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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UNITED STATES DISTRICT COURT
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NORTHERN DISTRICT OF CALIFORNIA
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CATAPHORA INC.,
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Plaintiff(s),
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v.
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JERROLD SETH PARKER, et al.,)
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Defendant(s).
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No. C09-5749 BZ
ORDER DENYING DEFENDANTS’
RULE 50(b) MOTIONS AND
MOTION FOR NEW TRIAL
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Defendants move pursuant to Rule 50(b) of the Federal
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Rules of Civil Procedure for judgment as a matter of law on
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the grounds that Plaintiff failed to prove with “reasonable
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certainty” whether it is entitled to damages for lost profits
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under its breach of contract claim, and that Defendants are
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not liable for breach of contract in the first instance under
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the doctrines of mistake and fraud.1
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Defendants seek a new trial.
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Defendants motions are DENIED.
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///
Alternatively,
For the reasons set forth below,
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All parties have consented to magistrate judge
jurisdiction for all proceedings including entry of final
judgment, pursuant to 28 U.S.C. § 636(c).
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On December 8, 2009, Plaintiff sued Defendants for, inter
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alia, breach of contract.
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summary judgment arguing that Defendants were liable for the
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$366,000 non-refundable fee regardless of the amount of
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damages Plaintiff actually suffered.
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motion, finding that the non-refundable fee was an illegal
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penalty under California law, requiring Plaintiff to prove its
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damages at trial.
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summary judgment on the grounds that they properly terminated
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the contract and could not be liable for breach of contract,
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and on the grounds that Plaintiff was not entitled to damages
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or did not suffer any damages.
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Defendants’ motion (Docket No. 156), and the case proceeded to
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trial in September 2011.
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that Defendants breached their contract with Plaintiff and
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that Plaintiff suffered $317,113.00 in lost profits.
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Defendants now challenge that verdict via two Rule 50(b)
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motions and a motion for a new trial.
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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
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decided against them on the basis that the jury lacked a
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legally sufficient evidentiary basis for their decision.2
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Defendants’ motions in effect seek to relitigate the probative
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value of virtually all of the evidence that was introduced at
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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).
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trial.
During the jury trial, each party submitted
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substantial evidence, bolstered by expert testimony, in
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support of its position.
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to be the more compelling and I decline to overturn the jury’s
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findings.
The jury found Plaintiff’s showing
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A.
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A jury verdict can be overturned and a post-trial motion
Legal Standards for Rule 50(b) Motions
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for judgment as a matter of law granted “only if, under the
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governing law, there can be but one reasonable conclusion as
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to the verdict. In other words, the motion should be granted
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only if ‘there is no legally sufficient basis for a reasonable
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jury to find for that party on that issue.’”
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Toshiba Am. Elecs. Components, Inc., 274 F.3d 1276, 1283 (9th
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Cir. 2001). In ruling on a motion for judgment as a matter of
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law, the district court “is not to make credibility
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determinations or weigh the evidence.”
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court “must accept the jury’s credibility findings consistent
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with the verdict.”3
Id.
Winarto v.
The district
Id.
In reviewing the motion, the court must view the evidence
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in the light most favorable to the non-moving party and draw
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all reasonable evidentiary inferences in favor of the
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non-moving party.
Reeves v. Sanderson Plumbing Products,
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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.”).
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Inc., 530 U.S. 133, 150 (2000); Josephs v. Pac. Bell, 443 F.3d
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1050, 1062 (9th Cir. 2006).
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verdict even if the record contains evidence that might
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support a conclusion contrary to the jury’s verdict.
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Pagay, 307 F.3d 915, 918 (9th Cir. 2002).
The court must uphold a jury’s
Pavao v.
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B.
Rule 50 Motion Pertaining to Lost Profits
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The jury found that Plaintiff was entitled to recover
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$317,113.00 in lost profits on Plaintiff’s breach of contract
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claim.
This award was supported by Plaintiff’s expert’s
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damages analysis of projected profits.4
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because the contract at issue was for a new venture in an area
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where Plaintiff had no track record, lost profits damages are
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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.
