IceMOS Technology Corporation v. Omron Corporation
Filing
355
ORDER: IT IS ORDERED that Plaintiff's Motion for Partial Summary Judgment (Doc. 153 ) is GRANTED IN PART and DENIED IN PART. IT IS FURTHER ORDERED that Defendant's Motion for Partial Summary Judgment (Doc. 229 ) is GRANTED IN PART and D ENIED IN PART. IT IS FURTHER ORDERED that Defendant's Motion to Preclude Testimony of Plaintiff's Business Valuation Expert Greg Mischou (Doc. 296 ) is GRANTED as his expert testimony is irrelevant. IT IS FURTHER ORDERED that the followi ng motions to seal (Docs. 194 ; 228 ; 304 ; 309 ; 321 ; 323 ; 345 ; 346 ) are DENIED for the reason indicated above. The Clerk of Court shall not unseal the related documents and shall instead leave Docs. 195 ; 230 ; 298 ; 305 ; 307 ; 310 ; 325 ; 329 ; 336 lodged under seal. (See Order for further details.) Signed by Senior Judge James A Teilborg on 11/13/2019. (SST)
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IN THE UNITED STATES DISTRICT COURT
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FOR THE DISTRICT OF ARIZONA
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IceMOS Technology Corporation,
Plaintiff/Counter-Defendant,
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ORDER
v.
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No. CV-17-02575-PHX-JAT
Omron Corporation,
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Defendant/Counter-Claimant.
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Pending before the Court, among other things, are IceMOS Technology
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Corporation’s (“Plaintiff”) Motion for Partial Summary Judgment (Doc. 153), Omron
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Corporation’s (“Defendant”) Motion for Partial Summary Judgment (Doc. 229), and
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Defendant’s Motion to Preclude Testimony of Plaintiff’s Business Valuation Expert Greg
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Mischou (Doc. 296). This Order substantially addresses these motions and also rules on
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other pending motions.
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I.
BACKGROUND
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The Court has previously articulated the basic facts underlying this case:
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Plaintiff offers super junction metal oxide semiconductor field-effect
transistors (“MOSFETs”), microelectromechanical systems solutions, and
advanced engineering substrates to third parties. (Doc. 25 at 2). To produce
these products, Plaintiff needs fabrication services. (Id.). In 2007, Defendant
purchased a fabrication facility and began fabricating “complementary
metal-oxide semiconductor” products. (Id.). Around this time, Defendant
approached Plaintiff to suggest that Defendant and Plaintiff enter into
business together. (Id.).
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Plaintiff and Defendant came to an agreement (“Supply Agreement”)
on February 28, 2011 after negotiations. (See id.). Their agreement included,
inter alia, that Defendant would “perform the fabrication requested by
Plaintiff” and that Defendant would “fully resource the development of all
generations of” Plaintiff’s super junction MOSFET (“SJ MOSFET”) for the
duration of the Supply Agreement. (Id.; see also Doc. 59 at 10; Doc. 60 at
15). Defendant asserts that Plaintiff represented that “[d]emand for Plaintiff’s
Super Junction MOSFETs is estimated to reach a volume of up to three
thousand and five hundred (3,500) wafers per month by year 2014.” (See
Doc. 28 at 42 (alteration in original) (quoting Doc. 14-1 at 2)). Defendant
also alleges that the parties forecasted, based on Plaintiff’s representations
regarding expected demand for its product, that “monthly demand would
reach 3,850 wafers per month by the fourth quarter of 2012.” (Id. (citing Doc.
14-1 at 14)). On March 6, 2018, the Supply Agreement terminated. (Doc. 60
at 37).
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Plaintiff alleges breach of contract and fraud and seeks damages. (Doc. 59 at 33–
38). Plaintiff claims that Defendant breached several provisions of the Supply Agreement.
(Id. at 33–35). Plaintiff’s allegations include that Defendant improperly terminated the
Supply Agreement, which, according to Plaintiff, has resulted in lost profits, lost business
value, and lost development support costs. (Id.).
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Defendant has counterclaimed and alleges breach of the implied covenant of good
faith and fair dealing, two counts of breach of contract, and fraud in the inducement
(relating to the alleged projections by Plaintiff) and also seeks damages. (Doc. 28 at 46–
50).
II.
LEGAL STANDARD
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A party is entitled to summary judgment when it “shows that there is no genuine
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dispute as to any material fact and [it] is entitled to judgment as a matter of law.” Fed. R.
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Civ. P. 56(a). As such, a court must grant summary judgment “against a party who fails to
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make a showing sufficient to establish the existence of an element essential to that party’s
case, and on which that party will bear the burden of proof at trial.” Celotex Corp. v.
Catrett, 477 U.S. 317, 322 (1986).
The movant must establish the basis for summary judgment and the elements of the
claims upon which the nonmovant will be unable to show a genuine issue of material fact.
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Id. at 323. Then, the burden shifts to the nonmovant to show the existence of any dispute
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of material fact. Id. at 323–24. To meet this burden, the nonmovant must point to competent
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evidence, meaning that the evidentiary content—but not necessarily its form—must be
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admissible at trial. Fraser v. Goodale, 342 F.3d 1032, 1036 (9th Cir. 2003).1 This evidence
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“must do more than simply show that there is some metaphysical doubt as to the material
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facts,” it must show “that there is a genuine issue for trial.” Matsushita Elec. Indus. Co. v.
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Zenith Radio Corp., 475 U.S. 574, 586–87 (1986) (quoting Fed. R. Civ. P. 56(e) (1963)).
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A genuine issue of material fact exists if the disputed issue of fact “could reasonably be
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resolved in favor of either party.” Ellison v. Robertson, 357 F.3d 1072, 1075 (9th Cir.
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2004). A dispute is about a material fact when the dispute is about “facts that might affect
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the outcome of the suit.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The
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Court must “construe all facts in the light most favorable to the non-moving party.” Ellison,
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357 F.3d at 1075–76 (citing Clicks Billiards, Inc. v. Sixshooters, Inc., 251 F.3d 1252, 1257
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(9th Cir. 2001)). However, the nonmovant’s bare assertions, standing alone, are insufficient
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to create a material issue of fact that would defeat the motion for summary judgment.
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Anderson, 477 U.S. at 247–48.
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Plaintiff objects to certain evidence that Defendant cites in its controverting statement of
facts (Doc. 193). (Doc. 223 at 8 n.1). In short, Plaintiff’s objections to leading, relevance,
and improper legal conclusion are inappropriate for summary judgment because they are
either superfluous to the summary judgment standard or are objections relating to form
rather than content. See Fraser, 342 F.3d at 1036; Dillon v. Cont’l Cas. Co., 278 F. Supp.
3d 1132, 1137 (N.D. Cal. 2017). Thus, these objections are overruled. Plaintiff also objects
to Takahiro Hasegawa’s deposition, suggesting Hasegawa did not have personal
knowledge sufficient to testify on behalf of Defendant as a corporation. (Doc. 223 at 8 n.1).
However, Plaintiff’s counsel specifically states during the deposition that Hasegawa was
testifying as Defendant’s “corporate representative,” and the transcript indicates that
Hasegawa’s deposition was under Federal Rule of Civil Procedure 30(b)(6). (Doc. 190-7
at 1, 4–5). This fact belies Plaintiff’s objection. Moreover, it is not clear what specific
testimony Plaintiff is objecting to. This objection is thus overruled. Plaintiff’s objection to
Docs. 190-9 to 109-11 and Doc. 190-13 are overruled because the Court did not consider
these materials. Defendant’s objection to Doc. 190-14 as an unauthenticated document is
moot because the Court did not rely on this evidence in its analysis.
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III.
ANALYSIS
Plaintiff’s Motion for Partial Summary Judgment
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Plaintiff seeks summary judgment on Defendant’s counterclaims for fraud and
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breach of contract. (Doc. 153 at 7–21).2
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1.
Fraud Counterclaim
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Plaintiff moves for summary judgment on Defendant’s fraud counterclaim. Plaintiff
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argues that Defendant’s fraud counterclaim is barred by the statute of limitations. (Doc.
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153 at 7–8). It also asserts that Defendant cannot prove certain elements of its fraud
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counterclaim as a matter of law. (Id. at 9–13).
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A.
Statute of Limitations
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First, Plaintiff contends that summary judgment must be entered on the fraud
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counterclaim because it is barred by the statute of limitations under Arizona law. (Doc. 153
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at 7–8). As the Court has noted, Arizona law applies to Defendant’s fraud counterclaim for
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choice of law purposes. (See Doc. 152 at 9; see also Doc. 25 at 19–20 (stating Arizona law
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applies to Plaintiff’s fraud claim)). As such, the Court must apply the Arizona statute of
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Plaintiff argues that the Court must grant its Motion for Partial Summary Judgment
(Doc. 153) because it asserts Defendant did not comply with District of Arizona Local Rule
of Civil Procedure 56.1. (Doc. 223 at 7–10). Specifically, Plaintiff contends that Defendant
“failed to controvert [Plaintiff]’s facts as required by LRCiv. 56.1(b),” and thus, the Court
should deem Plaintiff’s entire statement of facts as admitted, or alternatively, disregard
additional explanation or argument. Plaintiff’s argument relies on Marceau v. International
Brotherhood of Electrical Workers, 618 F. Supp. 2d 1127, 1141 (D. Ariz. 2009). (Doc. 153
at 9–10). There, the court stated “LRCiv 56.1 ‘does not permit explanation and argument
supporting the party’s position to be included in the . . . statement of facts.’” Marceau, 618
F. Supp. 2d at 1141 (citation omitted). The Marceau court adopted that proposition from
Pruett v. Arizona, 606 F. Supp. 2d 1065, 1075 (D. Ariz. 2009). See Marceau, 618 F. Supp.
2d at 1141 (quoting Pruett, 606 F. Supp. 2d at 1075). In Pruett, the defendant identified
specific responses in the plaintiff’s controverting statement of facts that it asserted violated
Local Rule 56.1. 606 F. Supp. 2d at 1075. The Pruett court did not strike the entire
controverting statement of facts but instead disregarded the additional explanation and
argument that the defendant specifically objected to. 606 F. Supp. 2d at 1075. In contrast,
here, Plaintiff makes a vague challenge to the entirety of Defendant’s controverting
statement of facts, and the Court cannot identify any particular response within it that
Plaintiff takes issue with as violative of Local Rule 56.1 or why Plaintiff specifically
objects to any of Defendant’s responses. The issue is further complicated by the fact that
Plaintiff itself is guilty of the same briefing technique in its controverting statement of facts
to Defendant’s Motion for Partial Summary Judgment (Doc. 229). (See Doc. 308).
Accordingly, the Court will take no action.
