Cataphora, Inc. v. Parker et al

Filing 156

ORDER by Magistrate Judge Bernard Zimmerman granting in part and denying in part 132 Motion for Summary Judgment (bzsec, COURT STAFF) (Filed on 7/22/2011)

1
2
3
4
5
6
7
8

UNITED STATES DISTRICT COURT

9

NORTHERN DISTRICT OF CALIFORNIA

10
11
12
13
14
15

CATAPHORA INC.,

)
)
Plaintiff(s),
)
)
v.
)
)
JERROLD SETH PARKER, et al.,)
)
Defendant(s).
)
)

No. C09-5749 BZ
ORDER GRANTING IN PART AND
DENYING IN PART DEFENDANTS’
MOTION FOR SUMMARY JUDGMENT

16
17

Last year, plaintiff moved for summary judgment arguing

18

that defendants were liable for the $366,000 non-refundable

19

fee that the parties had agreed to in their contract

20

regardless of the amount of damages plaintiff actually

21

suffered.

22

refundable fee was an illegal penalty under California law.

23

Now defendants have moved for summary judgment.

24

132.

25

summary judgment is GRANTED IN PART AND DENIED IN PART.1

I denied plaintiff’s motion, finding that the non-

Docket No.

For the reasons explained below, defendants’ motion for

First, defendants argue that they properly terminated the

26
27
1

28

The parties have consented to the Court’s
jurisdiction for all proceedings, including entry of final
judgment under 28 U.S.C. § 636(c).
1

1

agreement and therefore cannot be liable for breach of

2

contract.

3

not persuade me because there was no evidence that clear

4

notice of termination as required by the contract had been

5

provided to plaintiff.

6

allowed a party to terminate the agreement by providing

7

written notice to the other party based on the contact

8

information identified at the beginning of the contract.

9

Agreement at ¶¶ 2.2(e); 10.1.

Defendants made the same argument last year; it did

As I explained then, the contract

See

Plaintiff identified Jonathan

10

Nystrom as the individual who should receive notice of any

11

termination at either the company’s address or Nystrom’s e-

12

mail address.

13

point to any evidence in the record showing that they sent

14

Nystrom notice that they were terminating the contract.

15

Instead, defendants rely on what they call “termination” e-

16

mails, which are at times ambiguous, that were sent to other

17

employees of plaintiff besides Nystrom.

18

one point in their reply that their efforts to terminate the

19

contract “[were] not done pursuant to the letter of the

20

Agreement.”

21

for trial about whether defendants breached the contract.

22

Defendants next argue that even if they breached the

Id. at 1.

Reply at 3.

Defendants have again failed to

Defendants concede at

Accordingly, a genuine issue remains

23

contract, they are entitled to summary judgment because

24

plaintiff is not entitled to damages or suffered no damages.

25

The proper determination of plaintiff’s damages, if there are

26

any, is an issue that has confused both parties.

27

plaintiff’s summary judgment motion because the $366,000 non-

28

refundable fee it sought had no relation to its actual damages
2

I denied

1

and was therefore an illegal penalty.2

2

4.

3

damages.

4

actual damages, according to proof, if it establishes that

5

defendants breached the contract.

6

with Freedman v. The Rector which stated that if a contract

7

provision resulted in an illegal penalty the wronged party

8

would still be able to collect its actual damages.

9

16, 22-23 (1951).

See Docket No. 83 at

But my ruling did not bar plaintiff from recovering any
Rather, I concluded that plaintiff may recover its

See id.

This is in accord

37 Cal.2d

See also Perdue v. Crocker National Bank,

10

38 Cal.3d 913, 931, (1985) (“A contractual provision imposing

11

a ‘penalty’ is ineffective, and the wronged party can collect

12

only the actual damages sustained”); Honey v. Henry’s

13

Franchise Leasing Corp. of America, 64 Cal.2d 801, 803

14

(1966)(“The rule of the Freedman case precludes penalties and

15

forfeitures by denying the vendor the right on the vendee’s

16

default to retain both the property and any payments that have

17

been made in excess of the actual damages caused by the

18

default.

19

right of a vendor to realize the benefit of his bargain.

20

Instead, it invoked the provisions of the Civil Code governing

21

damages to determine the amount of the vendee’s

The Freedman case, however, did not restrict the

22
23
24
25
26
27
28

2

During the hearing, plaintiff argued that the
$366,000 non-refundable fee was related to its actual damages,
because, although the fee was to cover 2 years of work, the
nature of the work required that most of it be performed very
early in the contract, so that even if defendants properly
terminated the contract at an early stage, much of plaintiff’s
work would have already been done. There was no evidentiary
support for this argument in the record last year, in reply to
defendant’s illegal penalty argument, and there is no support
in the record now.
3

1

recovery.”)(internal citations omitted).3

2

extent that defendants’ motion is premised on the notion that

3

plaintiff is precluded as a matter of law from recovering its

4

actual damages, the motion is DENIED.

5

Accordingly, to the

The more troublesome issue is what damages if any

6

plaintiff can prove.

