the written exams. The
practical exam site coordinator scheduled the practical exams with an accredited practical
examiner. The practical exam site coordinator then registered the candidates for the
exam and insured the test course was properly equipped and arranged. During the
practical exam, the accredited practical examiner observed the candidates operate the
cranes in completing specified maneuvers and tasks, and timed and scored their
performance on the NCCCO scoring form. At the conclusion of the exam, the practical
examiner sent the candidate’s application, testing fees and score sheet to IAI, who graded
the exam. According to NCCCO, it is important the accredited practical examiners
follow all rules and policies in order to keep the testing process fair and reliable.
For safety reasons, the practical examiners are experienced crane operators who
have gone through NCCCO’s three-day accreditation workshop. At the workshop, the
candidates learn how to set up the test site, where the various items involved in testing
are to be positioned, how to complete the score sheet, and IAI’s and NCCCO’s
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administrative requirements for submitting the score sheets. Neither NCCCO nor IAI
pay the practical examiners. A small percentage of practical examiners may make their
living by testing alone. But most examiners are connected with a construction company,
a crane rental company, or a training program and serve as a practical examiner as part of
their job.
3. CCS
Nypl, a certified crane operator, had run CCS since 2004, the year before
California implemented the regulation that required all crane operators to be certified.
Most of CCS’s students were already working in the crane field and needed the NCCCO
certification to comply with the law. CCS offered a one-stop certification preparation
process that included a three-day written and practical exam preparation course, a site to
take the written exam, and a site to take the practical exam upon completion of the
written exam.
CCS charged $1,795 for the three-day course and offered a guarantee to provide
unlimited additional course work to persons who failed the written test at no additional
cost. Historically, CCS’s pass rate for the written test was between 85 and 90 percent,
which was higher than the average pass rate. Other schools had longer training programs
and charged about $2,000. Nypl designed the instructional programs and did most of the
teaching for CCS at the University of Phoenix classrooms in Sacramento. As part of the
classroom preparation, Nypl prepared sample test questions for CCS’s students from
materials he obtained from other training schools. Early on, CCS used Coastline
Equipment’s yard and equipment for the practical exams. Later, Nypl purchased the
necessary cranes and equipment and used his own site for the practical exams.
Before September 2005, CCS was listed as a training provider on the NCCCO
Web site, which was crucial to attracting students to the new business. In 2004 and 2005,
CCS’s business grew rapidly and Nypl recruited others to help him with the training and
testing.
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4. Nypl Pays for NCCCO’s Secure Exams
In February 2005, Nypl paid IAI chief examiner Mona Perrine $700 for NCCCO’s
written exams. Nypl incorporated the exam questions into the CCS exam preparation
materials. Asked at trial how he felt about buying the tests, Nypl responded, “I probably
shouldn’t have done it. As … they weren’t of much help to me. Our pass rates were
pretty much the same before and after.… It was an opportunity that I now definitely
regret doing and putting myself in this type of situation with it.”
Robert Curtis, who worked for CCS at the time, witnessed the transaction between
Nypl and Perrine and became concerned about Nypl’s business practices. Curtis had seen
Nypl post test answers on a calendar in the test site location, without the knowledge of
the independent examiner, and saw Nypl coach non-English speakers with the actual test
answers to enable them to pass the test. Curtis resigned his employment, notified
NCCCO of the situation and provided materials to support his allegations. Among the
materials he provided were CCS course materials that included NCCCO exam questions
that were exact matches down to punctuation and spelling errors.
When Mitchell of IAI confronted Perrine about the incident, she was devastated
and contrite. She provided a declaration in which she admitted she sold NCCCO’s
current core examination and an additional examination to Nypl because she “was
desperate for money.”
5. The Federal Actions and Settlement Agreement
NCCCO’s board of directors found Nypl’s purchase of their secure exams and his
using them to teach the test “egregious,” and believed “the damage could be quite
significant [to] the entire program.” NCCCO sued Nypl and CCS for copyright
infringement and misappropriation of trade secrets. The case was settled quickly by
agreement of the parties in September 2005. As part of the settlement, Nypl and CCS
agreed to administrative sanctions that included: NCCCO cancelled the written test
administrations then scheduled for CCS students and would refuse Nypl’s future requests
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to administer written exams for CCS students. In addition, NCCCO removed CCS from
the list of training providers on its Web site, suspended Nypl and CCS from acting as test
site coordinators, suspended Nypl’s status as an accredited practical examiner, and barred
CCS from using any form of NCCCO’s logo in its materials. NCCCO agreed that within
a year, provided Nypl had not violated the settlement terms or injunction, NCCCO would
reinstate CCS to the list of training providers on the NCCCO Web site, Nypl and CCS
could apply for reinstatement as test site coordinators, and Nypl could apply for
reaccreditation as an NCCCO practical examiner.
CCS and Nypl also agreed that NCCCO’s representatives could, without notice,
monitor and inspect CCS’s test preparation seminars and teaching materials to insure he
was not using unauthorized NCCCO materials. And the parties agreed that the federal
district court would enter a permanent injunction restraining CCS and Nypl and their
employees, agents and representatives from engaging in a number of activities related to
the test materials and from the unauthorized use of NCCCO’s trademarks.
Mitchell and Brent understood that the settlement agreement barred Nypl from
hiring people to do the things the settlement agreement precluded him from doing. And,
IAI’s Test Site Coordinator Agreement, which every applicant to be a test site
coordinator was required to sign, stated, “I am acting on my own behalf and/or on behalf
of the company or organization set forth below, and not acting to circumvent a prior
NCCCO suspension or revocation.” The purpose of that statement was to make sure that
individuals subject to discipline would not simply turn over the responsibilities to their
secretary and continue to act as test site coordinators. It did not occur to Brent that the
sanctions would leave Nypl and CCS without access to test site coordinators and
accredited practical examiners for their students because there were many coordinators
and examiners available at the time.
12.
The parties disagreed as to whether each side had complied with their obligations
under the settlement agreement and permanent injunction. The details of those disputes
are set forth below.
Three years later, in 2008, after appellants filed this action, NCCCO filed a second
federal action asserting claims for breach of the settlement agreement and violation of the
permanent injunction. When Nypl was served with that complaint, he directed his Web
site person to stop redirecting traffic from a number of domain names that included
“CCO” to the CCS Web site. Nypl had hired Larsen to renew domain names that Nypl
was barred from using, in violation of the settlement agreement. The federal court found
CCS had violated the permanent injunction by retaining the use of 14 domain names
associated with NCCCO. Therefore, NCCCO was not obligated to reinstate CCS to its
Web site. Nypl testified that his breach of the settlement agreement was inadvertent. His
“web guys” were responsible.
6. Postsettlement Agreement Events
Shortly after the settlement agreement was signed, NCCCO was concerned that
Nypl was violating the agreement terms by his behavior at test sites and his hiring of
surrogates or proxies to perform the things he could not do under the settlement
agreement. Mitchell believed Nypl was hiring people who did not have the requisite
background as crane operators, was helping them pass the written and practical exams,
and then helping them become accredited practical examiners when they did not have the
background or skills to perform that function.
According to Mitchell, IAI had no problem with some of the individuals Nypl
hired to be practical examiners for CCS students because they performed with
“legitimacy.” Other individuals, however, received more scrutiny because many had
never been crane operators. Nevertheless, with Nypl’s assistance, they had passed the
exams to be certified crane operators and wanted to be accredited as practical examiners
with no actual crane operator experience. There was a concern that inexperienced
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individuals would not maintain the integrity of NCCCO’s program. Those inexperienced
individuals included appellants Joshua Larsen (Larsen), Tim Maxwell (Tim), Jared
Maxwell (Jared), and Vladimir Nypl (Vladimir).
Nypl understood he could continue to operate CCS as he had before the settlement
agreement, but he could not serve as a test site coordinator or a practical examiner. He
also could not use the NCCCO acronym in his advertising and CCS would no longer be
listed on the NCCCO Web site. Nypl’s initial solution to these limitations was to have
Larsen start AAA Crane School to serve as the testing arm of Nypl’s CCS training
operation. Larsen, a cabinet maker, had no prior crane experience, but had attended CCS,
had become a certified crane operator and an accredited practical examiner, and was
assisting Nypl at CCS in 2005. Larsen set up AAA Crane School and had it listed as a
training provider on the NCCCO Web site. The address for AAA Crane School was a
post office box in a UPS store and the AAA Crane School Web site registration page
directed candidates to send their $1,795 tuition payment to CCS. Nypl then merged CCS
and AAA Crane School into “one classroom.” The majority of the customers were
Nypl’s. Nypl did the training and Larsen handled the testing.
In September 2005, shortly after the settlement agreement was signed, Larsen
faxed IAI the applications from a number of candidates at AAA Crane School scheduled
to take the NCCCO written examination. Larsen told IAI that AAA Crane School was
not connected to CCS. However, the applications were faxed by Annie Nypl, Nypl’s
wife who served as bookkeeper for CCS, and the testing fees were paid by CCS.
According to Mitchell, after Nypl was suspended, Larsen took over CCS, renamed it
AAA Crane School and used the same Web site, but told Mitchell that AAA Crane
School was totally separate from Nypl and CCS.
In addition to the blurred distinction between CCS and AAA Crane School, other
issues arose with Larsen’s performance. In May 2006, Larsen, as the test site
coordinator, had scheduled a written exam. When IAI’s chief examiner arrived to
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administer the exam, Larsen was not at the site. Instead, Nypl was in the classroom
doing a course review with the candidates and the room was not set up for testing.
Mitchell told Larsen that, as test site coordinator, he must insure the chief examiner can
enter the room and administer the test at the time it is scheduled. Mitchell also told
Larsen it was inappropriate to do training at the same time that testing was scheduled.
Larsen felt that preparation just before the test was “‘very appropriate,’” and was not
willing to leave the test room when the test was ready to begin.
Hornauer also found problems with Larsen’s practical exam site. According to
Nypl, the problems were manufactured because Hornauer inspected the site when it was
not set up for testing. According to Brent, Larsen’s status as a practical examiner was
revoked because, among other things, he twice conducted practical exams using cranes
that had not been certified as required by Cal-OSHA and NCCCO, he did not set up the
test sites properly, he used inappropriate load materials during the exams, and he left the
CCS logos on the exam cranes. When Larsen’s status as a practical examiner and test site
coordinator was revoked, Larsen quit working with Nypl and AAA Crane School no
longer operated.
When Larsen was no longer able to test for Nypl, Nypl asked Tim to serve as a test
site coordinator and to become an accredited practical examiner. Tim trained and tested
with Larsen and met the certification requirements, but NCCCO refused to certify him.
In June 2006, IAI received a request from Tim to be a test site coordinator at the
University of Phoenix in Sacramento, the same place and on the same schedule that Nypl
and Larsen had used for written exams they had scheduled for CCS and AAA Crane
School. NCCCO/IAI denied Tim’s application because he “lied to [NCCCO and IAI on]
not knowing Josh Lars[e]n” and because he “was hired to be a test site coordinator[, but]
would not say by whom.” Subsequently, NCCCO wrote Tim describing the steps he
must take to be a certified crane operator and eligible to attend an accredited practical
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examiner workshop. By the time of trial, Tim was free to act as a test site coordinator,
but had not signed the written test site coordinator agreement.
Jared, Tim’s son, assisted Nypl with CCS. He served as a test site coordinator and
practical examiner. While Jared was acting as a test site coordinator, IAI received a
number of complaints from its chief examiners that Nypl and some of his other trainers
were interfering with the testing process. Mitchell wrote Jared that IAI would suspend
his ability to act as test site coordinator unless he insured that no training occurred on the
day of the written exam, that no trainers remained on the site during testing, that Nypl did
not serve as test site coordinator, and that he remained out of the testing room when the
“live exams” were present absent the express request of the chief examiner. Further, if
the chief examiner saw Nypl on the test site, the examiner would discontinue the exam.
Eventually, NCCCO suspended Jared for a year from acting as a test site coordinator and
accredited practical examiner because of issues with the cranes he was using for the
practical exam. Jared had conducted practical exams on cranes that NCCCO had asked
him not to test on because they were unsafe. At the time of trial, Jared was free to act as
test site coordinator.
Vladimir, Nypl’s brother, worked as a firefighter. While he had operated Nypl’s
cranes a few times, he had not worked as a crane operator. According to Nypl, Vladimir
completed all the training and testing necessary to be a certified crane operator and an
accredited practical examiner, but NCCCO denied him accreditation without cause.
According to Mitchell, IAI staff reported Vladimir had demonstrated at a practical
examiner accreditation workshop that he was not a crane operator. He had scored 10 out
of 100 on one practical exam and 29 on another. A short time later, he retook the tests
under the auspices of CCS or AAA Crane School and received scores of 90 or above.
Because of the score discrepancy, NCCCO told Vladimir he had to retest—at their
expense—but he did not.
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By the summer of 2006, Nypl could not find an accredited practical examiner,
who was available to test CCS students when needed. While scheduling presented a
challenge, so did the price the available accredited practical examiners charged. Nypl
could not use their services and continue to charge the same price he had been for his
courses and he was not willing to pay the amount they charged.
According to Mitchell, of the nine other individuals CCS paid to perform various
duties after 2005, eight were never disciplined by NCCCO or IAI. NCCCO and IAI did
not suspend or revoke anyone’s status as tester simply because they were associated with
or knew Nypl. Rather, Mitchell’s motivations were to ensure that the individual was not
a party to a breach of the settlement agreement or in violation of the permanent
injunction, and that NCCCO’s certification program was conducted with integrity and in
adherence to the standards that govern the testing industry.
