VCA Cenvet Incorporated v. Chadwell Animal Hospital LLC
Filing
UNPUBLISHED AUTHORED OPINION filed. Originating case number: 1:11-cv-01763-JKB Copies to all parties and the district court. [999278504].. [13-1369]
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UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 13-1369
VCA CENVET, INCORPORATED, now known as Antech Diagnostics
Incorporated,
Plaintiff – Appellant,
v.
CHADWELL ANIMAL HOSPITAL, LLC,
Defendant – Appellee.
Appeal from the United States District Court for the District of
Maryland, at Baltimore.
James K. Bredar, District Judge.
(1:11-cv-01763-JKB)
Argued:
December 10, 2013
Decided:
January 16, 2014
Before NIEMEYER, SHEDD, and KEENAN, Circuit Judges.
Affirmed in part, reversed in part, and remanded by unpublished
opinion. Judge Shedd wrote the opinion, in which Judge Niemeyer
and Judge Keenan joined.
ARGUED: Brian E. Casey, BARNES & THORNBURG, LLP, South Bend,
Indiana, for Appellant.
Meighan Griffin Burton, WRIGHT,
CONSTABLE & SKEEN, LLP, Baltimore, Maryland, for Appellee.
ON
BRIEF: David R. Pruitt, BARNES & THORNBURG LLP, South Bend,
Indiana; Patrick R. Buckler, SPENCE & BUCKLER, P.C., Towson,
Maryland, for Appellant.
Michael Gordon, WRIGHT, CONSTABLE &
SKEEN, LLP, Baltimore, Maryland, for Appellee.
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Unpublished opinions are not binding precedent in this circuit.
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SHEDD, Circuit Judge:
I.
In December 2009, VCA Cenvet, Inc. (now known as “Antech
Diagnostics,
Inc.”),
commercial
laboratory
Agreement
(“LSA”)
veterinary
hospital
a
California
services,
with
in
corporation
entered
Chadwell
Abingdon,
into
Animal
that
provides
Lab
Services
a
Hospital,
Maryland. 1
Under
LLC,
the
a
LSA,
Chadwell agreed to purchase lab services exclusively from Antech
for four years in exchange for discounted prices and rebates.
Antech agreed that if Chadwell used its services exclusively and
purchased at least $78,000 worth of services per year (or $6,500
per month), Antech would issue Chadwell a “loyalty rebate” equal
to 17% of its purchases each month.
In October 2010, Chadwell learned that VCA Cenvet was a
subsidiary of the corporation VCA Antech. Chadwell’s principals,
Drs. Keith Gold and Ruby Schaupp, did not approve of Antech’s
business
philosophy
and
decided
they
would
no
longer
use
Antech’s services. Chadwell then entered into a lab services
contract with another provider.
Antech filed this lawsuit in the United States District
Court
for
the
District
of
Maryland,
alleging
that
Chadwell
breached the LSA’s exclusivity provision. Antech sought damages
1
By its terms, the LSA is governed by California law.
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equal to its expected gross revenue for the remainder of the
LSA’s term, plus the rebates and discounts it had already given
Chadwell, totaling $273,000. In the alternative, Antech alleged
that
Chadwell
had
been
unjustly
enriched
by
the
receipt
of
discounted rates premised on the completion of the LSA’s fouryear
term.
discounts
Antech
Chadwell
sought
restitution
received
prior
of
to
the
the
rebates
breach,
and
totaling
$44,844. Chadwell conceded that it breached the LSA but argued
that
the
terms
of
the
contract
limited
Antech’s
recovery
to
$16,096.66, the amount of the rebates.
The
Chadwell
parties
argued
filed
that
cross-motions
the
terms
of
for
the
LSA
summary
limited
judgment.
Antech’s
damages to repayment of the rebates and that awarding Antech its
lost profits would be unconscionable. 2 Antech appeared to argue
that
it
was
entitled
to
recover
both
the
rebates
and
its
expected gross revenue for the remainder of the four-year term. 3
2
Chadwell also argued that Antech was estopped from seeking
damages beyond the rebates and that Antech’s unjust enrichment
claim failed as a matter of law because there was an express
contract between the parties. The district court concluded there
was no equitable or promissory estoppel or unjust enrichment
claim. The parties have not appealed these decisions.
