Drink Tank Ventures LLC v. Real Soda in Real Bottles, Ltd., No. B298881 (D2d2 Nov. 11, 2021)
A and B are parties to a merger diligence NDA that does not result in a transaction. Later, A and B are competitively bidding on C. B wins and acquires C. A sues B for tortious interference with A’s prospective economic advantage with C. A's theory is that B breached the NDA in connection with buying C, and that B’s breach was the kind of independently wrongful conduct that can substantiate a claim for tortious interference with prospective advantage.
As a matter of substance, the Court here holds it is not. To be independently wrongful, some thing must be tortious on its own or otherwise violate some positive law like a statute or regulation. With limited exceptions that don’t apply here, a breach of contract is not tortious. So a breach of contract that interferes with someone else’s pre-contract economic expectancy is not sufficient to support a claim of tortious interference with prospective advantage.
That all makes sense, and it clears up a somewhat open question. This comes up a lot because plaintiffs like to use this theory to turn what should be claim for consequential damages for breach of contract into a tort claim that is easier to prove with better remedies. Although there are some prior cases from which the rule can be gleaned, this case has a nice clean holding that “[b]ecause a bare breach of contract, without more, is not tortious, such a breach cannot constitute independently wrongful conduct capable of giving rise to the tort of intentional interference with a prospective economic advantage.”
But then there’s the procedure. The case was tried to a jury on the breach-of-contract-as-independent-wrong theory. The jury was instructed that, to satisfy the independent wrong element, it needed to find that B breached the NDA. The jury found that A proved that breach, along with the other elements, and awarded $350k to A. The first time Defendant raised the flaw in the theory was in a post-judgment JNOV. The trial court denied that and B appealed.
The court perceives a procedural quandary here in that everyone acquiesced in trying the case on the breach as wrong theory and instructing the jury on it. No doubt, a new trial motion can raise unpreserved or even invited legal error in jury instructions. See McCarty v. Cal. Dep’t of Transp., 164 Cal. App. 4th 955, 984 (2008). But nobody actually wants a new trial here because the choice is binary. If the theory is valid A wins. If not B wins. Can we even do that with a JNOV—a motion that is fundamentally directed to the adequacy of the evidence? Code Civ. Proc. § 629(a).
And with that, we are in the wacky funhouse of California post-judgment procedure.
There are, frankly, lots of ways to get to a reversal here.
#1. Generally where a jury “instruction is erroneous on material elements of the law, the giving of the instruction is deemed excepted to, even in the absence of objection.” Manguso v. Oceanside Unified Sch. Dist., 153 Cal. App. 3d 574, 581–82 (1984); see also Code Civ. Proc. § 647. The Court cites cases here that suggest forfeiture is possible. But they generally entail invited error, estoppel, or something more than mere failure to object, or instructional errors that do not rise to the level of failure to include an essential element. So, if the instruction was erroneous and prejudicial, it seemingly can be attacked in a direct appeal of the judgment, so the post-trial motion question is not relevant. This seems like the most straightforward approach.
#2. There is also, however, a whole other statute that expressly deals with a post-judgment claim that the judgment cant be supported by a special verdict—Code of Civil Procedure § 663(2). That statute says, in relevant part, that a judgment “based upon . . . the special verdict of the jury, may, upon motion of the a party aggrieved, be set aside and vacated by the same court, and another and different judgment entered, for either of the following causes, materially affecting the substantial rights of the party and entitling the party to a different judgment: . . . (2) A judgment or decree not consistent with or not supported by the special verdict.” So a § 663(2) motion—which is admittedly somewhat obscure—was probably the most applicable way to attack the judgment prior to appeal. But that doesn’t seem to have occurred to anyone.
#3. There is also some authority to support the proposition that the “proper way to remedy [a] defective verdict was to grant [a] motion for JNOV on [the defectively defined] claim[.]” Saxena v. Goffney, 159 Cal. App. 4th 316, 329 (2008). But the fact that there’s authority for something in California post-trial practice doesn’t mean that authority makes any sense, and I have a hunch that if I took the time trace back the citations in Sexena, it winds up being turtles all the way down.
But the Court here does not even rely on that weak authority. It accepts the fact that failure to object to the instruction forfeited an appeal. And it dodges the JNOV issue. Indeed, the court rejects that idea that this is an issue of instructional error. It characterizes the error as the trial court’s erroneous legal decision that the breach/wrong theory was a valid way to prove the interference claim. (This seems a little too formalistic, given that the way the error was manifest was in the trial court’s telling the jury it could find a breach of contract as way to establish the independent wrong element.)
Then, to get out of the cage it built for itself, Court of Appeal holds that the trial court did not have subject matter jurisdiction to enter judgment for A when the element of independently wrongful conduct hadn’t been tried or proven. And since subject matter can’t be waived, the court can reach the issue and vacate the judgment.
That, as Malcolm Gladwell might say, is bananas. Taken at face value, it is a claim that the trial court doesn’t have subject matter jurisdiction to be wrong on the law. But subject matter jurisdiction in California state court is not about what judgment a court can enter. Otherwise, the court could have subject matter jurisdiction throughout the whole case but then lose it by making a legal error. So every wrong judgment would be a void judgment, which gives rise to all kinds of downstream problems, like leaving judgments vulnerable to collateral attack. That does not make any sense.