In addition to problems with Nypl’s test site coordinators and practical examiners,
Nypl did not accept the additional monitoring gracefully. In October or November 2005,
Hornauer, NCCCO’s manager of test integrity, traveled to CCS to monitor Nypl’s
teaching. Nypl made rude comments to Hornauer while he monitored Nypl’s class. Nypl
objected to Hornauer’s presence, questioned his authority to be there, and complained he
was disrupting the class. Hornauer replied that Nypl was the one being disruptive and
Nypl should treat him like a fly on the wall. Nypl replied he was too big to be a fly and if
a fly was in the room, he would smack it with a fly swatter. Hornauer left the classroom
so the class would not be disrupted further. On another occasion, during classroom
instruction, Nypl made disparaging remarks about IAI and NCCCO, including that they
charged “for every little thing.” Nypl then wrote out an invoice for auditing the class,
which included a “sitting fee” and oxygen use fee and handed it to Hornauer.
7. One-year Review Pursuant to Settlement Agreement
In August 2006, as the one-year anniversary of the settlement agreement
approached, NCCCO prepared to review Nypl’s and CCS’s compliance with the terms of
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the permanent injunction as required by the agreement. Brent asked Mitchell and
Hornauer for a summary of their experiences with appellants.
Hornauer reported 18 “indiscretions” related to the settlement agreement. The
incidents included the following. In May 2006, IAI received an inquiry from a candidate
asking why he had not received his practical exam scores for an exam he had taken eight
months earlier at Nypl’s test site. When the candidate inquired of Nypl, Nypl faxed the
candidate’s score sheet and another candidate’s score sheet to IAI. IAI already had an
original score sheet for the other candidate and it did not match the faxed copy. In
addition, the score sheet indicated the various crane exams had occurred on the same site,
while the candidate said he had tested on different cranes at different sites.
In July 2006, Mitchell received a phone call from Claude Dixon regarding a test
site application IAI had received for a written exam on July 14, 2006. Dixon explained
that he was a 77-year-old retired attorney, and was looking for a way to make some
money. He had never worked with cranes, but had a casual conversation with “‘a nice
young’ man” in Grass Valley, where Nypl lived, who suggested he could be a test site
coordinator. Dixon did not know the name of the young man. When asked why he had
requested the July test date, he said that must be a mistake because he would be
delivering a paper in Philadelphia that day. Mitchell suggested he check the role of a test
site coordinator on the NCCCO Web site. Mitchell did not hear from Dixon again.
On several occasions during the year, Nypl was still conducting his preparation
course when the IAI chief examiner arrived to set up the room for testing, which caused
the exam to start late. In addition, Nypl would remain on the test site and meet with the
candidates after the exams, attempting to “harvest” questions from the candidates. He
also acted as test site coordinator despite his suspension.
In December 2006, Nypl and his legal counsel attended the NCCCO board
meeting at which his compliance with the settlement agreement and possible
reinstatement were considered. According to board member Chris Ryan, Nypl was
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combative and antagonistic at the meeting. He acted as if he had done nothing wrong and
did not understand what the big deal was. The board was disinclined to reinstate Nypl,
but proposed in a March 2007 letter, a six-month probationary period during which time
CCS could serve as a written exam test site, Nypl could act as a test site coordinator for
CCS, and CCS could be listed on NCCCO’s Web site as a training provider. The board’s
approval was conditioned on Nypl agreeing to comply with all of NCCCO’s and IAI’s
terms and conditions. At the end of the six month period, if Nypl fully complied with
NCCCO’s policies and procedures, he would be reinstated.
8. Six-month Probationary Period
Nypl agreed and as the six-month probationary period drew to a close, applied to
host a three-day practical exam accreditation workshop in September 2007. Nypl, as
host, provided the physical facilities—the training room, cranes and practical test site—
necessary for the instruction and testing. NCCCO provided the instructor, the training
program and the materials.
The workshop instructor, Danny Thiemens, reported the workshop was plagued
with delays from the start. The group had to travel about nine miles from the practical
exam site to the classroom for that part of the training. Once they reached the classroom,
Nypl and Tim, who were attending the workshop, refused to sign the noncompetition and
confidentiality agreement that were part of the required paperwork. Thiemens scheduled
a class break and called the NCCCO regional office, who told him to exclude the men
until they signed the agreements. The men were excluded until early afternoon when
they agreed to sign the forms “under duress.” Once readmitted to the classroom, Nypl
questioned Thiemens on almost every point and policy he explained. As a result of the
delays, the workshop was about three hours behind schedule.
Eventually, the classroom portion was completed and the workshop candidates
moved to the practical exam site in the late afternoon. There were mistakes in the exam
site layout and the two test cranes appeared to have problems. Nypl assured Thiemens he
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would make corrections. When Thiemens returned to his hotel that evening, two
workshop candidates voiced concerns to him about the mechanical condition of the
cranes on the test site. The next morning, additional defects came to light. When
Thiemens pointed out specific concerns to Nypl regarding one crane, Nypl began to
operate that crane through the test course in a rapid and unsafe manner. Thiemens called
Brent at NCCCO, who told him to stop the workshop, which he did. Nypl became irate,
put a microphone in Thiemens’s face and peppered him with questions in a very
aggressive manner. Thiemens left the site and prepared a report of the events pursuant to
Brent’s request.
That same day, Nypl called Dave Shelly, a Cal-OSHA licensed crane inspector, to
inspect the cranes that Thiemens had deemed unsafe. Shelly told Nypl that the crane with
the dented boom had to be inspected by the manufacturer to determine whether it was
safe to use. The second crane appeared to be leaking hydraulic fluid and the brakes were
not working. The cranes were not safe to use for testing.
Three months later, NCCCO asked Shelly to reinspect the cranes to see if they
were safe for testing. The crane that previously had the dent in the boom no longer did
and it appeared to have been freshly painted. When Shelly asked about it, Nypl replied,
“it’s just the way it was.” The second crane with the hydraulic leak had not been cleaned
and the brakes were still “caged.” Because Nypl had not had the crane with the dented
boom inspected and declared safe by the manufacturer, the cranes were still unsafe to use
for testing.
According to appellants, the workshop site problems were manufactured. To
establish this motive, appellants called Danny Matranga. Matranga operated a crane
company in Sacramento. In 2005, Nypl offered to train Matranga’s crane operators in
exchange for using Matranga’s crane and yard for the practical exam for CCS students.
Matranga agreed and became an accredited practical examiner for NCCCO. As a
practical examiner, Matranga and the practical exam site were subject to NCCCO
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auditing. One auditor told Matranga that NCCCO wanted to find something wrong with
the test site, NCCCO was out to get Nypl, and Matranga would be subject to more
stringent rules because of his association with Nypl. Matranga also was told that
NCCCO had candidates at Nypl’s practical examiner workshop who had been instructed
to find things wrong with the workshop so it could be shut down.
9. NCCCO Refuses to Reinstate Nypl and CCS
The NCCCO board members decided to postpone their decision about Nypl’s
probationary status until the next meeting in December 2007 so they could consider his
conduct at the September workshop. Brent invited Nypl to provide information he
wanted NCCCO to consider.
Nypl attended the December meeting with his attorney and two students who had
attended CCS. He spoke “at length” in support of his applications for reinstatement as a
test site coordinator and an accredited practical examiner, and for the inclusion of CCS as
a training school on NCCCO’s Web site. The two students had recently completed crane
school and wanted to become accredited practical examiners. According to board
member Chris Ryan, one of the students had no prior crane experience and drove a Coca-
Cola truck. Ryan felt the two students should not have been certified as crane
operators—let alone be accredited as practical examiners. Practical examiners needed to
be experienced certified crane operators for safety reasons.
The board members voted to deny Nypl’s applications and notified him of their
decision in January 2008. They did so to preserve the safety and integrity of NCCCO’s
program; they did not intend to interfere with his business relationships.
NCCCO’s problems with Nypl did not end there. In 2009, he had Natalie
Scistoonoff, who was performing secretarial services for CCS, submit an application for
Pennsylvania Crane School to be listed on the NCCCO Web site. Scistoonoff signed the
application with her name and someone else wrote “Rep” on the title line. Nypl owns a
Nevada company that owns Pennsylvania Crane School. Tara Whittington, who works at
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NCCCO and received the application, noted that the address on the documentation did
not match the address on the form and asked Scistoonoff to explain the discrepancy.
Whittington also asked if any representatives of Pennsylvania Crane School lived in
Pennsylvania. Scistoonoff did not know the answer to those inquiries so she forwarded
the email to Nypl. Whittington did not hear back from Scistoonoff or Nypl.
Whittington also received an application from ACA Pennsylvania Crane School to
be listed on the NCCCO Web site. The application was signed by Scistoonoff as
representative of the company. The address on the business license for the company did
not match the address listed for the business on the application submitted to NCCCO.
Whittington performed a search and learned that Nypl owned the ACA Pennsylvania
Crane School domain name.
Whittington was also responsible for trademark monitoring—ensuring that the
NCCCO logo and acronym were used in accordance with NCCCO’s use policy. She
discovered 14 URL’s that said something like “CCO training” (the shorter version of the
acronym that people frequently used to refer to NCCCO) that went directly to CCS’s
Web site.
10. Jury Findings
By special verdict, the jury found that CCS and Nypl had existing relationships
with one or more practical examiners and/or test site coordinators that probably would
have resulted in an economic benefit to them, that IAI and NCCCO knew of the
relationships, and that neither IAI nor NCCCO intended to disrupt the relationships.
Because the jury’s finding that respondents did not intend to disrupt the relationships
ended their deliberations, they did not consider whether respondents engaged in wrongful
conduct that disrupted the relationships or whether any of respondents’ defenses applied
to appellants’ claim.
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II. DISCUSSION
A. Trial Issues
1. Limiting Trial Time
According to appellants, the court decided, unilaterally and over the objections of
both parties, to limit the trial to 10 days. As a result of the unreasonable time limit,
appellants were unable to call all of their witnesses or present rebuttal evidence, and were
thus deprived of a fair trial. (Kelly v. New West Federal Savings (1996) 49 Cal.App.4th
659, 677.) According to respondents, the court provided ample warning that the trial
would be scheduled as it was and merely exercised its inherent authority to reasonably
control the proceedings. (Ellis v. Roshei Corp. (1983) 143 Cal.App.3d 642, 648-649.)
We find no abuse of discretion or deprivation of a fair trial.
a. Relevant facts
Appellants’ time estimate in their pretrial brief was four to six weeks. But, during
pretrial discussions, the court told the parties that trial should last no more than nine or 10
days. The court reasoned that pretrial rulings had narrowed the issues and reduced the
case to Nypl’s and CCS’s two related interference causes of action against NCCCO and
IAI. Appellants’ counsel replied that nine days was “optimistic,” but made no comment
in response to the court’s concluding statement, “given the narrowing of the issues here, I
think we can do it in that time. So that’s going to be the target; nine to ten days, okay.”
When the court ruled against appellants on an in limine motion, they reported they
would need an additional half or full day to respond to the evidence respondents were
permitted to introduce from the federal court proceedings. The court agreed to a 12-day
trial.
Counsel for appellants slow pace was apparent from the start. Appellants’ counsel
argued during opening statement, for which the court admonished him, and he exceeded
the allotted time for opening statement. At the end of the first day of testimony,
respondents’ counsel expressed concern that appellants had not completed even one of
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their 30-some proposed witnesses. Appellants’ counsel replied that the first witness was
always longer and appellants had only three “major” witnesses: Mitchell, who was on
the stand, Brent, and Nypl. The court reiterated that the trial would last 12 days total,
divided between the two sides.
Later, the parties agreed respondents would “get the case” on the morning of the
eighth day of trial. Subsequently, they agreed respondents would get the case at noon
that day. Late on the afternoon of the seventh day of trial, when appellants were
examining Nypl and indicated they had additional direct examination for the next
morning, the court stated they were “kind of under the gun tomorrow.” Respondents
argued that appellants were taking three and four times their time estimates to examine
their witnesses. Appellants stated they were doing their best, but needed more time to put
on their witnesses.
The court concluded, “I think you guys should have thought about this when you
spent two-and-a-half days on Mr. Mitchell .… I mean that seems to be excessive
considering the amount of time you guys agreed it would take to put your case on. I gave
you two extra days and you used two-and-a-half days on one witness. It doesn’t make
me particularly sympathetic to your plight. [¶] So I’m going to stick with my schedule.
I told you it wasn’t chiseled in stone. I’m going to see what happens. But tomorrow at
noon I want [respondents] to have their case.” Counsel for appellants asked if they
should have all of their witnesses present the next morning. The court responded, “You
should have as many as you think you can get on between now and noon tomorrow.”
On the morning of the eighth day of trial, appellants completed their direct
examination of Nypl and respondents spent the rest of the morning cross-examining him.
Appellants were permitted to call an additional expert witness that afternoon, and a final
witness, Danny Matranga, on the afternoon of the ninth day of trial.
On the morning of the 10th day of trial, the court granted respondents’ motion for
nonsuit on appellants’ interference with contract claim and denied it as to the interference
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with business relationships claim. The court told the parties the case had to go to the jury
the next day or they would lose a juror who had a planned vacation. Respondents
continued with their case. That afternoon, respondents’ counsel protested that appellants’
counsel was taking more time cross examining respondents’ witnesses than respondents
were taking with direct examination. Appellants’ counsel protested that was not true and
the court completed the discussion off the record.