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Gerwin v. Southeastern Cal. Ass’n. of Seventh Day Adventists,
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14 Cal. App. 3d 209, 221 (1971) cited with approval in
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Sanchez-Corea v. Bank of America, 38 Cal. 3d 892 (1985); see
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also Natural Soda Products Co. v. Los Angeles, 23 Cal. 2d 193
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(1943).
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new business may be overcome when there is concrete evidence
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allowing a jury to establish the amount of damages with
The limitation on awarding anticipated profits of a
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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.
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reasonable certainty.
Here, all parties agree that the crux
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of the dispute is whether Plaintiff established the extent and
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the occurrence of the lost profits to a reasonable certainty.
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See Grupe v. Glick, 26 Cal.2d 680, 693 (1945); Parlour
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Enterprises, Inc. v. Kirin Group, Inc., 152 Cal. App. 4th 281,
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287-88 (2007); Electronic Funds Solutions, LLC v. Murphy, 134
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Cal. App. 4th 1161, 1180 (2005); Resort Video, Ltd. v. Laser
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Video, Inc., 35 Cal. App. 4th 1679, 1697-98 (1995).
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establish that lost profits are reasonably certain, a
To
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plaintiff may rely on expert testimony, the experience of
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similar businesses, whether the market is established, market
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studies, and plaintiff’s experience in the field, among other
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factors.
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(citing Kids’ Universe v. In2Labs, 95 Cal. App. 4th 870,
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884-85 (2002) and S. Jon Kreedman & Co. v. Meyers Bros.
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Parking-Western Corp., 58 Cal. App. 3d 173, 184-85 (1976)).
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Parlour Enterprises, 152 Cal. App. 4th at 288
In this case, Plaintiff provided sufficient evidence to
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establish lost profits with reasonable certainty.
Defendants’
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initial argument – that the project contemplated by the
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parties was a new venture for Plaintiff – is both unpersuasive
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and a mischaracterization of the evidence that was before the
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jury.
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the testimony that are helpful to them to argue that the
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contract between the parties was dissimilar to any contract
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that Plaintiff had performed in the past.
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replete, however, with testimony establishing that 1)
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Plaintiff was in the business of providing automated document
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review services (Chapman at 80:7-13, 86:12-16, 133, 164;
Unsurprisingly, Defendants have pointed to portions of
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The record is
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Nystrom at 183:7-10, 184:18-22); 2) that Plaintiff had handled
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large eDiscovery projects for both plaintiff-side and defense-
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side firms in the past, and that those contracts had involved
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projects of a similar size as this contract (Chapman at 94;
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Nystrom at 323:3-7); and 3) that while Plaintiff anticipated
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that the payment structure would need to be different for its
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contract with Defendants, the nature of the work that
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Plaintiff was going to perform would be the same as projects
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that Plaintiff had performed in the past.
(Chapman at 80:6-
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testimony that the services for which Defendants contracted
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were services that Plaintiff was very familiar with providing,
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and that the venture was anything but “new.”
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the best position to weigh the evidence presented, and given
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the testimony it received, the court must accept the jury’s
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findings.
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Thus, there was more than adequate
The jury was in
At the hearing, Defendants stressed that the lost profits
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calculation in this case is speculative because the origin of
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Plaintiff’s analysis (i.e., the $366,000 figure) is not tied
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to any specific testimony concerning its derivation.
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words, Defendants assert that the $366,000 cannot serve as the
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starting point for Plaintiff’s lost profit analysis because
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there is no testimony establishing that this amount was
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anticipated to be a revenue figure for the contract in this
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case, as opposed to just a cash influx that Plaintiff needed
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to keep its business operational.
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record establishes that the parties negotiated this amount as
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the agreed upon price for Plaintiff to perform a defined
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In other
Yet the testimony in the
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amount of work under the contract. $366,000 was to be an
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upfront payment for Plaintiff, essentially, to process 5
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million images over a 24-month period.