3
As the district court noted, Antech’s memorandum in
support of its motion for summary judgment was “somewhat opaque”
as to what judgment it would have the court enter. VCA Cenvet,
Inc. v. Chadwell Animal Hosp., LLC, 2012 WL 4005542, at *6 (D.
Md. Sept. 10, 2012).
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The district court rejected Chadwell’s argument that the
default provision in Section 3.2 of the LSA limited Antech’s
recovery to repayment of the rebates. The court held that, if
Section 3.2 was a liquidated damages provision, it was void as a
penalty. The court also rejected Antech’s argument that it was
entitled
to
recover
both
the
amount
of
the
rebates
and
its
expected gross revenue. The court then explained that neither
party
had
“submitted
the
evidence
or
arguments
necessary
to
truly test whether there is any dispute of material fact between
them that would require resolution by a jury.”
2012 WL 4005542,
at
the
*7.
Accordingly,
the
district
court
held
motions
for
summary judgment in abeyance and ordered further briefing on the
issue of lost profits.
In
its
supplemental
briefing,
Antech
requested
an
order
awarding it damages in the amount of its lost profits, totaling
$198,644.
failed
profits
to
In
response,
establish
with
the
the
reasonable
district
occurrence
certainty
court
and
and
held
extent
that
an
that
of
award
Antech
its
lost
of
lost
profits would result in Antech’s unjust enrichment. The court
further held that even if Antech had established lost profits of
$198,644, such an award would be unconscionable. The district
court then concluded that Antech could not recover the discounts
it
provided
Chadwell
under
the
LSA
because
it
had
provided
Chadwell the same discounts before the parties entered into the
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contract. Finally, the court held that Antech was entitled to
recover $16,096.66 for the rebates. Accordingly, the district
court granted Chadwell’s motion for summary judgment, awarding
Antech $16,096.66 in damages, and denied Antech’s cross-motion.
On appeal, Antech argues that the district court erred in
denying
its
summary
judgment
motion
and
in
granting
summary
judgment for Chadwell. We may review the district court’s denial
of Antech’s motion for summary judgment because it is appealed
along with the order granting Chadwell’s cross-motion. See Nat’l
Coal. for Students with Disabilities Educ. & Legal Def. Fund v.
Allen, 152 F.3d 283, 293 (4th Cir. 1998).
II
We review both the grant of Chadwell’s motion for summary
judgment and the denial of Antech’s motion for summary judgment
de novo. See Henson v. Liggett Group, Inc., 61 F.3d 270, 274
(4th
Cir.
1995).
When
faced
with
cross-motions
for
summary
judgment, we “review each motion separately on its own merits to
determine whether either of the parties deserves judgment as a
matter of law.” Rossignol v. Voorhaar, 316 F.3d 516, 523 (4th
Cir. 2003) (internal quotation marks omitted). In considering
each individual motion, we “resolve all factual disputes and any
competing, rational inferences in the light most favorable to
the party opposing that motion.” Id. (internal quotation marks
omitted). The party moving for summary judgment has the initial
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burden of showing that no genuine issue of material fact exists
and that it is entitled to judgment as a matter of law. Estate
of Kimmell v. Seven Up Bottling Co. of Elkton, Inc., 993 F.2d
410, 412 (4th Cir. 1993).
A.
We first address the district court’s denial of Antech’s
motion for summary judgment, in which Antech sought $198,644 in
lost profits. Antech calculated these profits by subtracting its
estimated variable costs from its expected gross revenue for the
remainder
of
the
four-year
term.
To
determine
its
expected
revenue, Antech calculated its revenue under the LSA for 2010,
then applied a 4% annual increase for 2011-2013. Antech next
applied a constant 29% variable cost rate to to its expected
revenue for 2010-2013. Antech argues that the district court
erred in denying its summary judgment motion because Chadwell
failed to submit its own evidence of Antech’s lost profits and
therefore failed to create a genuine issue of material fact. We
disagree.
Under California law, a plaintiff in a breach of contract
case
may
recover
damages
for
lost
future
profits
when
the
evidence makes their occurrence and extent reasonably certain.