When additional juror scheduling problems came to light, the parties agreed to
limit closing argument to one hour each. Before the case went to the jury, appellants
objected that they had not been permitted to rebut respondents’ evidence, which they
could have rebutted. It also came to light that appellants had not moved certain exhibits
into evidence. The court asked why they had not moved them into evidence before they
rested. Appellants’ counsel replied, they had not rested because “we had Hornauer.” The
court replied, “You testified [sic] when I told you your last witness was done, I told you
you were not going to put him on if your last witness was Mr. Matranga, and you didn’t
move him into evidence.”
The case was argued to the jury late on the afternoon of the 11th day of trial and
the jury deliberated and reached a verdict on the 12th day of trial.
b. Rationale
Judges who preside over trials, especially jury trials, wear many hats and have
numerous responsibilities. In addition to ruling on all questions of law and procedure,
and sometimes deciding factual issues, they are responsible for ensuring the security of
those who appear in court, that attorneys meet certain professional and ethical standards
of behavior, that court staff fulfill their responsibilities, that juries are properly cared for
and that all court cases assigned to them are fairly and efficiently heard and decided. It is
these last two functions that are at issue when a trial judge imposes trial time limits.
Some litigants are of the mistaken opinion that when they are assigned to a court
for trial they have camping rights. This view presumes that the trial judge must defer to
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the lawyers’ time estimates for the conduct of the trial such that, for example, when
examining witnesses, unless a valid objection is made by one’s opponent, a party is
entitled to take whatever time it believes necessary to question each witness. This view is
not only contrary to law but undermines a trial judge’s obligation to be protective of the
court’s time and resources as well as the time and interests of trial witnesses, jurors and
other litigants waiting in line to have their cases assigned to a courtroom.3 The Evidence
Code expressly empowers trial judges to limit the presentation of evidence, even
evidence that is relevant and probative. Evidence Code section 352 authorizes the court
to exclude evidence if its probative value is substantially outweighed by the probability
that its admission will necessitate undue consumption of time. Evidence Code
section 765, subdivision (a) provides that the court shall exercise control over the mode
of interrogation of witnesses “so as to make interrogation as rapid, as distinct, and as
effective for the ascertainment of truth .…” Both statutes describe powers that the court
may exercise on its own initiative.
It is incumbent upon trial judges to manage trials efficiently. Efficiency is not
necessarily measured by comparing the actual length of a trial with the parties’ original
time estimate because parties often overestimate or underestimate a trial’s length. Judges
need to be proactive from the start in both assessing what a reasonable trial time estimate
is and in monitoring the trial’s progress so that the case proceeds smoothly without delay.
3 The Trial Court Delay Reduction Act was enacted to encourage prompt
disposition of all matters coming before the courts. (Gov. Code, § 68600 et seq.)
Standard 2.1 (a) of the California Standards of Judicial Administration provides: “Trial
courts should be guided by the general principle that from the commencement of
litigation to its resolution, whether by trial or settlement, any elapsed time other than
reasonably required for pleadings, discovery, preparation, and court events is
unacceptable and should be eliminated.” Canon 3B(8) of the California Code of Judicial
Ethics provides: “A judge shall dispose of all judicial matters fairly, promptly, and
efficiently. A judge shall manage the courtroom in a manner that provides all litigants
the opportunity to have their matters fairly adjudicated in accordance with the law.”
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A trial department that goes dark because the parties have run out of witnesses for the day
is an example of an unwarranted delay. Witnesses should be available at all times.4 It is
clearly preferable to inconvenience one or more witnesses standing by in the hallway
than to bring a trial to a halt because no witnesses are available. When a trial stops for
that reason, it adversely impacts the time and resources of the court, jurors, parties and
attorneys, not to mention those litigants waiting for a courtroom to open up for their case.
Trial time management is an ongoing responsibility of the trial judge, regardless of the
case’s complexity, the number of witnesses called or whether specific time limits have
been imposed.
c. Procedure
For those cases in which the trial judge believes time limits should be set, the court
should first elicit estimates from the parties and invite each side to comment on the
other’s estimate. Once the parties have presented their views, the court should
independently evaluate the estimates based on the arguments of the parties, the state of
the pleadings, the legal and factual issues presented, the number of witnesses likely to
testify, the court’s trial schedule and hours, and the court’s experience in trying similar
cases.
Time limits may be stated in terms of court days or court hours. One difficulty
with using court days is that the length of time that a court is in session on any given day
may vary depending on unanticipated interruptions or delays (e.g., juror tardiness,
matters taken up outside the presence of the jury, other court business that interrupts the
trial, etc.). Thus, one trial day may include six hours of testimony while another trial day
may include only four hours. When court days are used, a portion of one party’s time
limit includes the time its opponent takes to cross examine the first party’s witnesses.
4 Some trial judges admonish parties at the outset that if they run out of witnesses, it
is the equivalent of resting.
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Theoretically, a party’s opponent could use up a substantial portion of the other party’s
time limit through lengthy cross-examination.
There are advantages to specifying time limits in court hours rather than court
days. An hour time limit imposed on one side would include all time that party spends in
examining its own witnesses (direct and redirect) as well as time spent in examining the
adverse party’s witnesses (cross and recross). It would include the time spent in
delivering an opening statement and final argument. As contrasted with a time limit
expressed in court days, an hour limit, as described, is not diminished by matters beyond
the party’s control, such as the amount of time an opponent uses to cross-examine said
party’s witnesses.5 An hour time limit does carry the additional burden of requiring a
timekeeper (judge or clerk) to keep an accurate account of the time spent by each side.
The parties are entitled to be kept advised on a regular basis and upon request of how
much time each side has used and has remaining.6
Regardless of whether court-imposed time limits are expressed in days or hours,
any time limit order should be reasonable, mindful that each party is entitled to a full and
fair opportunity to present its case. Trials are a dynamic process without the benefit of a
dress rehearsal, which makes forecasting the length of a trial less than precise. But for
those parties and attorneys who are fully prepared for trial and don't waste time with
repetitive questioning, cumulative evidence, not having witnesses available, or not having
5 If a plaintiff heedlessly exhausts its time limit during its case-in-chief, then it will
have no time to cross-examine the defense witnesses. Similarly, if a defendant exhausts
its time limit during its case-in-chief, then it will have no time to cross-examine any of
the plaintiff's rebuttal witnesses.
6 Of course, for purposes of advising the jury of the estimate time for their jury trial
service, the trial judge would have to include, in addition to the time limits imposed on
the parties, the estimated times for jury selection, anticipated hearings outside their
presence, reading of jury instructions, jury deliberation, the number of hours each day
that the trial will be in session, etc.
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documentary evidence organized and easily accessible, a trial’s length is not an issue.
Thus, despite the vagaries of trial, when all parties try a case diligently, there is no reason
for time limits. In all other cases, time limits will provide incentive to be diligent.
Any limits imposed should be subject to revision (upward or downward) for good
cause shown either on a party’s or the court’s own motion. For example, if one party
decides not to call several witnesses on its original list or abandons some of its claims or
defenses, or if the court dismisses some of a party’s claims or defenses, the court would
be justified in reducing that party’s time allowance. On the other hand, if an
unanticipated trial event causes a party to call additional witnesses not originally
scheduled to testify, then the court would be justified in increasing that party’s time
allotment provided the court was given timely notice of the request, found that party’s
claim of surprise credible, determined that its surprise was not the result of inattention or
lack of preparation and concluded that said party had otherwise managed its case in a
diligent manner.
Not all cases are suitable for the imposition of time limits. More often it is
sufficient if the trial judge manages the trial in such a way that the trial proceeds
efficiently without delays, repetition or dead time. However, in those cases in which the
trial court imposes time limits, it is also important that those limits be enforced. If it
appears that a party’s allotted time may expire while it is still presenting evidence, the
court and counsel should discuss ahead of time how the matter will be handled in front of
the jury. The court should give counsel the choice of either allowing counsel to announce
that its client has “rested” or having the court inform the jury that said party has exceeded
the time limits imposed by the court and therefore it may not present any additional
evidence. It would be potentially prejudicial to one side who abided by the time limits if
29.
the court were to relax the limits for the other. Courts should not make orders they are
not willing to enforce.7
d. The law
A trial court has the inherent authority and responsibility to fairly and efficiently
administer the judicial proceedings before it. (People v. Engram (2010) 50 Cal.4th 1131,
1146; Code Civ. Proc., § 128.8) This authority includes the power to supervise
proceedings for the orderly conduct of the court’s business and to guard against inept
procedures and unnecessary indulgences that tend to delay the conduct of its proceedings.
(Ellis v. Roshei Corp., supra, 143 Cal.App.3d at pp. 648-649.) In this vein, the court has
the power to expedite proceedings which, in the court’s view, are dragging on too long
without significantly aiding the trier of fact. (Germ v. City & County of San Francisco
(1950) 99 Cal.App.2d 404, 424.) But a court need not wait until a trial has been unduly
prolonged before it takes measures to expedite the proceeding. We believe it is clearly
within the power of the court to impose time limits before the trial commences. Finally,
the court is vested with discretion over the scope of rebuttal, and its ruling will not be
disturbed on appeal absent an abuse of discretion. (Ray v. Jackson (1963) 219
Cal.App.2d 445, 454.)
However, the court must permit a party to have his day in court. Denying a party
the right to testify or offer evidence deprives him of a fair trial and constitutes reversible
7 Just as it would be improper to comment on a court’s evidentiary ruling, it would
be improper for counsel to comment on the court’s time limit order in front of the jury.
8 The federal courts likewise recognize and approve a trial court’s authority to set
reasonable time limits for the conduct of a trial. “Trial courts have broad authority to
impose reasonable time limits. [Citation.] Such limits are useful to ‘prevent undue
delay, waste of time, or needless presentation of cumulative evidence.’ [Citation.] While
trial courts have discretion to expedite the completion of trials, ‘they must not adhere so
rigidly to time limits as to sacrifice justice in the name of efficiency.’ Gen. Signal Corp.
v. MCI Telecomm. Corp., 66 F.3d 1500, 1509 (9th Cir. 1995).” (Navellier v. Sletten (9th
Cir. 2001) 262 F.3d 923, 941-942.)
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error. (In re Marriage of Carlsson (2008) 163 Cal.App.4th 281, 291 (Carlsson.) In
Carlsson, the trial court erred by abruptly ending the trial in the middle of a witness’s
testimony during the appellant’s case-in-chief and without giving him an opportunity to
complete the presentation of evidence or offer rebuttal evidence. (Ibid.; accord, Bole v.
Bole (1946) 76 Cal.App.2d 344, 346 [court erred by refusing to require the plaintiff wife
to bring son to testify as a witness for the defendant husband and in excluding evidence
tending to show the character of the husband’s mother-in-law, which would have
supported his refusal to permit her into his home]; Fewel v. Fewel (1943) 23 Cal.2d 431,
433 [court erred by modifying a custody order based on the bare recommendation of the
court investigator and precluding the plaintiff from cross-examining the investigator or
presenting evidence]; Kelly v. New West Federal Savings, supra, 49 Cal.App.4th at
p. 677 [court erred in granting motions in limine that prevented the plaintiffs from
offering evidence to establish their case].)
e. Analysis
The trial court did not abuse its discretion in controlling the trial proceedings as it
did. The case went to trial on only Nypl’s and CCS’s two related business interference
tort claims against NCCCO and IAI. The trial court reasonably set aside nine to 10 days
for trial and notified both sides of this time frame. While appellants stated the time frame
was “optimistic,” they did not object or provide any rationale why the trial could not be
completed within that time period.
Further, the reasonable inference from the record is that appellants were unable to
present rebuttal evidence because they did not manage their case-in-chief in a manner
that permitted time for rebuttal. Appellants called Mitchell, IAI’s president, as their first
witness. After a full day of direct examination, counsel stated he had “about an hour or
maybe more,” thus suggesting that additional witnesses would be called the next day.
However, appellants kept Mitchell on the stand for an additional two days and did not
examine their second witness, Brent, until the morning of the fourth day of testimony.
31.
Brent was on the stand for two days before appellants called their third witness, Nypl, on
the seventh day of testimony. They completed Nypl’s direct examination on the morning
of the eighth day of testimony and respondents began their case in chief at noon that day.
Appellants thus spent almost seven days examining three witnesses.9 In addition,
appellants were permitted to call an expert witness briefly on the afternoon of the eighth
day, and a final witness, Matranga, on the afternoon of the ninth day of trial. By way of
comparison, respondents began their case-in-chief on the afternoon of the eighth day and
the case went to the jury late on the 11th day of testimony.
Appellants submit they were unable to call witnesses Timothy Maxwell, Wes
Staley, Joshua Larsen, Robert Hornauer, Jared Maxwell, Vladimir Nypl, Robert Scott,
and “[o]ther [v]ictims of the [b]oycott,” who would have testified to the nature and effect
of the boycott that constituted the wrongful interference with appellants’ business
relationships, which were at issue at trial. Appellants also contend they were unable to
rebut testimony regarding nonparty Robert Scott’s questionable integrity, the number of
accredited practical examiners available in the state, Nypl’s “practice” of placing test
answers on the testing room walls,10 and respondents’ expert’s testimony regarding
damages.
The record does not support appellants’ claim that the trial court abused its
discretion in supervising the timing of the trial. Rather than calling their own party
witnesses, appellants called Mitchell and Brent as adverse witnesses to present their case.
When Mitchell and Brent gave reasoned testimony as to why the individual appellants
had not been permitted to serve as NCCCO testers, rather than calling the individual
appellants to present their claims, counsel kept adverse witnesses Mitchell and Brent on
9 Appellants also examined their damages expert during that time.
10 The actual testimony was he had done so once.
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the stand for five of appellants’ allotted trial days. Under the circumstances, the trial
court did not abuse its discretion in holding appellants to the trial schedule.
