Synnex Corporation v. Wattles

Filing 142

ORDER by Judge Yvonne Gonzalez Rogers granting 124 Plaintiff's Motion for Summary Judgment (fs, COURT STAFF) (Filed on 11/14/2012)

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1 2 3 UNITED STATES DISTRICT COURT 4 NORTHERN DISTRICT OF CALIFORNIA 5 6 7 SYNNEX CORPORATION, 8 Plaintiff, 9 Case No.: 11-cv-01496-YGR ORDER GRANTING PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT vs. 10 MARK J. WATTLES, Northern District of California United States District Court 11 Defendant. 12 13 14 Pending before the Court is Plaintiff’s motion for summary judgment. On March 9, 2011, 15 Plaintiff Synnex Corporation (“Synnex”) brought this action for breach of contract against Defendant 16 Mark J. Wattles (“Wattles”) based on a guaranty agreement. (Dkt. No. 1 (“Complaint” or 17 “Compl.”).)1 Synnex filed a Motion for Summary Judgment on August 20, 2012. (Dkt. No. 124 18 (“Motion” or “Mot.”); Dkt. No. 107 (original Motion).) Wattles filed his Response in Opposition to 19 Plaintiff Synnex Corporation’s Motion for Summary Judgment on September 18, 2012. (Dkt. No. 20 121 (“Opposition” or “Opp.”).) On September 25, 2012, Synnex filed its Reply in Support of Motion 21 for Summary Judgment. (Dkt. No. 122 (“Reply”).) The Court held oral argument on October 30, 22 2012. (Dkt. No. 131.) 23 Having carefully considered the papers submitted and the pleadings in this action, the 24 arguments of counsel, and for the reasons set forth below, the Court GRANTS Plaintiff’s Motion for 25 Summary Judgment. 26 27 28 1 Wattles filed a Counterclaim against Synnex on May 9, 2011, alleging breach of the covenant of good faith and fair dealing, civil conspiracy, and declaratory relief/rescission. (Dkt. No. 12.) The pending Motion for Summary Judgment does not address any of the Counterclaims. 1 I. FACTUAL AND PROCEDURAL BACKGROUND 2 Defendant Wattles served as the chairman of Ultimate Acquisition Partners LP, which did 3 business as Ultimate Electronics (“Ultimate”), a retail electronics store. (Videotape Deposition of 4 Mark J. Wattles (“Wattles Dep.”) 20:10–21:15, attached as Ex. A to Declaration of Ryan E. Warren, 5 Esq. to Defendant Mark J. Wattles’ Response and Responsive Separate Statement in Opposition to 6 Plaintiff Synnex Corporation’s Motion for Summary Judgment (“Warren Decl.”) (Dkt. Nos. 128 and 7 121-1).) In 2009, Ultimate entered into a contract with Hewlett Packard (“HP”), whereby HP agreed 8 to invest $100 million in Ultimate in exchange for (1) a 25% stake in Ultimate, and (2) Ultimate’s 9 guaranteed sales of a certain number of HP’s products (“HP Deal”). In order to create a competitor to Best Buy, HP agreed to distribute the $100 million in three installments of $50 million, $30 million, 11 United States District Court Northern District of California 10 and $20 million. (Wattles Dep. 68:24–69:10.) Funding was contingent on Ultimate’s success in 12 opening a certain minimum number of stores and each store’s success in selling a certain number of 13 HP products. (See Wattles Dep. 24:17–22; Warren Decl., Ex. C (Contribution Agreement) (Dkt. No. 14 121-3) §§ 1.2(b)–(e).) The parties further agreed that the terms of the deal would remain confidential. 15 (Contribution Agreement § 5.1; Wattles Dep. 68:24–69:3.)2 The HP Deal consisted of three contracts: the Launch Agreement, Contribution Agreement, 16 17 and Reseller Agreement. (Wattles Dep. 26:8–28:24.) The Reseller Agreement provided that HP 18 would sell its products directly to Ultimate. (Warren Decl., Ex. B (Reseller Agreement) (Dkt. No. 19 121-2) §§ 7(A)–(G).) The Reseller Agreement also contained payment and security terms but did not 20 require Wattles to sign a personal guaranty. (See id. § 6.) After executing the three HP agreements, HP Senior Vice-President John Soloman 21 22 (“Soloman”) informed Wattles that HP would not sell its products directly