Filed 2/5/15 NICO Alloys v. American Metal Group CA2/2
                  NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
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              IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                     SECOND APPELLATE DISTRICT

                                                  DIVISION TWO


NICO ALLOYS, INC.,                                                   B251688, B253987

      Plaintiff, Cross-defendant, and                                (Los Angeles County
Respondent,                                                          Super. Ct. No. BC466678)

         v.

AMERICAN METAL GROUP, INC. et al.,

      Defendants, Cross-complainants,
and Appellants.



         APPEAL from a judgment of the Superior Court of Los Angeles County. Alan S.
Rosenfield, Judge. Affirmed in part and reversed in part.
         Morgan, Franich, Fredkin & Marsh, Mark B. Fredkin and Linda MacLeod, for
Defendants, Cross-complainants, and Appellants.
         Carlsmith Ball LLP, James Polish and Albert H. Ebright, for Plaintiffs, Cross-
defendants, and Respondents.




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       NICO Alloys, Inc. (NICO) and American Metal Group, Inc. (AMG) both deal in
scrap metal. AMG was in the midst of acquiring NICO’s stock and inventory when
NICO’s owners indicated they did not want to go forward with the proposed buyout deal.
In response, AMG went into NICO’s warehouse and removed over 200 tons of scrap
metal. NICO sought and obtained a writ of possession to take back the scrap metal, and
thereafter sued AMG and others for conversion and other torts. AMG cross-claimed for
breach of the stock and inventory sales contracts. The court ruled for NICO on its claims
and on AMG’s cross-claims, and awarded $322,923.31 in damages, $83,941 in
prejudgment interest, and $740,257.50 in attorney’s fees on the cross-claims. AMG
appeals these rulings. We affirm in part, reverse in part, and remand for further
proceedings to recalculate damages and prejudgment interest, and to considering whether
attorney’s fees need to be allocated among the claims.
                 FACTUAL AND PROCEDURAL BACKGROUND
       AMG and NICO are both companies that sell scrap metal, including high-
temperature alloys. Howard Misle (Misle) owns AMG’s parent company. NICO is co-
owned by Larry Levine (Levine) and Denyse MacMillan (MacMillan). In 2010, Misle,
Levine and MacMillan signed two contracts designed to allow AMG to acquire NICO
after a “try out” period: (1) a put and call agreement, which obligated Levine and
MacMillan to sell their stock in NICO, and obligated Misle to buy that stock, for $2.5
million; and (2) an exclusive sales agreement, which granted NICO the exclusive right to
hold AMG’s inventory of high-temperature alloys on consignment and sell that product
to others.
       Midway through the “try out” period, Levine informed Misle that he no longer
wanted to sell NICO. In response, Misle directed AMG employees and hired laborers to
enter NICO’s warehouse—over the weekend and without NICO’s knowledge—to
relocate just over 200 tons of NICO’s inventory to AMG’s nearby warehouse. Among
the AMG employees who participated was Chad Mueller (Mueller), AMG’s operations
manager and Misle’s potential son-in-law.



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       AMG’s unilateral act touched off this litigation. NICO sought and obtained a writ
of possession to physically retrieve the scrap metal AMG had taken. AMG subsequently
returned much of the scrap metal. NICO also sued AMG, Misle and Mueller for
(1) conversion, (2) claim and delivery (replevin), and (3) intentional interference with
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prospective economic advantage. AMG cross-complained against Levine and
MacMillan for breach of the put and call agreement; against NICO for breach of the
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exclusive sales agreement; and against both sets of defendants for common counts.
       The case proceeded to a 15-day bench trial. As to NICO’s claims, the court ruled
that (1) AMG was liable for conversion, (2) AMG, Misle and Mueller were liable for
replevin, (3) AMG did not intentionally interfere with NICO’s prospective economic
advantage, and (4) AMG did not engage in conduct warranting punitive damages. The
court rejected AMG’s cross-claims.
       The court awarded the following damages to NICO: (1) $600,405 as the retail
value of the scrap metal NICO took but did not return; plus (2) $36,462 as NICO’s costs
of recovering the scrap metal that was taken; plus (3) $140,000 in lost profits; plus
(4) $29,360.53 as the amount AMG owed NICO for unpaid employee expenses; plus
(5) $23,186 in unpaid interest on loans Levine made to AMG; less (6) $506,490.90 as
what NICO owed AMG for scrap metal NICO purchased but had not yet paid for. The
court also awarded an additional $83,941.55 in prejudgment interest, calculated as 7
percent of the $600,405 starting from the date the scrap metal was removed from NICO’s
warehouse; the court did not “set off” the $506,490.90 that NICO owed AMG before
calculating prejudgment interest. The trial court made AMG, Misle and Mueller jointly
and severally liable for the judgment.




