Rocket Dog Brands, LLC v. GMI Corporation

Filing 78

ORDER DENYING WITHOUT PREJUDICE DEFENDANT'S MOTION FOR SUMMARY JUDGMENT AND GRANTING PLAINTIFF'S RULE 54(d) MOTION 49 61 (Illston, Susan) (Filed on 9/17/2013)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

United States District Court
For the Northern District of California

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No. C 12-4643 SI

ROCKET DOG BRANDS, LLC,

ORDER DENYING WITHOUT
PREJUDICE DEFENDANT’S MOTION
FOR SUMMARY JUDGMENT AND
GRANTING PLAINTIFF’S RULE 54(d)
MOTION

Plaintiff,
v.
GMI CORP.,

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Defendant.

/

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Defendant’s motion for summary judgment and plaintiff’s motion for relief pursuant to Federal

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Rule of Civil Procedure 54(d) were scheduled for a hearing on September 13, 2012. Pursuant to Civil

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Local Rule 7-1(b), the Court determined that these matters are appropriate for resolution without oral

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argument, and VACATED the hearing. For the reasons set forth below, the Court DENIES defendant’s

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motion for summary judgment without prejudice and GRANTS plaintiff’s motion for relief under Rule

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54(d).

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DISCUSSION

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Defendant/counter-claimant moves for summary judgment on plaintiff/counter-defendant’s

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claims for breach of contract and breach of the covenant of good faith and fair dealing. The complaint

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alleges that defendant breached the parties’ license agreement in numerous ways, including by failing

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to pay all royalties due to plaintiff and by failing to fulfill its obligations regarding advertising
expenditures. Compl. ¶ 25. Plaintiff terminated the agreement in June 2012.

Defendant acknowledges that discovery is in its early stages,1 but contends that the Court can

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grant summary judgment because the undisputed facts and the provisions of the license agreement show

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that defendant did not breach the parties’ license agreement. Defendant contends that there was no

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breach because (1) it did not default on royalty payments because it paid plaintiff sufficient royalties

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so as to keep a running positive balance on its royalty payment obligations; (2) defendant’s April 30,

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2012 royalty payment, which was due on April 30, 2012 and received by plaintiff on May 1, 2012, was

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timely made because defendant wired that payment at 4:45 pm on April 30, 2012; (3) the contract

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provisions regarding acceleration of unpaid royalty payments in the event of a default in defendant’s

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“payment obligations” was not triggered because defendant had a positive balance on its royalty

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United States District Court
For the Northern District of California

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payments, its April 30, 2012 royalty payment was timely, and “payment obligations” in this context only

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applied to royalty payments, not advertising expenditures; (4) the accelerated royalties provision is an

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unenforceable penalty under California law because it results in a payment of $680,000 that is “so

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utterly disproportionate to whatever de minimis damages Rocket Dog would have suffered”; and (5)

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plaintiff is not entitled to any contract damages beyond unpaid royalty payments and advertising

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expenditures because the parties waived all other types of damages and specified that termination of the

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contract was the only remedy.

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Plaintiff opposes summary judgment and has filed a motion for relief pursuant to Federal Rule

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of Civil Procedure 54(d). Plaintiff contends that the Court cannot resolve as a matter of law the

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numerous issues of contract interpretation and issues of fact raised by defendant’s motion, and plaintiff

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asserts that its outstanding discovery requests are relevant to these questions. Plaintiff argues that there

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are disputed material facts regarding whether the contract provisions regarding acceleration were

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triggered, such as whether the parties intended “payment obligations” to include advertising

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expenditures or only royalty payments. Plaintiff also argues that there are factual disputes regarding

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the amounts and timeliness of several of defendant’s royalty payments, and plaintiff disputes that

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defendant had a running positive balance on its royalty payments. Plaintiff also argues that defendant

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has not submitted any evidence showing that the acceleration provisions did not bear a reasonable

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Defendant moved for a stay of discovery when it filed the instant motion for summary
judgment. The Court denied that motion.
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relationship to the range of harm that was reasonably anticipated at the time the parties entered into the

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contract. Finally, plaintiff argues that there are disputes of fact as to whether the parties intended to

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waive direct or general contract damages, as opposed to waiving indirect, special or exemplary damages.

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On this record, the Court finds that summary judgment is inappropriate. Defendant contends that

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the disputed terms of the contract are clear and unambiguous, and therefore that the Court need not

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consider extrinsic evidence to interpret the contract. However, “[t]he test of admissibility of extrinsic

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evidence to explain the meaning of a written instrument is not whether it appears to the court to be plain

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and unambiguous on its face, but whether the offered evidence is relevant to prove a meaning to which

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United States District Court
For the Northern District of California

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the language of the instrument is reasonably susceptible.” Pacific Gas & Elec. Co. v. G. W. Thomas

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Drayage & Rigging Co., 69 Cal.2d 33, 37 (1968). “[R]ational interpretation requires at least a

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preliminary consideration of all credible evidence offered to prove the intention of the parties. . . . If

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the court decides, after considering this evidence, that the language of a contract, in the light of all the

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circumstances, ‘is fairly susceptible of either one of the two interpretations contended for . . .,’ extrinsic

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evidence relevant to prove either of such meanings is admissible.” Id. at 39-40 (internal citations

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omitted). In light of the relatively early stage of discovery in this case, the contract interpretations

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advanced by plaintiff, and the factual disputes regarding, inter alia, whether defendant had a running

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positive balance on its revenue payments, the Court finds it prudent to DENY defendant’s motion for

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summary judgment without prejudice to renewal on a fuller factual record and to GRANT plaintiff’s

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motion for relief under Rule 54(d).

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CONCLUSION

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For the reasons set forth above, the Court DENIES defendant’s motion for summary judgment

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without prejudice and GRANTS plaintiff’s motion for relief under Rule 54(d). Docket Nos. 49 and 61.

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IT IS SO ORDERED.

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SUSAN ILLSTON
UNITED STATES DISTRICT JUDGE

Dated: September 17, 2013
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