La Jolla Spa MD, Inc. et al v. Avidas Pharmaceuticals, LLC et al

Filing 108

ORDER Denying #96 Defendant's Motion to Dismiss or, in the Alternative, for Summary Judgment. The Court finds that Defendant is not entitled to dismissal of Plaintiff's claims or summary judgment in its favor. Accordingly, the Court denies Defendant's motion in its entirety. The Court will issue a pretrial scheduling order forthwith. Signed by Judge Michael M. Anello on 10/4/2019. (rmc)

1
2
3
4
5
6
7
8

UNITED STATES DISTRICT COURT

9

SOUTHERN DISTRICT OF CALIFORNIA

10
11

Case No. 3:17-CV-01124-MMA-WVG

LA JOLLA SPA MD, INC,
Plaintiff,

12
13

v.

14

ORDER DENYING
DEFENDANT’S MOTION TO
DISMISS OR, IN THE
ALTERNATIVE, FOR SUMMARY
JUDGMENT

AVIDAS PHARMACEUTICALS, LLC,

15

Defendant.

16

Doc. No. 96

17
18
19
20

La Jolla Spa MD, Inc. (“Plaintiff”) filed a Third Amended Complaint

21

(“Complaint”) against Avidas Pharmaceuticals, LLC (“Defendant”) for breach of

22

contract. See Doc. No. 87 (“Compl.”). Defendant filed an Answer. See Doc. No. 90

23

(“Answer”). Defendant moves to dismiss Plaintiff’s Complaint for lack of subject-matter

24

jurisdiction as well as for failure to state a claim under Federal Rules of Civil Procedure

25

12(b)(1) and 12(b)(6). See Doc. No. 96. Defendant moves in the alternative for

26

summary judgment under Federal Rule of Civil Procedure 56. See id. Plaintiff filed an

27

opposition to the motion, and Defendant replied. See Doc Nos. 97, 99. The Court found

28

the matter suitable for determination on the papers and without oral argument pursuant to
1
3:17-CV-01124-MMA-WVG

1

Civil Local Rule 7.1.d.1. See Doc. No. 101. For the reasons set forth below, the Court

2

DENIES Defendant’s motion in its entirety.
BACKGROUND1

3
4

This action arises out of a contractual relationship between the parties regarding

5

Vitaphenol skincare products that the parties later terminated. The central issues arise

6

from actions after termination of the relationship.

7

Plaintiff and Defendant entered into two separate but related contracts on August

8

19, 2008, which were signed by both parties by October 14, 2008. Compl. ¶ 2; Compl.

9

Ex. 1, 2; Answer ¶ 2. The first contract was the Sales and Distribution Agreement

10

(“Sales Agreement”). Compl. ¶ 2; Compl. Ex. 1; Answer ¶ 2. The second contract was

11

the Know-How and Trademark License and Purchase Agreement, partially supplemented

12

by the Modified Know-How and Trademark License and Purchase Agreement

13

(collectively referred to as the “Know-How Agreement”). Compl. ¶ 2; Compl. Ex. 2.

14

I. Sales Agreement Terms

15

Under the terms of the Sales Agreement, Defendant “was to pay Plaintiff for the

16

cost of inventory sold plus a royalty of 8%.” Compl. ¶ 5. Defendant had the power to

17

terminate the agreement “upon sixty days prior written notice in the event it determines in

18

its sole discretion that continuation of its efforts to promote and sell the Products is no

19

longer in its best business interests.” Compl. Ex. 1 at 4(c).

20

21
22
23
24
25
26
27
28

1

Regarding the motion to dismiss for lack of subject-matter jurisdiction, the Court analyzes a facial
attack by accepting the allegations of the complaint as true and drawing all reasonable inferences in
favor of Plaintiff. See Doe v. Holy See, 557 F.3d 1066, 1073 (9th Cir. 2009) (per curiam) (citing Wolfe
v. Strankman, 392 F.3d 358, 362 (9th Cir. 2004).
Because the Court construes the motion to dismiss for failure to state a claim as a motion for
judgment on the pleadings, see infra, the Court must accept the complaint’s allegations as true and the
answer’s allegations that contradict the complaint’s allegations as false. Hoeft v. Tucson Unified Sch.
Dist., 967 F.2d 1298, 1301 n.2 (9th Cir. 1992).
Regarding the motion for summary judgment, these material facts are taken from the parties’
separate statements and responses thereto, as well as the supporting declarations and exhibits. Where a
material fact is in dispute, it will be so noted. Particular disputed material facts that are not recited in
this section may be discussed infra. Facts that are immaterial for purposes of resolving the current
motion are not included in this recitation.
2
3:17-CV-01124-MMA-WVG