See Grupe v. Glick, 160 P.2d 832, 840 (Cal. 1945). The award of
lost profits means the award of net, not gross, profits. Gerwin
v. Se. Cal. Ass’n of Seventh Day Adventists, 92 Cal. Rptr. 111,
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119 (Cal. Ct. App. 1971). “Net profits are the gains made from
sales after deducting the value of the labor, materials, rents,
and
all
expenses,
together
with
the
interest
of
the
capital
employed." Id. at 119-20 (internal quotation marks omitted).
Although
Antech
factored
its
variable
costs
into
its
formulation of lost profits, it failed to account for its fixed
costs,
which
benefits,
included
travel,
“salaries
consulting
&
wages,
services,
contract
repairs
&
labor,
maintenance,
freight & delivery, telephone, occupancy, rent, depreciation &
amortization,
and
administrative
costs.”
J.A.
337.
Antech’s
proffered calculation of its lost profits is not sufficient to
support the grant of Antech’s summary judgment motion because
California law confines a plaintiff’s recovery for lost profits
to his profits after deducting all of his expenses. See Gerwin,
92 Cal. Rptr. at 119-20. Antech did include an estimation of its
fixed costs in the record, but because Antech failed to deduct
all of its costs from its expected revenue when it moved for
summary judgment, Antech has not established the occurrence and
extent of its lost profits as a matter of law. Accordingly, we
affirm
the
district
court’s
denial
of
Antech’s
motion
for
summary judgment. 4
4
Although the district court denied Antech’s motion for
summary judgment based on the insufficiency of Antech’s evidence
of its lost profits, we are not confined to the grounds relied
(Continued)
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B.
We next review the district court’s grant of Chadwell’s
motion for summary judgment. Although the district court held
that Section 3.2 of the LSA is not an enforceable liquidated
damages
provision,
Chadwell
argues
on
appeal
that
it
was
entitled to summary judgment because Section 3.2 is a liquidated
damages clause that limits Antech’s recovery to return of the
rebates.
In
the
alternative,
judgment
was
appropriate
Chadwell
because
argues
awarding
Antech
that
summary
its
claimed
lost profits would be unconscionable and because Antech cannot
establish its claim for lost profits with reasonable certainty.
We disagree with each of these contentions.
1.
Chadwell first argues that this court should affirm the
district
court’s
grant
of
its
motion
for
summary
judgment
because Section 3.2 of the LSA is a liquidated damages provision
that limits Antech’s recovery to return of the rebates. 5 The
on by the district court and can affirm the district court’s
decision on any legal basis supported by the record. Bryant v.
Bell Atlantic Md., Inc., 288 F.3d 124, 132 (4th Cir. 2002).
5
Section 3.2 of the LSA states:
3.2
breaches
Section 1
event of
(Continued)
Default.
If
(i)
Animal
Hospital
Owner
the exclusivity provisions set forth in
hereof . . . then such shall constitute an
default with respect to the Rebate. At any
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purpose of a liquidated damages provision is to “stipulate[] a
pre-estimate of damages in order that the parties may know with
reasonable certainty the extent of liability for a breach of
their contract.” ABI, Inc. v. City of Los Angeles, 200 Cal.
Rptr. 563, 573 (Cal. Ct. App. 1984). Under Section 3.2 of the
LSA,
Antech
rebates
can
upon
recover
Chadwell’s
the
amount
breach
of
of
the
the
previously
LSA’s
paid
exclusivity
provision. This is not a liquidated damages provision because it
provides only for a return of the rebates paid prior to the
breach; it is not a “pre-estimate of damages” that Antech would
suffer as a result of the breach. See id. There is simply no
reasonable
relationship
between
the
amount
of
rebates
time after the occurrence of an event of default,
Antech may declare the entire amount of the Rebates
previously paid to be billable and due immediately;
NOTE HOWEVER, if the Animal Hospital Owner lab volume
during any month falls below the stated rebate
threshold in [sic], the rebate will not be apply [sic]
to that month BUT that does not constitute default as
long as the exclusivity provisions set forth in
Section 1 are maintained. The remedies available to
Antech hereunder are intended to compensate Antech for
the rebate and discounts provided hereunder, which
rebate and discounts would not have been provided
unless Animal Hospital agreed to the Minimum Average
Annual
Fee
requirements
set
forth
herein,
the
requirements
set
forth
in
Section
1
regarding
exclusivity, and the payment for Laboratory Services
hereunder in a timely manner.