A judgment will not be reversed due to the erroneous exclusion of evidence unless
it appears, upon examining the entire cause, including the evidence, a miscarriage of
justice has resulted. (Cal. Const., art. VI, § 13; Evid. Code, § 354.) A miscarriage of
justice occurs only when the reviewing court is convinced it is reasonably probable a
result more favorable to the appellant would have been reached absent the error. (In re
Marriage of Smith (1978) 79 Cal.App.3d 725, 750-751.) In light of the record evidence
and the jury finding that neither IAI nor NCCCO intended to interfere with Nypl’s and
CCS’s economic relationships, we are not convinced it is reasonably probable a result
more favorable to appellants would have been reached had the excluded evidence been
admitted.
2. Admitting Evidence of Conduct Within the Settlement Agreement⃰
Appellants argue the trial court erred by permitting respondents to present
evidence of the bribery incident—the testimony of Mona Perrine and Robert Curtis—
because that claim had been settled and released. We review a claim that the trial court
erred in admitting evidence for abuse of discretion. (Dart Industries, Inc. v. Commercial
Union Ins. Co. (2002) 28 Cal.4th 1059, 1078.)
Appellants’ briefing of this issue is deficient in two regards. First, the extent of
appellants’ legal analysis on appeal is, “The basis for the trial objections and the in limine
motion was that the matters sought to be introduced had already been released and
settled. See Trial Exh 3; See Border Business Park, Inc., v. City of San Diego (2006) 142
Cal.App.4th 1538 [(Border Business Park)]; Villacres v. Abm Indus. Inc. (2011) 189
Cal.App.4th 562.” Second, the cited cases address res judicata and collateral estoppel
⃰ See footnote, ante, page 1.
33.
but, at trial, appellants moved to exclude the evidence under Evidence Code section 352
as irrelevant and unduly prejudicial.
Ignoring the procedural deficiencies, to the extent appellants claim the evidence
was barred by the doctrines of res judicata and collateral estoppel, they are wrong. The
doctrines of res judicata and collateral estoppel prohibit the relitigation of claims and
issues that have been adjudicated in an earlier proceeding. (Border Business Park, supra,
142 Cal.App.4th at p. 1563.) Neither doctrine applies here. NCCCO did not present the
Mona Perrine and Robert Curtis testimony to relitigate the copyright or trademark
infringement claims raised in the earlier federal lawsuit. Rather, the bribery incident
testimony was relevant evidence presented in defense of appellants’ interference with
business relationships claim.
To establish wrongful interference, appellants had to show that respondents
engaged in wrongful conduct that fell outside the privilege of fair competition or
justification. (PMC, Inc. v. Saban Entertainment, Inc. (1996) 45 Cal.App.4th 579, 603,
disapproved on other grounds in Korea Supply Co. v. Lockheed Martin Corp. (2003) 29
Cal.4th 1134, 1159, fn. 11 (Korea Supply Co.).) To defend against that claim,
respondents had to show their conduct was justifiable. Whether conduct is justifiable
depends on a balancing of the importance of the objective advanced by the interference
against the importance of the interest interfered with, considering all circumstances
including the nature of the defendant’s conduct and the relationship between the parties.
The factual issue presented is whether the defendant’s conduct was fair and reasonable
under the circumstances. (Bert G. Gianelli Distributing Co. v. Beck & Co. (1985) 172
Cal.App.3d 1020, 1054-1055.)
Accordingly, NCCCO’s and IAI’s knowledge of CCS’s and Nypl’s prior unlawful
conduct was relevant to show that NCCCO and IAI acted reasonably to protect the
integrity of the certification program rather than out of any intent to interfere with CCS’s
34.
and Nypl’s business relationships. The trial court did not abuse its discretion in admitting
the challenged evidence.
3. Instructional Error
Appellants contend the trial court erred in instructing the jury in six regards. The
court erred by instructing (1) it had rejected in pretrial rulings some of appellants’ claims
and (2) other claims had been resolved against appellants by the federal court. It erred by
refusing to instruct (3) regarding respondents’ wrongful conduct and (4) on California’s
law of presumptions. In addition, (5) the trial court misstated the “weaker evidence”
instruction to appellants’ detriment and (6) erred in instructing on the doctrine of unclean
hands, which did not apply.
Appellants’ briefing of the first five asserted instructional errors is deficient; it
contains virtually no legal argument or citation to authority. Accordingly, appellants
have failed to meet their burden on appeal to show error and prejudice and we will find
these contentions waived or meritless. We set forth the applicable standards for reference
in reviewing appellants’ claims.
On appeal, the reviewing court presumes the trial court’s judgment is correct. As
a result, appellants first bear the burden to overcome that presumption and demonstrate
error. (State Farm Fire & Casualty Co. v. Pietak (2001) 90 Cal.App.4th 600, 610.) To
meet this burden, appellate briefs must provide argument and legal authority for the
positions asserted. When appellants assert the trial court erred but fail to support the
assertion with reasoned argument and legal authority, the reviewing court will treat the
issue as waived. (People v. Stanley (1995) 10 Cal.4th 764, 793; Cahill v. San Diego Gas
& Electric Co. (2011) 194 Cal.App.4th 939, 956.) This rule applies even when the
appellate court is required to conduct de novo review. Although the trial court’s ruling is
reviewed independently, the scope of review is limited to those issues that have been
adequately raised in appellants’ brief. (Reyes v. Kosha (1998) 65 Cal.App.4th 451, 466,
fn. 6.)
35.
Appellants also bear the burden of affirmatively showing the error was prejudicial
and resulted in a miscarriage of justice. (Pool v. City of Oakland (1986) 42 Cal.3d 1051,
1069; Century Surety Co. v. Polisso (2006) 139 Cal.App.4th 922, 963 [appellate court
will not provide a legal argument as to how the trial court’s error was prejudicial].) The
giving of an erroneous instruction is not inherently prejudicial. A judgment will be
reversed for instructional error only where it appears probable that the improper
instruction actually misled the jury and affected the verdict. (Kinsman v. Unocal Corp.
(2005) 37 Cal.4th 659, 682.) Thus, to succeed on appeal, an appellant must establish
error and show that the error was prejudicial.
a. Instruction regarding resolution of claims
Appellants contend the court erred by “unnecessarily and inaccurately” instructing
the jury as to which of appellants’ theories of wrongful conduct were no longer part of
the case: appellants’ breach of contract and interference with contract claims; claims that
the individual respondents interfered with business relations; the individual appellants’
claims; violation of Cartwright Act claims; illegal trust claims; violations of unfair
competition laws and false advertising claims. The extent of appellants’ reasoned
argument consists of a restatement of the directions for use note and the cases it cites that
accompanies BAJI No. 7.82 and mere argument:
“In an intentional interference case, a court must specifically state
for the jury the conduct that the judge has determined as a matter of law
would satisfy the ‘wrongful conduct’ standard. PMC, Inc. v. Saban
Entertainment, Inc.[, supra,] 45 Cal.App.4th [at p. ]603; Della Penna v.
Toyota Motor Sales, U.S.A, Inc. (1995) 11 Cal.4th 376, 393. The jury must
then decide whether the defendant engaged in the conduct as defined by the
judge. If the conduct is tortious, the judge should instruct on the elements
of the tort. [¶] … [¶]
“The ‘clarifying’ instruction was argumentative, and repetitive, gave
the jury irrelevant and prejudicial information, and tainted deliberations.
The trial court unduly emphasized its’ [sic] rejection of [appellants’]
claims, and instructed the jury not to find for [appellants] because the court
36.
had already found against [appellants] on every ground, despite having let
the intentional interference claim go forward. The jury had no reason to be
apprised of these rulings as they were not part of the evidence, were
argumentative and inflammatory, and should not have been part of the jury
instructions.”
Appellants cite no case law addressing instructional error. The limited discussion
set forth above does not aid resolution of the legal issue appellants attempt to raise.
Moreover, even if the court erred by giving the instruction, appellants ignore their burden
to show how the error was prejudicial in light of other instructions given—including
BAJI No. 7.82, which addresses intentional interference with prospective economic
advantage—and the special verdict findings that resulted in the jury not reaching the
wrongful conduct element of appellants’ interference claim. In short, appellants have
failed to demonstrate legal error or prejudice with respect to this asserted error.
b. Instruction regarding the effect of the federal lawsuit
Appellants next contend the trial court erred by instructing the jury regarding the
judicial findings in the second federal lawsuit that Nypl had violated the permanent
injunction and breached the settlement agreement, and that Nypl’s conduct had relieved
NCCCO of the obligation to reinstate CCS and Nypl to the NCCCO Web site.
Appellants assert the instruction was erroneous, irrelevant and prejudicial.
While appellants reargue the propriety of giving the instruction, they fail to cite
case law and make no reasoned legal argument why the court erred in instructing as it
did, nor do they address prejudice. As a result, appellants have failed to meet their
burden on appeal to establish error and show prejudice. Therefore, this issue is waived.
(Cahill v. San Diego Gas & Electric Co., supra, 194 Cal.App.4th at p. 956; Pool v. City
of Oakland, supra, 42 Cal.3d at p. 1069.)
c. Instruction regarding respondents’ wrongful conduct
Appellants contend the trial court was obligated to instruct regarding respondents’
wrongful conduct and it erred by failing to instruct on the theories of monopoly and
37.
violation of a state safety regulation. Appellants submit there was undisputed evidence
that respondents were a monopoly, so the court erred in not providing a monopoly
instruction. Further, because respondents admitted they violated California Code of
Regulations, title 8, section 5006.1 by not testing prestart and poststart inspection in the
practical exam as required by the regulation, the court erred by not instructing the jury to
accept the regulation as fact to establish the “wrongful conduct” element of their claim.
Appellants’ briefing of this issue fails to address prejudice. The trial court’s
failure to give a requested instruction is reversible error only if it seems probable that the
jury was misled. (Soule v. General Motors Corp. (1994) 8 Cal.4th 548, 580–581.) Even
assuming appellants were able to show error, they fail to discuss how the error was
prejudicial when the jury never addressed the wrongful conduct element of their
interference claim. The jury’s negative response to the third question on the special
verdict form of whether IAI and NCCCO intended to disrupt the relationship that CCS
and Nypl had with practical examiners and test site coordinators ended their
deliberations. The jury was never called upon to consider the fourth question, whether
NCCCO and IAI had engaged in wrongful conduct. Accordingly, appellants have failed
to meet their burden to show the asserted error was prejudicial. (Pool v. City of Oakland,
supra, 42 Cal.3d at p. 1069.)
d. Instruction regarding California’s law of presumptions
In a related argument, appellants contend that Mitchell’s admission that the
practical exam did not comply with California Code of Regulations, title 8,
section 5006.1 created a presumption that respondents acted with an unlawful intent
under Evidence Code section 668. Therefore, the trial court erred in refusing to instruct
that respondents were presumed to have an unlawful intent if the jury found they had
violated the regulation. Similarly, the court erred in refusing to instruct pursuant to
Evidence Code section 665 that a person is presumed to intend the ordinary consequences
of his acts.
38.
These contentions fail on procedural grounds. Appellants do not support their
claims of error with legal argument or citation of case law, nor do they address how the
errors resulted in prejudice. Accordingly, the contentions are waived. (Cahill v. San
Diego Gas & Electric Co., supra, 194 Cal.App.4th at p. 956; Pool v. City of Oakland,
supra, 42 Cal.3d at p. 1069.)
e. Instruction regarding weaker evidence
Appellants next contend the trial court misstated the “‘weaker evidence’”
instruction to their detriment. The trial court instructed, “You may consider the ability of
each party to provide evidence. If a party provided weaker evidence when it could have
provided stronger evidence, you must distrust the weaker evidence.” The written
instruction states you “may” distrust the weaker evidence. The court’s misinstruction,
coupled with appellants’ inability to “finish their case” or put on rebuttal testimony,
effectively told the jury to find against appellants.
Assuming the reporter’s transcript correctly transcribed the oral instruction and the
court misspoke while instructing the jury, appellants have not demonstrated the error was
prejudicial. Misreading instructions is harmless error when the written instructions
provided to the jury are correct. (People v. Box (2000) 23 Cal.4th 1153, 1212.) Here, the
court provided the jury with the correctly worded written instruction. Nevertheless,
appellants argue the error was prejudicial because the court did not permit them to
complete their case. That argument is no more persuasive in this context than it was
when raised earlier in the appeal. Moreover, appellants fail to cite case law or provide
any reasoned legal argument as to why the error was prejudicial. Thus, this contention
too is waived.
f. Instruction regarding the doctrine of unclean hands
Finally, appellants assert the court erred prejudicially by instructing on the
doctrine of unclean hands because the instruction was “improper” under the
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circumstances and was applied in an unfair and inappropriate manner. Appellants
support this contention with legal argument, but the arguments are not persuasive.
i. As a matter of law
First, appellants contend the unclean hands doctrine is not a defense to an
interference with economic relationships claim as a matter of law. They cite federal case
law that holds the doctrine of in pari delicto does not apply to bar recovery in a federal
antitrust action (Perma Mufflers v. Int’l Parts Corp. (1968) 392 U.S. 134, 138-139) and
California case law that holds the doctrine of unclean hands is not a defense to an unfair
trade or business practices claim based on a violation of the Unfair Competition Law
(§ 17200 et seq.). (Cortez v. Purolator Air Filtration Products Co. (2000) 23 Cal.4th
163, 179.)