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limitations for Defendant’s counterclaim. See Albano v. Shea Homes Ltd. P’ship, 634 F.3d
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524, 528 (9th Cir. 2011).
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Arizona law provides that the statute of limitations for a fraud claim is three years.
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Ariz. Rev. Stat. Ann. § 12-543(3). However, the time for calculating the statute of
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limitations does not begin to “accrue[] until the discovery by the aggrieved party of the
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facts constituting the fraud or mistake.” Id. In other words, “[t]he statute of limitations
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begins to run for [fraud claims] when the plaintiff knew or through reasonable diligence
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could have learned of the fraud or the misrepresentation.” Cavan v. Maron, 182 F. Supp.
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3d 954, 962 (D. Ariz. 2016) (citing Coronado Dev. Corp. v. Superior Court, 678 P.2d 535,
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537 (Ariz. Ct. App. 1984)); see Gust, Rosenfeld & Henderson v. Prudential Ins. Co. of Am.,
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898 P.2d 964, 966 (Ariz. 1995).
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Plaintiff argues that it provided the forecasts that serve as the basis of Defendant’s
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fraud counterclaim in September 2011, and thus, Defendant should have known that these
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forecasts, assuming they were fraudulent representations, were inaccurate in September
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2011, which started the clock on the statute of limitations. (Doc. 153 at 7–8). Plaintiff also
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argues Defendant knew that Plaintiff was not meeting the projections at least as early as
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March 6, 2015, which it contends was the latest date that the time on Defendant’s fraud
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counterclaim could have begun accruing. (Id.). As such, Plaintiff argues that Defendant’s
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fraud counterclaim was barred by the Arizona statute of limitations because Defendant did
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not file the counterclaim until July 16, 2018. (Id.). Defendant responds that the time to file
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its fraud counterclaim did not begin accruing until it could have discovered the fraud with
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reasonable diligence, which is a question of fact that precludes summary judgment. (Doc.
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189 at 9–11; see e.g., Doc. 191 at 3–53; Doc. 192 at 2–4; Doc. 193 at 27–28).
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“[D]etermination of a claim’s accrual date usually is a question of fact . . . .”
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Logerquist v. Danforth, 932 P.2d 281, 287 (Ariz. Ct. App. 1996) (citation omitted). “[T]he
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inquiry center[s] on the plaintiff’s knowledge of the subject event and resultant injuries,
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Plaintiff’s relevance objection to particular paragraphs within Takahiro Hasegawa’s
declaration (Doc. 191), (Doc. 223 at 11 n.7), is overruled because it is an inappropriate
objection at the summary judgment stage. See Dillon, 278 F. Supp. 3d at 1137.
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whom the plaintiff believed was responsible, and plaintiff’s diligence in pursuing the
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claim.” Id. (citation omitted). Whether to apply the discovery rule generally “depends on
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resolution of such factual issues,” and thus, a court cannot resolve these questions on
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summary judgment. See id.; see also Gust, Rosenfeld & Henderson, 898 P.2d at 969 (“The
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statute of limitations did not commence on [plaintiff]’s claim until [plaintiff] knew or in
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the exercise of reasonable diligence should have known that it had been injured. The trial
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court was correct to let the jury decide when that event occurred.”).
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Defendant asserts there is a dispute of material fact as to when it discovered
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Plaintiff’s alleged fraud. (Doc. 189 at 11). The Court agrees. Arizona law makes clear that
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when a claim begins to accrue is a question of fact that generally cannot be determined on
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summary judgment. But, Plaintiff argues that a party cannot “invoke[] the discovery rule
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in the [r]esponse” to a motion for summary judgment. (Doc. 223 at 12 (quoting Breeser v.
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Menta Grp., Inc., 934 F. Supp. 2d 1150, 1159 (D. Ariz. 2013))). Plaintiff cites Breeser, 934
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F. Supp. 2d 1150, for this proposition. Breeser did not proclaim such an edict. Cf. Long v.
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Ford Motor Co., No. CV07-2206-PHX-JAT, 2008 WL 2937751, at *8 (D. Ariz. July 23,
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2008) (allowing plaintiff to raise discovery rule despite the fact that plaintiffs did not plead
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factual allegations relevant to the discovery rule in its complaint). Rather, the issue in
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Breeser was that both parties indicated that the date of accrual of the plaintiff’s claim was
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beyond the limitations period. 934 F. Supp. 2d at 1158–60. Indeed, there, plaintiff’s “own
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words” established the date of accrual. See id. Although plaintiff contradicted her earlier
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statements regarding the date of accrual, the court invoked the doctrine of judicial estoppel
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in determining that her later inconsistent statements did not create a genuine issue of
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material fact as to the issue of accrual. See id. In contrast, here, it is disputed as to when
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Defendant discovered Plaintiff’s alleged fraud, and thus, when the Defendant’s fraud
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counterclaim began to accrue. Thus, Breeser is distinguishable because there was no
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genuine dispute of fact there, id. at 1159–60, while there is one here. Because there is a
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genuine dispute of material fact as to the fraud counterclaim’s date of accrual, the Court
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cannot grant summary judgment.4
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B.
Merits of Fraud Counterclaim
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Plaintiff also argues that summary judgment should be entered on the fraud
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counterclaim because Defendant cannot establish all its elements. (Doc. 153 at 9–13). The
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gist of Defendant’s fraud counterclaim is that Plaintiff fraudulently induced Defendant to
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enter into the Supply Agreement with Plaintiff based on projections of monthly demand
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that it knew it could never meet. (See Doc. 28 at 49–50; Doc. 152 at 3; Doc. 189 at 6–8).
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Defendant asserts that, during the negotiations that ultimately culminated in the Supply
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Agreement, Plaintiff fraudulently represented to Defendant that monthly demand for its SJ
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MOSFETs would be at a forecasted volume of up to 3,500 wafers per month by 2014. (See
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Doc. 189 at 6–8). Moreover, Defendant contends that it relied on these projections in
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deciding to enter into the Supply Agreement with Plaintiff. (Doc. 189 at 6–8, 16).
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A party must show the following elements to establish a fraud claim under Arizona
law:
(1) a representation; (2) its falsity; (3) its materiality; (4) the speaker’s
knowledge of the [representation’s] falsity or ignorance of its truth; (5) the
speaker’s intent that it be acted upon by the recipient in the manner
reasonably contemplated; (6) the hearer’s ignorance of its falsity; (7) the
hearer’s reliance on its truth; (8) the right to rely on it; [and] (9) [the hearer’s]
consequent and proximate injury.
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Should the jury find for Defendant on its fraud counterclaim and should it conclude that
the date of discovery was on July 15, 2015, or earlier, Plaintiff may raise the statute of
limitations issue again. The Court notes that it has made no determination as to whether
the statute of limitations was tolled or suspended as a result of Plaintiff’s action being filed
on August 2, 2017. Compare W.J. Kroeger Co. v. Travelers Indem. Co., 541 P.2d 385, 397
(Ariz. 1975) (in division) (“[I]f a claim would be barred originally by a statute of limitation,
it is barred as a counterclaim even if it arises from the same transaction except as it falls
within the principles of recoupment.”), quoted in Unispec Dev. Corp. v. Harwood K. Smith
& Partners, 124 F.R.D. 211, 214 (D. Ariz. 1988), and Occidental Chem. Co. v. Connor,
604 P.2d 605, 607 (Ariz. 1979) (“If one is not entitled to relief in a direct action, he is not
entitled to assert a setoff or counterclaim.”), with Religious Tech. Ctr. v. Scott, 82 F.3d 423
(9th Cir. 1996) (table) (“[A] compulsory counterclaim relates back to the filing of the
original complaint.”), and Charles Alan Wright, Arthur R. Miller & Mary Kay Kane,
Federal Practice and Procedure § 1419, at 179 (3d ed. 2010) (“[T]he majority view
appears to be that the institution of plaintiff’s suit tolls or suspends the running of the statute
of limitations governing a compulsory counterclaim.”).
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Echols v. Beauty Built Homes, Inc., 647 P.2d 629, 631 (Ariz. 1982) (in division); see
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Comerica Bank v. Mahmoodi, 229 P.3d 1031, 1033–34 ¶ 14 (Ariz. Ct. App. 2010). Plaintiff
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contends that the undisputed facts prevent Defendant from establishing the first, second,
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third, seventh, and eighth elements of its fraud counterclaim. (Doc. 153 at 9). Defendant
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responds that Plaintiff has not shown that Defendant cannot prove each element of its fraud
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counterclaim. (Doc. 189 at 13).
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i.
Representation
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A projection can be a representation for purposes of establishing fraud. See Law v.
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Sidney, 53 P.2d 64, 66 (Ariz. 1936). “[T]he promise to perform a future act” is actionable
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when it “was made with a present intention on the part of the promisor that he would not
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perform it.” Id.; see also Allstate Life Ins. v. Robert W. Baird & Co., 756 F. Supp. 2d 1113,
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1165 (D. Ariz. 2010) (determining forward-looking statements made “with actual
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knowledge that projections, promises, or expectations will not be met” are actionable
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representations). Plaintiff argues that there is no dispute of material fact as to whether
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Defendant can establish a representation because Defendant “has provided no evidence to
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support any allegation that [Plaintiff] did not intend to perform its obligations under the
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Supply Agreement.” (Doc. 153 at 12). Therefore, Defendant must show that it has evidence
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to support that there is an actionable representation here. See Celotex Corp., 477 U.S. at
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322–23.
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Although Defendant did not specify in its Response that it has evidence that shows
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Plaintiff never intended to perform,5 it does offer evidence that Plaintiff knew its
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projections were false. (See Doc. 189 at 14–15; Doc. 193 at 22–24). For example,
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Defendant offers evidence that Plaintiff only ordered approximately two percent of the
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The Court notes that Defendant seems to rely on the Court’s holding on Plaintiff’s Motion
for Judgment on the Pleadings (Doc. 69). (See Doc. 189 at 13–14 (citing Doc. 152 at 11–
12)). At summary judgment, a party cannot rely on bare allegations alone, and thus,
Defendant cannot base its argument that summary judgment is not appropriate on the issue
of representation simply because the Court has previously determined that, based on
Defendant’s allegations, it had stated a claim for fraud. Anderson, 477 U.S. at 247–48. It
is axiomatic that allegations are not sufficient on summary judgment; instead, the
nonmovant must offer proof of its claims. See Butler v. San Diego Dist. Attorney’s Office,
370 F.3d 956, 963 (9th Cir. 2004).
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forecasted volume. (Doc. 193 at 22 (citing Doc. 191 at 5); see also Doc. 241-1 at 8–9). A
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reasonable fact-finder could find that such a disparity means that Plaintiff knew its
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forecasts were false. Construing the evidence in the light most favorable to Defendant,
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there is a dispute of material fact as to whether Plaintiff knew its projections were false,
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and thus, whether it never intended to meet the projections of monthly demand.6 See
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Orlando v. Carolina Cas. Ins., No. CIV F 07-0092AWISMS, 2007 WL 781598, at *8 (E.D.