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where any question existed whether Plaintiff could generate
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any business or what Plaintiff would earn from the initial
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phase of the contract.
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to prove lost profits was evidence of its projected cost to
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perform the work and its projected profit.
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projection of lost profit was based on testimony of
This is not a case
What Plaintiff was required to supply
Plaintiff’s
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Plaintiff’s employees and its expert witness, Patrick Kennedy,
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and grounded on assumptions that were both realistic and
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reasonable given Plaintiff’s prior history in the eDiscovery
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business.
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profit that Plaintiff would have earned had it received the
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benefit of the bargain under the contract.
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Kennedy testified as to certain costs borne by Plaintiff as a
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result of its contract with Defendants, such as the cost of
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labor (i.e., wages for Plaintiff’s employees who were to
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assist in executing the services under the contract, which
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were based off of Plaintiff’s payroll records); the cost of
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utilities (i.e., office supplies and utilities, costs
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supported by Plaintiff’s financial statements); and equipment
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costs (i.e., the cost of servers Plaintiff purchased to
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execute the contract, as evidenced by invoices).
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at 571:13-580:9.)5
Mr. Kennedy testified as to the revenues and lost
For example, Mr.
(See Kennedy
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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.)
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Plaintiff also presented evidence sufficient to establish
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that the money it expended to begin to perform anticipated
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work services under the contract was a foreseeable consequence
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of Defendants’ breach of contract.
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Plaintiff determined that it needed to take proactive
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measures, even prior to receiving any data from Defendants, to
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ensure that it could meet the very fast-paced trial deadlines
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that had been established in the Chinese Drywall litigation,
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which included allowing Defendants to utilize Plaintiff’s
There was testimony that
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services to prepare for imminent depositions.
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Chapman at 89:2-20, 94:20-95:10, 102:17-21.)
(See, e.g.,
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Indeed, in many of the cases cited by Defendants (and
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under California law generally), the damages evidence found to
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be too speculative was far more uncertain than Plaintiff’s
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evidence, which was not only based on the bargained-for
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contract price, but also on a long history of successfully
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providing the exact same services to other customers that it
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planned to provide to Defendants.
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95 Cal.App.4th at 887-888 (finding expert testimony
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insufficient to demonstrate lost profits where a small toy
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store claimed that flood damage to the store caused by
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defendant led to $50 million in lost profits because
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Plaintiff’s new website would have allowed it to compete in
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the Internet toy marketing business); Vestar Dev. II, LLC v.
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Gen. Dynamics Corp., 249 F.3d 958, 962 (9th Cir. 2001)
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(finding lost profits claim too speculative for breach of
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agreement to negotiate where plaintiff sought “future profits
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that it hoped to earn from the shopping center it had planned
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See, e.g., Kids’ Universe,
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to build on the parcel it was attempting to buy”); Eisenmayer
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v. Leonardt, 148 Cal. 596, 601 (1906) (affirming exclusion of
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testimony as to value of unissued stock for company never
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formed because there were “no facts stated—either real or
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hypothetical—as a basis for an intelligent opinion”);
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Greenwich S.F., LLC v. Wong, 190 Cal. App. 4th 739, 766 (2010)
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(finding lost profits claim too speculative where the
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plaintiff assumed, rather than proved, the reasonable
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certainty of future predicate events upon which the damages
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depended); Fisher v. Hampton, 44 Cal. App. 3d 741, 749 (1975)
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(finding lost profits evidence too speculative where “there
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was no testimony that any oil could be recovered at a profit
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from the drilling of one well, and there was no testimony as
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to the extent of possible profits from the one initial
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well.”).
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case permits a reasonable conclusion consistent with the
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jury’s verdict. Josephs, 443 F.3d at 1062.
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evidence is adequate to support the jury’s conclusion, the
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verdict must be upheld.
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Sch. Dist., 251 F.3d 1222, 1227 (9th Cir. 2001).
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Defendants’ motion is DENIED.
