Court Opinion

ID: 9926865
Source: CourtListenerOpinion
Date Created: 2024-01-25 20:02:22.659212+00
Date Added: 2024-06-11T09:22:11.551253
License: Public Domain

Filed 1/25/24 FEI Enterprises v. Massachusetts Bay Ins. Co. 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   NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                         SECOND APPELLATE DISTRICT

                                        DIVISION TWO

 FEI ENTERPRISES, INC. et                                    B323740
 al.,
                                                             (Los Angeles County
      Plaintiffs and                                         Super. Ct. No.
 Appellants,                                                 19STCV03238)

           v.

 MASSACHUSETTS BAY
 INSURANCE COMPANY,

      Defendant and
 Respondent.

      APPEAL from a judgment of the Superior Court of Los
Angeles County, Laura A. Seigle and Thomas D. Long, Judges.
Affirmed.
      Law Office of Robert G. Klein and Robert G. Klein for
Plaintiffs and Appellants.

     Lewis Brisbois Bisgaard & Smith, Rebecca R. Weinreich,
Jordon E. Harriman, Jeffry A. Miller and Brittany B. Sutton for
Defendant and Respondent.

                              ******
       A school district sued an electrical contractor over the
contractor’s shoddy work on the construction of a middle school.
After the contractor settled with the district for $1.35 million, the
contractor sued the surety that had issued it a performance bond
covering the work, alleging that the surety had breached its
contractual obligations to the contractor in refusing to loan the
contractor $150,000 as part of a $400,000 settlement offer the
contractor wanted to make to the district in an earlier stage of
the district’s lawsuit. The trial court granted summary judgment
for the surety because the undisputed facts showed that the
district never would have accepted a $400,000 offer, such that the
surety’s refusal to make a loan did not cause the contractor any
damages. Because we independently agree with that ruling, we
affirm.
         FACTS AND PROCEDURAL BACKGROUND
I.     Facts
       A.     FEI completes electrical work for a school
district
       In July 2010, Torrance Unified School District (the District)
solicited bids from contractors for the construction of a new
middle school (the project). FEI Enterprises, Inc. (FEI) won the
bid on a package of “Electrical, Low Voltage, Audio Visual” work

                                 2
for the project, for a total contract price of $2,298,000. FEI’s
president is Gabriel Fedida (Gabriel) and Gabriel’s son, Tomer
Fedida (Tomer), is an attorney who assists in representing FEI.1
      As required for all public works projects, FEI was required
to post a performance bond guaranteeing its performance of the
contract. (Pub. Contract Code, § 10224.) Massachusetts Bay
Insurance Company (the surety)2 issued a $2,298,000 bond in
favor of the District. In exchange, FEI (1) paid the surety a
premium and (2) executed an indemnity agreement in the
surety’s favor. As pertinent here, the indemnity agreement
vested the surety with the “sole discretion[]” to make “advances
or loans” on the bond as well as the “absolute right” to cease
making any advances or loans “at any time and without notice to”
FEI.
      The project was completed in July 2012.
      B.     The District sues FEI and the surety over FEI’s
work on the project
      In August 2015, the District sued FEI and the surety,
asserting claims for breach of contract, breach of warranty, and
enforcement of the performance bond (the District action). The
District alleged that FEI provided labor, equipment, materials,
and supplies that were “defective,” that FEI’s electrical work was
not completed in a “workmanlike manner” or “in accordance
with” the contract for the project, and that FEI “concealed its

1     Because the father and son share the same surname, we
use their first names to avoid confusion; we mean no disrespect.

2     Massachusetts Bay is a subsidiary of The Hanover
Insurance Company (Hanover). FEI subsequently sued Hanover
as part of the underlying lawsuit in this case, but the trial court
dismissed Hanover, so it is not a party to this appeal.