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Cal. Mar. 13, 2007). Thus, the Court cannot say Defendant will be unable to establish that
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Plaintiff made an actionable representation.7
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ii.
Falsity of Representation
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Plaintiff contends that Defendant cannot establish that the representation was false.
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(See Doc. 153 at 9). In response, Defendant offers evidence that supports its claim that
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Plaintiff knew its projections of monthly demand were false. (See Doc. 189 at 14–16; Doc.
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193 at 22–24; see also Doc. 241-1 at 8–9). A projection or estimate typically cannot be
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deemed a false representation. See Allstate Life Ins., 756 F. Supp. 2d at 1164–65; Sidney,
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53 P.2d at 66. However, if one makes a projection or estimate “with actual knowledge that
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projections, promises, or expectations will not be met,” there is a false representation. See
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Allstate Life Ins., 756 F. Supp. 2d at 1164–65. Thus, for the same reason that the Court
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found that Defendant has offered sufficient evidence to create a dispute of material fact on
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Plaintiff objects to a statement in Susumu Nukii’s declaration (Doc. 192) as being
irrelevant, (Doc. 223 at 16 n.10), an inappropriate objection that the Court therefore
overrules. See Dillon, 278 F. Supp. 3d at 1137. Plaintiff objects to a statement in Takahiro
Hasegawa’s declaration (Doc. 191) as being an inadmissible legal conclusion, (Doc. 223
at 17 n.11), another objection that is inappropriate at the summary judgment stage. See
Dillon, 278 F. Supp. 3d at 1137.
Plaintiff also suggests that Defendant’s fraud counterclaim fails as a matter of law because
it cannot show the projections were a representation as Defendant “has admitted that the
‘Supply Agreement contains no representations, promises, or guarantees by [Plaintiff] as
to demand or minimum monthly purchases.’” (Doc. 153 at 9 (quoting Doc. 60 at 18)).
Although that might be true, Defendant has made clear that its fraud counterclaim is based
on the projections of monthly demand Plaintiff made during negotiations prior to signing
of the Supply Agreement. (Doc. 189 at 14). The Court even noted this fact when it denied
Plaintiff’s Motion for Judgment on the Pleadings (Doc. 69). (Doc. 152 at 11–12). If
Defendant’s admission that the “Supply Agreement contains no representations, promises,
or guarantees by [Plaintiff] as to demand or minimum monthly purchases” did not entitle
Plaintiff to judgment on the pleadings, it is unclear why Plaintiff believes it entitles it to
summary judgment now.
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the issue of representation here, it has done the same on the issue of the falsity of such a
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representation.
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iii.
Materiality of Representation
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Plaintiff contends that Defendant cannot establish the materiality of its alleged
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fraudulent representation because Defendant admitted in the pleadings that “[t]he material
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terms of the Supply Agreement had already been negotiated before the forecasts in Exhibit
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A were prepared.” (Doc. 153 at 10 (quoting Doc. 60 at 19)). However, Plaintiff leaves out
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a key part of Defendant’s Answer; Defendant “denie[d] that Exhibit A to the Supply
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Agreement contains the only forecasts that [Plaintiff] provided to [Defendant].” (Doc. 60
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at 19; Doc. 193 at 3–4; see also Doc. 191-1 at 15 (draft agreement with projections)).
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Additionally, as the Court noted above, Defendant’s fraud counterclaim relates to alleged
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false representation that occurred during negotiations prior to signing of the Supply
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Agreement; it is not necessarily based on the terms of the Supply Agreement alone.
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At any rate, “[q]uestions about materiality . . . usually are for the jury.” See Lerner
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v. DMB Realty, LLC, 322 P.3d 909, 914 ¶ 15 (Ariz. Ct. App. 2014). “A misrepresentation
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is material if a reasonable person ‘would attach importance to its existence or nonexistence
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in determining [his or her] choice of action in the transaction in question.’” Caruthers v.
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Underhill, 287 P.3d 807, 815 ¶ 28 (Ariz. Ct. App. 2012) (quoting Restatement (Second) of
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Torts § 538(2)(a) (1977)); see also M & I Bank, FSB v. Coughlin, No. CV 09-02282-PHX-
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NVW, 2011 WL 5445416, at *4 (D. Ariz. Nov. 10, 2011). Defendant has offered sufficient
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evidence to create a dispute of material fact as to whether the alleged false representation
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mattered to it because it has evidence showing Plaintiff’s projections of monthly demand
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were relevant to its decision to enter the Supply Agreement. (Doc. 189 at 16; Doc. 193 at
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24); see M & I, FSB, 2011 WL 5445416, at *4 (holding alleged false representation was
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material because plaintiff offered evidence that false representation was relevant to
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plaintiff’s decision to agree to a loan); Lerner, 322 P.3d at 915 ¶ 19 (noting that materiality
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depended on whether the “alleged misrepresentation was material to the transaction”
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(emphasis added)).
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For example, it is “simple business sense” that projections specifying monthly
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demand would be material to Defendant’s decision to enter the Supply Agreement. See M
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& I, FSB, 2011 WL 5445416, at *4; see Radware, Ltd. v. F5 Networks, Inc., 147 F. Supp.
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3d 974, 1012 (N.D. Cal. 2015). The jury could reasonably infer that the projections
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included in a prior draft agreement, (Doc. 191-1 at 15), would translate to future business
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revenue for Defendant, and thus, would be material. Indeed, as Caruthers makes clear,
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materiality is an objective standard, and thus, the jury must determine if a reasonable
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person, under the circumstances, would attach importance to the projections of monthly
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demand in deciding whether to enter the Supply Agreement. Additionally, Defendant offers
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evidence that the projections were relevant to Defendant’s decision to enter the Supply
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Agreement. (See Doc. 191 at 2–3).8 In sum, Defendant has offered sufficient evidence to
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create a genuine dispute of material fact as to materiality.
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iv.
Reliance on Representation
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Next, Plaintiff asserts Defendant cannot establish that Defendant relied on the
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projections. (Doc. 153 at 10–11). Plaintiff raises three primary arguments: (1) the
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projections “were not representations but rather just estimates of future events based on
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factors beyond [Plaintiff’s] control,” (2) that Plaintiff’s ability to meet the forecasts
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depended on Defendant, and (3) that Defendant signed the Supply Agreement because it
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was “desperate for customers” and the projections were irrelevant to its decision to enter
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Plaintiff objects to a statement regarding the materiality of the projections in Takahiro
Hasegawa’s declaration (Doc. 190), arguing that it is based on a lack of personal
knowledge. (Doc. 223 at 17 n.12). However, Plaintiff’s Reply specifically asserts “the only
people [Defendant] identified as participating in the negotiation of the Supply Agreement
were Yoshio Sekiguchi and Takahiro Hasegawa.” (Doc. 223 at 14 n.8; see also Doc. 20401 at 49 (“[Defendant] states that Yoshio Sekiguchi and Takahiro Hasegawa negotiated the
Supply Agreement with [Plaintiff].”)). It is unclear how Hasegawa would lack personal
knowledge as to the materiality of the projections if he was part of the negotiations that led
to the signing of the Supply Agreement. At any rate, although the Hasegawa declaration is
relevant as to this issue, the other evidence that the Court discussed that is relevant to this
issue sufficiently creates a dispute of material fact. The objection is overruled.
- 11 -
1
the Supply Agreement. (Id.). Defendant responds that evidence supports a finding that
2
Defendant did rely on the projections. (Doc. 189 at 16–17; Doc. 193 at 5–6, 24).
3
A party relies on a misrepresentation when the party acts or refrains from acting
4
based on it. See Sw. Non-Profit Hous. Corp. v. Nowak, 322 P.3d 204, 212 ¶ 29 (Ariz. Ct.
5
App. 2014). Defendant asserts that it acted on the alleged misrepresentation because it
6
“spent a large amount of money out of pocket” that resulted in losses. (Doc. 189 at 17).
7
Defendant also points to the fact that it agreed to resource the development of the SJ
8
MOSFET and that it agreed to take on fifty percent of the cost of producing the “mask sets”
9
of the SJ MOSFETs. (Id. (citing Doc. 190-1 at 5–6 (§§ 4.0 and 4.2.1 of the Supply
10
Agreement))). In fact, at thirty thousand feet, Defendant’s claim is that it would not have
11
entered into the Supply Agreement with Plaintiff and sustained monetary losses but for the
12
alleged misrepresentations as to the projections of monthly demand. This fact alone creates
13
a dispute as to whether Defendant relied on the alleged misrepresentation. Cf. Int’l
14
Franchise Sols. LLC v. BizCard Xpress LLC, No. CV13-0086 PHX DGC, 2013 WL
15
2152549, at *3 (D. Ariz. May 16, 2013) (denying motion to dismiss on fraud claim where
16
the allegation was that party agreed to do business and lost money as a result of
17
misrepresentation). And, nothing indicates that Defendant did not believe the projections,
18
which would show it did not rely on the projections. See Sw. Non-Profit Hous. Corp., 322
19
P.3d at 212 ¶ 29; (cf. Doc. 191 at 2–5). Simply put, none of Plaintiff’s arguments overcome
20
the fact that Defendant has evidence that it did rely on the projections of monthly demand
21
when it decided to enter the Supply Agreement with Plaintiff. Thus, there is a dispute of
22
material fact on this issue as well.
23
v.
Right to Rely on Representation
24
Finally, Plaintiff contends that Defendant cannot establish that Defendant had a
25
right to rely on Plaintiff’s alleged representation because it “cannot establish that such
26
forecasts are representations of fact to be relied upon.” (Doc. 153 at 9). Plaintiff notes that
27
Defendant “has admitted that the ‘Supply Agreement contains no representations,
28
promises, or guarantees by [Plaintiff] as to demand or minimum monthly purchases.’” (Id.
- 12 -
1
(quoting Doc. 60 at 18)). As the Court has noted, a promise of future performance is
2
generally not an actionable basis for fraud unless the party that made the promise had no
3
intent to perform. See supra Section III.a.1.B.i.
4
Here, Defendant has offered evidence to create a dispute of material fact as to
5
whether Plaintiff never intended to perform its promise. Therefore, the Court cannot say
6
that Defendant cannot establish its right to rely on Plaintiff’s alleged representation because
7
that question must be answered by the jury. Lerner, 322 P.3d at 914 ¶¶ 15–16; cf. Staheli
8
v. Kauffman, 595 P.2d 172, 175 (1979) (in division) (noting there is no right to rely on
9
promises, expressions of intent, or statements regarding future events “unless such were
10
made with the present intention not to perform”).
