Cataphora, Inc. v. Parker et al

Filing 312

ORDER by Magistrate Judge Bernard Zimmerman denying 278 Motion for Judgment as a Matter of Law; denying 279 Motion for Judgment as a Matter of Law; denying 280 Motion for New Trial (bzsec, COURT STAFF) (Filed on 12/27/2011)

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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 DENYING DEFENDANTS’ RULE 50(b) MOTIONS AND MOTION FOR NEW TRIAL 16 17 Defendants move pursuant to Rule 50(b) of the Federal 18 Rules of Civil Procedure for judgment as a matter of law on 19 the grounds that Plaintiff failed to prove with “reasonable 20 certainty” whether it is entitled to damages for lost profits 21 under its breach of contract claim, and that Defendants are 22 not liable for breach of contract in the first instance under 23 the doctrines of mistake and fraud.1 24 Defendants seek a new trial. 25 Defendants motions are DENIED. 26 /// Alternatively, For the reasons set forth below, 27 1 28 All parties have consented to magistrate judge jurisdiction for all proceedings including entry of final judgment, pursuant to 28 U.S.C. § 636(c). 1 1 On December 8, 2009, Plaintiff sued Defendants for, inter 2 alia, breach of contract. 3 summary judgment arguing that Defendants were liable for the 4 $366,000 non-refundable fee regardless of the amount of 5 damages Plaintiff actually suffered. 6 motion, finding that the non-refundable fee was an illegal 7 penalty under California law, requiring Plaintiff to prove its 8 damages at trial. 9 summary judgment on the grounds that they properly terminated 10 the contract and could not be liable for breach of contract, 11 and on the grounds that Plaintiff was not entitled to damages 12 or did not suffer any damages. 13 Defendants’ motion (Docket No. 156), and the case proceeded to 14 trial in September 2011. 15 that Defendants breached their contract with Plaintiff and 16 that Plaintiff suffered $317,113.00 in lost profits. 17 Defendants now challenge that verdict via two Rule 50(b) 18 motions and a motion for a new trial. 19 In August 2010, Plaintiff moved for (Docket No. 83.) I denied Plaintiff’s Defendants then moved for (Docket No. 132.) I denied After a 6-day trial, the jury found Defendants seek judgment as a matter of law on the issues 20 decided against them on the basis that the jury lacked a 21 legally sufficient evidentiary basis for their decision.2 22 Defendants’ motions in effect seek to relitigate the probative 23 value of virtually all of the evidence that was introduced at 24 25 26 27 28 2 A party must make a motion for judgment as a matter of law under Rule 50(a) before a case is submitted to the jury. Defendants did so here, and I deferred ruling on the motion. Defendants then renewed their motion under Rule 50(b). In ruling on the renewed motion, the court may either “allow judgment on the verdict, if the jury returned a verdict,” or “order a new trial,” or “direct the entry of judgment as a matter of law.” Fed. R. Civ. P. 50(b). 2 1 trial. During the jury trial, each party submitted 2 substantial evidence, bolstered by expert testimony, in 3 support of its position. 4 to be the more compelling and I decline to overturn the jury’s 5 findings. The jury found Plaintiff’s showing 6 A. 7 A jury verdict can be overturned and a post-trial motion Legal Standards for Rule 50(b) Motions 8 for judgment as a matter of law granted “only if, under the 9 governing law, there can be but one reasonable conclusion as 10 to the verdict. In other words, the motion should be granted 11 only if ‘there is no legally sufficient basis for a reasonable 12 jury to find for that party on that issue.’” 13 Toshiba Am. Elecs. Components, Inc., 274 F.3d 1276, 1283 (9th 14 Cir. 2001). In ruling on a motion for judgment as a matter of 15 law, the district court “is not to make credibility 16 determinations or weigh the evidence.” 