Court Opinion

ID: 7841729
Source: CourtListenerOpinion
Date Created: 2022-09-08 17:02:06.60113+00
Date Added: 2024-06-11T16:21:19.122688
License: Public Domain

Filed 9/8/22 IQ Holdings v. Krablin CA2/6

     NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 publication or ordered published, except as specified by rule 8.1115(b). This opinion
has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                         SECOND APPELLATE DISTRICT

                                         DIVISION SIX

IQ HOLDINGS, INC.,                                              2d Civ. No. B307034
                                                            (Super. Ct. No. 17CV04706)
  Plaintiff, Cross-Defendant                                  (Santa Barbara County)
and Appellant,

v.

JOHN R. KRABLIN et al.,

  Defendants, Cross-
Complainants and Respondents.

      John R. Krablin (Krablin), a general contractor, and his
company, Krablin Enterprises, LLC, performed construction and
design work on a renovation project for IQ Holdings, Inc. (IQ).
Dissatisfied with Krablin’s expense accountings, IQ sued him for
damages. Krablin cross-complained.
      Following a six-day bench trial, the court concluded it was
“essentially a case . . . of complete failure to communicate” and
denied all requested relief. Among other things, the court found
the testimony of Pradeep Yohanne Gupta (Gupta), IQ’s chief
executive officer, was at times “significantly lacking in
credibility” and “internally inconsistent,” and also rejected IQ’s
expert witness testimony as not “adequately complete or
reliable.” The court acknowledged that Krablin’s final accounting
was “not perfect,” but determined it was “adequate” and that “no
additional sums are due to be paid” to either party.
       IQ contends “the trial court misapplied the law to the
undisputed facts” and asks us to engage in de novo review. The
purpose of the trial, however, was to resolve the many factual
disputes. We agree with Krablin that substantial evidence
supports the court’s resolution of those disputes and affirm on
that basis.
       Krablin has filed two motions seeking monetary sanctions
against IQ and/or its attorneys for (1) submitting an inadequate
appellant’s appendix and (2) pursuing a frivolous appeal. We
grant the first motion and order IQ’s attorneys to pay Krablin
$15,050 to compensate him for the attorney fees incurred to
obtain the corrected appendix. With some reluctance, we deny
the second motion.
       FACTUAL AND PROCEDURAL BACKGROUND
       In 2015, Krablin and Gupta, who were neighbors and
friends, began discussing Krablin’s possible renovation of a
residential property owned by IQ in Montecito.1 It consisted of a
main residence and several outbuildings, including a garage that
Gupta wanted remodeled to include guest accommodations.
Krablin advised Gupta of his significant experience as a general
contractor and was confident he could manage the project in a
cost-efficient manner.

      1The property is known as the “Scarface” house because
the 1983 movie was filmed there.

                                2
       IQ is a family-owned, Texas-based holding company that
manufactures and distributes consumer products to big-box
retailers; owns other companies, including a private equity
investment bank; and holds a substantial number of investment
properties. It is particularly known for bringing WD-40 to
market. As the trial court observed, IQ “is a sizable firm with
significant real estate holdings, and Gupta has significant
experience in real estate development and construction,
managing a portfolio worth many millions of dollars. IQ . . . has a
professional staff dealing with all aspects of construction and
property management, with an accounting department. The
nature and extent of Krablin’s business [are] entirely different.
Krablin worked almost exclusively on residential projects,
including some high-end projects. It was not unusual for Krablin
to have several projects going at the same time. Krablin handled
his own project accounting, with some help from his wife, a
banking executive.”
       IQ and Krablin did not enter into a written contract.
Gupta and Krablin orally agreed that Krablin would construct
the items identified by Gupta on a cost-plus-15-percent basis,
“and not much beyond that is certain at all.” They did agree that
IQ would advance money for the construction and that Krablin
would account for the expenditures. Gupta gave Krablin oral
instructions regarding the work he wanted done. Gupta
regularly visited the construction site, discussed the ongoing
work with Krablin and provided him with additional funds as
needed. As the trial court noted, “[t]his was a pet project for
Gupta, that he took on himself, although he had access to
professional administrative support, and even his own
construction teams with the necessary trades to do the work.”