                                 3
defective work” so it was not apparent during inspections.
Although the District in its complaint alleged damages totaling
approximately $2 million, the District subsequently released a
more detailed assessment of damages that totaled $3,033,635.42;
of that amount, $534,721.16 was for FEI’s alleged failure to
address electrical issues with respect to a methane containment
system beneath the project site.
       After the District filed suit, the surety demanded that FEI
post collateral for the full amount of the $2,298,000 performance
bond. When FEI refused, the surety sued FEI in federal court.
That lawsuit quickly settled, pursuant to which FEI executed a
collateral security agreement with (1) Gabriel granting the surety
a deed of trust in property he owned, and (2) FEI promising to
repay the surety any amount the surety expended to resolve the
District action in either a “lump sum” or in monthly payments of
at least $10,000 per month.
       C.    FEI negotiates and settles the District action
       In November 2016, FEI, the surety, and the District
participated in a mediation. During that mediation, the District’s
lowest demand to resolve the action was $500,000, and FEI never
made a $400,000 offer during the mediation.
       In January 2017, FEI made a $300,000 settlement offer to
the District.
       Just a few days later, and while the $300,000 settlement
offer was still pending, Tomer orally informed the District that he
was trying to put together a $400,000 settlement offer, which
Tomer hoped to finance with $250,000 from FEI’s liability insurer
and $150,000 from the surety. The District’s attorney “urged”
Tomer to make that $400,000 offer, and orally told Tomer that he
would “recommend” that the District accept any such offer.

                                4
However, the District’s attorney lacked the authority to accept a
$400,000 offer without further consultation with the District, and
the District would never have settled for $400,000 because its
damages “far exceeded” that amount. Because the surety refused
to loan FEI the $150,000, FEI never made a formal $400,000 offer
in January 2017.
       The District subsequently rejected FEI’s still-outstanding
$300,000 offer.
       In early March 2017, FEI made a $400,000 settlement offer
using funding from other sources. The District rejected that
offer. In its email doing so, the District pointed out that its
“lowest number” at “the mediation” had been $500,000, and that
since the November 2016 mediation, the District “ha[d] incurred
significant costs.” The District made a counteroffer of $650,000.
       Nearly two years later, in December 2018, the District
action settled for $1.35 million, with FEI contributing $300,000;
FEI’s liability insurer contributing $400,000; and the surety
contributing $650,000.
II.    Procedural Background
       A.     The early complaints and first summary
judgment motion
       Six weeks after settling the District action, FEI, Gabriel
(individually, and as trustee of two trusts), and his wife3 sued the
surety for breach of the covenant of good faith and fair dealing,

3    For sake of simplicity, we hereafter refer to FEI, Gabriel,
and his wife collectively as FEI.

                                 5
breach of contract, and promissory fraud.4 Specifically, FEI
alleged that the surety breached the covenant by refusing to loan
FEI $150,000 back in January 2017. FEI alleged that this breach
caused it damages because, if the surety had loaned FEI
$150,000, then (1) FEI could have made a $400,000 settlement
offer in January 2017, (2) the District action would have settled
for $400,000 instead of $1.35 million, and (3) FEI would not have
suffered an additional $950,000 in damages.
       By June 2021, the operative complaint was the third
amended complaint, and the surety moved for summary
judgment on that complaint. Specifically, the surety argued that
FEI’s sole claim against it in that complaint for breach of the
covenant of good faith and fair dealing failed as a matter of law
because the surety had the “sole” discretion under the indemnity
agreement whether to loan FEI any money, such that it could not
act in bad faith for refusing to do so during negotiations of the
District action. At no point in its motion did the surety argue
that its failure to loan FEI $150,000 was not the source of FEI’s
damages; to the contrary, the motion at one point explicitly
assumed the surety was responsible, but argued that it still could
not be liable.
       After further briefing and a hearing, the trial court denied
the surety’s motion. The court reasoned that the surety failed “to

4      FEI also sued the attorney and law firm who represented it
during the negotiations with the District, but settled with those
parties for an undisclosed amount.
       FEI’s lawsuit spawned a cross-complaint by the surety for
FEI’s alleged breach of the collateral security agreement for
making insufficient monthly payments. The surety dismissed
this cross-complaint after prevailing on summary judgment on
FEI’s operative complaint.