1      NICO also sued AMG for breach of an oral agreement and breach of fiduciary
duty, but voluntarily dismissed those claims.

2      AMG initially alleged other claims, but dismissed or abandoned them prior to trial.

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       NICO, Levine and MacMillan then sought attorney’s fees for prevailing on
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AMG’s contract-based cross-claims under Civil Code section 1717 , as each contract had
a provision awarding fees to any “prevailing party.” They sought all fees incurred in the
litigation, including their conversion and claim-and-delivery claims, except for fees
incurred (1) in opposing a writ of attachment, (2) in objecting to the trial court’s
statement of decision, (3) in litigating Mueller’s liability, and (4) in opposing the new
trial motion. AMG opposed the motion, arguing that NICO was not the prevailing party
on the exclusive sales agreement and that the trial court was required to sort out the fees
incurred on the contract-based cross-claims from the fees incurred in NICO’s tort-based
lawsuit. Without any hearing, the court issued a one-sentence ruling that, without
elaboration, awarded NICO all of the fees it requested.
       AMG timely but separately appealed the judgment and attorney’s fees ruling. We
address both appeals in this consolidated opinion.
                                       DISCUSSION
I.     Liability of Mueller and Misle
       A.     Claim and delivery (replevin)
       The trial court found that Mueller had acted at the direction of AMG and Misle,
but that his position as AMG’s “operations manager” meant Mueller had “operational
authority over” the scrap metal he was ordered to relocate. Based on these findings, the
court ruled that Mueller was not liable for conversion, but was liable for claim and
delivery. Mueller attacks this ruling. Because this question turns on the application of
undisputed facts to the law, our review is de novo. (Martinez v. Brownco Construction
Co. (2013) 56 Cal.4th 1014, 1018.)
       In an action for claim and delivery (or replevin), the plaintiff may (1) physically
recover the property taken (Code Civ. Proc., § 511.010 et seq.), and (2) collect damages
for any property not recovered as well as “damages for detention” of the property (Id.,
§ 667.) (See generally Simms v. NPCK Enterprises (2003) 109 Cal.App.4th 233, 241.)

3      All further statutory references are to the Civil Code unless otherwise indicated.

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However, an action for claim and delivery lies only against the person or entity who
actually or constructively possessed the property at issue. (Phillips Aviation Co. v.
Superior Court (1966) 246 Cal.App.2d 46, 53.) An agent who held the property for his
or her principal is not considered to have been in actual possession. (Ibid. [collecting
cases].)
       In this case, the trial court’s finding that Mueller was only acting at the behest of
Misle and AMG is a finding that he was acting as their agent. (See § 2295 [“An agent is
one who represents another, called the principal, in dealings with third persons.”].)
Nothing in the record indicates that Mueller was doing anything beyond following the
orders of his principal. Indeed, the trial court found that Mueller was not acting for
personal gain. The court’s reason for holding Mueller liable—and subjecting him to the
same damages as for the conversion claim for which Mueller was not found liable—was
that Mueller was high up enough in AMG that he could have disobeyed the direct order
of Misle. However, Mueller had no greater right—and no greater ability—to disobey his
boss than any other AMG employee. Mueller’s position in AMG’s organizational chart
accordingly provides no basis for treating him differently for purposes of “agency.”
Indeed, if an agent’s ability to disobey his principal were enough to preclude agency,
there would no longer be any “agents” for the purposes of claim and delivery, and
Phillips Aviation would no longer be the law. (Accord, Simonian v. Patterson (1994)
27 Cal.App.4th 773, 780-782 [fact that person who moves items on another’s behalf
could refuse to do so is not a basis for imposing liability for conversion].)
       We conclude that the trial court erred in holding Mueller liable for claim and
delivery (replevin).
       B.     Payroll expenses
       By making Misle and Mueller jointly and severally liable for the full amount of
the judgment against AMG, the trial court made Misle and Mueller liable for the
$29,360.53 in payroll expenses AMG owed NICO. This payroll debt is AMG’s, not
Misle’s or Mueller’s. Imposing liability on them was error.



