Sparta Consulting, Inc. v. Copart, Inc.

Filing 356

ORDER signed by District Judge Kimberly J. Mueller on 2/20/18 DENYING 265 Motion for Reconsideration. (Kaminski, H)

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UNITED STATES DISTRICT COURT

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FOR THE EASTERN DISTRICT OF CALIFORNIA

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ORDER

Plaintiff,

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No. 2:14-cv-00046-KJM-CKD

COPART, INC.,

v.
SPARTA CONSULTING, INC., KPIT
INFOSYSTEMS, INC., AND KPIT
TECHNOLOGIES LTD.,

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Defendants.

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SPARTA CONSULTING, INC.,
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Counterplaintiff,
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v.
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COPART, INC.,
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Counterdefendant.

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Plaintiff Copart, Inc. moves for reconsideration of this court’s summary judgment

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order. Mot., ECF No. 265; see Order Summ. J. at 23, ECF No. 264. Defendants oppose. Opp’n,

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ECF No. 283. Defendants have replied, Reply, ECF No. 285, and the court heard oral argument

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on the motion. ECF No. 287. The court now resolves this motion. For the reasons below,

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Copart’s motion for reconsideration is DENIED.

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I.

BACKGROUND

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In its summary judgment order, the court addressed defendant Sparta Consulting’s

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motion for summary judgment on Copart’s claims of fraudulent inducement, fraud and negligent

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misrepresentation. Order Summ. J. at 19–27. When laying out Copart’s various theories for its

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fraud claims, the court described promissory fraud as equivalent to fraudulent inducement:

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“Promissory fraud or fraud in the inducement, a subspecies of fraud and deceit, has the same

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elements [as fraud and deceit] but also requires that the ‘defendant fraudulently induce[d] the

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plaintiff to enter into a contract.” Id. at 20. Later in the same order, the court stated, “Copart’s

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fraudulent inducement claim requires a misrepresentation about a party’s intent to perform on a

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promise for this element.” Id. at 23 (citing Lazar v. Superior Court, 12 Cal. 4th 631, 638 (1996)).

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Based on this requirement, the court limited Copart’s fraudulent inducement claim to a single

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actionable representation out of the six representations Copart had identified for its fraud claims.

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Id. at 21–23.

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After the court issued its summary judgment order, Copart moved for

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reconsideration, contending the court committed clear error in stating, “Copart’s fraudulent

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inducement claim requires a misrepresentation about a party’s intent to perform on a promise

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. . . .” Order Summ. J. at 23; see Mot. at 4.

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II.

LEGAL STANDARD

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District courts “possess[] the inherent procedural power to reconsider, rescind, or

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modify an interlocutory order for cause seen by it to be sufficient.” City of L.A., Harbor Div. v.

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Santa Monica Baykeeper, 254 F.3d 882, 885 (9th Cir.2001) (citations and emphasis omitted). In

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addition, Federal Rule of Civil Procedure 54(b) authorizes courts to revise “any order or other

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decision . . . that adjudicates fewer than all the claims or the rights and liabilities of fewer than all

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the parties . . . at any time before the entry of a judgment adjudicating all the claims and all the

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parties’ rights and liabilities.”

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However, a “motion for reconsideration should not be granted, absent highly

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unusual circumstances, unless the district court is presented with newly discovered evidence,

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committed clear error, or if there is an intervening change in the controlling law.” Marlyn
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Nutraceuticals, Inc. v. Mucos Pharma GmbH & Co., 571 F.3d 873, 880 (9th Cir.2009) (citation

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omitted). Clear error occurs where “the reviewing court . . . is left with the definite and firm

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conviction that a mistake has been committed.” Anderson v. City of Bessemer City, 470 U.S. 564,

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573 (1985) (citing United States v. U.S. Gypsum Co., 333 U.S. 364, 395 (1948)).

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The Ninth Circuit has held it is not an abuse of discretion to deny a motion for

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reconsideration merely because the underlying order is “erroneous,” rather than “clearly

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erroneous.” McDowell v. Calderon, 197 F.3d 1253, 1255 n.4 (9th Cir. 1999). “Mere doubts or

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disagreement about the wisdom of a prior decision . . . will not suffice . . . . To be clearly

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erroneous, a decision must . . . [be] more than just maybe or probably wrong; it must be dead

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wrong.” Campion v. Old Repub. Home Prot. Co., Inc., No. 09-CV-748-JMA(NLS), 2011 WL

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1935967, at *1 (S.D. Cal. May 20, 2011) (quoting Hopwood v. State of Tex., 236 F.3d 256, 273

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(5th Cir. 2000)); see also Oto v. Metro. Life Ins. Co., 224 F.3d 601, 606 (7th Cir. 2000) (movant

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must demonstrate a “wholesale disregard, misapplication, or failure to recognize controlling

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precedent”).

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III.

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DISCUSSION
A.