to Ultimate as the Reseller 23 Agreement required. (Wattles Dep. 29:7–32:6.) Instead, Ultimate would have to purchase HP 24 25 2 26 27 28 Wattles claims that section 5.1 of the Contribution Agreement provides a general nondisclosure agreement that prevented either party from discussing the terms of the HP Deal with anyone else. However, the text of the provision cited does not prohibit any and all disclosures. Instead, it merely states that “neither the Company nor the Investor shall issue any press release or other public statement relating to this Agreement or the Related Agreements or the transactions contemplated hereby or thereby without the prior approval of the other party.” (See Contribution Agreement § 5.1.) 2 1 products from HP’s exclusive distributor, Synnex (via New Age Electronics).3 (Wattles Dep. 29:7– 2 32:6.) In order to buy the product directly from Synnex, Ultimate and Synnex entered into a Credit 3 Application Agreement. (RSS No. 1.)4 Within a few months after the HP Deal was executed, and as 4 part of the extension of credit, Synnex required a personal guaranty from Wattles. (Wattles Dep. 5 34:5–20.) 6 Wattles contacted HP’s Soloman to complain, arguing no personal guaranty should be 7 required. (Wattles Dep. 35:6-16.) Soloman replied that the guaranty was somewhat irrelevant 8 because (i) it was a temporary measure until HP had implemented the necessary systems to permit 9 direct sales to Ultimate and (ii) HP had provided $50 million in cash. (Id. 35:2–36:1 (Soloman told Wattles he should not “worry about it”).) Wattles “fundamentally agreed” with Soloman’s 11 United States District Court Northern District of California 10 assessment, and thereupon signed the personal guaranty for $5.7 million (“Initial Guaranty”). (Id.) 12 Wattles understood that he was personally at risk for any unpaid payments by Ultimate to Synnex. 13 (Id. 39:2–14.) Wattles had signed numerous other personal guarantees with respect to other 14 electronics and appliance vendors, including Sony, Sharp, Samsung, Toshiba, Panasonic, and 15 Whirlpool, among others. (Id. 36:2–24, 37:4–8.) Sometime in mid-2010, HP provided Ultimate with an additional $30 million in capital. 16 17 Thereafter, Synnex asked Wattles to increase the amount of his guaranty to $15 million. (Wattles 18 Dep. 51:5–16.) Wattles tried to contact Todd Bradley (to whom Soloman reported) but, 19 characteristically, he did not respond. (Id. 57:12–24.) Lacking time, Wattles did not further 20 investigate the consequences of refusing to sign the new guaranty. (Wattles Dep. 72:20–73:4.) 21 Wattles executed the Unconditional Continuing Guaranty (“Continuing Guaranty”), dated July 28, 22 2010, guaranteeing personal liability to Synnex and its affiliates for up to $15 million. (RSS No. 3; 23 24 3 25 26 27 28 New Age Electronics is a wholly-owned division of Synnex. In this Order, the term “Synnex” describes both Plaintiff Synnex and New Age. 4 As used in this Order, “RSS No. #” refers to material facts and responses set forth in Defendant Mark J. Wattles’ Responsive Separate Statement in Opposition to Plaintiff Synnex Corporation’s Motion for Summary Judgment. (Dkt. No. 127.) Unless otherwise noted, the references to the material fact numbers or responses include the evidence supporting the same. 3 1 Declaration of Simon Leung (“Leung Decl.”) (Dkt. No. 107-4) ¶ 4 and Ex. 2 (Unconditional 2 Continuing Guaranty); Wattles Dep. 51:5–11.) 3 By December 2010, Ultimate owed Synnex a balance of $11,121,728.00. (RSS No. 4; Leung 4 Decl. ¶ 5 and Ex. 5.)5 Synnex agreed to a payment plan under which Ultimate would pay $1,700,000 5 per week, subject to fluctuation based upon continuing sales and adjustments. (RSS No. 4; Leung 6 Decl. ¶ 5 and Ex. 5.) Ultimate paid the agreed amounts from December 3, 2010 to January 6, 2011. 