17 court “must accept the jury’s credibility findings consistent 18 with the verdict.”3 Id. Winarto v. The district Id. In reviewing the motion, the court must view the evidence 19 20 in the light most favorable to the non-moving party and draw 21 all reasonable evidentiary inferences in favor of the 22 non-moving party. Reeves v. Sanderson Plumbing Products, 23 24 25 26 27 28 3 The district court must disregard evidence favorable to the moving party that the jury is not required to believe. Reeves v. Sanderson Plumbing Products, Inc., 530 U.S. 133, 15051 (2000); Pavao v. Pagay, 307 F.3d 915, 918 (9th Cir. 2002); Winarto, 274 F.3d at 1283, 1286-87 (district court must “accept the jury’s credibility findings consistent with the verdict” and “disregard all evidence favorable to the moving party that the jury is not required to believe” because “[w]hen two sets of inferences find support in the record, the inferences that support the jury’s verdict of course win the day.”). 3 1 Inc., 530 U.S. 133, 150 (2000); Josephs v. Pac. Bell, 443 F.3d 2 1050, 1062 (9th Cir. 2006). 3 verdict even if the record contains evidence that might 4 support a conclusion contrary to the jury’s verdict. 5 Pagay, 307 F.3d 915, 918 (9th Cir. 2002). The court must uphold a jury’s Pavao v. 6 B. Rule 50 Motion Pertaining to Lost Profits 7 The jury found that Plaintiff was entitled to recover 8 $317,113.00 in lost profits on Plaintiff’s breach of contract 9 claim. This award was supported by Plaintiff’s expert’s 10 damages analysis of projected profits.4 11 because the contract at issue was for a new venture in an area 12 where Plaintiff had no track record, lost profits damages are 13 too speculative and cannot be awarded. Defendants argue that It has been frequently stated that if a business is new, it is improper to award damage for loss of profits because absence of income and expense experience renders anticipated profits too speculative to meet the legal standard of reasonable certainty necessary to support an award of such damage. However, the rule is not a hard and fast one and loss of prospective profits may nevertheless be recovered if the evidence shows with reasonable certainty both their occurrence and the extent thereof. 14 15 16 17 18 19 Gerwin v. Southeastern Cal. Ass’n. of Seventh Day Adventists, 20 14 Cal. App. 3d 209, 221 (1971) cited with approval in 21 Sanchez-Corea v. Bank of America, 38 Cal. 3d 892 (1985); see 22 also Natural Soda Products Co. v. Los Angeles, 23 Cal. 2d 193 23 (1943). 24 new business may be overcome when there is concrete evidence 25 allowing a jury to establish the amount of damages with The limitation on awarding anticipated profits of a 26 27 28 4 None of the evidence that Plaintiff submitted at trial regarding its lost profit analysis was presented either in support of Plaintiff’s motion for summary judgment or in opposition to Defendants’ motion for summary judgment. 4 1 reasonable certainty. Here, all parties agree that the crux 2 of the dispute is whether Plaintiff established the extent and 3 the occurrence of the lost profits to a reasonable certainty. 4 See Grupe v. Glick, 26 Cal.2d 680, 693 (1945); Parlour 5 Enterprises, Inc. v. Kirin Group, Inc., 152 Cal. App. 4th 281, 6 287-88 (2007); Electronic Funds Solutions, LLC v. Murphy, 134 7 Cal. App. 4th 1161, 1180 (2005); Resort Video, Ltd. v. Laser 8 Video, Inc., 35 Cal. App. 4th 1679, 1697-98 (1995). 9 establish that lost profits are reasonably certain, a To 10 plaintiff may rely on expert testimony, the experience of 11 similar businesses, whether the market is established, market 12 studies, and plaintiff’s experience in the field, among other 13 factors. 14 (citing Kids’ Universe v. In2Labs, 95 Cal. App. 4th 870, 15 884-85 (2002) and S. Jon Kreedman & Co. v. Meyers Bros. 16 Parking-Western Corp., 58 Cal. App. 3d 173, 184-85 (1976)). 17 Parlour Enterprises, 152 Cal. App. 4th at 288 In this case, Plaintiff provided sufficient evidence to 18 establish lost profits with reasonable certainty. Defendants’ 19 initial argument – that the project contemplated by the 20 parties was a new venture for Plaintiff – is both unpersuasive 21 and a mischaracterization of the evidence that was before the 22 jury. 23 the testimony that are helpful to them to argue that the 24 contract between the parties was dissimilar to any contract 25 that Plaintiff had performed in the past. 26 replete, however, with testimony establishing that 1) 27 Plaintiff was in the business of providing automated document 28 review services (Chapman at 80:7-13, 86:12-16, 133, 164; Unsurprisingly, Defendants have pointed to portions of 5 The record is 1 Nystrom at 183:7-10, 184:18-22); 2) that Plaintiff had handled 2 large eDiscovery projects for both plaintiff-side and defense- 3 side firms in the past, and that those contracts had involved 4 projects of a similar size as this contract (Chapman at 94; 5 Nystrom at 323:3-7); and 3) that while Plaintiff anticipated 6 that the payment structure would need to be different for its 7 contract with Defendants, the nature of the work that 8 Plaintiff was going to perform would be the same as projects 9 that Plaintiff had performed in the past. (Chapman at 80:6- 10 18, 82:3-22, 84:20-85:19.) 11 testimony that the services for which Defendants contracted 12 were services that Plaintiff was very familiar with providing, 13 and that the venture was anything but “new.” 14 the best position to weigh the evidence presented, and given 15 the testimony it received, the court must accept the jury’s 16 findings. 17 Thus, there was more than adequate The jury was in At the hearing, Defendants stressed that the lost profits 18 calculation in this case is speculative because the origin of 19 Plaintiff’s analysis (i.e., the $366,000 figure) is not tied 20 to any specific testimony concerning its derivation. 21 words, Defendants assert that the $366,000 cannot serve as the 22 starting point for Plaintiff’s lost profit analysis because 23 there is no testimony establishing that this amount was 24 anticipated to be a revenue figure for the contract in this 25 case, as opposed to just a cash influx that Plaintiff needed 26 to keep its business operational. 27 record establishes that the parties negotiated this amount as 28 the agreed upon price for Plaintiff to perform a defined 6 In other Yet the testimony in the 1 amount of work under the contract. $366,000 was to be an 2 upfront payment for Plaintiff, essentially, to process 5 3 million images over a 24-month period. 4 where any question existed whether Plaintiff could generate 5 any business or what Plaintiff would earn from the initial 6 phase of the contract. 7 to prove lost profits was evidence of its projected cost to 8 perform the work and its projected profit. 9 projection of lost profit was based on testimony of This is not a case What Plaintiff was required to supply Plaintiff’s 10 Plaintiff’s employees and its expert witness, Patrick Kennedy, 11 and grounded on assumptions that were both realistic and 12 reasonable given Plaintiff’s prior history in the eDiscovery 13 business. 14 profit that Plaintiff would have earned had it received the 15 benefit of the bargain under the contract. 16 Kennedy testified as to certain costs borne by Plaintiff as a 17 result of its contract with Defendants, such as the cost of 18 labor (i.e., wages for Plaintiff’s employees who were to 19 assist in executing the services under the contract, which 20 were based off of Plaintiff’s payroll records); the cost of 21 utilities (i.e., office supplies and utilities, costs 22 supported by Plaintiff’s financial statements); and equipment 23 costs (i.e., the cost of servers Plaintiff purchased to 24 execute the contract, as evidenced by invoices). 25 at 571:13-580:9.)5 Mr. Kennedy testified as to the revenues and lost For example, Mr. (See Kennedy 26 5 27 28 Mark Epstein, Plaintiff’s Chief Information Officer, provided similar testimony. (See, e.g., Epstein 481:1-482:16.) Plaintiff’s damages calculations are also supported by testimony that Plaintiff’s typical profit margin was approximately 70%. (See, e.g., Nystrom 322:18.) 7 1 Plaintiff also presented evidence sufficient to establish 2 that the money it expended to begin to perform anticipated 3 work services under the contract was a foreseeable consequence 4 of Defendants’ breach of contract. 5 Plaintiff determined that it needed to take proactive 6 measures, even prior to receiving any data from Defendants, to 7 ensure that it could meet the very fast-paced trial deadlines 8 that had been established in the Chinese Drywall litigation, 9 which included allowing Defendants to utilize Plaintiff’s There was testimony that 10 services to prepare for imminent depositions. 