First Motor Group of Encino, LLC et al. v. Encino Motorcars, LLC et al. (Mar. 10, 2023, B303094) 2023 WL 2445641

GMSR’s clients sold their Mercedes dealership to plaintiffs for $100 million.  Several years later, plaintiffs sued, claiming that the financial statements the clients gave them were inaccurate and led them to overvalue the dealership’s good will by $40 million.  After the clients defeated plaintiffs’ fraud claim on summary adjudication and the Court of Appeal summarily denied plaintiffs’ writ petition, the case went to trial on a breach of warranty claim—plaintiffs alleged that the clients failed to comply with the purchase agreement’s warranty that the financial statements were accurate.  Represented by David Rosen of Murphy Rosen and Ralph Campillo, the clients prevailed.  The first question in the special verdict form asked whether the clients had failed to comply with their warranty obligations, and the jury answered “no.”  That answer required a defense verdict; the special verdict form instructed the jury not to answer any of the remaining questions, which addressed various defensive issues the clients had raised.  Following entry of judgment, the court awarded $2.8 million in attorney fees.

On appeal, plaintiffs did not argue whether evidence supported the jury’s “no” answer to the first verdict question.  Instead, they challenged five jury instructions that addressed issues raised in the other questions—the ones the jury was instructed not to answer.  GMSR argued that even if the challenged jury instructions were erroneous, plaintiffs could not show prejudice because the jury’s answer to the first verdict question mooted the questions to which the challenged instructions pertained.  But it also demonstrated lack of prejudice through a comprehensive review of the evidence supporting the jury’s answer to the first question and other established prejudice factors (state of the record, other instructions, parties’ arguments, etc.).  And it argued that in any event the challenged instructions were correct.

The Court of Appeal affirmed.  It agreed with GMSR’s principal argument that the plaintiffs had not shown prejudice.  It reached that conclusion through a painstaking review of the evidence and prejudice factors.  In the process, the court noted that “there was ample evidence to support the conclusions that sellers provided materially accurate financial statements, and a dearth of evidence suggesting otherwise.”  The court did not discuss the correctness of any of the challenged instructions.

To read the Court of Appeal opinion, click HERE.

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