                                              5
II.    Damages on NICO’s claims
       AMG raises three challenges to the trial court’s calculation of damages. We
review those calculations for substantial evidence. (Baker v. Pratt (1985) 176
Cal.App.3d 370, 382 (Baker).) In so doing, we “‘“must accept as true all evidence
tending to establish the correctness of the finding as made, taking into account, as well,
all inferences which might reasonably have been thought by the trial court to lead to the
same conclusion.” [Citations.]’” (Ibid.)
       A.     Miscalculation of value of inventory
       The trial court calculated the damages reflecting the scrap metal that ultimately
went missing from NICO’s warehouse in a four-step process: (1) the court sorted the
inventory into different grades (or types) of scrap metal; (2) for each grade, the court
calculated the quantity missing as (a) the quantity of scrap metal originally in NICO’s
warehouse, (b) less the quantity not taken by AMG, and (c) less the quantity AMG
eventually returned; (3) the court multiplied the quantity missing by the retail value of
that grade; and (4) the court totaled the value for each grade. AMG argues that the court
erred in its calculations of three grades of scrap metal, designated as Items 710, 721, and
722.
       There were calculation errors as to each of these three categories. Items 710 and
722 contain arithmetic errors. For each, the court did not reduce the original inventory by
the amount not taken by AMG. As corrected, the loss of Item 710 is $12,061 (not
$22,456), and the loss of Item 722 is $4,411.00 (not $6,339.30).
       Item 721’s recalculation necessitates a remand. For this item, the spreadsheet
shows 15,972 pounds of original inventory; 15,972 pounds returned by AMG; and an
additional 6,008 pounds never taken. At trial, MacMillan explained that Item 721 was a
lower grade of scrap metal; the extra 6,008 pounds were, in fact, higher-grade scrap metal
(such as metal from Item 710) that had been downgraded and allocated to Item 721
because it had been improperly mixed with lower-grade scrap metal. The trial court
declined to give NICO any credit for the 6,008 pounds of downgraded scrap metal. This
was error because it allowed NICO to recover damages for the complete loss of the high-

                                              6
grade scrap, while keeping the downgraded scrap without any credit to AMG. Because
we do not know what the price per pound of Item 721 is, we remand for that calculation
and the appropriate offset.
       B.     Lost profits
       The trial court awarded NICO $140,000 in damages for lost profits due to the
conversion. AMG argues that this award results in unfair “double counting” because it is
based upon the loss of profits to NICO’s entire business and thus rests in part upon the
loss of profits from not being able to sell the unrecovered scrap metal, but NICO already
obtained damages for the loss of sales because the loss of inventory was valued at its sale
price, not its cost basis. Both parties presented expert testimony on the issue of lost
profits: NICO’s expert’s calculated such damages at $688,000; AMG’s, at $12,000. The
trial court awarded $140,000.
       Substantial evidence supports the trial court’s ruling. (Baker, supra, 176
Cal.App.3d at p. 382 [lost profits are a question of fact reviewed for substantial
evidence].) Both NICO’s expert and Levine opined that NICO’s profits turned on its
ability to provide its customers with larger batches of high-temperature alloy metal. As a
result, AMG’s conversion did more than delay the sale of inventory that was taken; the
conversion also made it more difficult for NICO to accumulate the larger batches its
customers wanted, which decreased NICO’s overall sales. What is more, the parties’
experts provided conflicting testimony specifically on this issue of double counting, and
the trial court credited NICO’s expert. Given the testimony regarding the additional
“ripple effect” the conversion caused, the trial court’s award was supported by substantial
evidence.
       C.     Timing of offset vis-a-vis prejudgment interest
       The trial court awarded NICO prejudgment interest on the full value of the scrap
metal inventory never returned ($600,405) rather than awarding interest on the balance
left after reducing that amount by the $506,490.90 that NICO owed AMG. AMG argues
that the trial court should have applied the offset for the amount owed and then calculated
interest on the reduced balance. We review the trial court’s decision for an abuse of