The underlying rationales of the cases cited are similar: the antitrust laws are best
served by insuring that a private action is a constant threat to deter anyone contemplating
business behavior in violation of the antitrust laws (Perma Mufflers v. Int’l Parts Corp.,
supra, 392 U.S. at p. 139) and permitting an unclean hands defense would judicially
sanction a defendant who engaged in an act declared by statute to be void or against
public policy (Ticconi v. Blue Shield of California Life & Health Ins. Co. (2008) 160
Cal.App.4th 528, 543). In general, the cases stand for the proposition that it is
inappropriate to invoke the broad common-law barriers to relief in antitrust cases where a
private suit serves important public purposes. (Perma Mufflers v. Int’l Parts Corp.,
supra, at p. 138.)
Appellants reason that because the wrongful conduct element of the interference
with prospective economic relations tort must be “proscribed by some constitutional,
statutory, regulatory, common law, or other determinable legal standard” (Korea Supply
Co., supra, 29 Cal.4th at p. 1159, fn. omitted), the same rationale applies and the defense
of unclean hands was inapplicable to their tort claim as a matter of law.
40.
We find the analogy lacking. Korea Supply Co., supra, 29 Cal.4th at page 1159,
addresses the requirement that the interfering conduct must be wrongful by some legal
measure other than the interference itself. That is, actionable interference cannot be
merely a product of an improper, but lawful, motive. The interfering conduct must be
“independently wrongful” under some statute, regulation, common law or legal standard.
(Ibid.) Independently wrongful conduct, however, is not the same as conduct that
violates the antitrust and unfair business practices statutes. Every tort claim involves
conduct that is wrongful by some legal standard. But all tort claims, which involve
disputes between individuals, are not entitled to immunity from the defense of unclean
hands that antitrust and unfair business practice claims, which serve public as well as
private purposes, are entitled to.
Respondents cite several cases that involve an intentional interference with
economic relations claim and the defense of unclean hands. (Fladeboe v. American Isuzu
Motors Inc. (2007) 150 Cal.App.4th 42, 52-53, 56 [the plaintiffs sought damages for,
among other things, interference with economic relations; trial court’s findings that the
plaintiffs had unclean hands provided the defendant a complete defense]; Unilogic, Inc. v.
Burroughs Corp. (1992) 10 Cal.App.4th 612, 623 [defense of unclean hands was
available against the legal claim for conversion]; Wong v. Tenneco, Inc. (1985) 39 Cal.3d
126, 132-133 [after the jury found for Wong on several causes of action, including
interference with business relations, the court held Wong was barred from recovery under
the unclean hands doctrine because the underlying transaction was illegal under Mexico’s
laws]; Hoffman-La Roche, Inc. v. Promega Corp. (N.D.Cal. 2004) 319 F. Supp. 2d 1011,
1028-1029 [the court dismissed breach of contract claims but denied request to dismiss
interference claims under the doctrine of unclean hands].) While the cases do not directly
address whether the doctrine of unclean hands applies to an interference with economic
relations tort claim, they imply that it does.
41.
Accordingly, appellants have not established as a matter of law that the trial court
erred by giving the unclean hands instruction in this case.
ii. On the facts of this case
In their reply brief, appellants contend the court erred by instructing on unclean
hands because that defense did not apply on the facts of this case. Assuming this issue is
cognizable even though addressed in the reply brief (People v. Zamudio (2008) 43
Cal.4th 327, 353 [a contention may not be raised for the first time in a reply brief]), we
find it meritless.
a. Standard of review
The propriety of jury instructions presents a question of law that we review de
novo. (Cristler v. Express Messenger Systems, Inc. (2009) 171 Cal.App.4th 72, 82.) The
trial court is obligated to instruct the jury on every theory of the case advanced by either
party that is supported by substantial evidence. (Soule v. General Motors Corp., supra, 8
Cal.4th at p. 572.) In this case, the trial court instructed the jury on the defense of
unclean hands pursuant to respondents’ request. The court instructed:
“Even if you were to determine that NCCCO and IAI interfered with
economic relationships of CCS or John Nypl, you may consider whether
CCS and John Nypl are not entitled to receive a full recovery, or any
recovery, of economic damages in view of their own misconduct. In
evaluating the fairness of allowing CCS and John Nypl to recover damages
in view of their own misconduct, you should consider: [¶] (1) The nature
of their misconduct, including whether CCS and John Nypl instigated the
misconduct that lead to their eventual injury, and the level of moral blame
attributable to CCS and John Nypl relative to NCCCO and IAI; and [¶]
(2) The relationship between CCS’s or John Nypl’s misconduct and their
injury, including whether or to what extent their injury would have
otherwise occurred.” (Italics added.)
b. Unclean hands doctrine
The doctrine of unclean hands arises from the maxim that one who comes into
equity must come with clean hands. (Blain v. Doctor’s Co. (1990) 222 Cal.App.3d 1048,
1059.) The doctrine requires that the plaintiff act fairly in the matter for which he seeks a
42.
remedy or he will be denied relief, regardless of the merits of the claim. The doctrine is
available in legal and equitable actions. Whether the doctrine applies is a question of
fact. (Kendall-Jackson Winery, Ltd. v. Superior Court (1999) 76 Cal.App.4th 970, 978
(Kendall-Jackson).)
Precluding recovery to the plaintiff with unclean hands protects the court’s rather
than the defendant’s interests. The unclean hands doctrine protects judicial integrity
because allowing a plaintiff with unclean hands to recover creates doubt regarding the
justice provided by the judicial system. (Kendall-Jackson, supra, 76 Cal.App.4th at
p. 978.)
Not every wrongful act falls within the unclean hands doctrine. But the
misconduct need not be a crime or an actionable tort. Any conduct that violates
conscience, or good faith, or other equitable standards of conduct is sufficient to invoke
the doctrine. (Kendall-Jackson, supra, 76 Cal.App.4th at p. 979.) The wrongful conduct
must relate directly to the plaintiff’s claims and affect the equitable relations between the
litigants. There must be a direct relationship between the misconduct and the causes of
action alleged such that it would be inequitable to grant the requested relief. (Ibid.)
Whether the plaintiff’s misconduct is a bar to the claim for relief depends on:
(1) analogous case law, (2) the nature of the misconduct, and (3) the relationship of the
misconduct to the claimed injuries. (Kendall-Jackson, supra, 76 Cal.App.4th at p. 979.)
c. Analysis
Appellants contend the doctrine does not apply in this case under the first factor,
analogous case law. Analogous case law holds that the doctrine does not apply to claims
under the federal and state antitrust statutes. Thus, by analogy, the doctrine does not
apply to their interference with business relationships claim. This argument is the same
as appellants’ earlier argument that the doctrine of unclean hands does not apply as a
matter of law. In rejecting that argument, we found the reasoning of cited cases, which
address violations of the antitrust statutes, inapplicable to this case that involves a tort
43.
claim between private parties. In our view, the analogous case law consists of the cases
cited by respondents that, at the least, imply that the unclean hands defense applies to
claims for interference with economic relations.
Appellants next contend the doctrine does not apply under the second factor—the
nature of the misconduct. They assert, “One can only guess what acts of misconduct
herein could possibly exist since the court made no findings ….” Appellants’ skewed
view of the trial record, which minimizes the evidence of their wrongdoing, renders their
argument futile. Nypl’s bribery, his attempts to evade the administrative sanctions, and
the various fraudulent acts of those associated with him constitute ample evidence of
misconduct of a nature to support instructing the jury on the doctrine of unclean hands.
Appellants cite Jacobs v. Universal Development Corp. (1997) 53 Cal.App.4th
692, 700 (Jacobs) for the proposition that appellants’ conduct was not the type of conduct
associated with unclean hands. In Jacobs, the sales director for residential developments
brought a wrongful discharge action alleging he was fired after he told his employer he
would no longer participate in an illegal rebate program. The trial court granted
summary judgment for the defendant on the ground that the plaintiff, having participated
in the illegal transactions, was in pari delicto with the defendant. (Id. at pp. 695-697.)
The appellate court reversed. The court held that the doctrine of in pari delicto was not a
proper basis for summary judgment in the defendant’s favor. The defendant’s evidence
showed that the plaintiff, while consistently protesting to his immediate supervisors,
acquiesced in the defendant’s illegal rebate program because he feared being fired if he
did not. Under the circumstances, application of the in pari delicto doctrine would
unjustly enrich the defendant and violate fundamental public policy by allowing it to
condition continued employment on criminal conduct. (Id. at pp. 701-702.)
Jacobs is distinguishable because, in this case, the jury rejected appellants’ claim
that respondents engaged in tortuous conduct. Rather, the facts of this case are more
analogous to those in Elliott v. Contractors’ State License Bd. (1990) 224 Cal.App.3d
44.
1048. There, a contractor sued to overturn the State License Board’s revocation of his
contractor’s license. The court denied his petition. The unclean hands doctrine
precluded his recovery, where the evidence showed he had obtained his license with
fraudulent representations concerning prior unpaid debts and disciplinary action. (Id. at
pp. 1052, 1055; accord, Wallace v. Board of Education (1944) 63 Cal.App.2d 611, 617
[doctrine of unclean hands barred reinstatement of petitioner to his job following his
mandatory retirement due to age where petitioner lied on his employment application,
and was four years younger than he represented].) The nature of appellants’ misconduct
in this case amply supported the giving of an unclean hands instruction.
Finally, appellants contend the doctrine does not apply under the third factor, the
relationship between appellants’ misconduct and the claimed injuries. They are
mistaken. The misconduct that brings the unclean hands doctrine into play must relate
directly to the transactions at issue. It must infect the cause of action involved and affect
the equitable relations between the litigants. (Kendall-Jackson, supra, 76 Cal.App.4th at
p. 984.) Cases illustrating unclean hands conduct directly related to the transaction at
issue include Unilogic, Inc. v. Burroughs Corp., supra, 10 Cal.App.4th at pp. 618, 621
[although the defendant converted the plaintiff’s proprietary information during a failed
joint project, the plaintiff’s unclean hands—bribery to obtain the contract, failure to
disclose financial difficulties, and its own conversion of the defendant’s property during
the same joint project—precluded relief]; and Camp v. Jeffer, Mangels, Butler &
Marmaro (1995) 35 Cal.App.4th 620, 639 [the plaintiffs’ suit for wrongful termination
was barred by evidence they had lied on their job applications]. Cases illustrating
misconduct not sufficiently related to the transaction to warrant application of the unclean
hands doctrine include Pom Wonderful LLC v. Welch Foods, Inc. (C.D.Cal. 2010) 737
F.Supp.2d 1105, 1111 [that Pom may have misled consumers to believe that its juices
were not from concentrate did not constitute unclean hands in Pom’s action against
Welch for misleading consumers as to the amount of pomegranate juice in Welch’s
45.
product; the relationship between the allegations was too tenuous]; Murillo v. Rite Stuff
Foods, Inc. (1998) 65 Cal.App.4th 833, 845, 851-852 [the plaintiff’s use of falsified
immigration documents to obtain employment was not related to and did not preclude her
sexual harassment claim]; and Fibreboard Paper Products Corp. v. East Bay Union of
Machinists (1964) 227 Cal.App.2d 675, 729 [employer’s breach of union contract was
not directly related to transaction at issue—employer’s suit for damages due to union
members’ tortious conduct on the picket line].
Appellants’ argument on this point is unclear. The gist of appellants’ contention
seems to be there is no evidence they acted with unclean hands in relation to their
interference claim. Again, appellants’ failure to acknowledge the evidence in the record
of their misconduct renders their argument unpersuasive. The record shows that
appellants’ repeated misconduct, starting with Nypl’s bribery in 2005, lead to
respondents’ additional scrutiny of CCS and Nypl and the individuals they proffered to
IAI and NCCCO as test site hosts and coordinators and accredited practical examiners,
which in turn lead to appellants’ interference claims. Because the record contains ample
evidence showing the relationship between appellants’ misconduct and their claimed
injuries, the trial court did not err in giving an unclean hands instruction.
To the extent appellants complain the instruction was improper because the court
did not give them an opportunity to rebut the evidence of their unclean hands, we reject
this argument for the same reasons set forth earlier.
Finally, appellants address prejudice as follows:
“For Respondent[s] to argue that each complained of instruction is
not prejudicial error because it referred to a question later in the jury verdict
form simply begs the question of the entire issues of this appeal. These
instructions taken together with the other instructions discussed in
[Appellants’] papers, conveyed a bias, were unduly focused, and were
fatally prejudicial to [Appellants]. That the jury acted as instructed in these
prejudicial and argumentative instructions is inescapable. The unclean
hands instruction in combination with the other discussed instructions
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demonstrates beyond any doubt that [Appellants] in this case were deprived
of a fair and impartial trial.”
We disagree. The jury finding that resulted in the verdict for respondents was that
neither NCCCO nor IAI intended to disrupt the relationships that CCS and Nypl had with
test site coordinators and practical examiners. That finding rendered it unnecessary for
the jury to consider whether appellants’ conduct constituted unclean hands. As such,
appellants have failed to show how the unclean hands instruction, even if given in error,
impacted the jury’s verdict or deprived them of a fair trial.
B. Demurrer
Appellants contend the trial court erred in sustaining respondents’ demurrer to the
antitrust causes of action because the complaint alleged an illegal third-party vertical
boycott. Respondents contend the complaint was deficient in five regards. We will
reverse.