11
As indicated above, Defendant offers evidence that supports a reasonable inference
12
that Plaintiff knew it would never reach the monthly demand it was projecting and that
13
Plaintiff’s alleged representations of forecasted monthly demand were material to
14
Defendant’s decision to agree to the provisions of the Supply Agreement.9 “Reliance is
15
justifiable where the misrepresentation is material.” St. Joseph’s Hosp. & Med. Ctr. v.
16
Reserve Life Ins., 742 P.2d 808, 817 (Ariz. 1987) (holding that party reasonably relied on
17
misrepresentation because misrepresentation was material); see Maki v. N. Sky Partners II
18
LP, No. CV-15-02625-PHX-SRB, 2017 WL 10128386, at *6 (D. Ariz. Dec. 11, 2017)
19
(“Yet justifiability is effectively subsumed into the materiality inquiry.” (quoting Sitton v.
20
Deutsche Bank Nat’l Tr. Co., 311 P.3d 237, 243 ¶ 31 (Ariz. Ct. App. 2013))). Plaintiff has
21
22
23
Plaintiff objects to statements in Susumu Nukii’s declaration (Doc. 192) and Takahiro
Hasegawa’s declaration (Doc. 191) relating to whether Defendant took part in creating the
forecasts that were incorporated into the Supply Agreement. (Doc. 223 at 13–14 n.8).
Plaintiff appears to argue that Nukii and Hasegawa lack personal knowledge on this
subject. (Id.) But, Plaintiff indicates that Defendant identified Hasegawa as being a
participant in the negotiation of the Supply Agreement. (Id.). Because Plaintiff effectively
acknowledges Hasegawa took part in the Supply Agreement negotiations, the objection to
Hasegawa’s statements is overruled, and thus, the objection to Nukii’s statements on this
topic is rendered moot for purposes of deciding Plaintiff’s Motion for Partial Summary
Judgment (Doc. 153).
9
24
25
26
27
28
- 13 -
1
not shown, based on the undisputed material facts, that Defendant cannot establish at trial
2
that it had a right to rely on Plaintiff’s alleged representations.10
3
Accordingly, because there are genuine disputed issues of material fact on the
4
elements of Defendant’s fraud counterclaim, Plaintiff’s motion for summary judgment on
5
this counterclaim is denied.11
6
2.
Breach of Contract Counterclaims
7
Plaintiff asserts it is entitled to summary judgment on Defendant’s breach of
8
contract counterclaims. (Doc. 153 at 13–21). Defendant alleges that Plaintiff breached the
9
Supply Agreement by failing to make timely payments (“Late Payment Counterclaim”).
10
(Doc. 28 at 47–48). Defendant also alleges Plaintiff breached the Supply Agreement by
11
failing to pay invoices (“No Payment Counterclaim”). (Id. at 48–49).
12
Preliminarily, the Supply Agreement provides that New York law governs the
13
Supply Agreement. (Doc. 59-1 at 9 (§ 9.2 of the Supply Agreement)). To prevail on a
14
breach of contract action under New York law, a plaintiff must show “the existence of a
15
contract, the plaintiff’s performance thereunder, the defendant’s breach thereof, and
16
resulting damages.” Harris v. Seward Park Hous. Corp., 913 N.Y.S.2d 161, 162 (App.
17
Div. 2010).
18
A.
Late Payment Counterclaim
19
Plaintiff makes three general arguments in support of its claim that it is entitled to
20
summary judgment on the Late Payment Counterclaim. First, Plaintiff argues that
21
10
22
23
24
25
26
Plaintiff also seems to argue that Defendant did not have a right to rely on the projections
in deciding whether to enter the Supply Agreement because Defendant understood the
projections of monthly demand were not guarantees. (Doc. 153 at 9–10; Doc. 193 at 6–7).
Plaintiff then cites a bevy of quotes from discovery that it suggests support this proposition.
(Doc. 153 at 9–10; Doc. 193 at 6–8). Though it may be understood that Plaintiff’s
projections were not guarantees, this undisputed fact does not prevent Defendant from
establishing that Plaintiff’s projections were representations, and, if so, whether Defendant
had a right to rely on them. See Anderson, 477 U.S. at 247–48; cf. Meinhold v. U.S. Dep’t
of Def., 34 F.3d 1469, 1475 n.4 (9th Cir. 1994) (concluding that a dispute of fact was not
material when it was not dispositive to court’s legal analysis).
11
27
28
Plaintiff did not raise arguments as to whether Defendant can establish the fourth, fifth,
sixth, or ninth element of its fraud claim. As such, Plaintiff has failed to shift the burden to
Defendant on these elements because Plaintiff, as the movant, must show that the
Defendant, as the nonmovant, will be unable to establish a genuine issue of material fact
as to these elements.
- 14 -
1
Defendant committed material breaches of the Supply Agreement that excused Plaintiff
2
from further performance, including having to pay any invoice on time. (Doc. 153 at 13–
3
16). Second, Plaintiff contends that it did not breach the Supply Agreement as a matter of
4
law based on the undisputed facts. (Id. at 16–17). Third, Plaintiff claims Defendant waived
5
the right to timely payment. (Id. at 17–19). The Court evaluates each argument in turn.
6
i.
Material Breach
7
If a party commits a material breach, the other party is excused from further
8
performance. See Hadden v. Consol. Edison Co. of N.Y., 312 N.E.2d 445, 449 (N.Y. 1974);
9
Markham Gardens L.P. v. 511 9th LLC, 954 N.Y.S.2d 811, 815 (Sup. Ct. 2012). But, when
10
a material breach occurs, the party must elect to either terminate the contract or to continue
11
under it. Awards.com, LLC v. Kinko’s, Inc., 834 N.Y.S.2d 147, 156 (App. Div. 2007). If it
12
chooses the latter, “it loses its right to terminate the contract because of the default.” Id.
13
A breach is material when it is “so substantial that it defeats the object of the parties
14
in making the contract.” In re Dissolution of Ongweoweh Corp., 14 N.Y.S.3d 212, 213
15
(App. Div. 2015); Residential Holdings III LLC v. Archstone-Smith Operating Tr., 920
16
N.Y.S.2d 349, 352 (App. Div. 2011) (stating that a breach is not material unless “the act
17
failed to be performed [goes] to the root of the contract or . . . render[s] the performance of
18
the rest of the contract a thing different in substance from that which was contracted for”
19
(alterations in original)). Whether a breach is material is generally a question of fact for the
20
jury that precludes summary judgment. See F. Garofalo Elec. Co. v. N.Y. Univ., 754
21
N.Y.S.2d 227, 230 (App. Div. 2002); see also Bear, Stearns Funding, Inc. v. Interface
22
Group-Nevada, Inc., 361 F. Supp. 2d 283, 295 (S.D.N.Y. 2005) (“[T]he question of
23
materiality of breach is a mixed question of fact and law—usually more of the former and
24
less of the latter—and thus is not properly disposed of by summary judgment.”). Therefore,
25
because Plaintiff suggests that Defendant’s breach of contract claim is barred due to
26
Defendant’s alleged material breaches of the Supply Agreement, which is a question of
27
fact that the Court cannot determine on summary judgment, this argument fails.
28
- 15 -
1
ii.
No Breach
2
Plaintiff also contends that Defendant cannot show breach of the Supply Agreement.
3
There are thirty-three invoices that Defendant alleges Plaintiff did not pay on time that
4
serve as the basis of its breach of contract claim for late payments.
5
Plaintiff argues that one of the invoices that it did not pay on time “is not covered
6
by the Supply Agreement” because it “relates to cavity lid wafer process,” which is not an
7
SJ MOSFET product. (Doc. 153 at 16). Although Defendant agrees that this invoice relates
8
to cavity lid wafer process, (Doc. 193 at 11), Defendant asserts that this invoice is
9
nonetheless covered by the Supply Agreement but provides no evidence to support this
10
assertion. (Doc. 189 at 20). The Court finds that Defendant did not carry its burden in
11
rebutting Plaintiff’s argument that the Supply Agreement does not apply to this invoice
12
(No. MD140611OM150514). Defendant, as the nonmovant, “must do more than simply
13
show that there is some metaphysical doubt as to the material facts” by “com[ing] forward
14
with ‘specific facts showing that there is a genuine issue for trial.’” Matsushita Elec. Indus.
15
Co., 475 U.S. at 586–87 (quoting Fed. R. Civ. P. 56(e) (1963)). Accordingly, the Court
16
grants summary judgment on this issue in favor of Plaintiff.
17
Plaintiff also claims it did not breach the Supply Agreement by failing to pay Invoice
18
No. MD140401-2. (Doc. 153 at 16). Plaintiff specifically argues that this invoice relates to
19
development costs and that Defendant is required to pay all development costs under
20
§ 4.2.1 of the Supply Agreement, which relieved Plaintiff of any duty to pay Invoice No.
21
MD140401-2 under the Supply Agreement. (Id.). However, it is unclear what “fully
22
resource the development of all generations of Super Junction MOSFETs” means under
23
§ 4.2.1 of the Supply Agreement. (See Doc. 59-1 at 6). In other words, this provision is
24
ambiguous. Indeed, neither party even attempted to provide the Court with an argument as
25
to whether the provision applies to Invoice No. MD14040401-2 based on a reasonable
26
construction of § 4.2.1.12 Thus, there is a dispute of material fact as to whether Plaintiff
27
12
28
Section 4.2.1 of the Supply Agreement is also at issue in Defendant’s Motion for Partial
Summary Judgment (Doc. 229). The parties do offer conflicting interpretations of the
provision within that discussion, as will be discussed. Infra Section III.b.1.C.
- 16 -
1
breached the Supply Agreement by not paying Invoice No. MD140401-2. See Five Corners
2
Car Wash, Inc. v. Minrod Realty Corp., 20 N.Y.S.3d 578, 579 (App. Div. 2015).
3
Finally, Plaintiff contends it was not required to pay for any late paid invoices where
4
the invoice is for a lot that Plaintiff asserts it was not required to pay for under the Supply
5
Agreement. (Doc. 153 at 16–17). Specifically, Plaintiff argues that the Supply Agreement
6
required that Defendant meet a target yield13 of eighty percent for each lot and that certain
7
lots did not meet this alleged requirement. (Id.). Thus, Plaintiff claims it does not need to
8
pay invoices relating to the lots that did not meet the target yield requirement. (See id.).