7 (RSS No. 4; Leung Decl. ¶ 5 and Ex. 5.) On January 14, 2011, Ultimate failed to make its weekly 8 payment. (RSS No. 5; Leung Decl. ¶ 6.) On January 19, 2011, Synnex issued a written demand to 9 Wattles for immediate payment of Ultimate’s outstanding liability of $5,653,826.73. (RSS No. 6.) 10 Wattles received the demand but has made no payments to Synnex. (RSS No. 7.) On January 26, 2011, Ultimate filed a petition for Chapter 11 bankruptcy in the United States United States District Court Northern District of California 11 12 Bankruptcy Court for the District of Delaware. (RSS No. 8.) Pursuant to the Continuing Guaranty, 13 Wattles’ obligation remained in force and effect notwithstanding Ultimate’s bankruptcy petition. (See 14 RSS No. 10.) 15 By its Motion, Synnex contends the Court should find that Wattles liable for $5,653,826.73, 16 plus reasonable attorney’s fees and costs. (RSS No. 14; Leung Decl. ¶ 13.) In total, Synnex seeks an 17 entry of judgment for $ 5,695,734.01. (Mot. at 14.) Wattles opposes the motion on the grounds that 18 questions of material fact exist as to whether the guaranty agreement is void for duress and/or lack of 19 consideration. (Opp. at 6–10.) 20 II. EVIDENTIARY ISSUES 21 At oral argument, Wattles’ counsel argued that summary judgment should be denied because 22 Synnex failed to properly authenticate its evidence in support of its Motion. The Court has reviewed 23 the record and determined the evidence was properly authenticated. The initial confusion arose 24 because both parties attached their underlying evidence en masse as exhibits to their briefs. (Dkt. No. 25 5 26 27 28 Although Wattles disputes RSS Nos. 4 and 5, he presents no evidence that substantively disputes the amount owed, the payment schedule, that payments were made under the schedule, or when the payments ceased. (See RSS Nos. 4 and 5.) In fact, Wattles’ testimony indicates he has no personal knowledge of the specific amounts owed by Ultimate to Synnex at the time of the bankruptcy filing. (Wattles Dep. 61:9–15, 62:6–8; see responses to RSS Nos. 4 and 5 (“he does not have a general idea of the amount”).) 4 125.) As to Synnex’s evidence, the Leung Declaration—which was filed as Exhibit 10 to the brief 2 and authenticates Exhibits 1–2 and 5–7—was buried within Synnex’s exhibits and was not filed in 3 accordance with common practices in this district. In response to numerous explicit requests from the 4 Court that Synnex authenticate its evidence (see Dkt. Nos. 125 and 130), Synnex failed to direct the 5 Court to the Leung Declaration until oral argument. Upon review of the Leung Declaration, Exhibits 6 1–2 and 5–7 have been properly authenticated. The Court finds no authentication of Synnex’s Exhibit 7 3 (Videotape Deposition of Mark J. Wattles), but Wattles’ counsel has authenticated a copy of the 8 same transcript with his own evidence. Synnex’s Exhibit 4 (Mark J. Wattles’ Response to First Set of 9 Requests for Admission) has not been authenticated, but based on a lack of objection to the document 10 in the Responsive Separate Statement (see RSS No. 3), the Court finds no objection to the authenticity 11 United States District Court Northern District of California 1 of this exhibit. For these reasons, the Court will consider Synnex’s evidence in deciding this Motion. 12 The same is true of Wattles’ evidence in support of his Opposition, based on Wattles’ counsel’s 13 declaration and lack of objection thereto. (Dkt. No. 128.) 