                                3
       Gupta initially was happy with Krablin’s work. After
Krablin provided his April 2016 expense report, Gupta began
asking for backup receipts documenting the expenditures in
Krablin’s monthly expense reports. Krablin explained that
providing receipts is a time-consuming task which he could not do
while physically working each day.
       Nonetheless, in May or June 2016, at Gupta’s insistence,
Krablin provided a file box containing the job file, contracts and
receipts to back up his expense reports. The contents of the box
were loose and unorganized. Gupta assured Krablin that his
“fellows” in Texas would organize the documents.
       Gupta asked IQ’s in-house accountant, Raaj Ajmeri
(Ajmeri), to assist with the accounting. Ajmeri sorted through
the documents, viewing “them in light of various [expense]
reports provided by Krablin,” but “could not balance the books.”
After discovering a $15,000 expense belonging to another Krablin
project, a mistake Krablin readily admitted, IQ and Gupta began
to view Krablin “as some sort of confidence man rather than a
contractor who is rather incompetent in his accounting.”
       Despite the accounting issues, the work on the project
continued and was completed by August 2016. According to
Krablin, he was never able to give IQ the accounting information
in a format that Gupta and Ajmeri found acceptable. IQ, “for its
part[,] sought a degree of detail that was not possible for Krablin
to produce, and endeavored to seek for every error, and attribute
each one to intentional malfeasance rather than ineptitude.”
       IQ’s first amended complaint (FAC) alleged causes of action
for breach of contract, breach of the implied covenant of good
faith and fair dealing, conversion, negligent misrepresentation,
unfair business practices, unjust enrichment and an accounting.

                                4
Krablin’s cross-complaint sought $3,091.36, which he claimed he
was still owed for the project.
       The trial was conducted in two phases. During the first
phase, the trial court rejected IQ’s assertion that because Krablin
was unlicensed for a short period of time during the latter part of
the project, he must disgorge all monies paid to him. (See Bus. &
Prof. Code, § 7031, subd. (b).)2 The court found that Krablin had
substantially complied with the licensing statute in good faith
and thus was not required to disgorge the cost of the project.
       In the second phase, IQ sought to recover one-third of the
$700,550 paid for the project. The trial court ruled against IQ on
each of its causes of action. It disagreed that there was “an utter
absence of support” for Krablin’s final accounting and found the
requested “1/3 reduction to be arbitrary.” The court also entered
judgment against Krablin on his cross-complaint, finding IQ “did
pay what it owed for the work [Krablin] performed.”
                            I. DISCUSSION
                         A. Standard of Review
       “In reviewing a judgment based upon a statement of
decision following a bench trial, we review questions of law de
novo. [Citation.] We apply a substantial evidence standard of
review to the trial court’s findings of fact. [Citation.] Under this
deferential standard of review, findings of fact are liberally
construed to support the judgment and we consider the evidence
in the light most favorable to the prevailing party, drawing all
reasonable inferences in support of the findings.” (Thompson v.
Asimos (2016) 6 Cal.App.5th 970, 981; see Fladeboe v. American
Isuzu Motors Inc. (2007) 150 Cal.App.4th 42, 59-60.) We do “not

      2 Allstatutory references are to the Business and
Professions Code unless otherwise stated.

                                 5
reweigh the evidence, evaluate the credibility of witnesses or
indulge in inferences contrary to the findings of the trial court.
[Citations.] The substantial evidence standard of review is
generally considered the most difficult standard of review to
meet, as it should be, because it is not the function of the
reviewing court to determine the facts.” (In re Michael G. (2012)
203 Cal.App.4th 580, 589.)
                 B. Substantial Evidence Supports the
                    Trial Court’s Factual Findings
       Most of IQ’s arguments fail because they are based on the
erroneous premise that the facts in this case are undisputed. In
IQ’s view, the trial court erred by failing to view the evidence in
I.Q.’s favor. For example, IQ argues that the testimony of its
construction accounting expert, Raquel Christiansen, requires
that Krablin refund $552,000 of the project cost. The court,
however, discredited Christiansen’s testimony because she never
visited the job site and had only identified costs that were
“‘disputable’” based on her review of the documentation. Noting
that “disputable does not necessarily mean wrong,” the court
concluded Christiansen’s testimony was not “adequately complete
or reliable.”
       Our function as an appellate court is not to retry the case
or reweigh the evidence. The justification for the substantial
evidence rule is that the trial judge, having heard the evidence,
observed the witnesses, their demeanor, attitude, candor, or lack
of candor, is best qualified to pass upon and determine the
factual issues presented by their testimony. (See Jackson v.
Maguire (1969) 269 Cal.App.2d 120, 121 (Jackson) [“It is
hornbook law that an appellate court cannot retry the case but is
bound by the conclusions and findings of the trial judge if such
findings are supported by substantial evidence”].)