9
Defendant responds that there was no agreement that it needed to meet an eighty-percent
10
target yield, and even if there was, such a requirement would not relieve Plaintiff of its
11
duty to pay. (Doc. 189 at 20–21; Doc. 191 at 1–2 (“There was never any agreement reached
12
on the meaning of ‘Target Yield[]’ . . . .”)).
13
The parties therefore dispute whether there was an agreement on target yield,
14
(Doc. 193 at 16–17), which precludes the Court from granting summary judgment. And,
15
even if Plaintiff is correct that there was an agreement as to target yield, as noted above, a
16
party is only relieved from performance of a contractual provision if the other party
17
commits a material breach. See supra Section III.a.2.A.i. Under New York law, Plaintiff is
18
not relieved from timely payment of invoices unless Defendant’s failure to produce lots
19
with a target yield of eighty percent—assuming that this requirement exists under the
20
Supply Agreement—constituted a material breach, which creates another dispute of
21
material fact that the Court cannot answer on summary judgment. See supra Section
22
III.a.2.A.i. In short, Plaintiff, as the movant, has not carried its burden of establishing that
23
there are no disputes of material fact relating to whether Defendant has failed to establish
24
breach of the Supply Agreement for invoices that relate to SJ MOSFET lots that Plaintiff
25
claims were below eighty-percent target yield.
26
27
The Supply Agreement defines “Target Yield” as “an average number of good Products
resulting from production wafers which shall be agreed between [Plaintiff] and
[Defendant].” (Docket 59-1 at 4 (§ 1.0 of the Supply Agreement)).
13
28
- 17 -
1
iii.
Waiver
2
The Court also rejects Plaintiff’s argument that Defendant waived the requirement
3
for timely payment “by repeatedly and knowingly accepting late payments from [Plaintiff]
4
over an extended period of time.” (Doc. 153 at 17–18). The Supply Agreement specifies,
5
“No term or condition of this A[greement] shall be deemed waived unless such a waiver is
6
in a writing executed by the Party against whom the waiver is sought to be enforced.” (Doc.
7
59-1 at 9 (§ 9.1 of the Supply Agreement)). Non-waiver clauses are “uniformly enforced”
8
under New York law. Awards.com, LLC, 834 N.Y.S.2d at 155–56 (holding that contractual
9
provision specifying there was no waiver of a provision of the contract unless the provision
10
was waived in writing meant that acceptance of late payments did not effectuate a waiver
11
of the requirement for timely payments). Plaintiff has offered no evidence that Defendant
12
waived timely payment in writing. Moreover, whether a party waived a contractual
13
provision is a question of fact for the jury because the party asserting waiver must show
14
that there was an intent to waive. See Fundamental Portfolio Advisors, Inc. v. Tocqueville
15
Asset Mgmt., L.P., 850 N.E.2d 653, 658 (N.Y. 2006). Thus, Plaintiff has not shown it is
16
entitled to summary judgment on the Late Payment Counterclaim as a result of waiver.
17
B.
No Payment Counterclaim
18
Plaintiff also contends that it is entitled to summary judgment on the No Payment
19
Counterclaim for invoices Defendant alleges Plaintiff did not pay. (Doc. 153 at 19–21).
20
First, the Court again denies summary judgment to Plaintiff on its argument that it was not
21
required to pay these invoices because the lots were below the eighty-percent target yield
22
it claims Defendant was required to meet or because Defendant did not timely produce the
23
lots. Supra Section III.a.2.A.ii; (see Doc. 153 at 19–20). Second, Plaintiff’s argument that
24
it is entitled to summary judgment because Defendant said Plaintiff did not have to pay
25
these invoices fails as well. (Doc. 153 at 19–21). Plaintiff states that Defendant agreed that
26
Plaintiff would not have to pay for these two invoices if Plaintiff destroyed the lots. (Id. at
27
20). No proof has been offered that Plaintiff destroyed the lots. (See id. at 19–21; Doc. 153-
28
- 18 -
1
21 at 8–11; Doc. 189 at 22; Doc. 193 at 19). Thus, there are disputed issues of material fact
2
that preclude summary judgment on the No Payment Counterclaim.
3
3.
Conclusion
4
Accordingly, the Court grants summary judgment in Plaintiff’s favor on
5
Defendant’s breach of contract counterclaim for Invoice No. MD140611OM150514 for
6
the reason specified above. The Court denies summary judgment as to the rest of
7
Defendant’s counterclaims.
Defendant’s Motion for Partial Summary Judgment
8
b.
9
Defendant seeks summary judgment on Plaintiff’s claims for lost profits damages,
10
lost business value damages, and lost development support cost damages which Plaintiff
11
asserts arise from its breach of contract claim. (Doc. 229 at 9–22). Defendant also asserts
12
summary judgment must be entered on Plaintiff’s fraud claim. (Id. at 22).
13
1.
Breach of Contract Claim
14
Defendant only asserts that certain types of damages Plaintiff seeks for its breach of
15
contract claim are unavailable, not that summary judgment is appropriate on Plaintiff’s
16
breach of contract claim in toto. The Court will evaluate each type of damages Defendant
17
asserts is unavailable here in turn.
18
As the Court has noted, New York law governs the Supply Agreement. See supra
19
Section III.a.2. There are two overarching classifications of damages that can arise from a
20
breach of contract under New York law. First, “the nonbreaching party may recover general
21
damages which are the natural and probable consequence of the breach.” Yenrab, Inc. v.
22
794 Linden Realty, LLC, 892 N.Y.S.2d 105, 110 (App. Div. 2009). Second, a party may
23
recover “‘special’ or extraordinary damages that do not flow directly from the breach.” Id.
24
A party seeking special damages must “plead that the damages were foreseeable and within
25
‘the contemplation of the parties at the time the contract was made.’” Id. (quoting Am. List
26
Corp. v. U.S. News & World Report, 549 N.E.2d 1161, 1164 (N.Y. 1989)).
27
28
- 19 -
1
A.
Lost Profits Damages Claim
2
“A claim for lost profits is generally a claim for special or extraordinary damages.”
3
Yenrab, Inc., 892 N.Y.S.2d at 110. Therefore, lost profits must be foreseeable, and the party
4
must show that lost profits were in “the contemplation of the parties at the time the contract
5
was made.” Id. Moreover, the party must establish lost profits with reasonable certainty.
6
Ashland Mgmt. Inc. v. Janien, 624 N.E.2d 1007, 1011 (N.Y. 1993); Kenford Co. v. Erie
7
County, 493 N.E.2d 234, 235 (N.Y. 1986) (per curiam). Therefore, the Court must evaluate
8
whether Plaintiff’s lost profits damages claim is capable of proof with reasonable certainty
9
and that lost profits were foreseeable from breach and that they were within the
10
contemplation of the parties when the Supply Agreement was made. Kenford Co., 493
11
N.E.2d at 235; see also Alaska Rent-A-Car, Inc. v. Avis Budget Grp., Inc., 738 F.3d 960,
12
970 (9th Cir. 2013) (“Under New York law, in order to recover lost profits [the plaintiff]
13
must prove that ‘(1) the damages were caused by the breach; (2) the alleged loss must be
14
capable of proof with reasonable certainty, and (3) the particular damages were within the
15
contemplation of the parties to the contract at the time it was made.’”).
16
A party must show lost profit damages are “reasonably certain and directly traceable
17
to the breach, not remote or the result of other intervening causes.” Kenford Co., 493
18
N.E.2d at 235. Lost profit damages cannot be “merely speculative, possible or imaginary.”
19
Id. Generally, because a new business does not have “a reasonable basis of experience,” a
20
new business seeking lost profits must establish them under “a stricter standard.” See id.;
21
Blinds to Go (U.S.), Inc. v. Times Plaza Dev., L.P., 931 N.Y.S.2d 105, 108 (App. Div.
22
2011); see also Trademark Research Corp. v. Maxwell Online, Inc., 995 F.2d 326, 332 (2d
23
Cir. 1993) (articulating same standard). This stricter standard requires a new business to
24
“meet a higher evidentiary burden” than an established business. Kidder, Peabody & Co.
25
v. IAG Int’l Acceptance Grp. N.V., 28 F. Supp. 2d 126, 131 (S.D.N.Y. 1998). In other
26
words, “[w]hether a business is a ‘new venture’ or an ongoing operation of course will
27
affect the quantity and quality of evidence relied upon by a plaintiff to prove lost future
28
profits with ‘reasonable certainty’” Washington v. Kellwood Co., No. 05CV10034 MHD,
- 20 -
1
2015 WL 6437456, at *24 (S.D.N.Y. Oct. 14, 2015) (quoting Coastal Aviation, Inc. v.
2
Commander Aircraft Co., 937 F. Supp. 1051, 1066 (S.D.N.Y. 1996)).
3
As such, the first question is whether Plaintiff’s sale of SJ MOSFETs constituted a
4
new business or venture. Plaintiff argues because it had been in business for years at the
5
time of Defendant’s alleged breach, it does not constitute a new business. (See Doc. 306 at
6
9–10). Defendant responds that “New York law requires a track record of profits” in the
7
relevant market to support lost profits or the party is a new business. (Doc. 327 at 7–8).
8
An established business that attempts to enter into a new or different market is a
9
new business. See Blinds to Go (U.S.), Inc., 931 N.Y.S.2d at 108. For example, in Blinds
10
to Go (U.S.), Inc. v. Times Plaza Development, the plaintiff operated a chain of stores. Id.
11
at 107–08. A lease dispute arose between plaintiff and defendant, and plaintiff was left
12
without space to sell its product in a new location that it had not sold in previously. Id. at
13
107. Plaintiff sought lost profit damages it asserted arose from that dispute. See id. The
14
court found that the plaintiff’s assertion that it was attempting “to break into a new market”
15
illustrated it was a new business. See id. at 108; see also Ho Myung Moolsan, Co. v.
16
Manitou Mineral Water, Inc., No. 07 CIV.07483 RJH, 2010 WL 4892646, at *7 n.3
17
(S.D.N.Y. Dec. 2, 2010) (“The critical newness is not of the business itself or of the
18
logistical foundations for sales, but for the attempt to sell a new product.” (citing Aviation
19
Inc., 937 F. Supp. at 1068)).
20
Because Plaintiff was also breaking into a new market, it must be considered a new
21
business. It is undisputed that Plaintiff never sold its SJ MOSFET until July 2011 and that
22
Plaintiff was attempting to enter the Chinese SJ MOSFET market. (Doc. 308 at 33, 36).
23
And importantly, Plaintiff has not offered any proof of a history of profit in the SJ
24
MOSFET market. (Id. at 47). Plaintiff even notes in its Response to the Motion that it “was
25
a new entrant to the SJ MOSFET market.” (Doc. 306 at 14). Thus, just as in Blinds to Go
26
(U.S.), Inc., here, Plaintiff is a new business under New York law because it is breaking
27
into a new market, and the Court must apply the stricter evidentiary standard.