14 III. DISCUSSION 15 A. Standard for Motion for Summary Judgment under Fed. R. Civ. P. 56 16 Summary judgment is appropriate when no genuine dispute as to any material fact exists and 17 the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). A party seeking 18 summary judgment bears the initial burden of informing the court of the basis for its motion, and of 19 identifying those portions of the pleadings, depositions, discovery responses, and affidavits that 20 demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 21 323 (1986). Material facts are those that might affect the outcome of the case. Anderson v. Liberty 22 Lobby, Inc., 477 U.S. 242, 248 (1986). The “mere existence of some alleged factual dispute between 23 the parties will not defeat an otherwise properly supported motion for summary judgment; the 24 requirement is that there be no genuine issue of material fact.” Id. at 247–48 (dispute as to a material 25 fact is “genuine” if there is sufficient evidence for a reasonable jury to return a verdict for the non- 26 moving party). 27 28 Where the moving party will have the burden of proof at trial, it must affirmatively demonstrate that no reasonable trier of fact could find other than for the moving party. Soremekun v. 5 1 Thri Payless, Inc., 509 F.3d 978, 984 (9th Cir. 20 ifty 007). Where the non-mo e oving party b bears the 2 burd of proof at trial, the moving part can prevai merely by demonstrati that the n den f ty il y ing non-moving g 3 part lacks evid ty dence to supp its case. Soremekun v. Thrifty P port n Payless, Inc, 509 F.3d at 984. If the 4 mov ving party meets its initia burden, th opposing party must t m al he then set out “ “specific fac showing a cts” g 5 genu issue fo trial in ord to defeat the motion. Id. (quoting Anderson, 477 U.S. at 250). The uine or der g , t 6 oppo osing party’s evidence must be more than “mere colorable but must b “significa m e ely e” be antly 7 prob bative.” Id. at 249–50. Further, that party may n rest upon mere alleg F t not n gations or den nials of the 8 adve party’s evidence, bu instead mu produce admissible e erse ut ust evidence tha shows a ge at enuine issue of 9 mate erial fact exi for trial. Nissan Fire & Marine Ins. Co. v. F ists Fritz Cos., In 210 F.3d 1099, 1102 nc., d 2– 03 (9th Cir. 200 Nelson v. Pima Cmty College D ( 00); v y. Dist., 83 F.3d 1075, 1081 d 1–1082 (9th Cir. 1996) 11 United States District Court Northern District of California 10 (“m allegatio and specu mere on ulation do no create a fa ctual dispute Arpin v. Santa Clara Valley ot e”); a 12 Tran Agency, 261 F.3d 912, 922 (9th Cir. 2001) ( nsp. h (“conclusory allegations unsupporte by factual y s ed l 13 data are insuffic a cient to defea [defendan at nts’] summar judgment motion”). ry 14 When de eciding a sum mmary judgm motion a court mu view the evidence in the light mo ment n, ust ost 15 favo orable to the non-moving party and draw all just g d tifiable infere ences in its f favor. Ande erson, 477 U.S. 16 at 25 Hunt v. City of Los Angeles, 638 F.3d 703, 7 (9th Cir. 2011). How 55; C A 8 709 . wever, in de etermining 17 whe ether to grant or deny sum t mmary judgm ment, it is no a court’s t ot task “to scou the record in search of a ur d 18 genu issue of triable fact.” Keenan v. Allan, 91 F uine f v F.3d 1275, 1279 (9th Cir 1996) (inte r. ernal 19 quot tations omitt ted). Rather a court is entitled to “r r, e rely on the n nonmoving p party to ident with tify 20 reas sonable parti icularity the evidence tha precludes summary ju at udgment.” S id.; Carm v. San See men 21 Fran ncisco Unifi Sch. Dist 237 F.3d 1026, 1031 ( ied t., 1 (9th Cir. 200 (“The dis 01) strict court n need not 22 exam the ent file for ev mine tire vidence esta ablishing a g genuine issue of fact, wh the evide e here ence is not set 23 forth in the oppo h osing papers with adequ reference so that it could conve s uate es eniently be fo found.”) 24 25 26 27 28 B. Economic Duress E D 1. 