11 Chapman at 89:2-20, 94:20-95:10, 102:17-21.) (See, e.g., 12 Indeed, in many of the cases cited by Defendants (and 13 under California law generally), the damages evidence found to 14 be too speculative was far more uncertain than Plaintiff’s 15 evidence, which was not only based on the bargained-for 16 contract price, but also on a long history of successfully 17 providing the exact same services to other customers that it 18 planned to provide to Defendants. 19 95 Cal.App.4th at 887-888 (finding expert testimony 20 insufficient to demonstrate lost profits where a small toy 21 store claimed that flood damage to the store caused by 22 defendant led to $50 million in lost profits because 23 Plaintiff’s new website would have allowed it to compete in 24 the Internet toy marketing business); Vestar Dev. II, LLC v. 25 Gen. Dynamics Corp., 249 F.3d 958, 962 (9th Cir. 2001) 26 (finding lost profits claim too speculative for breach of 27 agreement to negotiate where plaintiff sought “future profits 28 that it hoped to earn from the shopping center it had planned 8 See, e.g., Kids’ Universe, 1 to build on the parcel it was attempting to buy”); Eisenmayer 2 v. Leonardt, 148 Cal. 596, 601 (1906) (affirming exclusion of 3 testimony as to value of unissued stock for company never 4 formed because there were “no facts stated—either real or 5 hypothetical—as a basis for an intelligent opinion”); 6 Greenwich S.F., LLC v. Wong, 190 Cal. App. 4th 739, 766 (2010) 7 (finding lost profits claim too speculative where the 8 plaintiff assumed, rather than proved, the reasonable 9 certainty of future predicate events upon which the damages 10 depended); Fisher v. Hampton, 44 Cal. App. 3d 741, 749 (1975) 11 (finding lost profits evidence too speculative where “there 12 was no testimony that any oil could be recovered at a profit 13 from the drilling of one well, and there was no testimony as 14 to the extent of possible profits from the one initial 15 well.”). 16 case permits a reasonable conclusion consistent with the 17 jury’s verdict. Josephs, 443 F.3d at 1062. 18 evidence is adequate to support the jury’s conclusion, the 19 verdict must be upheld. 20 Sch. Dist., 251 F.3d 1222, 1227 (9th Cir. 2001). 21 Defendants’ motion is DENIED. Unlike these cases, the evidence presented in this Because the Johnson v. Paradise Valley Unified Accordingly, 22 C. Rule 50 Motion as to Liability 23 Defendants also assert that no reasonable jury could have 24 found that Defendants breached the contract because there was 25 evidence that no contract was ever formed. 26 Defendants argue that the parties never had a mutual 27 understanding as to material terms of the contract including 28 the inclusion of 1) a success fee provision or 2) a 9 In particular, 1 nonrefundable fee provision. To begin, and as Plaintiff points out in its opposition 2 3 papers, the issue of whether there was a binding contract 4 between the parties was resolved by the court in its order 5 denying Plaintiff’s motion for summary judgment (Docket No. 6 83), and was thus never submitted to the jury. 7 the preliminary instructions, the jury was advised that the 8 court had ruled that the parties had entered into a written 9 contract and it was therefore only necessary for the jury to 10 determine whether the contract had been breached and, if so, 11 in what amount. 12 unilateral mistake of fact and fraudulent inducement as 13 affirmative defenses in their initial pretrial submissions in 14 February 2011, I denied their request to instruct on mistake 15 and fraud in part because Defendants had not pled those 16 defenses in its answer. 17 Defendants did not attempt to amend their answer until after 18 the close of evidence, at which time I denied their request. 19 See Fed. R. Civ. Proc. 15. 