28
- 21 -
1
When a business is new, projections of future profit typically will not be enough to
2
establish reasonable certainty. Kenford Co., 493 N.E.2d at 236. Indeed, in Kenford Co. v.
3
Erie County, the New York Court of Appeals concluded, “despite [a] massive quantity of
4
expert proof” that it found was reliable, the experts’ projections of future profit were not
5
sufficient to establish reasonable certainty as to lost profit damages. Id. The experts based
6
their projections of profits on the following hypothetical scenario: “that the facility was
7
completed, available for use and successfully operated by [the plaintiff] for 20 years,
8
providing professional sporting events and other forms of entertainment, as well as hosting
9
meetings, conventions and related commercial gatherings.” Id. The court held that this type
10
of speculation requiring a “multitude of assumptions” did not establish “proof with
11
reasonable certainty” of lost profits. Id.
12
To establish reasonable certainty, a new business must generally support its lost
13
profits damages claim with evidence of a history of profit or comparison of the new
14
business with other comparable and profitable businesses. See, e.g., Schonfeld v. Hilliard,
15
218 F.3d 164, 173–75 (2d Cir. 2000); Blinds to Go (U.S.), Inc., 931 N.Y.S.2d at 108–09;
16
Vasquez v. Gesher Realty Corp., 985 N.Y.S.2d 819, 821 (App. Term. 2014) (per curiam).
17
Moreover, a new business must account for “general market risks” that might negatively
18
affect its future profits, such as: “(1) the entry of competitors; (2) technological
19
developments; (3) regulatory changes; or (4) general market movements.” Schonfeld, 218
20
F.3d at 174–75; see also Trademark Research Corp., 995 F.2d at 333 (“On this record, the
21
future of the CD-ROM market is subject to too many uncertain variables to project lost
22
profits with the requisite certainty.”).
23
Plaintiff has offered insufficient proof to show lost profit damages with reasonable
24
certainty. Plaintiff’s principal support for lost profits is the projections of its president, Sam
25
Anderson (“Anderson”), and its experts Walter Bratic (“Bratic”) and Uzi Sasson
26
(“Sasson”).14 (Doc. 306 at 12–14). But, for a new business, like Plaintiff, projections are
27
14
28
Plaintiff also apparently offers the fact that its business valuation expert, Greg Mischou,
“so believed in [Plaintiff] and its products that he spent years working to help the company
raise capital with no guarantee of any compensation unless he was successful” to show
- 22 -
1
generally not sufficient under New York law to establish lost profits with reasonable
2
certainty. At bottom, if the “massive quantity of expert proof” behind the projections in
3
Kenford Co. was not enough for the New York Court of Appeals to find reasonable
4
certainty of lost profits there, then the opinion of Anderson and the expert testimony that
5
relied upon it certainly cannot establish lost profits with reasonable certainty here.
6
Indeed, Plaintiff has failed to show a history of lost profits or any comparison with
7
the profitability of other like ventures or businesses. It is undisputed that Plaintiff’s lost
8
profits experts failed to make comparisons between IceMOS and its competitors. Sasson
9
failed to compare IceMOS to its competitors or Plaintiff’s product to any of its competitors’
10
products. (Doc. 308 at 35–36). Similarly, Bratic did not compare the efficacy of Plaintiff’s
11
product to competitors’ products, its sale resources to competitors, any of its competitor’s
12
entry to the MOSFET marketplace, or how Plaintiff would have competed with its
13
competitors. (Id. at 44). Without a history of profit or evidence showing the profitability of
14
other like-businesses, Plaintiff cannot establish lost profit damages with the reasonable
15
certainty New York law requires for new businesses.
16
It is also unclear if Plaintiff accounted for various factors that could affect its ability
17
to make profit. Plaintiff stated, “a semiconductor-industry sales forecast . . . depends upon
18
actions of third parties beyond the control of the forecaster.” (Doc. 232-22 at 3). Plaintiff
19
went on to say that these third parties include the buyers of the product, competitors who
20
could introduce new products, and new market entrants that could cause Plaintiff to reduce
21
the price for its product. (Id.) Plaintiff also suggested it may be required “to take other
22
actions to preserve customer relationships,” another scenario that could affects its ability
23
to meet its projections. (Id.). Plaintiff noted that economic recession, supply disruptions,
24
and “a myriad of other natural and man-made events” could affect its ability to make a
25
profit on its product as well. (See id. at 4). A party’s failure to account for “general market
26
risks,” such as “(1) the entry of competitors; (2) technological developments;
27
(3) regulatory changes; or (4) general market movements,” precludes a finding of
28
reasonable certainty of lost profits. (Doc. 306 at 14). As the case law above indicates, this
fact cannot be proof of Plaintiff’s lost profits claim.
- 23 -
1
reasonable certainty. Schonfeld, 218 F.3d at 174–75. Indeed, in Trademark Research Co.,
2
the court concluded the uncertainty in the market and the plaintiff’s failure to account for
3
this uncertainty rendered lost profits damages too uncertain. Similarly here, Plaintiff cannot
4
show the requisite certainty necessary to establish lost profit damages given the uncertainty
5
that the above factors could foster that even Plaintiff recognizes are “beyond [its] control.”
6
(Doc. 232-22 at 3–4).
7
In sum, the Court concludes Plaintiff did not establish lost profit damages with
8
reasonable certainty. As a new business, Plaintiff may not rely solely on projections but
9
instead must offer proof of profitability to establish lost profits with reasonable certainty.
10
Thus, Plaintiff’s lost profit damages claim is simply too speculative to survive Defendant’s
11
summary judgment motion.
12
Nonetheless, Plaintiff argues that it could rely on its projections to establish lost
13
profits damages with reasonable certainty because it has been an established business.
14
(Doc. 306 at 14). Plaintiff contends that Kenford Co. and its progeny turned on the fact
15
that, in those cases, evidence of lost profit “was based on products that never existed or
16
businesses that never operated,” and therefore, Plaintiff should not be classified as a new
17
business. (Id.). Not so. As noted above, when an established company enters into a new
18
market, it must show lost profits under the heightened evidentiary burden that New York
19
law applies to new businesses. See, e.g., Blinds to Go (U.S.), Inc., 931 N.Y.S.2d at 108.
20
But, even if the Court assumes Plaintiff is correct, Plaintiff still must prove lost
21
profit damages with reasonable certainty. Ashland Mgmt. Inc., 624 N.E.2d at 1011
22
(“Whether the claim involves an established business or a new business, however, the test
23
remains the same, i.e., whether future profits can be calculated with reasonable certainty.”).
24
While a party can approximate lost profits damages, the approximation must be “based
25
upon known reliable factors without undue speculation.” Id. at 1010–11 (citations omitted);
26
cf. Uncas Int’l LLC v. Crimzon Rose, Inc., No. 16 CIV. 9610 (JSR), 2017 WL 2839668, at
27
*7 (S.D.N.Y. June 26, 2017) (noting a court can dismiss a claim for lost profit damages
28
where it “would require an unreasonable level of speculation”). “[P]rojections of future
- 24 -
1
profits” based upon assumptions that require “speculation and conjecture” do not establish
2
reasonable certainty of lost profit damages. Louis Hornick & Co. v. Darbyco, Inc., No.
3
12CV5892 (VSB) (DCF), 2015 WL 13745787, at *7–8 (S.D.N.Y. Aug. 19, 2015) (citation
4
omitted) (concluding that plaintiff’s claim for lost profits was not reasonably certain
5
because plaintiff failed to provide any data behind its projections of profit despite plaintiff
6
having “a successful and established product line”), adopted, No. 12-CV-5892 (VSB),
7
2015 WL 9478239 (S.D.N.Y. Dec. 29, 2015).
8
Thus, Plaintiff has failed to establish lost profits with reasonable certainty even if
9
the Court assumes it was not a new business for the same reasons the Court articulated
10
above. Plaintiff has not cited to any reliable evidence in support of its lost profits damages.
11
Its experts’ opinions are laden with assumptions, and Plaintiff has failed to connect any
12
quantifiable data to its projections of lost profits, just like the plaintiff in Louis Hornick &
13
Co., rendering its lost profit damages claim not reasonably certain. As noted above, the
14
principal support for Plaintiff’s lost profits damages is projections, and Plaintiff itself
15
recognizes the numerous factors that are beyond its control that could affect the accuracy
16
of these projections, rendering the projections too speculative to support lost profit
17
damages with reasonable certainty.
18
Plaintiff highlighted Ashland Management at oral argument; however, Ashland
19
Management provides Plaintiff no refuge from the speculativeness of its lost profits claim.
20
Indeed, Ashland Management illustrates exactly why Plaintiff cannot establish its lost
21
profits claim with reasonable certainty. In Ashland Management, the court determined that
22
the projection of future profits there was not only based on the “parties’ carefully studied
23
professional judgments” but also that the company had a “substantial presence” in the
24
market for “several years” and the venture was part of a strategy that had a strong track
25
record, among other things. 624 N.E.2d at 1012. Thus, the projections in Ashland
26
Management were unlike the speculative nature of the projections in Kenford Co., which
27
were marred by “speculative assumptions and few known factors.” Id. (citing Kenford Co.,
28
493 N.E.2d at 236). The court made clear that reasonable certainty requires that “damages
- 25 -
1
be capable of measurement based upon known reliable factors without undue speculation.”
2
Id. at 1010. At bottom, the key takeaway from Ashland Management is that a lost profits
3
claim cannot be based on projections of profit that are built on assumptions and speculation.
4
See id.
5
Accordingly, Plaintiff’s claim for lost profits fails under Ashland Management.
6
Plaintiff’s projections of future profit include far too many speculative assumptions and
7
few, if any, known factors to establish its claim with reasonable certainty. Plaintiff has not
8
had a “substantial presence” in the Chinese SJ MOSFET market for years; rather, Plaintiff
9
referred to itself as “a new entrant to the SJ MOSFET market.” (Doc. 306 at 14); see
10
Ashland Mgmt., 624 N.E.2d at 1012. Nor are Plaintiff’s projections based on the reliable
11
track record that helped establish reasonable certainty in Ashland Management. As noted,
12
Plaintiff has failed to show that its SJ MOSFET had a history of profit and Plaintiff
13
recognized the numerous factors beyond its control that could affect its ability to make
14
profit on its product. Thus, Ashland Management shows why Plaintiff’s lost profit claim
15
fails.