Copart’s Contentions

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Copart contends the court inappropriately conflated promissory fraud with

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fraudulent inducement. Specifically, Copart asserts the court committed clear error in its

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summary judgment order in stating, “Copart’s fraudulent inducement claim requires a

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misrepresentation about a party’s intent to perform on a promise . . . .” Order Summ. J. at 23. In

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that order, the court cited Lazar v. Superior Court, 12 Cal. 4th 631, 638 (1996). Id. Copart

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contends “that fraudulent inducement is not limited to the sort of proof that supports ‘promissory

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fraud’” under California law; “fraudulent inducement can be supported by the same evidence that

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establishes a general [fraud] claim.” Mot. at 4. To support this contention, Copart cites the

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following language in Lazar: “An action for promissory fraud may lie where a defendant

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fraudulently induces the plaintiff to enter into a contract.” 12 Cal. 4th at 638. According to

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Copart, “the Lazar court never held that only promissory fraud could support a claim for

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fraudulent inducement.” Mot. at 9 (emphasis in original).

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A post-Lazar California Court of Appeal decision also has distinguished between

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“promissory fraud” and “fraud in the inducement or procurement through alleged

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misrepresentations of fact” when evaluating application of the parol evidence rule. Edwards v.

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Centex Real Estate Corp., 53 Cal. App. 4th 15, 42 (1997). Copart contends “Lazar does not

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conflict with this distinction between” promissory fraud and fraudulent inducement. Mot. at 8.

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Copart directs the court’s attention to California Civil Code sections 1572, 1709

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and 1710. Reply at 1, 7; Mot. at 10. Section 1572 defines “actual fraud” as “any” of several acts,

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“committed by a party to the contract, or with his connivance, with intent to deceive another party

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thereto, or to induce him to enter into the contract.” One of the five enumerated acts is “[a]

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promise made without any intention of performing it,” while the others involve untrue

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suggestions, false positive assertions, suppression of the truth, or “[a]ny other act fitted to

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deceive.” Cal. Civ. Code § 1572(1)–(5). Section 1710 defines “[a] deceit” in relation to

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section 1709, listing four enumerated acts identical to the first four acts listed in section 1572.

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And section 1709 states, “One who willfully deceives another with intent to induce him to alter

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his position to his injury or risk, is liable for any damage which he thereby suffers.” According to

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Copart, “[t]he Civil Code is clear that fraudulent inducement can be proven by conduct other than

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‘[a] promise made without any intention of performing it.’” Reply at 7 (citations omitted).

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Copart also cites multiple decisions by federal district courts in California

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distinguishing between “promissory fraud” and “fraud in the inducement.” E.g., Oak Indus.,

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Inc. v. Foxboro Co., 596 F. Supp. 601, 608–09 (S.D. Cal. 1984); It’s Just Lunch Int’l, LLC v.

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Polar Bear, Inc., No. CIV.03-2485 WQH(JFS), 2004 WL 3406117, at *3 (S.D. Cal. Apr. 29,

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2004). Those courts have drawn an explicit distinction between promissory fraud and fraud in the

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inducement when applying the parol evidence rule, prohibiting parol evidence for promissory

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fraud but permitting parol evidence for fraud in the inducement. Oak Indus., Inc., 596 F. Supp. at

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608–09; It’s Just Lunch, 2004 WL 3406117, at *3.

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B.

Clear Error
Copart has not shown the court committed clear error in requiring a

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misrepresentation about a party’s intent to perform on a promise for a fraudulent inducement

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claim. The language of Lazar itself does not expressly distinguish promissory fraud from

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fraudulent inducement. First, the California Supreme Court discussed fraud generally. Lazar,

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12 Cal. 4th at 638. Second, the court referred to “promissory fraud” as “a subspecies of the action

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for fraud and deceit.” Id. The court then wrote, “[W]here a promise is made without [intention to

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perform], there is an implied misrepresentation of fact that may be actionable fraud.” Id. The

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court’s next statement is the statement Copart relies on in this motion: “An action for promissory

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fraud may lie where a defendant fraudulently induces the plaintiff to enter into the contract.” Id.

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Although the use of “may” in that statement suggests a defendant can fraudulently induce without

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committing promissory fraud, the Lazar court does not distinguish fraudulent inducement from

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promissory fraud. The Lazar court referred to promissory fraud as a “subspecies of . . . fraud and

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deceit,” not a subspecies of fraudulent inducement. Id. The court cited a case defining a “tort of

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deceit” by a defendant inducing plaintiff by making promises. Id. (citation omitted). And in

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concluding its discussion focused on promissory fraud, the court reasoned the defendant was

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“mistaken about the degree to which policy considerations underlying [the court’s] decision in

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[another case] apply in fraudulent inducement of contract cases.” Id. at 639; see also id. at 649

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(“Lazar, therefore, may proceed with his claim for fraud in the inducement of employment

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contract . . . .”). Even the concurring justice referred to the case as an “ordinary fraudulent

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inducement case.” Id. at 650.