1 Summ mary of the Arguments s Synnex conte S ends summa judgment is appropriate given tha Wattles en ary t at ntered into th he Con ntinuing Gua aranty, agree to be perso ed onally liable for any unp amounts due to Syn e paid nnex from Ultimate, and sp pecific amou are now due and ow unts w wing. (Mot. a 12–14.) W at Wattles asser only that he rts 6 1 exec cuted the gua aranty out of a fear of lo osing his bus siness, which would have resulted ha he breach h ad hed 2 the HP Deal. (O at 9.) Wattles furth argues th Synnex ex H Opp. W her hat xploited its k knowledge o confidenti of ial 3 term of the HP Deal to coerce him to si the perso ms ign onal guarant tees. (Id. at 8–9.) Faced with no d 4 reas sonable altern native and his business on the line, W h o Wattles conc cludes that, u under Califo ornia law, the e 5 reco presents a question of fact as to whether he a ord o w acted under e economic du uress. (Id. at 9-10.) In t 6 resp ponse, Synne counters that Wattles cannot show duress based on the fac in the rec ex t w cts cord. 7 Spec cifically, Synnex empha asizes that it was HP who allegedly m o made misrep presentations to Wattles (if s 8 anyo one), and tha Wattles si at igned the gua arantees with thout any alleged coercio from Syn on nnex itself. 9 (Rep at 4–5.) ply 2. 2 11 United States District Court Northern District of California 10 Law of Economi Duress ic A guaranty is subject to ordinary def s o fenses to con ntract format tion includin economic ng 12 dure ess. Econom duress do not requi an unlaw act, but m come in play upo the doing of mic oes ire wful may nto on 13 a wr rongful act which is suff w ficiently coer rcive “to cau a reasona use ably prudent person face with no t ed 14 reas sonable altern native to suc ccumb to the perpetrator pressure.” See Perez v. Uline, Inc 157 Cal. e r’s ” c., 15 App 4th 953 (C Ct. App. 2007); Thom p. Cal. mpson Cran & Truckin Co. v. Eym ne ng man, 123 Ca App. 2d al. 16 904, 908 (Cal. Ct. App. 1954). “A party pleading ec C y conomic dur must ha had no re ress ave easonable 17 alter rnative to the contract it seeks to avo e oid.” CrossT Talk Produc ctions, Inc. v. Jacobson, 65 Cal. App. . 18 4th 631, 644 (Cal. Ct. App. 1998). If a reasonable a alternative w available economic duress cannot was e, 19 be established. Id. e 20 Whether a party acte under dur is norma a questio of fact, an courts in California r ed ress ally on nd 21 appl an objecti standard to determine if a reason ly ive e nable alternat was ava tive ailable. See Thompson 22 Crane, 123 Cal. App. 2d at 910. Genera ally, courts o only apply th doctrine o economic duress he of c 23 uctantly and “only as a la resort to correct explo “ ast c oitation of bu usiness circu umstances w when relu 24 conv ventional alt ternatives an remedies are unavailin nd ng.” Rich & Whillock, I v. Ashton Development Inc. 25 Inc., 157 Cal. App. 3d 1154 1159 (Cal. Ct. App. 19 A 4, 984). 26 While th law allows for a certai degree of subjectivity in determin he in f y ning whether a contract is r i 27 void dable for dur ress, the cent tury-old doc ctrine require the party c es claiming dur to show some ress w 28 wrongful act on the part of the alleged perpetrator. See McTigu v. Arctic Ic Cream Su t p ue Ice upply Co., 20 0 7 1 Cal. App. 708, 719 (Cal. Ct. App. 1912) (party’s ref . 7 ) fusal to relea horses so as assets of a delivery ase old 2 busi iness until th purchaser paid $350 for expenses incurred in horses’ care held to be d he f e duress as a 3 third d-party, not the corporat t te-seller, had incurred th e debt); Steff v. Refrig d ffen geration Disc Corp., 91 c. 4 Cal. App. 2d 494, 500 (Cal. Ct. App. 19 . 949) (finding economic d g duress where defendant forced e 5 mor rtgagor to pa unearned interest to se ay i ecure a relea of the mo ase ortgage wher the mortg re gagor needed to d 6 sell the property to avoid for y reclosure); McNichols v Nelson Val Bldg. Co 97 Cal. A M v. lley o., App. 2d 721, 7 pp. uress found where party refused to r y remove a wr rongfully file lis penden ed ns 724 (Cal. Ct. Ap 1950) (du 8 as a means of ex xacting the conveyance of other prop c o perty as a co ondition to d dismissing th action); he 9 mirlian v. Ott 139 Cal. App. 486, 49 (Cal. Ct. App. 1934) (finding dur where a party record to, A 96 ress ded Ezm an in nvalid conve eyance and refused to remove the re sulting cloud on title unless the gran paid par r d ntee rt 11 United States District Court Northern District of California 10 of th proceeds of a pending sale to said party); Tho he g d ompson Cran 123 Cal. App. 2d at 9 (paymen ne, 908 nt 12 reco overable for duress wher one party wrongfully r re w refused to file a protest w the Treasury in order with 13 to co oerce the tax xpayer to sig a continge gn ency agreem for addi ment itional fees). 