16
The newness of the business only affects the quantity and quality of the evidence
17
Plaintiff must offer to establish its lost profits claim. Because Plaintiff has not cited
18
sufficient reliable evidence on which to base its lost profits damages claim, its claim is not
19
based on the reasonable certainty that New York law demands, and summary judgment
20
will be granted in favor of Defendant on this claim. Given this conclusion, the Court need
21
not determine whether these damages were foreseeable or within the contemplation of the
22
parties when the Supply Agreement was formed.
23
B.
Lost Business Value Damages Claim
24
Defendant argues that lost business value damages are unavailable because IceMOS
25
was not destroyed, Plaintiff cannot prove lost valuation with reasonable certainty, and that
26
lost business value damages were not within the contemplation of the parties or foreseeable
27
from breach. (Doc. 229 at 18–20). Because the Court concludes that Plaintiff has failed to
28
establish business value damages with reasonable certainty, it need not address whether
- 26 -
1
these damages were within the contemplation of the parties or whether these damages were
2
foreseeable from breach.
3
“[T]he ‘most accurate and immediate measure of damages’” of a new business can
4
be its “market value . . . at the time of breach.” Washington v. Kellwood Co., 714 F. App’x
5
35, 41 (2d Cir. 2017) (ellipsis in original) (citation omitted). Fair market value is usually
6
determined by calculating “capitalization of expected future profits.” 24/7 Records, Inc. v.
7
Sony Music Entm’t, Inc., 566 F. Supp. 2d 305, 317 (S.D.N.Y. 2008); see also Matter of
8
Seagroatt Floral Co., Inc., 583 N.E.2d 287, 290 (N.Y. 1991). Calculating lost business
9
value based on its market value at the time of breach is “inherently less speculative” than
10
measuring damages through lost profits because it is “measured by proof of ‘what a buyer
11
is willing to pay for the chance’ that the business will produce substantial income.”
12
Washington, 714 F. App’x at 41 (quoting Schonfeld, 218 F.3d at 177). However, a party
13
must still show lost business value damages with reasonable certainty because lost business
14
value damages are special damages. Id.; Bi-Economy Mkt., Inc. v. Harleysville Ins. Co. of
15
N.Y., 886 N.E.2d 127, 129–30 (N.Y. 2008). To do so a party must typically offer a history
16
of profit. See 24/7 Records, Inc., 566 F. Supp. 2d at 316–17 (rejecting that past revenue
17
was sufficient to establish lost business value damages with reasonable certainty given that
18
business was unprofitable for a year-and-a-half); S.A.B. Enters., Inc. v. Village of Athens,
19
564 N.Y.S.2d 817, 822 (App. Div. 1991) (rejecting plaintiff’s lost business value damages
20
calculation because it was not based on proof of profit); cf. In re Ford, 312 N.Y.S.2d 966,
21
973 (App. Div. 1970) (noting, in litigation involving valuation of businesses that had been
22
condemned by the government, that basing business valuation on “hypothetical future
23
profits” is too speculative to establish lost business value).
24
///
25
///
26
///
27
///
28
///
- 27 -
1
It is undisputed that Plaintiff’s lost business value damages expert, Greg Mischou
2
(“Mischou”),15 based his business valuation on revenue projections for 2017 and 2018 that
3
he made in 2014. (Doc. 308 at 50–52). Mischou’s expert report reads:
10
In summary, in 2014, based on Comparable M&A Transactions analysis, I
determined that a conservative financial valuation base for IceMOS in a
M&A transaction would be 1.9 to 4.1 times revenue, resulting in a value
range based on [Plaintiff]’s financial forecast of [redacted] for 2017 and
extending this analysis to [Plaintiff’s] 2018 projected revenues results in a
transaction valuation range of [redacted] for 2018. Likewise, based on
Comparable Public Company Valuation analysis, a conservative financial
valuation base for IceMOS in a company sale would be [redacted] times
revenue, resulting in a value range of [redacted] for 2017 and [redacted] for
2018.
11
(Doc. 296-4 at 16). Consequently, Plaintiff’s lost business value damages claim is
12
speculative because it is based on hypothetical future revenue without any proof of profit.
13
As discussed supra Section III.b.1.A., it is undisputed that Plaintiff had no history of profit
14
at the time of the alleged breach. (Doc. 308 at 33, 36). Plaintiff points to no other relevant
15
evidence in support of its lost business value damages that overcomes this fact. Thus,
16
because Plaintiff’s lost business value claim is based only on projections and because
17
Plaintiff has failed to establish a history of profit, Plaintiff has not established lost business
18
value damages with reasonable certainty. Accordingly, the Court grants the motion for
19
summary judgment as to Plaintiff’s lost business value damages claim.16
4
5
6
7
8
9
20
21
22
23
24
Although the Court grants Defendant’s motion to exclude Mischou’s expert testimony
(Doc. 296) due to the Court’s conclusion that lost business value damages are unavailable
as discussed below, infra Section IV, the Court assumes, for purposes of analyzing whether
lost business value damages are available, that Mischou’s expert testimony is reliable.
15
Given this conclusion, the Court will not address Defendant’s claim that lost business
value damages are only available under New York law where a business is destroyed.
(Doc. 229 at 18–19). But see Stanacard, LLC v. Rubard LLC, No. 12 CIV. 5176 (CM),
2016 WL 6820741, at *4 (S.D.N.Y. Nov. 10, 2016) (indicating lost business value damages
would be available where business was “almost completely destroyed”); Kenneth M.
Kolaski & Mark Kuga, Measuring Commercial Damages via Lost Profits or Loss of
Business Value: Are these Measures Redundant or Distinguishable?, 18 J.L. & Comm. 1,
5 n.8 (1998) (noting business value damages may be available where business was
“permanently damaged”).
16
25
26
27
28
- 28 -
1
C.
Lost Development Support Damages Claim
2
Defendant asserts that Plaintiff’s claim for lost development support damages are
3
unavailable because: (1) Plaintiff has failed to show any damage, (2) lost development
4
support damages were not foreseeable, and (3) Plaintiff has not offered proof that shows
5
lost development support damages with reasonable certainty. (Doc. 229 at 20). Plaintiff
6
responds that there is a genuine issue of material fact as to whether Defendant “was
7
contractually obligated to provide developmental support for various generations of the SJ
8
MOSFET.” (Doc. 306 at 21). Plaintiff’s claim for lost development support damages is
9
grounded in a provision in the Supply Agreement that provides, “[Defendant] agrees to
10
fully resource the development of all generations of Super Junction MOSFETs as indicated
11
in Exhibit B2, through the duration of this A[greement].” (Doc. 59-1 at 6 (§ 4.2.1 of the
12
Supply Agreement)).
13
If a contract’s language is ambiguous, there is a material dispute of fact that the
14
court cannot resolve on a motion for summary judgment. Five Corners Car Wash, Inc., 20
15
N.Y.S.3d at 579. Whether a contract’s language is ambiguous must be determined by the
16
court. See Amusement Bus. Underwriters, a Div. of Bingham & Bingham, Inc. v. Am. Int’l
17
Grp., Inc., 489 N.E.2d 729, 732 (N.Y. 1985). A contract is ambiguous “when specific
18
language is ‘susceptible of two reasonable interpretations.’” Ellington v. EMI Music, Inc.,
19
21 N.E.3d 1000, 1003 (N.Y. 2014) (citation omitted).
20
Defendant asserts that the phrase “fully resource” merely refers to Defendant’s
21
obligations as a foundry, not that Defendant must pay for development support costs.
22
(Doc. 327 at 18). Plaintiff responds that “fully resource” could include development
23
support costs. (Doc. 306 at 19). Thus, Plaintiff claims there is a genuine issue of material
24
fact that precludes summary judgment. (Id.). Plaintiff also contends that whether these
25
development support costs are general or special damages is a question of fact that is not
26
properly before the Court on a motion for summary judgment. (Id. at 19–20).
27
“Resource” means “[t]o provide or supply with resources.” Resource, Oxford
28
English Dictionary (3d ed. 2010). “Resources” are “[s]tocks or reserves of money,
- 29 -
1
materials, people, or some other asset, which can be drawn on when necessary.” Resources,
2
Oxford English Dictionary, supra. Given these definitions, Plaintiff’s interpretation, based
3
on the text of § 4.2.1 of the Supply Agreement, is not foreclosed as a matter of law because
4
“to resource” includes providing monetary support when necessary. As such, there is a
5
genuine issue of material fact because the term “fully resource” is ambiguous.
6
Additionally, just as Plaintiff suggests, this genuine issue of material fact precludes
7
the Court from deciding whether Plaintiff’s claimed development support damages are
8
general or special. If Plaintiff’s interpretation of the provision prevails, then it may be that
9
lost development costs are the natural and probable consequence of breach of the Supply
10
Agreement. Yenrab, Inc., 892 N.Y.S.2d at 110. Defendant’s criticism that Plaintiff has not
11
offered sufficient evidentiary support for the specific amount of damages Plaintiff claims
12
as its lost development support costs cannot be resolved on a motion for summary
13
judgment. See Anderson, 477 U.S. at 248 (stating “[a]ny proof or evidentiary requirements
14
imposed by the substantive law are not germane” to the materiality analysis).
15
In short, because there is a genuine issue of material fact as to what Defendant’s
16
obligations under the Supply Agreement were as to development support costs, the Court
17
cannot grant summary judgment on Plaintiff’s claim for these damages.
18
2.
Fraud Claim
19
Defendant also moves for summary judgment on Plaintiff’s fraud claim. (Doc. 229
20
at 22). Defendant argues that the fraud claim is barred by the economic loss doctrine
21
because the subject matter of Plaintiff’s fraud claim relates only to issues regarding the
22
Supply Agreement. (Id.). Plaintiff responds that the economic loss doctrine does not apply
23
here because it asserts the doctrine is generally inapplicable to fraud claims and because it
24
claims its “damages directly relate to losses caused by fraudulent conduct that is unrelated
25
to [Defendant]’s performance of the Supply Agreement.” (Doc. 306 at 21–23).17
26
17
27
28
Plaintiff’s Response violated District of Arizona Local Rule of Civil Procedure 7.2(e)(1),
which provides that a response may only be seventeen pages. Plaintiff’s brief is eighteen
pages. Although Defendant argues that the Court should strike the entirety of Plaintiff’s
argument on why the economic loss doctrine does not apply here, (Doc. 327 at 19–20), the
Court has wide discretion on whether to sanction a party for violation of Local Rule 7.2(e).
See Christian v. Mattel, Inc., 286 F.3d 1118, 1129 (9th Cir. 2002). The Court finds no
- 30 -
1
As the Court previously noted, Arizona law applies to Plaintiff’s fraud claim. (See
2
Doc. 25 at 19–20). Under Arizona law, the economic loss doctrine precludes common law
3
tort actions that seek “pecuniary damage[s] not arising from injury to the plaintiff’s person
4
or from physical harm to property.” Sullivan v. Pulte Home Corp., 306 P.3d 1, 3 ¶ 8 (Ariz.