                                              7
discretion. (William R. Clarke Corp. v. Safeco Ins. Co. of America (2000) 78
Cal.App.4th 355, 359.) A trial court abuses its discretion when it applies an incorrect
rule of law. (Edwards Wildman Palmer LLP v. Superior Court (2014) 231 Cal.App.4th
1214, 1224.)
       A prevailing party is entitled to interest at the statutory rate from the date a
contractual debt becomes due (rather than the subsequent date judgment is entered on that
contract) if the contractual debt is “certain” or “capable of being made certain.” (§ 3287,
subds. (a), (b); Chesapeake Industries, Inc. v. Togava Enterprises, Inc. (1983) 149
Cal.App.3d 901, 906 (Chesapeake Industries, Inc.).) This statutory right to interest is not
“defeated” by the possibility that an offset might later be applied. (Chesapeake
Industries, Inc., at p. 907; Wisper Corp. v. California Commerce Bank (1996)
49 Cal.App.4th 948, 960-961.) A party who is found by a court to owe a contractual debt
has a competing right to offset any amounts owed to it by the prevailing party. (Code
Civ. Proc., § 431.70.) Offsetting “allows entities that owe each other money to apply
their mutual debts against each other, thereby avoiding ‘the absurdity of making A pay B
when B owes A’” (Citizens Bank of Md. v. Strumpf (1995) 516 U.S. 16, 18, quoting
Studley v. Boylston Nat. Bank (1913) 229 U.S. 523, 528.)
       So how are the competing rights to interest and offset to be reconciled? The
California courts have adopted a rule that mirrors the rule triggering the right to interest
in the first place: An offset should be applied (and the amount on which interest is due
should be reduced) as of the date the offsetting obligation became both ascertainable in
amount and due. (Code Civ. Proc., § 431.70; Hansen v. Covell (1933) 218 Cal. 622, 630-
631 (Hansen); Lacy Manufacturing Co. v. Gold Crown Mining Co. (1942) 52 Cal.App.2d
568, 579; Muller v. Barnes (1956) 139 Cal.App.2d 847, 850; Burgermeister Brewing
Corp. v. Bowman (1964) 227 Cal.App.2d 274, 285; Leaf v. Phil Rauch, Inc. (1975)
47 Cal.App.3d 371, 376.) It is not necessary for the offsetting obligation also to be
reduced to judgment or the subject of litigation. (Murchison v. Murchison (1963) 219
Cal.App.2d 600, 605.) This rule ensures that interest is calculated only on the amount
one party actually owes the other (Hansen, at pp. 630-631), and thereby guarantees that

                                               8
interest is compensatory rather than punitive (Great Western Drywall, Inc. v. Roel
Construction Co., Inc. (2008) 166 Cal.App.4th 761, 767-768; Gourley v. State Farm Mut.
Auto. Ins. Co. (1991) 53 Cal.3d 121, 126-130).
        Contrary to this rule, the trial court awarded NICO interest on the full amount of
the converted property from the date of the conversion. This was error because NICO’s
arrearages were ascertainable in amount and effectively became due the moment AMG
converted NICO’s inventory and ended any possibility that AMG would acquire NICO
(and use the offsetting obligation to fund the buyout).
        NICO argues that this general rule does not apply to conversion damages because
section 3336 defines the “detriment” suffered by a conversion victim as “the value of the
property at the time of the conversion, with the interest from that time.” (§ 3336, italics
added.) But section 3336 only sets up a presumption of how to measure damages, and
that presumption is rebuttable. (Ibid.; Dakota Gardens Apartment Investors “B” v.
Pudwill (1977) 75 Cal.App.3d 346, 351-352 [noting rebuttable nature of presumption].)
More to the point, neither the text of section 3336 nor its legislative history indicates this
language was meant to abrogate the longstanding rule that prejudgment interest is to be
calculated on the balance of a properly offset obligation. This is the rule followed by
other conversion cases. (Lee v. Merchants Collection Assn. (1957) 155 Cal.App.2d 762,
766.)
        AMG makes the further argument that the trial court should have awarded interest
on its offsetting obligation as NICO was acquiring the scrap metal for which that amount
was owed. We disagree. Although the total amount that NICO owed for AMG’s
inventory became due and certain at the moment AMG converted NICO’s property, it
was not due prior to that moment and was not certain because NICO was accepting (and
paying for) AMG’s scrap metal on a rolling basis that could change. (§ 3287.)
Moreover, once AMG’s offsetting obligation is applied to NICO’s damages on the date
of conversion, AMG has no further right to interest. (Hansen, supra, 218 Cal. at pp. 631-
632 [rejecting argument that interest should be calculated on both the contractual debt
and the offsetting obligation].)