14 Econom duress req mic quires both knowledge o the affecte party’s ec k of ed conomic circ cumstances and a 15 actu induceme thereof. See Steinma v. Malame 185 Cal. App. 4th 15 ual ent an ed, 550, 1558–59 (Cal. Ct. 16 App 2010); Lou p. uisville Title Ins. Co. v. Surety Title & Guaranty Co., 60 Cal App. 3d 78 801 & 80 e S y l. 81, 05 17 (Cal Ct. App. 1976). Typic l. cally, it is no duress for a party to th ot hreaten eithe to refuse t proceed er to 18 unde a contract or civil litig er t gation. Nesb Fruit Pro bitt oducts, Inc. v. Del Mont Beverage Co., 177 Ca te al. 19 App 2d 353, 36 (Cal. Ct. App. 1960) (citing Sistro v. Anders p. 61 A ( om son, 51 Cal. App. 2d 213 221 (Cal. Ct. 3, 20 App 1942); Ma p. arshall v. Pac ckard-Bell Co., 106 Cal . App. 2d 77 774 (Cal. Ct. App. 19 C 70, . 951); Leeper v. r 21 Belt trami, 53 Ca 2d 195, 20 al. 05–06 (1959 9)). 22 3. 3 Appl lication 23 As summariz above, Wattles argue duress on the theory t Synnex leveraged its A zed W es n that s 24 know wledge of th confidenti terms of the HP Deal to force Wa he ial t l attles to agre to the gua ee arantees. (Op pp. 25 at 8– –9.) Specifi ically, Wattles contends that Synnex principal A x Adam Carroll (“Carroll”) knew that l ) 26 Ultimate was required to pu urchase minim mum quantit of HP pr ties roducts to sa atisfy require ements of th he 27 HP Deal and exp ploited that knowledge to time the g t guaranty dem mands. (Wat ttles Dep. 42 2:20–43:23, 28 8 1 54:19–55:5, 71:20–72:1.)6 Wattles maintains that he had “no choice” but to sign both guarantees 2 because Ultimate would have been in breach of its obligations to HP, from whom Ultimate already 3 had received $80 million. (Id. 40:13–25.) Wattles further claims he attempted to address the issue 4 with HP to no avail, as Soloman (who had been his HP contact) was no longer involved with the 5 business relationship and it was unclear who had assumed his authority. (Id. 56:11–25.) Wattles relies heavily on Rich & Whillock, Inc. v. Ashton Development, Inc. for the 6 7 proposition that entering into certain unfavorable contracts, when faced with the imminent collapse of 8 one’s business as the sole alternative, may be grounds for economic duress. That case involved an 9 action to recover a balance due for rock and excavation work. Rich & Whillock, 157 Cal. App. 3d at 1156. After signing an initial agreement to complete excavation work for the defendant, plaintiff 11 United States District Court Northern District of California 10 discovered that rock blasting would be necessary to complete the job. Id. Because the terms of the 12 excavation agreement specifically excluded blasting, plaintiff informed defendant of the additional 13 amount due for the extra work. Id. Defendant agreed to the increased price. Once the final balance 14 was due, defendant refused to pay, claiming his company was out of money. Id. Defendant offered 15 plaintiff a settlement for little more than 75% of the amount due and told plaintiff it could either 16 accept or sue the defendant for the full balance. Id. Throughout their discussions, plaintiff repeatedly 17 emphasized that as a new, small company, the job at issue had forced them to incur significant 18 liabilities and failure to pay would destroy the company. Id. Given the choice of accepting the 19 settlement or losing their company, plaintiff relented, accepted the lower amount, and signed a 20 release, but later sued to