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Indeed, a relatively recent California Court of Appeal case has required

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misrepresentation about a party’s intent to perform on a promise for fraudulent inducement

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claims: “To establish a claim of fraudulent inducement, one must show that the defendant did not

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intend to honor its contractual promises when they were made.” Food Safety Net Services v. Eco

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Safe Systems USA, Inc., 209 Cal. App. 4th 1118, 1131 (2012). To the extent this case conflicts

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with the older Edwards opinion distinguishing between promissory fraud and fraud in the

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inducement when applying the parol evidence rule, this conflict only highlights the lack of clear
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error in this court’s summary judgment order. Moreover, the California Supreme Court has

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eliminated its previous “restriction on the fraud exception” to the parol evidence rule, observing

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that its previous case law “ignored California law protecting against promissory fraud.”

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Riverisland Cold Storage, Inc. v. Fresno-Madera Prod. Credit Ass’n, 55 Cal. 4th 1169, 1182

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(2013). Thus, Copart’s strongest cases, those explicitly distinguishing between promissory fraud

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and fraud in the inducement for application of the parol evidence rule, no longer state a

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distinction that makes a difference under California law.

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Copart’s citation to California Civil Code sections 1572, 1709–1710 does not shed

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any light on the question of promissory fraud as it relates to fraudulent inducement. Section 1572

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defines “actual fraud,” but it does not create a cause of action. Section 1710 defines “deceit” for

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section 1709, which establishes a cause of action for “fraudulent deceit.” In its reply, Copart cites

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California Civil Code sections 1572(1)–(3), (5), and 1710(1)–(3) as support for fraudulent

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inducement by conduct other than a promise made without any intention of performing. See

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Reply at 7. But Copart’s citation suggests these statutes cover only fraudulent inducement; they

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do not. For example, sections 1572 and 1710 define intentional misrepresentation, negligent

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misrepresentation, fraudulent concealment and promissory fraud, respectively. See Cal. Civ. Code

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§§ 1572(1)–(4), 1710(1)–(4). Although sections 1572 and 1709 refer to intent to induce, this

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intent to induce is a required element of fraud generally. See Robinson Helicopter Co. v. Dana

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Corp., 34 Cal. 4th 979, 990 (2004); Glaski v. Bank of Am., Nat’l Ass’n, 218 Cal. App. 4th 1079,

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1090 (2013). It is therefore no surprise that courts have cited section 1572 when discussing

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fraudulent inducement because fraudulent inducement is a type of “actual fraud.” See Reply at 7

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(citing FCM Capital Partners LLC v. Regent Corp. Consulting Ltd., No. 2:14–cv–07099–ODW

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(MANx), 2015 WL 3888670, at *5 (C.D. Cal. June 24, 2015); Earl v. Saks & Co., 36 Cal. 2d 602,

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610 (1951)).

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Although Copart has cited to other district court decisions that distinguish between

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promissory fraud and fraudulent inducement for application of the parol evidence rule, the court

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also observes several other district courts have explicitly equated promissory fraud with

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fraudulent inducement. See, e.g., Hospitality Marketing Concepts, LLC v. Six Continents Hotels,
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Inc., No. SACV 15-01791 JVS (DFMx), 2016 WL 9045621, at *5 n.5 (C.D. Cal. Jan. 28, 2016)

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(stating, “Under California law, promissory fraud is the same as fraudulent inducement.”) (citing

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Lazar, 12 Cal. 4th at 638); Bell v. Federal Home Loan Mortg. Corp., No. 11-CV-2514-MMA

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(RBB), 2012 WL 4576584, at *3 (S.D. Cal. Oct. 1, 2012) (stating, “The tort of fraudulent

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inducement to enter a contract, also known as promissory fraud . . . .”) (citing Lazar, 12 Cal. 4th

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at 638). Regardless, of course, this court “is not bound by the decisions of other magistrate or

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district judges.” Gonzales v. Astrue, No. 1:10–cv–01330–SKO, 2012 WL 2064947, at *6 (E.D.

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Cal. June 7, 2012).

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None of Copart’s cited cases “amount to intervening change of controlling law,”

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see Manago v. Gonzales, No. 1:11–cv–01269–SMS (PC), 2013 WL 1499323, at *2 (E.D. Cal.

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April 10, 2013), and the weight of authority, as well as the most recent California Court of

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Appeal case the court notes above, equates promissory fraud with fraudulent inducement.

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Because Copart shows only a “split of authority” on a “debatable” question, Copart has failed to

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show the court committed clear error. See In re Licores, No. SA 13-10578-MW, 2013 WL

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6834609, at *8 (C.D. Cal. Dec. 20, 2013); McDowell, 197 F.3d at 1255–56.

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IV.

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CONCLUSION
Copart fails to show that the court committed clear error. The court therefore

DENIES Copart’s motion for reconsideration.
IT IS SO ORDERED.
DATED: February 20, 2018.

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UNITED STATES DISTRICT JUDGE

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