Unlike these cases, the evidence presented in this
Because the
Johnson v. Paradise Valley Unified
Accordingly,
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C.
Rule 50 Motion as to Liability
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Defendants also assert that no reasonable jury could have
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found that Defendants breached the contract because there was
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evidence that no contract was ever formed.
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Defendants argue that the parties never had a mutual
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understanding as to material terms of the contract including
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the inclusion of 1) a success fee provision or 2) a
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In particular,
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nonrefundable fee provision.
To begin, and as Plaintiff points out in its opposition
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papers, the issue of whether there was a binding contract
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between the parties was resolved by the court in its order
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denying Plaintiff’s motion for summary judgment (Docket No.
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83), and was thus never submitted to the jury.
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the preliminary instructions, the jury was advised that the
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court had ruled that the parties had entered into a written
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contract and it was therefore only necessary for the jury to
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determine whether the contract had been breached and, if so,
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in what amount.
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unilateral mistake of fact and fraudulent inducement as
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affirmative defenses in their initial pretrial submissions in
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February 2011, I denied their request to instruct on mistake
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and fraud in part because Defendants had not pled those
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defenses in its answer.
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Defendants did not attempt to amend their answer until after
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the close of evidence, at which time I denied their request.
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See Fed. R. Civ. Proc. 15.
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was a valid and binding contract was never put before the
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jury, rendering it difficult to find that their verdict, which
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was premised on the existence of a valid and binding contract,
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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
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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
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Because substantial evidence in the record supports the
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jury’s verdict on both liability and damages, Defendants’ Rule
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50(b) motions are DENIED.
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Defendants’ Motion for a New Trial
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Defendants also move for a new trial.
A court may grant
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a new trial after a jury trial “for any of the reasons for
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which new trials have heretofore been granted in actions at
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law in the courts of the United States.”
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59(a)(1)(A).
Fed. R. Civ. P.
“Historically recognized grounds include, but
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are not limited to, claims ‘that the verdict is against the
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weight of the evidence, that the damages are excessive, or
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that, for other reasons, the trial was not fair to the party
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moving.’”
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Cir. 2007) (quoting Montgomery Ward & Co. v. Duncan, 311 U.S.
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243, 251 (1940)).
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trial court may grant a new trial only if the verdict is
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contrary to the clear weight of the evidence, is based upon
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false or perjurious evidence, or to prevent a miscarriage of
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justice.”
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court must adhere to the harmless error rule of Fed. R. Civ.
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P. 61, which “provides that no error in any ruling or order by
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the court is ground for a new trial or otherwise disturbing a
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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
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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.
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substantial justice.”
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1283 (9th Cir. 1982).
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Bunch v. United States, 680 F.2d 1271,
In its motion for a new trial, Defendants repeat many of
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the arguments that they made in their renewed motions for
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judgment as a matter of law.
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the same reasons as explained above.
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not against the weight of the evidence.
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evidence for the jury to conclude that Defendants were liable
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for breaching their contract with Plaintiff and to determine
Those arguments are rejected for
The jury’s verdict was
There was ample
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Plaintiff’s lost profits with reasonable certainty.
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determined that the parties had entered into a valid and
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binding contract, that the contract did not include an illegal
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success fee, and Plaintiff presented a plausible
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interpretation of the agreement in light of the context and
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circumstances.
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instructions on contract interpretation.
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requested by Defendants regarding mistake and fraud were
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denied because the Court had ruled there was a contract and
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because Defendants failed to plead those defenses in its
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answer (or raise them in opposition to Plaintiff’s summary
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judgment motion) and failed to timely seek leave to amend
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their answer even though they had ample time to do so before
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trial.
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constitutes a “miscarriage of justice” or that it “shocks the
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///
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///
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///
The jury was given standard California jury
The instructions
Finding no reason to believe that the verdict
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conscience”, the court will not grant a new trial in this
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case.
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Dated: December 27, 2011
Defendants’ motion is DENIED.
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Bernard Zimmerman
United States Magistrate Judge
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