5
2013) (alteration in original) (citation omitted). Thus, a contracting party is limited to
6
contractual remedies for the recovery of purely economic loss that is not accompanied by
7
physical injury to persons or other property. Flagstaff Affordable Hous. Ltd. P’ship v.
8
Design All., Inc., 223 P.3d 664, 667 ¶ 12 (Ariz. 2010). “Economic loss” is “pecuniary or
9
commercial damage, including any decreased value or repair costs for a product or property
10
that is itself the subject of a contract between the plaintiff and defendant, and consequential
11
damages such as lost profits.” Id. ¶ 11.
12
The rationale behind the economic loss doctrine is that contract law better protects
13
a party’s expectations while tort law is designed to protect the safety of persons and
14
property. See Gilbert Unified Sch. Dist. No. 41 v. CrossPointe, LLC, No. CV 11-00510-
15
PHX-NVW, 2012 WL 1564660, at *4–5 (D. Ariz. May 2, 2012) (citing Flagstaff
16
Affordable Hous. Ltd. P’ship, 223 P.3d at 667 ¶¶ 11–12). To determine whether the
17
economic loss doctrine applies, the court must analyze “whether the facts preponderate in
18
favor of the application of tort law or commercial law exclusively or a combination of the
19
two.” Salt River Project Agric. Improvement & Power Dist. v. Westinghouse Elec. Corp.,
20
694 P.2d 198, 210 (Ariz. 1984). When the allegations underlying a tort claim “are
21
inseparable from the essence of the contractual agreement,” the court should apply contract
22
law rather than tort law because the facts preponderate in favor of applying contract law.
23
CIT Fin. LLC v. Treon, Aguirre, Newman & Norris PA, No. CV-14-00800-PHX-JAT, 2016
24
WL 6610604, at *5 (D. Ariz. Nov. 9, 2016) (holding plaintiff’s claim was barred by
25
economic loss doctrine because the alleged misrepresentations at the foundation of the
26
27
28
sanction is warranted though the Court warns Plaintiff that future rule violations may result
in sanctions. See Kimoto v. McDonald’s Corp., No. CV063032PSGFMOX, 2007 WL
9711198, at *2 n.1 (C.D. Cal. July 5, 2007).
- 31 -
1
plaintiff’s tort claim were “inseparable from the essence of the contractual agreement”);
2
Gilbert Unified Sch. Dist. No. 41, 2012 WL 1564660, at *4–6 (same).
3
Preliminarily, Plaintiff appears to contend that fraud claims are exempt from the
4
economic loss doctrine. (See Doc. 306 at 21–22 (“[T]he ELR should not apply simply
5
because, as a matter of necessity, damages incurred for fraud ‘will relate to the subject of
6
the parties’ contract.’” (quoting Jes Solar Co. v. Matinee Energy, Inc., No. CV 12-626
7
TUC DCB, 2015 WL 10943562, at *5 (D. Ariz. Nov. 2, 2015)))). But, the cases Plaintiff
8
cites do not stand for the proposition that a fraud claim is never barred by the economic
9
loss doctrine. For example, in Jes Solar Co. v. Matinee Energy, Inc., the plaintiffs
10
specifically alleged that the defendants there “never intended to perform on the contracts.”
11
2015 WL 10943562, at *5. Therefore, the Jes Solar Co. court found that the facts there
12
preponderated in favor of applying tort law because the plaintiffs would not have expected
13
the defendants to have no intention of performing the contracts. See id. No such claim is
14
presented here. Arizona law does not otherwise provide for a fraud exception to the
15
economic loss doctrine. See, e.g., CIT Fin. LLC, 2016 WL 6610604, at *5 (concluding
16
fraud claim was barred by economic loss doctrine).
17
The economic loss doctrine bars Plaintiff’s fraud claim here because the essence of
18
Plaintiff’s breach of contract claim and fraud claim are the same. In short, each of
19
Plaintiff’s allegations relating to Defendant’s alleged fraudulent misrepresentations
20
concern issues regarding Defendant’s performance of various provisions of the Supply
21
Agreement. (Doc. 59 at 35–38). As such, like CIT Finance LLC, Plaintiff’s fraud claim is
22
inseparable from its breach of contract claim, and thus, the facts preponderate in favor of
23
applying contract law. Moreover, the policy considerations underlying the economic loss
24
doctrine identified above also weigh in favor of applying the doctrine here. Both Plaintiff
25
and Defendant are sophisticated parties that had equal bargaining power, and thus, each
26
party could negotiate and bargain to order their contractual relationship and allocate the
27
risks of breach according to their preferences. See Gilbert Unified Sch. Dist. No. 41, 2012
28
WL 1564660, at *4–5. As a result, there are contractual remedies available to Plaintiff
- 32 -
1
should Plaintiff show Defendant did not perform its end of the bargained-for Supply
2
Agreement. The fact that Plaintiff seeks punitive damages does not affect this analysis. See
3
CIT Fin., 2016 WL 6610604, at *5–6. Consequently, the facts here preponderate in favor
4
of applying contract law; thus, Plaintiff’s fraud claim is barred by the economic loss
5
doctrine.
6
3.
7
Accordingly, the Court grants Defendant’s Motion for Partial Summary Judgment
8
(Doc. 229) as to Plaintiff’s lost profits claim, lost business value claim, and its fraud claim
9
(and thus its prayer for punitive damages as well (Doc. 59 at 38)). The Court denies the
10
Motion as to Plaintiff’s development support costs claim. The Court clarifies that this Order
11
does not address any claim for general damages arising from Plaintiff’s breach of contract
12
claim.
13
IV.
14
15
Conclusion
DEFENDANT’S DAUBERT MOTION TO EXCLUDE MISCHOU
As noted above, also pending before the Court is Defendant’s Motion to Preclude
Testimony of Plaintiff’s Expert Greg Mischou (Doc. 296).
16
A party seeking to offer an expert opinion must show that the opinion satisfies the
17
requirements set forth by Federal Rule of Evidence 702 (“Rule 702”). Rule 702 requires
18
that the court “ensure that any and all scientific testimony or evidence admitted is not only
19
relevant, but reliable.” See Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579, 589 (1993).
20
To be relevant, an expert’s testimony must fit the case. See id. at 591.
21
Mischou’s expert testimony regarding Plaintiff’s lost business value damages is
22
now irrelevant in light of the Court’s decision that these damages are unavailable. See supra
23
Section III.b.1.B. Plaintiff does not identify any other relevant issue Mischou’s expert
24
testimony will be offered for. (Doc. 324 at 18–20 (stating that Mischou was “retained
25
merely” to opine on lost business value damages)). Nor is it apparent, based on Mischou’s
26
expert report, that his testimony could be offered for any other relevant issue. (See Doc.
27
296-4 at 4 (Mischou’s report) (noting that Mischou was “asked to consider and provide
28
[his] opinions regarding the potential value [Plaintiff] would have been able to obtain from
- 33 -
1
a merger and acquisition or company sale” absent alleged breaches of the Supply
2
Agreement)). As such, Defendant’s motion to exclude Mischou as an expert is granted
3
because his expert testimony is irrelevant, and thus, not fit for this case.18
4
V.
MOTIONS TO SEAL
5
Plaintiff and Defendant have filed various motions to seal in connection with the
6
partial summary judgment motions (Docs. 153; 229) and Defendant’s motion to exclude
7
Mischou from offering expert testimony (Doc. 296). (See Docs. 194; 228; 304; 309; 321;
8
323; 345; 346). Because review of the unredacted materials was unnecessary to the Court’s
9
resolution of these motions, the requests to file unredacted versions of these materials into
10
the record are denied as unnecessary. See Maui Elec. Co. v. Chromalloy Gas Turbine, LLC,
11
No. CIV. 12-00486 SOM, 2015 WL 1442961, at *16–17 (D. Haw. Mar. 27, 2015). All
12
documents filed lodged under seal will thus remain lodged under seal.
13
VI.
CONCLUSION19
14
Based on the foregoing,
15
IT IS ORDERED that Plaintiff’s Motion for Partial Summary Judgment (Doc. 153)
16
is GRANTED IN PART and DENIED IN PART. The Motion is GRANTED as to
17
Defendant’s
18
MD140611OM150514. The Motion is DENIED as to Defendant’s fraud counterclaim, the
19
Defendant’s Late Payment Counterclaim relating to the thirty-two other invoices (i.e., each
20
invoice other than Invoice No. MD140611OM150514), and Defendant’s No Payment
21
Counterclaim.
breach
of
contract
counterclaim
for
payment
of
Invoice
No.
22
27
Although the Court had previously indicated that granting Defendant’s Motion for Partial
Summary Judgment on the issue of lost profits damages could be a ground to exclude the
expert testimony of Bratic and Sasson, (Doc. 343 at 1 n.1), the parties’ briefing on
Defendant’s motions to exclude Bratic and Sasson did not discuss the other issues that
Bratic and Sasson have opined on. (See Doc. 293 (motion to exclude Bratic); Doc. 299
(motion to exclude Sasson)). Upon further review of Bratic’s expert report (Doc. 293-1)
and Sasson’s expert report (Doc. 299-1), the Court finds that the expert testimony of Bratic
and Sasson may be relevant despite the unavailability of lost profit damages. Accordingly,
the Court will rule on Defendant’s motions to exclude Bratic and Sasson in a separate order
to follow.
28
19
18
23
24
25
26
To be clear, any claim that is not subject to the parties’ motions for partial summary
judgment may proceed to trial.
- 34 -
1
IT IS FURTHER ORDERED that Defendant’s Motion for Partial Summary
2
Judgment (Doc. 229) is GRANTED IN PART and DENIED IN PART. The Motion is
3
GRANTED as to Plaintiff’s lost profits claim, lost business value claim, and fraud claim.
4
The Motion is DENIED as to Plaintiff’s lost development support costs claim.
5
IT IS FURTHER ORDERED that Defendant’s Motion to Preclude Testimony of
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Plaintiff’s Business Valuation Expert Greg Mischou (Doc. 296) is GRANTED as his
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expert testimony is irrelevant.
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IT IS FURTHER ORDERED that the following motions to seal (Docs. 194; 228;
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304; 309; 321; 323; 345; 346) are DENIED for the reason indicated above. The Clerk of
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Court shall not unseal the related documents and shall instead leave Docs. 195; 230; 298;
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305; 307; 310; 325; 329; 336 lodged under seal.
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Dated this 13th day of November, 2019.
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