Standard of Review
On review of the order sustaining respondents’ demurrer, we examine the
complaint de novo to determine whether it alleged facts sufficient to state a cause of
action under any legal theory. (McCall v. PacifiCare of Cal., Inc. (2001) 25 Cal.4th
412, 415.) We treat the demurrer as admitting all material facts properly pleaded, but
not contentions, deductions or conclusions of fact or law. (Aubry v. Tri-City Hospital
Dist. (1992) 2 Cal.4th 962, 966-967.) We construe the allegations liberally with a
view toward substantial justice between the parties. (Saxer v. Philip Morris, Inc. (1975)
54 Cal.App.3d 7, 18; Bondi v. Jewels by Edwar, Ltd. (1968) 267 Cal.App.2d 672, 676.)
We give the complaint a reasonable interpretation, and disregard possible problems of
proof. (Berg & Berg Enterprises, LLC v. Boyle (2009) 178 Cal.App.4th 1020, 1034.)
1. Third Amended Complaint
The Cartwright Antitrust Act causes of action allege in pertinent part: before
2005, CCS was the largest crane operator training school and had the highest pass rate of
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any school in the United States. Competing schools charged much higher tuition fees and
had lower pass rates.
NCCCO is principally made up of other training schools, each of whom is in
direct competition with CCS. Many members of NCCCO’s board of directors and many
of its commissioners are direct competitors of CCS and Nypl. NCCCO required all crane
operator training schools to agree not to do business with any other certifying
organization.
IAI prepares and administers NCCCO’s tests to crane operator candidates. IAI
charges candidates for every test and divides the fees with NCCCO. Candidates who do
not pass the test must pay to retest.
In 2005, Bud Wilson, a member of an ongoing price-fixing conspiracy by
commissioners of NCCCO and other competing crane schools, asked Nypl and CCS to
join their price fixing agreement and increase tuition substantially. The offer was made
with the knowledge and consent of NCCCO, its commissioners and management, and
IAI. Nypl refused to join in the illegal price fixing or to sign NCCCO’s noncompetition
agreement. As a result, NCCCO, its commissioners and IAI agreed to boycott appellants.
Pursuant to the agreement, students from CCS or any school associated with CCS or
Nypl would not be permitted to take NCCCO’s examinations or to be certified by
NCCCO; respondents’ agents would harass Nypl, CCS, and any crane school associated
with Nypl and CCS; and respondents would seek to eliminate all persons and entities
associated with CCS and Nypl from respondents’ testing and certification services. The
intent of the agreement and boycott was to force appellants out of business.
NCCCO exerts monopoly power over the crane school marketplace in California
because it is the only entity providing an essential service required to compete in the
crane operator school marketplace. Training schools like appellants must have regular
access to test site coordinators and practical examiners approved and accredited by
NCCCO in order to compete in the marketplace. Respondents were thus able to fix
48.
prices and eliminate competition in the marketplace. IAI pays a significant portion of the
testing fees it receives to NCCCO in the form of secret kickbacks.
Pursuant to the conspiracy, IAI refused to allow appellants’ candidates to take the
written and practical exams, and refused to allow individuals associated with CCS to
schedule written or practical exams for the candidates appellants trained. As a result,
students who wished to be certified could not use appellants’ crane training services.
Pursuant to the conspiracy, NCCCO and IAI boycotted appellants by refusing to
allow CCS and the individual appellants to act as test site coordinators, or to provide
accredited test site facilities or to administer NCCCO’s written and practical tests. In
addition, respondents threatened and intimidated persons appellants sought to employ to
act as practical examiners, test site coordinators, and test equipment and service
providers. Respondents also placed unreasonable procedural burdens on appellants that
were not imposed on other crane schools, intimidated appellants’ students, refused to
grade their exams or delayed the release of exam scores for months, made derogatory
statements about Nypl and CCS to potential clients, and made test facilities and
examiners “‘unavailable’” to appellants’ students for “bogus” reasons. Finally, the
NCCCO board of directors denied Nypl’s application to have CCS registered as a
NCCCO written exam test site, to have Nypl serve as a test site coordinator, and to have
CCS listed on the NCCCO Web site as a training provider.
As a result of the boycott, appellants lost profits, business value and goodwill, and
incurred unnecessary expenses. Respondents’ acts also damaged the crane school
marketplace in California. The boycott reduced competition and severely constrained the
largest and least expensive crane school in the state, resulting in higher and less
competitive crane school prices for students and more retesting fees for NCCCO, IAI and
the competing crane schools. Finally, there had been substantial lessening of
competition, crane operations prices had increased, safety had been compromised and
innovation had been hampered.
49.
a. Individual appellants
Regarding the individual appellants, the third amended complaint alleged that
respondents engaged in a concerted effort to boycott individuals who sought to work with
CCS. Larsen, who did business as AAA Crane School, had been authorized by NCCCO
as a test site coordinator and practical examiner. He worked with Nypl and CCS to
provide crane training and NCCCO certification testing. After CCS was removed from
the NCCCO Web site as a result of the federal lawsuit, NCCCO removed AAA Crane
School from NCCCO’s Web site because AAA Crane School’s Web site referred
extensively to CCS. After that, NCCCO accused Larsen and AAA Crane School of test
irregularities, NCCCO entered Larsen’s practical exam sites without permission, ordered
Larsen to remove the CCS logos from the cranes he was using to test clients, intimidated
his clients, and eventually revoked his status as a practical examiner, proctor, and test site
coordinator. Respondents’ acts evidenced their agreement to harass, intimidate and
boycott any person or company that was associated with CCS. The revocation and
refusal to reinstate Larsen effectively excluded him from the crane school business.
Timothy Maxwell completed the exams required for accreditation as a practical
examiner for NCCCO. Nevertheless, his application for accreditation was denied on the
pretext that he had misrepresented certain matters concerning test administrations. The
real reason for the denial was his business relationship with CCS.
Vladamir attended a practical examiner workshop and passed the written exams
and the practical exam at AAA Crane School to become a certified crane operator and an
accredited practical examiner. Pursuant to the conspiracy, NCCCO refused to certify him
until he retested with another accredited practical examiner. NCCCO’s allegations
regarding Vladamir were a pretext to boycott his participation as a practical examiner.
Jared Maxwell was a test site coordinator and an accredited practical examiner. In
2007, NCCCO denied his request to host test sites and notified him that his site could no
50.
longer be used for testing. The reasons given were a pretext to boycott him pursuant to
the conspiracy.
As a result of respondents’ boycott for anticompetitive reasons, appellants were
unable to acquire customers for their crane school and testing services, and were
precluded from earning a living in their chosen field, which lead to a loss of income.
b. Cartwright Antitrust Act violation allegations
By doing the acts alleged above, respondents combined to form an illegal trust and
conspired among themselves to restrain trade and eliminate competition in the California
crane testing and training marketplace. Respondents’ boycott of appellants prevented
them from participating in the crane operator training market in violation of the
Cartwright Act.
c. Illegal trust allegations
Respondents used the monopoly market power created by their illegal trust to
boycott appellants, their customers and associates from the crane training and testing
marketplace. They did so for the purpose of fixing and maintaining the high,
noncompetitive prices they charged for certification. Respondents operated an “essential
facility” for the operation of crane operator schools and denied appellants access in order
to eliminate them from the commercial crane training school marketplace.
2. Demurrer to Third Amended Complaint
Respondents demurred to appellants’ claims for violations of the Cartwright Act
and for illegal trust on the ground appellants failed to state facts sufficient to state a cause
of action in five regards: (1) appellants failed to allege the requisite “‘antitrust injury’” to
establish standing; (2) appellants’ alleged injury was indirect and speculative because
they did not allege a right to serve as NCCCO’s testing agents; (3) appellants failed to
allege material facts regarding the formation, membership, operation and illegal acts of
the conspiracy; (4) appellants failed to allege the requisite injury to competition; and
(5) appellants failed to define a relevant market in terms of product or service and the
51.
complaint allegations show that respondents did not have significant market power or a
significant market share of the relevant market.
The trial court sustained the demurrer to the Cartwright Antitrust Act violation and
illegal trust causes of action in the third amended complaint without leave to amend on
the ground that both failed to allege facts sufficient to constitute a cause of action against
respondents. On appeal, appellants do not distinguish between the two causes of action
and both appear to allege the same wrongful conduct and damages. We consider them as
one.
a. Elements of a Cartwright Act violation
Section 16720 of the Cartwright Act defines an unlawful trust as “a combination
of capital, skill or acts by two or more persons” for enumerated purposes that restrains
trade. Section 16726 provides that “every trust is unlawful, against public policy and
void.” Section 16750, subdivision (a), confers a private right of action on “[a]ny person
who is injured in his … business or property by reason of anything forbidden or declared
unlawful by this chapter .…” The Cartwright Act is patterned after the federal Sherman
Antitrust Act (15 U.S.C. § 1 et seq.), so decisions under the Sherman Act are applicable
under the Cartwright Act. (Kolling v. Dow Jones & Co. (1982) 137 Cal.App.3d 709, 717
(Kolling).)
To state a cause of action under the Cartwright Act, appellants must allege (1) the
formation and operation of a conspiracy, (2) illegal acts done pursuant thereto, and
(3) damage proximately caused by the acts. (Kolling, supra, 137 Cal. App.3d at p. 717.)
California requires a high degree of particularity in the pleading of Cartwright Act
violations. To be sufficient, the complaint must allege specific conduct in furtherance of
the conspiracy to reduce competition. (Marsh v. Anesthesia Services Medical Group, Inc.
(2011) 200 Cal.App.4th 480, 493 (Marsh).)
The Cartwright Act prohibits combinations in unreasonable restraint of trade.
Certain restraints, including some group boycotts, are conclusively presumed to be
52.
unreasonable and illegal. (Marsh, supra, 200 Cal.App.4th at p. 493.) A vertical boycott
consists of collaboration among business entities occupying different levels of
distribution to deny a competitor at one level the benefits enjoyed by the members of the
vertical combination. (Id. at p. 494.)
Appellants assert they have alleged a third-party vertical boycott. That is,
NCCCO, IAI and the unnamed coconspirator crane schools conspired to boycott
appellants from access to the essential testing services that are provided to other
competing schools in the state. Appellants submit their allegations mirror those found to
be sufficient in case law and the trial court erred in sustaining the demurrers.
b. Case law
In Radiant Burners v. Peoples Gas Co. (1961) 364 U.S. 656 (Radiant Burners), a
manufacturer of gas heaters sued a trade association and 10 of its members, including
pipeline companies, gas distributors and manufacturers of gas burners, alleging that the
defendants had conspired to restrain commerce in the manufacture and sale of gas
burners. The complaint alleged that American Gas Association (AGA) operated testing
laboratories in which it purported to determine the safety, utility and durability of gas
burners. It affixed a “seal of approval” on gas burners that passed its tests. (Id. at
p. 658.) Its tests were not based on objective standards, but were influenced by the
respondents, some of whom were in competition with petitioner, and thus its
determinations were made arbitrarily and capriciously. The plaintiff had twice submitted
its radiant burner to AGA for approval, but it had not been approved, although it was
safer, more efficient than, and as durable as gas burners that AGA had approved. AGA
and its utility members carried out the unlawful conspiracy by refusing to provide gas for
use in the plaintiff’s radiant burners, which were not approved by AGA. As a result, the
plaintiff’s gas burners had been effectively excluded from the market because potential
customers would not buy gas burners for which they could not obtain gas. As a result,
the plaintiff lost substantial profits. (Ibid.)
53.
The United States Supreme Court found the complaint stated an antitrust claim.
The respondents’ conspiratorial refusal to provide gas for use in the plaintiff’s gas
burners because they were not approved by AGA showed a type of trade restraint and
public harm that the Sherman Act forbad. Further, the alleged conspiratorial refusal to
provide gas for use in the plaintiff’s burners had, by its nature and character, a
monopolistic tendency that was not to be tolerated merely because the plaintiff was just
one manufacturer whose business was so small that his destruction made little difference
to the economy. (Radiant Burners, supra, 364 U.S. at pp. 659-660.)
Similarly, in Fashion Guild v. Trade Comm’n. (1941) 312 U.S. 457 (Fashion
Guild), manufacturers of women’s clothing claimed that their designs, though not
protected by patent or copyright, were original and distinctive. To suppress competition
by those who copied their designs and sold them at lower prices, the manufacturers
refused to sell to retailers who sold the copies or would not agree not to sell them. The
Federal Trade Commission (FTC) concluded that the practice constituted unfair methods
of competition tending to monopoly and issued a cease and desist order. (Id. at pp. 461-
464.)
The manufacturers argued their boycott was reasonable and necessary to protect
against the evils of pirating of original designs. The FTC properly excluded the
manufacturers’ evidence on this subject. The reasonableness of the methods pursued by
the combination to accomplish its unlawful object was no more material than the
reasonableness of prices fixed by unlawful combination. (Fashion Guild, supra, 312
U.S. at pp. 467-468.)
In American Soc. of M. E., Inc. v. Hydrolevel Corp. (1982) 456 U.S. 556(American Society), ASME was a nonprofit membership corporation that promulgated
codes for engineering and industry. The codes, while only advisory, had an economic
impact, and many were incorporated in federal regulations and state and local laws. One
code set forth standards for components of heating boilers, including low-water fuel
54.
cutoffs, a safety device. (Id. at pp. 558-560.) Hydrolevel, a manufacturer of low-water
fuel cutoffs, made devices that differed slightly from those manufactured by its major
competitor, M&M. One of M&M’s officers was on the ASME committee that was
responsible for interpreting standards for low-water fuel cutoffs. He influenced the
committee to interpret the standards in a way that Hydrolevel’s product did not comply.