void the release for duress and recover the unpaid balance. Id. The Rich & Whillock court held for plaintiff on the basis that it signed the release under 21 22 economic duress. Id. at 1160. The core of the decision focused on the Court’s finding that 23 24 25 26 27 28 6 At oral argument, Wattles’ counsel suggested that Carroll “bragged” to Wattles about his knowledge of the confidential HP Deal. However, no evidence supports counsel’s characterization. By contrast, Wattles testified merely that Carroll “described the transaction” to him. (Wattles Dep. 43:2.) Carroll knew that “Hewlett-Packard had invested capital in [Ultimate] and that Hewlett-Packard had minimum purchase requirements in order for [Ultimate] to continue to get capital from Hewlett-Packard” (id. 43:19–23), and that Ultimate and Synnex “had to get things moving very quickly.” (See generally Wattles Dep. 42:20–44:10.) Even construing in the light most favorable to Wattles that Carroll was “intimately familiar” with the HPUltimate relationship, knowledge itself does not constitute “bragging.” (Id. 54:19–55:5.) 9 1 defendant’s refusal to pay and subsequent settlement offer were not made in good faith. Id. The 2 following factors persuaded the Court: (1) defendant never disputed the amount owed; (2) defendant 3 was fully aware that plaintiff was a new company, overextended to creditors and subcontractors and 4 faced with imminent bankruptcy if not paid; (3) plaintiff strenuously protested defendant’s course of 5 tactics; and (4) plaintiff succumbed only to avoid economic disaster and the adverse ripple effects of 6 its bankruptcy on those to whom it was indebted. Id. at 1160–61. 7 Here, Rich & Whillock is distinguishable. The evidence in this case indicates that Synnex merely requested the guarantees as a condition of extending credit, a common business practice when 9 a borrower’s creditworthiness is suspect. Wattles admits that Ultimate was suffering from negative 10 cash flows, as shown in Ultimate’s application for credit from Synnex, in which Ultimate agreed to 11 United States District Court Northern District of California 8 release two years’ worth of financial statements. (See Leung Decl. ¶ 3 and Ex. 1 (Credit Application 12 Agreement) at 3.) Further, Wattles concedes that a demand for a personal guaranty was far from 13 unusual with respect to Ultimate’s business. Wattles had signed personal guarantees with at least nine 14 other Ultimate suppliers. (Wattles Dep. 36:2–24, 37:4–8.) Wattles himself admitted that he 15 “fundamentally agreed” with Soloman’s perspective on the need for the Initial Guaranty and, on that 16 basis, he signed. (Wattles Dep. 35:9–36:1.) Wattles’ self-serving arguments notwithstanding, Wattles 17 has not proffered probative evidence that Synnex requested the guarantees for any reason other than 18 one based upon Ultimate’s financial history. 19 Additionally, with respect to the Initial Guaranty, Wattles testified at his deposition that it was 20 HP’s Soloman, not anyone from Synnex, who told Wattles the guaranty was of no concern and 21 assured him that it was only temporary. (Wattles Dep. 35:2–36:1.) Aside from Wattles’ assertion that 22 Synnex somehow exploited its knowledge of the HP Deal, the record shows no facts of coercive or 23 otherwise wrongful conduct on Synnex’s part. With respect to the Continuing Guaranty, Wattles 24 testified that he increased the amount of the personal guaranty to $15 million in response to Synnex’s 25 “threat” to cease its credit extension to Ultimate. (Wattles Dep. 53:15–54:18, 73:18–74:4.) However, 26 as discussed above, without more, a party may enforce the terms of a valid contract or threaten 27 litigation. Nesbitt Fruit Products, Inc., 177 Cal. App. 2d at 361. 