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       We accordingly reverse the trial court’s ruling on this issue, and remand for
application of the offset and recalculation of interest on the balance.
III.   AMG’s cross-claim
       The trial court ruled that NICO did not breach the provisions of the exclusive sales
agreement requiring NICO to make periodic reports on AMG scrap metal it was holding
on consignment because NICO was purchasing inventory outright from AMG, not
holding it for sale on AMG’s behalf. AMG argues that this was error because (1) the
goods were held on consignment, and (2) the trial court’s conclusion that NICO did not
breach the exclusive sales agreement is inconsistent with its decision to grant AMG an
offset for the value of the goods NICO possessed.
       Neither argument has merit. There was evidence that NICO was purchasing
AMG’s scrap metal, not taking it on consignment. Moreover, there is no inconsistency in
the trial court’s rulings. The offset reflects only that NICO owed AMG for NICO’s scrap
metal; it does not speak to whether those goods were acquired or held in violation of the
exclusive sales agreement. Substantial evidence supports the trial court’s conclusion that
they were not: The agreement contemplated consignment, and only imposed reporting
requirements in the event of consignment, so there was no breach of this agreement when
NICO was buying the scrap.
IV.    Attorney’s fees
       In a separate but related appeal, AMG and Misle level two attacks against the trial
court’s award of $740,257.50 in attorney’s fees. The attorney’s fees award was made
under section 1717, which empowers a court to award attorney’s fees to the “prevailing
party” on a contract claim where the underlying contract allows for such fees. (§ 1717,
subds. (a), (b)(1).) We review a trial court’s fee award for an abuse of discretion.
(Heppler v. J.M. Peters Co. (1999) 73 Cal.App.4th 1265, 1296.)
       AMG first argues that NICO was not the prevailing party on its cross-claim that
NICO breached the exclusive sales agreement because the trial court ultimately credited
AMG with the value of the inventory as an offset. As explained above, the question of



                                             10
breach is distinct from the question of offset and AMG did not “prevail on the contract.”
(§ 1717, subd. (a).)
       AMG and Misle also contend that the trial court abused its discretion in awarding
NICO, Levine and MacMillan 100 percent of the attorney’s fees they requested.
Attorney’s fees under section 1717 may be awarded only if they were incurred
prosecuting or defending contract-based claims, and a trial court is required to allocate
fees incurred on the contract claims from those on other claims unless the issues involved
in all of the claims are “inextricably intertwined.” (Graciano v. Robinson Ford Sales,
Inc. (2006) 144 Cal.App.4th 140, 159; Korech v. Hornwood (1997) 58 Cal.App.4th 1412,
1422; Reynolds Metals Co. v. Alperson (1979) 25 Cal.3d 124, 129.) AMG and Misle
assert that the trial court abused its discretion in not sorting the fees NICO, Levine and
MacMillan incurred on the contract-based cross-claims from the fees incurred litigating
the tort claims in NICO’s underlying action. NICO, Levine and MacMillan reply that all
of the issues in their action and the cross-complaint were intertwined. These arguments
present fact-intensive questions that turn on the trial court’s familiarity with the record
and its understanding of the interrelatedness of the evidence and claims presented; this is
precisely why review is so deferential.
       But, in this case, there is nothing to which we can defer. Although we will
generally imply any and all findings necessary to uphold a trial court’s ruling (Homestead
Supplies, Inc. v. Executive Life Ins. Co. (1978) 81 Cal.App.3d 978, 984), the trial court
appears not to have made any findings at all. The parties squarely presented their
allocation arguments to the court, but it held no hearing and issued no oral or written
ruling beyond a single sentence awarding the full amount of requested attorney’s fees to
NICO, Levine and MacMillan. Because “[t]he failure to exercise discretion is an abuse
of discretion” (Dickson, Carlson & Campillo v. Pole (2000) 83 Cal.App.4th 436, 449),
we are compelled to reverse and remand the attorney’s fees issue for the trial court to
exercise its discretion in the first instance (See S.T. v. Superior Court (2009) 177
Cal.App.4th 1009, 1016 [“A trial court’s failure to exercise its discretion generally
requires reversal.”].)

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                                     DISPOSITION
       For the foregoing reasons, we affirm the judgments, reverse and remand for
recalculation of the conversion damages and prejudgment interest, and for consideration
of the attorney’s fees allocation arguments. Each party shall bear its own costs on appeal.
       NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS.


                                           _______________________, J.
                                                   HOFFSTADT
We concur:


____________________________, P. J.
             BOREN


____________________________, J.
             CHAVEZ




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