Following my earlier ruling, plaintiff

7

amended its damage theory to reflect the actual damages it

8

claims to have sustained, which it calculates at about

9

$325,000.

Essentially, plaintiff’s calculation assumes that

10

it would have been paid $366,000 had it performed the

11

contract, backs out certain expenses and costs and concludes

12

that $325,000 would have been its profit or “the benefit of

13

the bargain” which it is entitled to recover.

14

Defendants challenge these damage calculations on the

15

grounds that they are not permitted by California law nor by

16

the contractual limitation on consequential and incidental

17

damages.

18

that it was approached by at least one other party involved in

19

the Katrina litigation to provide litigation support services

20

and that it turned that work down because defendants required

21

that it work exclusively for them.

With its opposition, plaintiff introduced evidence

While defendants may be

22
23
24
25
26
27
28

3

I note that the determination of contract damages is
case-specific. As explained in Brandon & Tibbs et al., v.
George Kevorkian Accountancy Corporation: “The rules of law
governing the recovery of damages for breach of contract are
very flexible. Their application in the infinite number of
situations that arise is beyond question variable and
uncertain. Even more than in the case of other rules of law,
they must be regarded merely as guides to the court, leaving
much to the individual feeling of the court created by the
special circumstances of the particular case.” 226 Cal.App.3d
442, 455 (1990)(citing 5 Corbin, Contracts, § 1002, p. 33).
4

1

correct that the loss of this work may be a consequential or

2

incidental damage barred by paragraph 9.2 of the contract,

3

plaintiff does not appear to be claiming such damages in its

4

damage calculation.

5

Defendants’ more potent challenge is whether the $325,000

6

in damages plaintiff seeks are permitted by California

7

contract law.4

8

a breach of contract to recover damages reasonably foreseeable

9

at the time the contract was entered.

California law permits a party who establishes

Amelco Electric v. City

10

of Thousand Oaks, 27 Cal.4th 228, 243 (2002).

Plaintiff

11

assumes that it would have performed the contract for the

12

entire two year term even though the contract, which it

13

drafted, allowed either party to terminate the contract on 30

14

days notice.

15

plaintiff’s damages for breach would be for the entire two

16

year period is an interesting issue which neither side has

17

briefed.

Whether it was reasonably foreseeable that

18

For purposes of this motion, plaintiff is entitled to

19

recover the actual damages it sustained that resulted from any

20

breach it proves.

21

to award only damages that were reasonably foreseeable at time

22

of contract.

23

Parking Co., 146 Cal.App.3d 787, 790 (1983).

The jury will be instructed that they are

See CACI 350; Sun-Maid Raisin Growers v. Victor
Plaintiff has

24
25
26
27
28

4

Defendants also contend that in the event of a
breach, section 2.3 of the contract precludes plaintiff from
recovering anything other than outstanding invoices. While
that section does permit the recovery of outstanding invoices,
nothing in it suggests that section is the exclusive measure of
damages in the event of the breach or that it is intended to
supplant traditional California law governing breach of
contract damages.
5

1

introduced evidence that it incurred a variety of start-up

2

costs in anticipation of performing under the contract.

3

for example Declaration of Mark Epstein, paragraph 4 and 5.

4

Plaintiff may also be entitled to any profit it can establish

5

it would have earned during whatever period of time it can

6

prove the contract was in effect before it was breached.

7

Accordingly, there remain triable issues of fact with respect

8

to plaintiff’s actual damages and defendants’ motion for

9

summary judgment is DENIED.

See

10

Finally, defendants correctly argue that the plaintiff’s

11

common count causes of action fail as a matter of law because

12

they are based on the $366,000 invoice that was deemed

13

unlawful by my previous order.

14

common counts both require a valid statement of indebtedness.

15

Plaintiff’s initial invoice cannot suffice as this statement

16

of indebtedness because it was found to be an illegal penalty.

17

See Farmers Ins. Exchange v. Zerin, 53 Cal.App.4th 445, 460

18

(1997)(holding that plaintiff’s common count, premised on the

19

existence of an equitable lien, failed because the Court had

20

determined that the equitable lien was invalid).

21

To be actionable, plaintiff’s

For the foregoing reasons, IT IS HEREBY ORDERED that

22

///

23

///

24

///

25

///

26

///

27

///

28

///
6

1

defendants’ motion for summary judgment is GRANTED IN PART AND

2

DENIED IN PART.5

3

Dated: July 22, 2011

4
5

Bernard Zimmerman
United States Magistrate Judge

6
7
8
9

G:\BZALL\-BZCASES\CATAPHORA V. PARKER\ORDER DENYING DEFENDANT'S SUMMARY JUDGMENT MOTION.BZ
VERSION 2.FINAL RULING.wpd

10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

5

The parties have filed over 30 pages of evidentiary
objections and responses to those objections. In reaching my
decision, I did not rely on much of the evidence subject to
these objections. To the extent there are objections to the
few documents cited in this Order, the objections are
OVERRULED.
7