                                6
address the correct law” establishing that it must exercise its
discretion in good faith and did “not satisfy its initial burden” of
showing that FEI cannot establish a lack of good faith. The court
went on to note that there were disputes of fact over whether the
District action could have settled for $400,000.
       B.    The fourth amended complaint and second
summary judgment motion
       In response to a comment by the trial court in its summary
judgment ruling that FEI could not rely on unpled facts
regarding the surety’s prior conduct of loaning FEI money for
settlement offers on an unrelated project to establish its
expectations regarding the surety’s exercise of discretion, FEI
filed the operative fourth amended complaint in November 2021
that added a cause of action for breach of implied-in-fact contract.
As to this new claim and the prior claim for breach of the
covenant of good faith and fair dealing, FEI alleged that, if the
surety had loaned it $150,000 in January 2017, (1) FEI could
have made a $400,000 settlement offer to the District in January
2017, (2) the District “would have accepted the $400,000
settlement offer,” and (3) FEI would not have had to settle for the
higher amount of $1.35 million.
       The surety filed a second summary judgment motion, but
this motion was based solely on FEI’s inability to establish
damages. After further briefing and two hearings,5 the trial

5      FEI argued at the first hearing that it had additional facts
to allege regarding another instance in which the surety refused
to contribute to a settlement offer. The trial court continued its
ruling on the summary judgment motion so FEI could file a
motion for leave to file a fifth amended complaint. When the
court ruled that it would only be allowing FEI to add five

                                 7
court granted the surety’s motion. The court ruled that the
surety had met its initial burden of showing the absence of any
causal link between its failure to loan FEI $150,000 in January
2017 and FEI’s alleged damages because the evidence showed
that, even if the surety had made that loan and thereby enabled
FEI to make the $400,000 settlement offer in January 2017, the
District would have rejected that offer. The court also ruled that
FEI had not raised a disputed issue of material fact on this issue
because the evidence FEI cited “[a]t most . . . establish[ed] that
[the District’s attorney] would have recommended [that the
District accept] the $400,000 offer [at that time],” “[b]ut FEI did
not show disputed facts concerning whether the District would
have accepted a $400,000 offer at any time.”
       C.    Appeal
       Following entry of judgment for the surety, FEI timely filed
this appeal.
                            DISCUSSION
       FEI argues that the trial court erred in granting summary
judgment to the surety.
       Summary judgment is appropriately granted “where ‘all the
papers submitted show that there is no triable issue as to any
material fact and that the moving party is entitled to judgment
as a matter of law.’” (Hartford Casualty Ins. Co. v. Swift
Distribution, Inc. (2014) 59 Cal.4th 277, 286, quoting Code Civ.
Proc., § 437c, subd. (c).) “Summary judgment is appropriate, and
the moving party (typically, the defendant) is entitled to
judgment as a matter of law, where (1) the defendant carries its
initial burden of showing either the nonexistence of one or more

paragraphs of its new allegations, FEI abandoned the proposed
amended complaint.

                                8
elements of the plaintiff's claim or the existence of an affirmative
defense, and (2) the plaintiff thereafter fails to show the
‘existence of a triable issue of material fact’ as to those elements
or affirmative defense.” (Pereda v. Atos Jiu Jitsu LLC (2022) 85
Cal.App.5th 759, 767; Patterson v. Domino’s Pizza, LLC (2014) 60
Cal.4th 474, 500; Code Civ. Proc., § 437c, subds. (a), (c), (o)(1) &
(2), (p)(2).) “‘“‘We review the trial court’s decision [granting
summary judgment] de novo, considering all the evidence set
forth in the moving and opposing papers except that to which
objections were made and sustained.’” [Citation.] We liberally
construe the evidence in support of the party opposing summary
judgment and resolve doubts concerning the evidence in favor of
that party.’” (Hartford Casualty, at p. 286.)
       The elements of FEI’s claims for breach of the implied
covenant of good faith and fair dealing and breach of an implied-
in-fact contract are largely identical; both claims require FEI to
prove damages proximately caused by the breach. (Bennett v.
Ohio National Life Assurance Corp. (2023) 92 Cal.App.5th 723,
729 [noting “damages element” of claim for “breach of the implied
covenant”]; Aton Center, Inc. v. United Healthcare Ins. Co. (2023)
93 Cal.App.5th 1214, 1230 [noting elements of claim for breach of
implied-in-fact contract are the same as the element of claim for
breach of express contract]; Oasis West Realty, LLC v. Goldman
(2011) 51 Cal.4th 811, 821 [breach of express contract requires
proof of damages resulting from breach].)
       Applying these general principles, the surety is entitled to
summary judgment if there is no dispute of material fact as to
whether the surety’s refusal to loan FEI $150,000 in January
2017 caused FEI any damages.