J.A. 23.
10
that
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Antech may have paid before Chadwell’s breach and the actual
damages
that
Antech
would
suffer
because
of
the
breach.
Accordingly, Section 3.2 of the LSA is not a liquidated damages
provision, and it does not limit Antech’s recovery to return of
the rebates.
2.
Chadwell
next
argues
that
the
district
court
properly
granted summary judgment in its favor because awarding Antech
its lost profits would be unconscionable. The district court
concluded
that
it
would
be
unconscionable
to
award
Antech
$198,644 in lost profits, explaining that the practical effect
of such an award would be to require Chadwell to pay for its
laboratory services twice for the three years remaining on the
LSA’s term—once to Antech for breaching the contract and once to
the replacement laboratory. The district court also expressed
concern that an award of lost profits would compensate Antech
nearly $200,000 for not performing any services and that Antech
did not detrimentally rely on the LSA because its agreement to
provide services was not exclusive.
California law is clear that lost profits are recoverable
as damages for breach of a contract where evidence makes their
occurrence and extent reasonably certain, Sargon Enters., Inc.
v. Univ. of S. Cal., 288 P.3d 1237, 1253 (Cal. 2012), and the
damages are not unconscionable and grossly oppressive, see Cal.
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Civil Code § 3359. A damages award is excessive “only when it is
so
grossly
disproportionate
to
the
injury
suffered
that
the
award appears to be the product of passion or prejudice,” SaretCook v. Gilbert, Kelly, Crowley & Jennett, 88 Cal. Rptr. 2d 732,
746 (Cal. Ct. App. 1999).
The lost profits claimed by Antech are reasonably certain,
and there is no suggestion they are the product of such passion
or prejudice. We therefore hold that the district court erred in
concluding
that
an
award
of
Antech’s
lost
profits
would
be
unconscionable. 6
3.
Finally, Chadwell argues that we should affirm the grant of
summary judgment in its favor because Antech did not establish
its
lost
profits
with
reasonable
certainty.
In
considering
Chadwell’s summary judgment motion, we view all inferences in
the light most favorable to Antech as the non-moving party, see
Hardwick ex rel. Hardwick v. Heyward, 711 F.3d 426, 433 (4th
Cir. 2013), keeping in mind that Chadwell bore the burden of
establishing that Antech’s recovery was limited to return of the
6
The district court acknowledged in its opinion that each
of the concerns it raised with respect to awarding Antech its
lost profits is a “natural consequence[] of allowing plaintiffs
to seek lost profits for breaches of requirements contracts like
this one.” VCA Cenvet, Inc. v. Chadwell Animal Hosp., LLC, 2013
WL 2151659, at *5 n.6 (D. Md. Feb. 22, 2013).
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as
a
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matter
of
law,
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see
Kimmell,
993
F.2d
at
412.
Because we find that Chadwell failed to meet this burden, we
reverse
the
district
court’s
grant
of
Chadwell’s
summary
judgment motion.
Antech introduced evidence of its lost profits in the form
of testimony from key executives, financial records detailing
actual invoices for services performed before Chadwell breached
the LSA, and documentation estimating Antech’s expected revenue
and projected costs. Viewing the evidence before the district
court in the light most favorable to Antech, the record tended
to show the occurrence and extent of Antech’s lost profits. See
Sargon Enters., 288 P.3d at 1253. Although Antech’s calculation
of its lost profits alone cannot support the damages award as a
matter
of
law,
we
find
that
Antech
has
introduced
evidence
sufficient to allow a proper calculation damages. Accordingly,
we reverse the grant of Chadwell’s motion for summary judgment.
III.
For the foregoing reasons, we affirm the denial of Antech’s
motion for summary judgment, reverse the grant of Chadwell’s
motion for summary judgment, and remand for further proceedings
consistent with this opinion.
AFFIRMED IN PART,
REVERSED IN PART,
AND REMANDED
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