                                 6
          1. Breach of Contract/Breach of Fiduciary Duty
       IQ’s claims are based on Krablin’s alleged failure to provide
an adequate or acceptable accounting of the project’s
expenditures. IQ has no complaints regarding the quality of the
design and construction. It maintains that an accounting is an
“exact science,” that Krablin had a contractual and/or fiduciary
duty to provide an exact accounting and that it was damaged by
his failure to do so.
       IQ incorrectly states that the trial court did not find the
existence of a contract between the parties. It found “[t]he
contract was so devoid of specificity that one can only conclude
that each party acted fairly and in good faith as they saw it.”
Among other things, the contract did not address “[t]he many
details covered by ordinary construction contracts such as scope
of work, contract price, insurance, safety issues, management of
subcontractors, liens, accounting and payments – and so very
much more.”
       In any event, a claim for breach of contract requires proof of
damages. (Oasis West Realty, LLC v. Goldman (2011) 51 Cal.4th
811, 821; see Civ. Code, § 3301.) Each accounting provided by
Krablin, as he attempted to meet IQ’s demands, varied only in
the amount IQ owed Krablin, above and beyond the amount
already paid. IQ did not present its own accounting showing that
it was overcharged for labor or materials. To the contrary, Gupta
conceded at trial that IQ’s claim for reimbursement of one-third
of the total amount paid was “arbitrary.” In addition, as
discussed above, the trial court disregarded Christiansen’s expert
testimony as not “adequately complete or reliable.”
       IQ’s FAC does not include a claim for breach of fiduciary
duty. Nor does it allege an implied-in-fact contract requiring
Krablin to produce receipts supporting his expenditures. “‘“As a

                                 7
general rule, theories not raised in the trial court cannot be
asserted for the first time on appeal; appealing parties must
adhere to the theory (or theories) on which their cases were
tried.”’” (American Indian Health & Services Corp. v. Kent (2018)
24 Cal.App.5th 772, 789.) We decline to consider these issues for
the first time on appeal. (See Zimmerman, Rosenfeld, Gersh &
Leeds LLP v. Larson (2005) 131 Cal.App.4th 1466, 1488; Piscitelli
v. Friedenberg (2001) 87 Cal.App.4th 953, 983.)
                    2. Unlawful Business Practices
       IQ contends Krablin violated sections 7108 and 7111, which
are part of the Contractors State License Law (§ 7000 et seq.;
CSLL). These statutes generally impose recordkeeping duties on
licensed contractors and allow for disciplinary action by the
Contractors State Licensing Board (CSLB) for any violations.
Section 7108 requires a licensed contractor to “substantially
account” for the application or use of funds provided for
construction projects. Here, the trial court found Krablin’s
accountings to be “imperfect” but “adequate.” As previously
noted, substantial evidence supports this finding.
                            3. Accounting
       IQ contends the trial court erred by rejecting his accounting
cause of action and requests that the matter be remanded for “an
accounting . . . to determine how much of IQ Holdings’ advanced
payments were unsubstantiated and ‘wrongly obtained’” by
Krablin.
       An action for an accounting is a “‘means of discovery’” that
“is consistent with the idea that a plaintiff seeking an accounting
cannot ‘allege[] the right to recover a sum certain’ because [it]
lacks the information necessary to determine the precise amount
that may be due.” (Sass v. Cohen (2020) 10 Cal.5th 861, 869.) An
accounting is not due, however, when all the information is