                                 9
I.     Analysis
       In general, a plaintiff can recover for breach of contract
only if its damages are “clearly ascertainable in both their nature
and their origin.” (Civ. Code, § 3301; Copenbarger v. Morris
Cerullo World Evangelism, Inc. (2018) 29 Cal.App.5th 1, 11.)
Damages are “clearly ascertainable” from a breach only if the
plaintiff “show[s] . . . that [it] has suffered damages by reason of
the wrongful act of defendant” to a “legal certainty.” (Stott v.
Johnston (1951) 36 Cal.2d 864, 875 [connection between breach
and damages must be established “with reasonable certainty”];
Agnew v. Parks (1959) 172 Cal.App.2d 756, 768; Filbin v.
Fitzgerald (2012) 211 Cal.App.4th 154, 165-166 (Filbin); Marshak
v. Ballesteros (1999) 72 Cal.App.4th 1514, 1518 (Marshak);
Thompson v. Halvonik (1995) 36 Cal.App.4th 657, 663; Sukoff v.
Lemkin (1988) 202 Cal.App.3d 740, 746-747.) Where, as here, a
plaintiff’s damages turn on a comparison of what did happen
after an alleged breach (here, FEI settled for $1.35 million) to
what might have happened in the absence of the alleged breach
(here, FEI could have settled for $400,000), damages are
established to a “legal certainty” only if the plaintiff shows that
“it is more likely than not” that the second, “better outcome”
would have happened. (Viner v. Sweet (2003) 30 Cal.4th 1232,
1244 (Viner); Namikas v. Miller (2014) 225 Cal.App.4th 1574,
1582 [plaintiff must show it “‘would certainly have’” received
better outcome].) It is not enough to show that the better
outcome could have happened; time and again, courts have
rejected the position that the “‘“possibility”’” or “‘“mere
probability”’” of the better outcome is sufficient. (Marshak, at pp.
1518-1519; Barnard v. Langer (2003) 109 Cal.App.4th 1453,
1461-1462; McGregor v. Wright (1931) 117 Cal.App. 186, 197.)

                                10
       We independently agree with the trial court that there is no
triable issue of material fact as to whether the surety’s failure to
loan FEI $150,000 in January 2017 caused FEI’s alleged
damages. That is because the undisputed facts show that, even if
the surety had made that loan and FEI had made a $400,000
settlement offer to the District in January 2017, it is not “more
likely than not” that the District would have accepted that offer.
It is undisputed that the District’s initial settlement demand two
months earlier (during the November 2016 mediation) had been
for $500,000, and its costs had only increased since that point in
time. It is undisputed that the District rejected the $400,000
settlement offer FEI made in March 2017, and that the District
countered with a demand for $650,000. And it is undisputed that
the District’s decision maker—the only one with the authority to
accept or reject settlement offers—unequivocally stated that the
District would never have accepted a $400,000 settlement offer
given the damages it sustained as a result of FEI’s substandard
work. To be sure, FEI introduced evidence that the District’s
attorney said in January 2017 that he would “recommend” that
the District accept a potential $400,000 offer from FEI. But it is
undisputed that the attorney himself did not have the authority
to accept such an offer, and, as noted above, the District’s
decision maker stated he would not have accepted such an offer
(and hence would have rejected his attorney’s recommendation).
Thus, this proffered evidence does not even create a possibility of
a $400,000 settlement in January 2017—let alone create a
disputed issue of fact as to whether the District would have more
likely than not entered into a settlement for that amount at that
time.