Part of the issue is terminology. As the Supreme Court has noted, “the term ‘jurisdiction’ . . . carries two distinct meanings[.]” People v. Chavez, 4 Cal. 5th 771, 780 (2018). “One refers to ordinary acts in
excess of jurisdiction. The other concerns so-called ‘fundamental’ jurisdiction, the quality that dictates whether a court has any power at all to resolve a case.” “Fundamental jurisdiction is, at its core, authority over both the subject matter and the parties.” Subject matter jurisdiction is about what kinds of cases a court can even hear.* State court limits on subject matter jurisdiction are rare because “California’s
superior courts are courts of general jurisdiction, which means they
are generally empowered to resolve the legal disputes that are brought
to them.” Quigley v. Garden Valley Fire Prot. Dist., 7 Cal. 5th 798, 808 (2019). Generally, the limits on state court subject matter jurisdiction occur when some body other than state courts is authorized to adjudicate a dispute. Id. at 808-09 (using as examples the Public Utilities Commission and the State Bar).
But “[e]ven when there's no question that a court's action is well within the scope of its fundamental jurisdiction, the court may still exceed constraints placed on it by statutes, the constitution, or common law. When a trial court fails to act within the manner prescribed by such sources of law, it is said to have taken an ordinary act in excess of jurisdiction.” Chavez, 4 Cal. 5th at 780.
Here, there is no question that the trial court had the authority to adjudicate a claim over whether B tortiously interfered with A’s prospective economic advantage. The Court even straight out comes out and says that. So how it could it fundamentally lose jurisdiction by making an erroneous legal ruling about one of the elements of the claim?
Notably, the cases cited by the court, taken together or apart, do not stand for the proposition that a court, vested with jurisdiction to hear a kind of case, nonetheless lacked fundamental subject matter jurisdiction to enter a judgment because it made a legal error about the elements of a common law tort claim.
In People ex rel. Allstate Ins. Co. v. Weitzman, 107 Cal. App. 4th 534, 546 (2003), a statute specifically afforded superior court jurisdiction only over claims brought by certain types of qui tam plaintiffs. That appears to be excess of jurisdiction type of jurisdiction, and the only reference to subject matter jurisdiction is to the trial court ruling being overturned.
In Vaughn v. Condon, 52 Cal. App. 713, 716 (1921), the court held that a court could not afford garnishment against a public entity because that would exceed the scope of a statute permitting garnishment. There’s admittedly some discussion of jurisdiction in an Alabama case that is quoted for the point that the argument could not be forfeited. But Vaughn is an old case, and it likely doesnt square with the Supreme Courts more recent discussion of fundamental jurisdiction in Quigley, which similarly addresses statutory limits on remedies against public defendants.
A third case, Dollenmayer v. Pryor, 150 Cal. 1, 4 (1906), is the kind of case where limits on subject matter jurisdiction have been found—the question was whether the state surveyor general had authority to hear certain kinds of claims.
Finally, People v. Vasilyan, 174 Cal. App. 4th 443, 450 (2009) permitted a convicted defendant to collaterally attack his conviction, because the statute he was convicted of violating was later adjudged not to have defined a criminal offense. That could only occur if the conviction was void, which required a defect in fundamental jurisdiction.
I’ll concede that Vasilyan is probably the closest case on point. But the analysis is pretty strained. The court appears to be going out of its way to get to a remedy, because, although being convicted for a noncrime is pretty unfair, and it had pretty unfair collateral effects on the defendant, the factual particularities of the case made relief by writ of habeas corpus or coram nobis unavailble.
Also, the opinion relies on statutory constraints on subject matter jurisdiction in the criminal context that don’t exist with regards to the superior courts’ jurisdiction over common law claims.
Finally, there’s a pretty strong dissent that makes the points about the different kinds of jurisdiction that I reference above.
But even if Vasilyan is right, and even if it could be ported into the civil context, it takes another big step to get to the result here. This case would be the equivalent of saying that a criminal court lacks subject matter jurisdiction—and thus that its convictions are void—if it erroneously interprets a statute and instructs that an element of a crime was less strict than the appellate court ultimately found it to be. (For instance, if it said that a willful mens rea didn’t require a defendant’s knowledge that his conduct was illegal, even if a higher court later found that it did. See, e.g., Ratzlaf v. United States, 510 U.S. 135, 141 (1994).) A jurisdictional rule like that would have enormous and destabilizing effects on the finality of judgments.
Don’t get me wrong. Post-judgment remedies in California are a wreck that demands reform. I spend a non-minisclue amount of time trying to explain how they work to out-of-state lawyers at my firm. When I do, they react like I am explaining Joseph K’s appellate options. Our Legislature should replace the various overlapping and confusing statutory remedies, each of confusing scope and with its own procedural mousetraps, with a single raitional procedural vehicle to challenge a judgment after it is entered but prior to appeal. If someone wants, I’ll even write the statute. But injecting a layer of jurisdictional mumbo-jumbo into the process is not going to fix anything.
Reversed.
*Due to the interpretation of Article III’s case or controversy requirement as cabining the jurisdiction of the federal courts, standing, ripeness, and mootness are treated as jurisdictional and sometimes as addressing subject matter jurisdiction in federal cases. See Chandler v. State Farm Mut. Auto. Ins. Co., 598 F.3d 1115, 1122 (9th Cir. 2010); Bland v. Fessler, 88 F.3d 729, 732 n. 4 (9th Cir. 1996). But California does have a limitation akin to Article III, so it tends to treat these doctrines as prudential, not jurisdictional. Wilson & Wilson v. City Council of Redwood City, 191 Cal. App. 4th 1559, 1575 n.8 (2011).