(Id. at pp. 560-561.) M&M then advised purchasers not to purchase Hydrolevel’s
product because it did not comply with ASME’s standards, which hurt Hydrolevel’s
business. Hydrolevel sued ASME for violations of the Sherman Act. (American Society,
supra, at pp. 562-564.)
The Supreme Court held that AMSE was liable under the antitrust laws for the acts
of its agents. (American Society, supra, 456 U.S. at p. 568.) The court noted the power
of ASME’s agents to restrain competition. A standard-setting organization like ASME
was rife with opportunities for anticompetitive activity. Many of ASME’s officers were
associated with businesses regulated by ASME’s codes. While most would serve
honorably, others might view their position with ASME as an opportunity to benefit their
employer. In light of the great influence of ASME’s reputation, ASME’s agents had the
opportunity to harm their employers’ competitors through manipulation of ASME’s
codes. (Id. at p. 571.) Therefore, a rule that imposed liability on the standard-setting
organization, which was in the best position to prevent antitrust violations through the
abuse of its reputation, fostered the congressional intent that the private right of action be
available to deter antitrust violations. (Id. at pp. 572-573.)
c. Analysis
Under Radiant Burners, Fashion Guild, and American Society, appellants’
allegations of the three requisite elements—the formation and operation of a conspiracy,
illegal acts done pursuant thereto, and damage proximately caused by such acts—were
sufficient. Appellants alleged:
55.
(1) NCCCO, IAI, the individual respondents, and the unnamed coconspirator
crane school operators, who control NCCCO as members of its board of directors and
commissioners, conspired to fix the price of tuition for crane operator training schools
and invited Nypl and CCS to join the conspiracy; when Nypl and CCS refused to join the
price-fixing scheme, NCCCO, its commissioners, and IAI conspired to boycott CCS and
individuals associated with CCS from access to NCCCO’s testing services, which are
essential for crane operator certification.
(2) Pursuant to the conspiracy to boycott and for anticompetitive reasons,
respondents refused to accredit the otherwise qualified individual appellants as NCCCO
testers and “a competing training school refused to allow [appellants’ students] to test at
its ‘open test site’ stating that NCCCO told them not to test … Nypl’s … students.”
Respondents also threatened and intimidated persons Nypl and CCS sought to employ to
act as testers for CCS’s students.
(3) The boycott damaged appellants’ business and property, as well as
competition within the crane operator training school marketplace.
While the allegations could be clearer, the three elements are sufficiently set forth
to survive a demurrer.
d. Respondents’ contentions
Respondents contend the trial court properly sustained the demurrer to the
Cartwright Act violations and illegal trust causes of action. On appeal, they submit the
complaint was deficient in five regards. Each is considered in turn.
i. Antitrust injury
Respondents first contend the allegations that NCCCO and its agents boycotted
appellants from access to crane testing services, alleged only damage to a competitor,
which is a business tort rather than antitrust injury. Thus, appellants lacked standing to
assert the antitrust causes of action. In addition, because the alleged boycott followed
Nypl’s refusal to join an alleged illegal price-fixing scheme, the competition reducing
56.
effect of the boycott was higher prices to crane school students, which would benefit
competitors in the crane school market. Accordingly, the alleged monopoly pricing could
not have harmed NCCCO’s competitors, such as appellants, so as to give appellants
standing to sue.
Neither contention has merit. Section 16750, subdivision (a), provides that a
Cartwright Act violation action may be brought by “[a]ny person who is injured in his or
her business or property by reason of anything forbidden [by the Act].” Appellants
alleged injury to their business and property by reason of respondents’ conspiracy to
engage in a group boycott against them for anticompetitive reasons. Appellants’ alleged
injury is similar to that in Radiant Burners and American Society. Appellants could not
compete for students in the crane operator training school market if, because of the
alleged conspiracy and boycott, their students had no access to the NCCCO testing
services required for certification. The conspiratorial refusal to allow appellants’ students
access to NCCCO testing because Nypl and CCS refused to participate in the crane
school price-fixing agreement alleged a type of trade restraint and public harm that the
Cartwright Act forbids. Further, the alleged conspiratorial refusal to provide the required
testing access to CCS students, who pay the lowest tuition and have the highest pass rate
in the nation, was, by its nature and character, anticompetitive and an unreasonable
restraint of trade. (Radiant Burners, supra, 364 U.S. at pp. 659-660.)
Two additional cases support this conclusion. In Kolling, supra, 137 Cal.App.3d
709, the court considered whether Kolling’s pleading and proof that Dow Jones
terminated his newspaper distributorship for an anticompetitive reason—his
noncompliance with an illegal price-fixing policy—were sufficient to support a verdict
for damages. Dow Jones had asked Kolling to convince uncooperative retailers to whom
he distributed the Wall Street Journal to sell the newspapers at the price suggested by
Dow Jones. Kolling was only partially successful. (Id. at p. 713.) Kolling also had
disputes with Dow Jones over his distributorship territory that resulted in his territory
57.
being reduced against his wishes. When Kolling refused to adhere to his new territory
restrictions, Dow Jones reduced the number of papers it sold to him for distribution and
eventually terminated him. Kolling attempted to sell his distributorship to a third party,
but Dow Jones took the position the distribution rights were not saleable. (Id. at pp. 715-
717.) Kolling sued and a jury found for him on his Cartwright Act claim. (Id. at p. 712.)
On appeal, the court rejected Dow Jones’s contention that Kolling did not suffer
legally cognizable damages. It explained, the plaintiff in a Cartwright Act proceeding
must show that an antitrust violation was the proximate cause of his injuries. This
“‘standing to sue’” requirement was intended to insure that antitrust injury claims are
brought only by those within the “‘target area’” of the antitrust violation, and not by one
incidentally injured thereby. (Kolling, supra, 137 Cal.App.3d at p. 723.) An “‘antitrust
injury’” was the type of injury the antitrust laws were intended to prevent; that is, an
injury that flowed from the defendants’ unlawful acts. (Ibid.) Kolling suffered the type
of injury the antitrust laws sought to prevent. Dow Jones’s termination of Kolling’s
distributorship and its refusal to recognize his replacement distributor resulted directly
from the price-fixing scheme and Dow Jones’s attempts to further it. Kolling’s injuries
were not secondary or remote, but the direct result of the unlawful conduct.
Consequently, he had shown an injury caused by conduct that the antitrust laws sought to
prevent. (Id. at p. 724.)
Similarly, in Klor’s v. Broadway-Hale Stores (1959) 359 U.S. 207 (Klor’s),
Klor’s, which operated a retail store in San Francisco selling household appliances,
brought an action under the federal antitrust laws against Broadway-Hale, a chain of
department stores with a store next door to Klor’s, as well as manufacturers and
distributors of well known appliance brands. Klor’s alleged that the manufacturers and
distributors conspired among themselves and with Broadway-Hale either not to sell to
Klor’s or to sell only at discriminatory prices and highly unfavorable terms. These acts
had seriously damaged Klor’s profits, goodwill, reputation and prestige. (Id. at
58.
pp. 208-209.) Broadway-Hale did not deny the allegations, but moved for summary
judgment and dismissal of the complaint for failure to state a cause of action. They
averred that there were hundreds of other retailers selling the same and competing
appliances in the same community and contended that the controversy was a private
quarrel between Klor’s and Broadway-Hale that did not amount to a “‘public wrong
proscribed by the [Sherman] Act.’” (Id. at pp. 209-210.)
The Supreme Court disagreed and held that Klor’s allegations showed a group
boycott, which was forbidden by the Sherman Act. This was not a case of a single trader
refusing to deal with another, nor of a manufacturer and a dealer agreeing to an exclusive
distributorship. Rather, the complaint alleged a wide combination consisting of
manufacturers, distributors and a retailer refusing to deal with Klor’s. The boycott
deprived Klor’s of its freedom to buy appliances in an open, competitive market and
drove it out of business as a dealer of Broadway-Hale’s products. The boycott also
deprived the manufacturers and distributors of their freedom to sell to Klor’s at the same
prices and conditions made available to Broadway-Hale. The boycott had, by its nature
and character, a “‘monopolistic tendency.’” (Klor’s, supra, 359 U.S. at pp. 212-213.)
Further, a group boycott would not be tolerated merely because the victim was only one
merchant whose business was so small that his destruction made little difference to the
economy. (Id. at p. 213.)
Under Kolling and Klor’s, appellants have alleged the type of injury the antitrust
laws seek to prevent. According to the allegations of the third amended complaint, CCS
was the largest and least expensive crane operator training school in the state. After Nypl
refused to raise CCS’s tuition and join the price-fixing scheme among the crane schools
that control NCCCO, respondents conspired to boycott appellants’ students from access
to NCCCO’s testing services, and refused to recognize the individual appellants as
accredited examiners, which effectively deprived appellants’ students of access to the
testing they needed for certification, and thereby constrained Nypl’s and CCS’s business
59.
and deprived the individual appellants of the ability to work for CCS. Appellants’
injuries, like the injuries in Kolling, were the direct result of the unlawful conduct.
Appellants were all direct victims of the alleged boycott undertaken as a means to
accomplish the alleged price-fixing conspiracy in the crane training school marketplace.
The allegations of a boycott from access to testing services is analogous to the allegations
of a boycott from access to products in Klor’s. Consequently, the third amended
complaint alleges the requisite antitrust injury and respondents’ assertions to the contrary
are meritless.
The cases respondents cite to support their argument that the antitrust injury
allegations are deficient are not helpful. Respondents cite Knevelbaard Dairies v. Kraft
Foods, Inc. (9th Cir. 2000) 232 F.3d 979, 988 (Knevelbaard) for the proposition that
“mere damage to a supposed competitor, even as part of a conspiracy, is not sufficient to
state an antitrust claim absent ‘antitrust injury.’” On that point, the court in Knevelbaard
considered Kraft’s argument that a conspiracy to depress milk prices would not harm
consumers but benefit them, because reduced milk acquisition costs would mean lower
cheese manufacturing costs and, therefore, lower prices for cheese products. Therefore,
Knevelbaard’s alleged injury from selling at lower, more competitive prices, was not
enough. (Id. at p. 988.) The court, however, rejected the argument and stated, “When
buyers agree illegally to pay suppliers less than the prices that would otherwise prevail,
suppliers are obviously injured in fact. The suppliers’ loss also constitutes antitrust
injury, for it reflects the rationale for condemning buying cartels—namely, suppression
of competition among buyers, reduced upstream and downstream output, and distortion
of prices.” (Ibid.) Because the Knevelbaard court rejected an argument akin to
respondents, it does not support their challenge.
Respondents also cite Atlantic Richfield Co. v. USA Petroleum Co. (1990) 495
U.S. 328 for the proposition that to the extent the alleged price-fixing caused higher crane
school prices, there was no antitrust injury. Respondents’ argument misses the mark.
60.
The third amended complaint alleged that respondents agreed to boycott appellants for
anticompetitive reasons, which resulted in suppression of competition among crane
schools and distortion of prices—not simply higher prices to students—as respondents
suggest. Further, respondents’ argument that the result of the alleged price-fixing scheme
was more revenue to competitors in the marketplace, is irrelevant. Appellants did not
allege they were injured by the price-fixing agreement. They alleged they were injured
by the boycott, which followed Nypl’s and CCS’s refusal to join the price-fixing
agreement. Those allegations sufficiently state an antitrust injury.
ii. Injury indirect or speculative
Respondents contend appellants’ injury is indirect and speculative because they
did not allege any “‘right’” to serve as NCCCO’s testing agents. Further, appellants’
failure to allege that NCCCO was required to let them serve as its agents for crane
certification testing or that NCCCO’s failure to do so injured competition was fatal to
their antitrust claim. The only case law cited to support this challenge is Wholesale
Electricity Antitrust Cases I and II (2007) 147 Cal.App.4th 1293, which does not support
respondents’ position. There, the plaintiffs brought antitrust actions against generators,
traders and wholesalers of electricity from activities arising out of the market conditions
during the energy crisis of 2000. The trial court properly sustained demurrers on federal
preemption grounds. (Id. at pp. 1309-1316.)
Respondents’ argument that appellants must allege a right to serve as testers to
state a viable claim is analogous to Dow Jones’s argument that Kolling could not recover
under the Cartwright Act because his distributorship was terminable at will. (Kolling,
supra, 137 Cal.App.3d at p. 718.) The Kolling court rejected Dow Jones’s claim,
reasoning that while a producer may normally choose its distributors, cancellation of a
distributorship for anticompetitive reasons violates the antitrust laws. The critical inquiry
was whether the refusal to deal, manifested by a combination or conspiracy, was so
anticompetitive in purpose and effect as to be an unreasonable restraint of trade. Thus,
61.
the terminable nature of Kolling’s distributorship did not defeat his antitrust action.
Rather the court looked to the evidence of a conspiracy and an anticompetitive purpose
and effect behind the termination. (Id. at p. 719.)
By analogy, appellants were not required to allege a right to be accredited as
NCCCO testers. Rather, allegations that respondents conspired to bar appellants from
access to testing services for anticompetitive reasons, which resulted in reduced
competition in the crane operator training school marketplace, were sufficient.
iii. Formation, membership and operation of the conspiracy
Respondents submit that appellants failed to allege material facts regarding the
formation, membership, operation and illegal acts of the conspiracy. Further, to the
extent, there are allegations regarding formation and membership of the conspiracy, they
consist of mere conclusions and speculation. We disagree.