28 10 While Wattles claims that Synnex exploited its knowledge of the HP Deal to time its guaranty 1 2 requests so as to ensure Wattles complied, he never protested or questioned the conduct to anyone at 3 Synnex. Further, he has not shown that Synnex was ever aware that Ultimate was faced with 4 imminent bankruptcy if Wattles did not sign the guarantees. No reasonable juror would consider 5 Wattle’s lack of protest and interaction with Synnex before signing the guarantees to resemble, in any 6 way, the type of strenuous protest which had occurred in Rich & Whillock or to support the defense of 7 economic duress. See 157 Cal. App. 3d at 1160–61. 8 C. Lack of Consideration 9 As an additional defense, Wattles argues in a footnote—and with little elaboration—that the guaranty agreement lacked consideration and is therefore unenforceable under Cal. Civ. Code section 11 United States District Court Northern District of California 10 1550.7 (Opp. at 9 n.3.) Specifically, he argues that Synnex was merely obligating to do what third- 12 party HP was already required to do under its own agreements with Ultimate—namely, to provide 13 products to Ultimate. (Id.) Synnex did not respond to this argument in its Reply. However, at oral 14 argument, Plaintiff’s counsel responded that Synnex’s extension of credit in exchange for the 15 guaranty represents sufficient consideration. Wattles is correct that “[a] promise is not enforceable unless consideration was given in 16 17 exchange for the promise.” US Ecology, Inc. v. State of California, 92 Cal. App. 4th 113, 128–29 18 (Cal. Ct. App. 2001) (citing Passante v. McWilliam 53 Cal. App. 4th 1240, 1247 (Cal. Ct. App. 19 1997)). Generally, a promise to perform a pre-existing legal duty is not legally sufficient 20 consideration. Id. (citing Bailey v. Breetwor, 206 Cal. App. 2d 287, 291–292 (Cal. Ct. App. 1962)). 21 Consideration must be an act or promise-in-return, bargained for and given in exchange for the initial 22 promise. Simmons v. Cal. Institute of Technology, 34 Cal. 2d 264, 272 (1949). 23 The Court finds that because Wattles provided his guaranty in exchange for an extension of 24 credit from Synnex, the requirement of consideration is satisfied. Synnex was not a party to the HP 25 Deal, and therefore had no obligation to extend credit to Ultimate. (See Wattles Dep. 76:1–10 26 (“generally credit applications are being filled out for the purpose of extending credit to a retailer”).) 27 Consequently, by agreeing to extend credit to Ultimate in exchange for Wattles’ personal guaranty, 28 7 Cal. Civ. Code section 1550 states “it is essential to the existence of a contract that there should be . . . sufficient cause or consideration.” 11 1 Synnex provided sufficient consideration. Accordingly, Wattles has not presented any triable issue of 2 fact regarding the lack of consideration. 3 III. DAMAGES Synnex seeks an entry of judgment against Wattles for $5,695,734.01. (Mot. at 14.) That 4 5 amount is inclusive of Wattles’ outstanding liability to Synnex ($5,653,826.73), Synnex’s attorney’s 6 fees ($34,710) and costs ($7,197.28). (Opp. at 14; RSS Nos. 12 and 14–15.) Wattles has presented 7 no facts disputing the amount of Ultimate’s, and by extension, his outstanding obligations. (See 8 Responses in RSS.) Accordingly, the Court finds Wattles concedes the actual amount due of 9 $5,653,826.73. However, in order to obtain reasonable attorney’s fees, costs, and/or expenses, Synnex must comply with all applicable procedures set forth in the Local Rules. 11 United States District Court Northern District of California 10 IV. 12 CONCLUSION For the reasons set forth above, the Court GRANTS Plaintiff’s Motion for Summary Judgment 13 and awards damages totaling $5,653,826.73. 14 This Order terminates Dkt. No. 124. 15 IT IS SO ORDERED. 16 17 18 19 Dated: November 14, 2012 ___________________________________________ YVONNE GONZALEZ ROGERS UNITED STATES DISTRICT COURT JUDGE 20 21 22 23 24 25 26 27 28 12

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