                                 8
produced and offered to the trial court for adjudication of the
parties’ competing claims.
       In Winegar v. Gray (1962) 204 Cal.App.2d 303, the court
rejected the plaintiff’s assertion that he was entitled to an
accounting. His claim was based on the alleged inadequacy of the
defendant’s records. But, as in this case, the alleged
inadequacies were offered into evidence and adjudicated by the
trial court. (Id. at p. 315.) Having found that no monies were
due either party, the court appropriately denied the accounting
claim. (See ibid.) The same is true in this case.
                   4. Negligent Misrepresentation
       IQ asserts Krablin is liable in tort because he represented
that he would accurately account for his project expenditures,
“when he knew that this was false.” The trial court denied this
claim, noting that “the parties said many things to each other.
Both of them said things that were not true, to each other’s
bewilderment. Which of these might be negligent
misrepresentations could not be ascertained, in considering the
veracity of both Defendant and Plaintiff.”
       The trial court found that Gupta’s “lengthy” testimony “was
internally inconsistent in a variety of ways.” Among other
things, the court did not believe his claim that “90% of his very
large business is conducted without written contracts or other
such documentation.” It also “was apparent to the court that
[Gupta] was most troubled because he felt disrespected, that he
had not received the kind of attention and communication that he
was accustomed to receiving in the world of his IQ Holdings, Inc.
business. He undertook the matter as a loose and undefined pet
project, and found that . . . Krablin and his [company] did not
conduct business in the way he anticipated.”

                                9
       IQ does not attempt to show that the trial court’s findings
are unsupported by substantial evidence. Instead, it provides its
own assessment of the evidence and the parties’ credibility and
asks us to adopt its view of the facts. As previously discussed, we
may not reweigh the evidence, evaluate the credibility of
witnesses or indulge in inferences contrary to the trial court’s
findings. (In re Michael G., supra, 203 Cal.App.4th at p. 589.)
             5. Claim for Disgorgement Under Section
                         7031, Subdivision (b)
       Section 7031, subdivision (a) of the CSLL provides that no
person “engaged in the business or acting in the capacity of a
contractor” can bring an action for compensation for work
requiring a contractor's license if the person was not properly
licensed at all times during the performance of the work.
Subdivision (b) goes further, permitting a person “who utilizes
the services of an unlicensed contractor” to bring an action for
disgorgement of “all compensation paid to the unlicensed
contractor.”
       Section 7031, subdivision (e) offers contractors a “safe
harbor” from the disgorgement provision: “[N]otwithstanding
subdivision (b) of Section 143, the court may determine that there
has been substantial compliance with licensure requirements
under this section if it is shown at an evidentiary hearing that
the person who engaged in the business or acted in the capacity
of a contractor (1) had been duly licensed as a contractor in this
state prior to the performance of the act or contract, (2) acted
reasonably and in good faith to maintain proper licensure, and (3)
acted promptly and in good faith to remedy the failure to comply
with the licensure requirements upon learning of the failure.”
       Application of the safe harbor exception is a question of
fact. (See ICF Kaiser Engineers, Inc. v. Superior Court (1999) 75

                                10
Cal.App.4th 226, 236.) During the first phase of trial, the court
found that Krablin “substantially complied with the licensure
requirements . . . and was therefore duly licensed as a contractor
at all times during his performance of the contract with [IQ].”
       The doctrine of substantial compliance applies only if all
three requirements of section 7031, subdivision (e) are met.
(WSS Industrial Construction, Inc. v. Great West Contractors, Inc.
(2008) 162 Cal.App.4th 581, 588-589.) IQ argues that Krablin
failed to meet the second prong because he did not act reasonably
and in good faith to maintain proper licensure. Krablin claims
substantial evidence supports the trial court’s finding on this
issue. We agree with Krablin.
       Krablin testified that he has been a licensed general
contractor since 1988. He began the IQ project in November 2015
and completed most of it by August 2016. It is undisputed that
he was licensed when he began the job and that his license
expired on June 30, 2016. Krablin did not learn of the expiration
until early September 2016, when he received a notice in the mail
from the CSLB informing him that his license had expired and
providing instructions for requesting license renewal.
       Krablin immediately contacted the CSLB to confirm the
renewal process. As part of that process, Krablin sent a letter of
explanation to the CSLB in which he stated, in part: “I was
completely unaware that I had not renewed my license and I
apologize for this. I have always renewed promptly when I
received the renewal in the mail, but I just honestly did not see it
at my home/office.” The CSLB accepted Krablin’s request for a
delinquent renewal and restored his license on September 15,
2016.
       The trial court found that Krablin acted promptly and
reasonably in reinstating his license immediately upon being