                                11
        Although causation is typically a question of fact for the
jury, it may be decided as a matter of law on summary judgment
where, as here, “the evidence is not in dispute” or “permits of only
one conclusion.” (Filbin, supra, 211 Cal.App.4th at p. 172.) So it
is here.
II.     FEI’s Counter-Arguments
        FEI resists our analysis with five arguments.
        First, FEI argues that the surety’s second summary
judgment motion was procedurally improper because “[a] party
shall not move for summary judgment based on issues asserted in
a prior motion for summary adjudication and denied by the court”
unless the second motion rests on “newly discovered facts or
circumstances or a change of law.” (Code Civ. Proc., § 437c, subd.
(f)(2), italics added.) We reject this argument for two reasons. To
begin, this statutory bar on successive motions for summary
adjudication or judgment explicitly turns on what the movant
asserted in its prior motion. In its first motion, the surety’s
asserted ground for summary judgment was that its refusal to
loan FEI $150,000 could not have breached the indemnity
agreement because that agreement vested the surety with “sole
discretion” whether to loan money to FEI; this was an argument
about duty and breach, not causation and damages. Although
the trial court made findings about whether there were disputed
issues of fact as to causation and damages, we do not read the
surety’s motion as presenting the issue of the causal link between
breach and damages; the trial court’s sua sponte ruling does not
retroactively mean that the surety asserted something in its first
motion that the motion did not, in actuality, assert. Further, this
procedural objection is, in any event, irrelevant because the trial
court retained the power to revisit its prior ruling on the issue of

                                12
causation and damages. (Le Francois v. Goel (2005) 35 Cal.4th
1094, 1105, 1109.)
       Second, FEI argues that we are applying the wrong legal
test because, in its view, “[t]his case is not about whether [FEI]
can establish damages by showing [that the District] ‘would have’
accepted a $400,000 settlement.” As explained above, that is
precisely what this case is about. FEI’s view is simply wrong on
the law.
       Third, FEI asserts that we should, as a matter of public
policy, relieve FEI of the burden of having to prove that the
surety’s breach caused damages. Instead, FEI continues, the
surety should bear the burden of proving the absence of a causal
link because (1) courts sometimes shift the burden of proof when
a party engages in wrongdoing that makes it “practically
impossible for the plaintiff to prove its case” (Williams v. Russ
(2008) 167 Cal.App.4th 1215, 1226 (Williams)); and (2) the surety
engaged in wrongdoing by not loaning FEI $150,000, and it is
more “difficult” to prove causation in a case like this one where
causation turns on an examination of what was and what might
have been.
       Admittedly, the legal premise of FEI’s argument is valid:
Courts do have the inherent power to shift the burden of
persuasion as to a particular fact for public policy reasons,
typically when “‘the defendant’s wrongdoing makes it practically
impossible for the plaintiff to prove the wrongdoing,’” and the
decision whether to shift the burden turns on a balancing of (1)
“‘“the knowledge of the parties concerning the particular fact,
[(2)] the availability of the evidence to the parties, [(3)] the most
desirable result in terms of public policy in the absence of proof of
the particular fact, and [(4)] the probability of the existence or