20 was a valid and binding contract was never put before the 21 jury, rendering it difficult to find that their verdict, which 22 was premised on the existence of a valid and binding contract, 23 was not supported by substantial evidence.6 In fact, in Additionally, when Defendants first raised (Docket No. 124.) Thereafter, Thus, the issue of whether there 24 6 25 26 27 28 To the extent Defendants contend that the jury verdict is erroneous because the jury found Plaintiff’s testimony more credible, that contention is not well-founded and is no reason to upset the verdict. The controversy in this case arose out of different interpretations of language that was in the contract; namely, whether the terms “success fee calculation” and “nonrefundable” were intentionally (or fraudulently) included in the contract. Since the outcome depended heavily upon the credibility of each party’s 10 1 Because substantial evidence in the record supports the 2 jury’s verdict on both liability and damages, Defendants’ Rule 3 50(b) motions are DENIED. 4 Defendants’ Motion for a New Trial 5 Defendants also move for a new trial. A court may grant 6 a new trial after a jury trial “for any of the reasons for 7 which new trials have heretofore been granted in actions at 8 law in the courts of the United States.” 9 59(a)(1)(A). Fed. R. Civ. P. “Historically recognized grounds include, but 10 are not limited to, claims ‘that the verdict is against the 11 weight of the evidence, that the damages are excessive, or 12 that, for other reasons, the trial was not fair to the party 13 moving.’” 14 Cir. 2007) (quoting Montgomery Ward & Co. v. Duncan, 311 U.S. 15 243, 251 (1940)). 16 trial court may grant a new trial only if the verdict is 17 contrary to the clear weight of the evidence, is based upon 18 false or perjurious evidence, or to prevent a miscarriage of 19 justice.” 20 court must adhere to the harmless error rule of Fed. R. Civ. 21 P. 61, which “provides that no error in any ruling or order by 22 the court is ground for a new trial or otherwise disturbing a 23 judgment unless refusal to do so is inconsistent with Molski v. M.J. Cable, Inc., 481 F.3d 724, 729 (9th Id. The Ninth Circuit has held that “[t]he In considering a motion for new trial, the 24 25 26 27 28 witnesses, Defendants’ arguments essentially amount to a witness credibility issue. Witness credibility is fundamentally a jury function. See Reeves, 530 U.S. at 150. The jury may appropriately evaluate inconsistent testimony. Plaintiff presented substantial testimony of how and why the terms “success fee calculation” and “nonrefundable” were included in the contract (including the timeline of the revisions made by both sides), which the jury considered in rendering a verdict in Plaintiff’s favor. 11 1 substantial justice.” 2 1283 (9th Cir. 1982). 3 Bunch v. United States, 680 F.2d 1271, In its motion for a new trial, Defendants repeat many of 4 the arguments that they made in their renewed motions for 5 judgment as a matter of law. 6 the same reasons as explained above. 7 not against the weight of the evidence. 8 evidence for the jury to conclude that Defendants were liable 9 for breaching their contract with Plaintiff and to determine Those arguments are rejected for The jury’s verdict was There was ample 10 Plaintiff’s lost profits with reasonable certainty. I 11 determined that the parties had entered into a valid and 12 binding contract, that the contract did not include an illegal 13 success fee, and Plaintiff presented a plausible 14 interpretation of the agreement in light of the context and 15 circumstances. 16 instructions on contract interpretation. 17 requested by Defendants regarding mistake and fraud were 18 denied because the Court had ruled there was a contract and 19 because Defendants failed to plead those defenses in its 20 answer (or raise them in opposition to Plaintiff’s summary 21 judgment motion) and failed to timely seek leave to amend 22 their answer even though they had ample time to do so before 23 trial. 24 constitutes a “miscarriage of justice” or that it “shocks the 25 /// 26 /// 27 /// 28 /// The jury was given standard California jury The instructions Finding no reason to believe that the verdict 12 1 conscience”, the court will not grant a new trial in this 2 case. 3 Dated: December 27, 2011 Defendants’ motion is DENIED. 4 5 Bernard Zimmerman United States Magistrate Judge 6 7 8 9 G:\BZALL\-BZCASES\CATAPHORA V. PARKER\POST TRIAL MOTIONS\ORDER ON DS RULE 50 MOTIONS AND MOTION FOR NEW TRIAL.BZ VERSION.FINAL RULING.wpd 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 13

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