                                11
notified that his license had lapsed for non-payment due to his
own administrative error. Once again, IQ second-guesses the
court’s factual finding, arguing that Krablin knew his license
expired every two years on June 30 and should have had some
sort of “tickler” system to remind him to renew. Even if the trial
court could have made that finding based on the evidence, we do
not second-guess the trial court’s resolution of conflicting
substantial evidence. (See Kunec v. Brea Redevelopment Agency
(1997) 55 Cal.App.4th 511, 518.)
        C. Krablin’s Motions for Monetary Sanctions on Appeal
                      1. First Motion for Sanctions
       On June 29, 2021, we dismissed IQ’s appeal for failure to
file an opening brief. We subsequently granted IQ’s motion to
vacate the dismissal, conditioned upon its filing the appellant’s
appendix and opening brief within five days.
       On September 2, 2021, Krablin moved to strike IQ’s 10-
volume digital appellant’s appendix for its failure to comply with
the Rules of Court. Krablin also moved to dismiss the appeal and
requested $15,050 in sanctions against IQ’s counsel. (Cal. Rules
of Ct., rule 8.124(g);3 see Ellis v. Toshiba America Information
Systems, Inc. (2013) 218 Cal.App.4th 853, 877 (Ellis) [sanctions to
compensate respondent for successfully moving to strike a portion
of appellant’s appendix].)
       IQ opposed the motion, but acknowledged its appendix
failed to comply with rules 8.124(b)(1)(A) and 8.122(b)(1) and
sought leave of court to correct the errors. Although the 10-
volume appendix was 2,600 pages in length, it did not include the
judgment, operative complaint, register of actions and 14 other
necessary documents. The appendix was comprised mainly of

      3   All rule references are to the California Rules of Court.

                                   12
trial exhibits, many of which were not discussed in IQ’s opening
brief or relevant to resolution of the issues on appeal.
       Agreeing the appellant’s appendix did not comply with the
court rules, we ordered it stricken and gave IQ five days to serve
and file a corrected appendix. IQ complied with this order. We
denied the motion to dismiss the appeal but advised the parties
that “[t]he court is considering granting [Krablin’s] request for
sanctions” and that “[o]ral argument on the issue of sanctions
will be combined with oral argument on the merits of the appeal.”
(Rules 8.276(c), 8.124(g), 8.276(e).)
       Rule 8.124(g), which is titled “Inaccurate or noncomplying
appendix,” states: “Filing an appendix constitutes a
representation that the appendix consists of accurate copies of
documents in the superior court file. The reviewing court may
impose monetary or other sanctions for filing an appendix that
contains inaccurate copies or otherwise violates this rule.” (Bold
omitted; see Ellis, supra, 218 Cal.App.4th at p. 877.) IQ does not
dispute that it was responsible for providing an accurate
appellant’s appendix, and that it failed to do so. IQ ultimately
corrected the appendix, but that correction required prompting by
both Krablin and this Court.
       Krablin seeks $15,050 in sanctions against IQ’s counsel,
representing 30 hours of work by his attorney, Herb Fox, at $500
per hour. After discovering the “substantial defects” in the
appellant’s appendix, Fox requested the sanctions to compensate
his client for the fees incurred for Fox to “assess the inadequacies
[in the appendix]; draft a letter to opposing counsel warning of a
motion for sanctions unless the appendix was withdrawn and the
appeal dismissed, and draft[] this motion for sanctions.”
       IQ argues that the sanction request is “excessive.” We
disagree. We conclude Krablin is entitled to monetary sanctions