                                 13
nonexistence of the fact.”’” (Williams, supra, 167 Cal.App.4th at
p. 1226; Galanek v. Wismar (1999) 68 Cal.App.4th 1417, 1426
(Galanek); National Council Against Health Fraud, Inc. v. King
Bio Pharmaceuticals, Inc. (2003) 107 Cal.App.4th 1336, 1346
(National Council); Masellis v. Law Office of Leslie F. Jensen
(2020) 50 Cal.App.5th 1077, 1087-1090.)
      We nevertheless decline to shift the burden of proof as to
causation in this case for two reasons.
      For starters, and as noted above, this doctrine has been
limited to instances in which a party has destroyed or limited
access to evidence. Here, the surety has not blocked any access to
evidence; FEI is just as free as the surety to obtain discovery
from the District or other third parties about what might have
happened if FEI had made a $400,000 settlement offer in
January 2017. What makes causation more difficult here is not
any conduct by the surety blocking access to evidence; it is simply
the fact that it is inherently more difficult to prove causation
where causation turns on a comparison between the outcome that
did happen and outcomes that did not happen. Also, courts have
shifted the burden only when the party has engaged in
“wrongdoing” separate and apart from the “wrongdoing” alleged
in the underlying litigation, such as when a party destroys or
otherwise limits access to evidence during discovery. (Williams,
supra, 167 Cal.App.4th at pp. 1225-1228 [discovery misconduct];
Galanek, supra, 68 Cal.App.4th at p. 1426 [spoliation]; National
Council, supra, 107 Cal.App.4th at p. 1346 [collecting cases
regarding spoliation]; cf. National Council, at pp. 1346-1347
[noting application in negligence per se and design defect cases].)
The sole wrongdoing FEI uses as the justification for shifting the
burden of proof is the surety’s conduct in not loaning it $150,000,

                                14
which is exactly the same conduct FEI alleges as the breach
underlying its lawsuit. This is not an adequate basis for shifting
the burden of proof. (National Council, at p. 1347 [“We are aware
of no cases in which the burden of proof shifts to the defendant
upon the filing of the complaint”].) Indeed, our Supreme Court
has held that the plaintiff retains the burden of proving
causation in “settle and sue” cases where causation turns on the
very same comparison of outcomes that did and did not happen.
(Viner, supra, 30 Cal.4th at p. 1244.)
       Additionally, and more fundamentally, the net effect of
FEI’s argument would be to eliminate the causation element from
FEI’s claims. As the party moving for summary judgment, the
surety already bore the burden of producing evidence, and it
carried that burden by showing the District would not have
accepted a $400,000 settlement offer had one been made in
January 2017. FEI did not introduce substantial evidence to
rebut that showing. If all we did was shift the burden of
persuasion, the surety would still prevail on this record. Thus,
what FEI is really requesting is that we relieve it of the burden of
even having to rebut the surety’s showing—in other words, that
we excuse FEI from having to make any showing at all regarding
causation. This we decline to do, because we would be effectively
treating evidence satisfying the element of breach as also
satisfying the element of causation, thereby eliminating the
element of causation entirely. (See, e.g., People v. Jeffers (1987)
43 Cal.3d 984, 991-992 [declining to render element
superfluous].)
       Fourth, FEI at oral argument asserted that it had “no
liability” at all to the District, such that the District surely would
have accepted a $400,000 settlement offer from FEI in January

                                 15
2017. We reject this argument because it contradicts the
undisputed evidence that the District’s lowest settlement offer at
any point in time in that case was $500,000. FEI’s assessment in
this litigation that the District’s claims had no value is obviously
different from the District’s view, and it is the District’s view that
matters as to whether the District would have accepted a
$400,000 offer from FEI in January 2017. Indeed, the ultimate
settlement of the District action for $1.35 million tends to
undermine entirely FEI’s current assessment that the District
litigation had no value.
       Fifth and lastly, FEI argues that there are triable issues of
fact as to whether the surety breached its duty to make loans.
Given that FEI already prevailed on this issue in the first
summary judgment motion and that it was not at issue in the
second summary judgment motion, this argument is irrelevant to
the motion we are reviewing in this appeal.

                                 16
                       DISPOSITION
     The judgment is affirmed. The surety is entitled to its costs
on appeal.
     NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS.

                                     ______________________, J.
                                     HOFFSTADT

We concur:

_________________________, P. J.
LUI

_________________________, J.
ASHMANN-GERST

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