Regarding the formation of the conspiracy, the agreement need not be formal and
the combination may be tacit. (Kolling, supra, 137 Cal.App.3d at pp. 720-721.) But
appellants cannot allege a conspiracy generally in the words of the statute. They must
allege the concerted action with particularity, including the formation and operation of
specific combinations with specific parties. (Chicago Title Ins. Co. v. Great Western
Financial Corp. (1968) 69 Cal.2d 305, 317-318; accord, Texaco Inc. v. Dagher (2006)
547 U.S. 1, 5 [the plaintiffs must demonstrate that a particular contract or combination is
unreasonable and anticompetitive before it will be found unlawful].)
While the allegations of the third amended complaint could be more explicit,
appellants have sufficiently alleged the formation of a conspiracy to restrict trade in the
crane operator training school marketplace. (§ 16720, subd. (a).) Appellants alleged that
Bud Wilson, a member of the price-fixing conspiracy involving the NCCCO
commissioners and other competitors in the crane school marketplace, asked appellants to
join the price-fixing conspiracy. When Nypl and CCS refused, the coconspirator crane
operator training schools and respondents agreed to boycott appellants from NCCCO’s
62.
testing and certification services, and to harass, annoy and disrupt schools operated by or
associated with appellants with the intent to force appellants out of business. None of the
case law respondents cite requires more.
Likewise, appellants have sufficiently alleged membership in the conspiracy.
Respondents contend appellants did not identify the crane operator training schools by
name that allegedly conspired with respondents to boycott appellants, they did not
identify any crane schools that “made up” or served as the commissioners of NCCCO,
and they did not allege any facts that tied Bud Wilson, who made the price-fixing offer to
Nypl, to any particular crane training school or any named respondent. Respondents
conclude that appellants’ allegations were mere conclusions and speculation; thus,
appellants’ failure to identify any crane school coconspirator by name rendered the
conspiracy allegations fatally uncertain.
According to the allegations of the third amended complaint, the members of the
conspiracy are NCCCO, NCCCO’s commissioners (who are named in ¶ 42 of the third
amended complaint ), IAI, the individual respondents and the unnamed coconspirator
crane operator training schools who “make up and control NCCCO.” While a conspiracy
must be stated in more than conclusionary terms (G.H.I.I. v. MTS, Inc. (1983) 147
Cal.App.3d 256, 267), appellants’ allegations suffice. Respondents cite no authority—
and we have found none—requiring that all alleged coconspirators be identified by name.
In a related argument, respondents assert that absent any named coconspirator
crane operator training schools, respondents were the only identified conspirators.
Because the complaint alleged each respondent was the agent of his corespondents and
acted within the course and scope of that agency in doing the acts alleged, appellants
have failed to allege the requisite concerted action by separate entities.
To establish a Cartwright Act violation, appellants must allege a combination or
acts by two or more persons or entities. (§ 16720.) A complaint for antitrust violations
that fails to allege such concerted action by separate entities maintaining separate and
63.
independent interests is subject to demurrer. (G.H.I.I. v. MTS, Inc., supra, 147
Cal.App.3d at p. 266.) A corporation cannot conspire with itself or its agents under the
antitrust laws. (Kolling, supra, 137 Cal.App.3d at p. 720.)
The United States Supreme Court addressed the separate entity element in
American Needle, Inc. v. NFL (2010) 560 U.S. 183 (American Needle). There, the
National Football League (NFL), an association of the 32 professional football teams,
formed National Football League Properties (NFLP) to license the teams’ intellectual
property. (Id. at pp. 186-187.) Initially, NFLP granted nonexclusive licenses to
American Needle and others to produce and sell trademarked apparel. Later, the teams
authorized NFLP to grant exclusive licenses and NFLP granted Reebok an exclusive
license to manufacture and sell trademarked headwear for the 32 teams. American
Needle, whose license was not renewed as a result, sued, alleging that the agreement
between the NFL, its teams, NFLP, and Reebok violated the Sherman Act. The
defendants answered and alleged that the teams, the NFL, and NFLP were incapable of
conspiring within the meaning of the statute “‘because they are a single economic
enterprise, at least with respect to the conduct challenged.’” (American Needle, supra, at
pp. 187-188.)
The Supreme Court disagreed. It held that the licensing activities constituted
concerted action within the meaning of the Sherman Act. The relevant inquiry was
whether the agreement joined together separate economic actors pursuing separate
economic interests. If an agreement joined together entities that were independent
centers of decisionmaking, the entities were capable of conspiring under the Sherman
Act. (American Needle, supra, 560 U.S. at pp. 195-196.) Each NFL team was
independently owned and managed, and their objectives differed. While the teams had
common interests such as promoting the NFL brand, they were separate, profit-
maximizing entities, and their interests in licensing team trademarks were not necessarily
aligned. (Id. at pp. 196-197.) Therefore, NFLP’s decisions about licensing the teams’
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separately owned intellectual property were concerted activity and thus covered by the
Sherman Act. (American Needle, supra, at p. 201.)
In this case, the agency allegations of the complaint may raise an inference that
respondents acted as a single entity. However, other allegations regarding the separate
legal status of IAI (a for-profit corporation) and NCCCO (a nonprofit corporation) and
their separate roles and actions in relation to appellants’ claims, raise a conflicting
inference that they are separate economic actors pursuing separate economic interests.
Accordingly, under American Needle, the allegations were sufficient to meet the
requirement of separate entities under the Cartwright Act.
In addition, respondents’ contention ignores the unnamed coconspirator crane
schools, which are not alleged to be the agents of the named respondents, and are
therefore separate entities for purposes of the Cartwright Act violation.
Respondents next assert the allegations regarding the operation of the conspiracy
are deficient. Respondents read the allegations narrowly and conclude that all but one of
the alleged conspiracy terms are actions performed solely by NCCCO or its agents.
Thus, the complaint failed to set forth the operation of a conspiracy. The terms of the
conspiracy were set forth in paragraph 12 of the third amended complaint. For many of
the terms, NCCCO was the primary actor. But, construed liberally, the third amended
complaint alleged that respondents NCCCO, IAI and the coconspirator crane schools
agreed among themselves to refuse to test students from appellants’ school and from
schools associated with appellants. One allegation specifically alleged concerted action
by an unnamed coconspirator: “[i]n August 2006, a competing training school refused to
allow a group of [appellant] J. Larsen’s crane student customers to test at its ‘open test
site’ stating that NCCCO told them not to test [appellant] John Nypl’s … students.”
Respondents also contend appellants have not alleged any illegal acts done
pursuant to the conspiracy because NCCCO’s refusal to allow appellants to perform
crane operator testing on behalf of NCCCO was not illegal. Respondents ignore the
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allegations that their refusal was a concerted action for an anticompetitive purpose after
appellants refused to join the ongoing price-fixing conspiracy among appellants’ crane
school competitors who make up and “control” NCCCO. Under Kolling, supra, 137
Cal.App.3d 709 and Radiant Burners, supra, 364 U.S. 656, the allegations were
sufficient.
iv. Injury to competition
Respondents contend appellants failed to allege the requisite injury to competition
in the crane operator training school market, citing McGlinchy v. Shell Chemical Co. (9th
Cir. 1988) 845 F.2d 802 (McGlinchy). “Appellants did not allege how any particular
contract or combination was ‘unreasonable’ and ‘anti-competative,’ because Appellants
do not plead facts showing the requisite injury to competition as opposed to some
purported injury to themselves.” While respondents’ precise challenge is not clear,
McGlinchy reiterates the federal rule that a party must allege “‘antitrust injury,’” which
should reflect the anticompetitive effect either of the violation or of anticompetitive acts
made possible by the violation. (Id. at p. 811.) However, the more restrictive definition
of “‘antitrust injury’” under federal law does not apply to section 16750. (Cellular Plus,
Inc. v. Superior Court (1993) 14 Cal.App.4th 1224, 1234.)
For example, in Flagship Theatres of Palm Desert, LLC v. Century Theatres, Inc.
(2011) 198 Cal.App.4th 1366, 1381, the court reversed summary judgment granted on the
basis that the plaintiff had not suffered antitrust injury. The defendant argued that the
plaintiff had not shown that the relevant market was less competitive as a result of the
defendant’s conduct. The court disagreed: the antitrust injury requirement does not
require the plaintiff to show actual harm to competition. Rather the plaintiff must show
that it was injured by the anticompetitive aspects of the defendant’s conduct. In other
words, Flagship had to show only that its loss stemmed from the competition reducing
aspects of the defendant’s behavior. That the plaintiffs’ injury would not impact market
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conditions because the plaintiff was a relatively small market participant, did not
foreclose the plaintiff from recovery. (Id. at p. 1380.)
Appellants’ allegations of injury to competition in the crane operator training
school marketplace are set forth in paragraph 99 of the third amended complaint.
Specifically, they alleged respondents’ activities severely constrained CCS, the largest
crane school in California; the tuition prices charged to crane school candidates are
higher and less competitive; there is less competition in the market, and the crane school
market is subject to artificially inflated prices, noncompetitive services and related
market damage. Appellants’ allegations adequately alleged injury to competition to
survive a demurrer.
v. Market power
Respondents assert appellants failed to define a relevant market in terms of
product or service and the complaint allegations showed that respondents did not have
significant market power or market share in the relevant market. They also assert the
crane school market and the crane operator certification market are separate and distinct
as a matter of law, citing Exxon Corp. v. Superior Court (1997) 51 Cal.App.4th 1672(Exxon Corp.).
The antitrust plaintiff must delineate a relevant market and show that the
defendant plays enough of a role in that market to impair competition significantly.
(Exxon Corp., supra, 51 Cal.App.4th at p. 1682.) Market power is generally equated
with market share. It is usually inferred from possession of a substantial percentage of
the sales in a market that is carefully defined in terms of product and geography.
(Redwood Theatres, Inc. v. Festival Enterprises, Inc. (1988) 200 Cal.App.3d 687, 704.)
The “relevant market” is composed of products that have reasonable interchangeability
for the purpose for which they are produced. (Exxon Corp., supra, 51 Cal.App.4th at
p. 1682.) The relevant market may present a question of fact. (Ibid.)
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Respondents submit the complaint demonstrated two separate markets as a matter
of law—respondents are involved in crane operator certification and appellants are
involved in crane operator training. Appellants submit the complaint alleged a single
training and certification market because access to certification testing is an essential
component to remaining competitive in the crane operator training school market. In
Knevelbaard, supra, 232 F.3d 979, the case involving the milk producer/sellers and the
cheesemaker/buyers, the court considered the defendant’s contention that it was in one
market (cheese) while the plaintiff was in another (fluid milk). The court concluded the
complaint’s allegations placed all parties in the milk market—the defendant as buyers
and the plaintiff as sellers. Given the procedural posture of the case—a motion to dismiss
for failure to state a claim on which relief could be granted—those allegations had to be
accepted as true. (Id. at p. 989.) Similarly, in this case, appellants’ allegations place all
parties in one crane operator training and testing market. Further, we cannot determine as
a matter of law on the allegations of the complaint whether the crane operator training
market and the crane operator certification market are separate and distinct or not.
Accordingly, respondents have not shown the complaint was legally insufficient
regarding the market power allegations.
Respondents also submit the pleadings show respondents do not possess market
power or market share in the relevant market in which appellants are active: crane
operator training services. This argument hinges on the previous one—that the two
markets are separate as a matter of law—and fails for the same reason. The parameters
of the relevant market cannot be determined on the pleadings in this case. Market share
in the as yet undefined relevant market presents a question of fact that is not amenable to
resolution on demurrer.
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The complaint allegations regarding market power, read liberally, were
sufficient.11 The complaint alleged that NCCCO, together with its members, staff and
commissioners, was the only entity providing the essential testing services that were
required to compete in the crane operator training school marketplace. As a result,
respondents were able to eliminate competition in the crane operator training school
marketplace. Those allegations sufficiently alleged that respondents played enough of a
role in the marketplace to impair competition significantly.
The third amended complaint allegations adequately set forth the elements of a
cause of action for Cartwright Act violations. Therefore, the court erred in sustaining the
demurrer to the Cartwright Act violations/illegal trust cause of action.
3. Adequate Reasons Stated for Sustaining the Demurrer
Appellants’ final challenge to the adequacy of the reasons stated for sustaining the
demurrer is moot in light of the reversal of the order. Nevertheless, we note that the trial
court’s reasons were adequate. While the court sustaining a demurrer is required to state
the specific grounds for its decision, it is not required to give reasons for sustaining the
demurrer on the specified grounds. (Fremont Indemnity Co. v. Fremont General Corp.
(2007) 148 Cal.App.4th 97, 111.) The trial court’s explanation that the complaint failed
to state facts sufficient to constitute a cause of action is an adequate specification of the
ground. It is not necessary to set forth the reasoning on which the ruling was made.
(Berkeley Police Assn. v. City of Berkeley (1977) 76 Cal.App.3d 931, 943.)
11 In light of this conclusion, whether respondents provide an “essential service”
within the meaning of the essential facilities doctrine, is immaterial. (Alaska Airlines,
Inc. v. United Airlines, Inc. (9th Cir. 1991) 948 F.2d 536, 542 [the essential facilities
doctrine imposes liability when one firm, which controls an essential facility, denies a
second firm reasonable access to a product or service that the second firm must obtain in
order to compete with the first].)
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DISPOSITION
The order of March 24, 2010, sustaining respondents’ demurrer to the Cartwright
Act violation/illegal trust cause of action is reversed. The case is remanded to the trial
court with directions to overrule respondents’ demurrer to the Cartwright Act and illegal
trust causes of action. In all other respects, the judgment is affirmed. The parties shall
bear their own costs on appeal.
_____________________
Kane, Acting P.J.
WE CONCUR:
_____________________
Poochigian, J.
_____________________
Franson, J.
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