                                13
against IQ’s counsel in the amount of $15,050 to compensate him
for the fees incurred to obtain a corrected appendix. (See Ellis,
supra, 218 Cal.App.4th at p. 877.) But for counsel’s negligence in
preparing the appendix, the fees would have been unnecessary.
Krablin should not have to bear that cost.
                    2. Second Motion for Sanctions
       On February 10, 2022, Krablin filed his second motion for
sanctions, this time against IQ and its attorneys. Krablin
requests $41,500, in addition to the $15,050 previously requested,
to compensate him for having to respond to appellant’s “frivolous
appeal,” which he claims “violates various Rules of Court and
standards of appellate practice.” He argues that sanctions
against IQ and its attorneys are appropriate based on their
“prosecution of a frivolous appeal that no reasonable attorney
would have pursued, and for violating a host of other rules,
including the obligation of an attorney to not knowingly mislead
a court as to the facts of a case and to present a full and fair
rendition of the trial court proceedings.”
       On June 30, 2022, we notified IQ and its attorneys,
pursuant to rules 8.276(a)(1), 8.276(a)(4) and 8.276(c), that we
were considering granting Krablin’s second motion for sanctions
and gave IQ and its attorneys 10 days in which to respond to
Krablin’s motion. (Rule 8.276(d).) We further advised that the
issue of sanctions will be heard in conjunction with the oral
argument on the merits and the first motion for sanctions,
scheduled for July 13, 2022, at 1:30 p.m. (Rule 8.276(e).)
       In deciding whether to award sanctions for prosecuting a
frivolous appeal, we consider the issue both objectively (“‘whether
any reasonable person would agree that the point is totally and
completely devoid of merit, and, therefore frivolous’”) and
subjectively (“the motives of the appellant and his or her

                                14
counsel”). (In re Marriage of Flaherty (1982) 31 Cal.3d 637, 649-
650 (Flaherty).) In exercising our discretion, we are mindful that
the line between a frivolous appeal and one that is merely
meritless is often vague, and that we must proceed carefully to
avoid chilling the right to appeal. (Id. at p. 650.) Accordingly,
sanctions for frivolous appeals should not be used “‘in all but the
clearest cases.’” (Ibid.)
       Flaherty’s objective element is satisfied here. IQ asserts a
standard of review that would apply in a summary judgment
proceeding but is plainly wrong in an appeal following trial. If
the facts were undisputed, as IQ claims, there would have been
no need for a six-day trial in which the court resolved numerous
factual disputes.
       Much as we are troubled by IQ’s unsupportable arguments,
we assume that counsel’s motive was their misguided view that
they were providing vigorous advocacy. In its reply brief, IQ
acknowledged Krablin’s argument that “liability and damages
depend entirely on factual and credibility issues that were
resolved by the trial court,” but reiterated its view that we “can
decide the issues on this appeal without weighing conflicting
evidence or testimony.” IQ fails to appreciate that, as an
appellate court, we are “bound by the conclusions and findings of
the trial judge if such findings are supported by substantial
evidence.” (Jackson, supra, 269 Cal.App.2d at p. 121.)
       We do not find the presence of Flaherty’s subjective element
and accordingly discharge the order to show cause without
imposition of sanctions. The issuance of that order, however,
should warn IQ’s counsel that another court may interpret
adherence to a baseless position as a deliberate
misrepresentation of the law, constituting bad faith under
Flaherty.

                                15
                           DISPOSITION
       The judgment is affirmed. Respondents shall recover their
costs on appeal.
       Respondents’ first motion for sanctions, filed September 2,
2021, is granted. Appellant’s counsel of record are ordered to pay
respondents sanctions in the amount of $15,050 within 15 days
after the remittitur issues in this appeal.
       Respondents’ second motion for sanctions, filed February
10, 2022, is denied.
       Upon issuance of the remittitur, the Clerk of this Court
shall send a copy of this opinion to the California State Bar to
report that judicial sanctions were imposed against appellant’s
counsel, Steven A. Blum (State Bar No. 133208) and Gary Ho
(State Bar No. 229995). (§ 6086.7, subd. (a)(3); Rule 10.1017.)
       NOT TO BE PUBLISHED.

                                     PERREN, J.*

We concur:

      GILBERT, P.J.

      YEGAN, J.

      * Retired Associate Justice of the Court of Appeal, Second
Appellate District, assigned by the Chief Justice pursuant to
article VI, section 6 of the California Constitution.

                                16
                   Colleen K. Sterne, Judge
            Superior Court County of Santa Barbara
                ______________________________

      Blum Collins & Ho, Steven A. Blum and Gary Ho, for
Plaintiff, Cross-Defendant and Appellant.
      The Law Office of Herb Fox, Herb Fox, for Defendants,
Cross-Complainants and Respondents.

                              17