1
2
3
4
5
6
7
8

Upon early termination, the agreement required the following:
In the event of early termination in whole or in respect of any product,
Avidas shall return all unsold inventory to YGE or unsold Inventory of
terminated product(s) (SKUs) if the Agreement is terminated in respect of
fewer than all products. Upon early termination of this Agreement Avidas
shall immediately cease its promotional activities for the Vitaphenol
Products and discontinue any use of the Vitaphenol and La Jolla Spa MD
Trademarks. After any early termination of this Agreement YGB shall
retain the right to the Vitaphenol Products but will remove any information
bearing Avidas’s Trademarks and logos from Product and Product materials.

9

Id. at 4(g). The agreement further specified payments and royalties concerning sold

10

inventory by Defendant upon termination: “Upon termination, the provisions of this

11

Agreement concerning payment and royalties on Inventory sold to Avidas’s customers

12

shall continue until such payments have been made.” Id. at 4(h).

13

II. Know-How Agreement Terms

14

Under the terms of the Know-How Agreement, Defendant was obligated to pay for

15

the license of the “know-how” and trademark for Vitaphenol through an 8% royalty

16

payment on all Vitaphenol products until the royalty payments totaled $1,500,000;

17

thereafter, Defendant would then pay a 5% royalty. Compl. ¶¶ 5, 7, 13; Compl. Ex. 2 at

18

4(a)–(c). The Agreement allowed for Defendant to “transfer[] ownership of, or license[],

19

the Know-How and Vitaphenol trademark,” but required Defendant “to obligate the

20

purchaser or licensee to continue paying such five percent (5%) royalty.” Compl. ¶ 7;

21

Compl. Ex. 2 at 4(b). As with the Sales Agreement, the Know-How Agreement gives

22

Defendant the power to terminate the agreement “upon sixty days prior written notice in

23

the event it determines in its sole discretion that continuation of its efforts to promote and

24

sell the Products is no longer in its best business interest.” Complaint Ex. 2 at 8(b).

25

Upon early termination, the Agreement stated that Defendant

26

shall have the right to dispose of its stock of Product and shall have the right
to manufacture such finished Product as may be necessary to balance out
inventory or to convert raw materials, or goods in process, into finished

27
28

3
3:17-CV-01124-MMA-WVG

1
2

goods. All sales made pursuant to this section shall be subject to the
payments of royalties as provided above.

3

Id. at 8(f). If Defendant provides the sixty-day notice of termination pursuant to Section

4

8(b) of the Agreement and has not met the $1,500,000 royalty payment threshold,

5

Defendant “shall discontinue its use of the Vitaphenol trademark and the Know-How and

6

all rights in respect of the Know-How and Vitaphenol trademark shall revert back to

7

York-Goldman.” Id. at 8(g). However, if the Defendant has met the $1,500,000

8

threshold, then Defendant “has no further obligation to York-Goldman unless Avidas

9

resumes sale of the Vitaphenol Products or conveys or licenses the Know-How and, or

10

Vitaphenol trademark to a third party in which case the obligations” regarding the

11

transfer of ownership or license, supra, take effect. Id.

12

III. Defendant’s Agreement with a Third-Party

13

Around August 25, 2010, Defendant and SciDerma Medical, LLC (“SciDerma”)

14

entered into an Inventory and License Agreement. Compl. ¶ 11. Under the agreement,

15

SciDerma “became the exclusive licensee of the Vitaphenol products in the United States

16

. . . and Canada.” Id. However, Defendant “did not pay Plaintiff pursuant to the Contract

17

for the inventory purchased by SciDerma . . . in connection with the Inventory and

18

License Agreement. Plaintiff was unaware of the existence and terms of the Inventory

19

and License Agreement until Avidas disclosed it in a Court filing on December 3, 2018.”

20

Id. (citing Doc. No. 47-2 Ex. L.).

21

IV. Termination and Breach

22

Defendant stopped paying royalties “around mid-2014.” Compl. ¶ 12. On May 8,

23

2014, Defendant wrote a letter indicating that it was terminating the contracts as of July

24

11, 2014, because of the death of the lead person for the Vitaphenol products. Id.

25

Defendant elected not to replace the lead person and cease the sale and promotion of

26

Vitaphenol. Id. Plaintiff alleges Defendant has not returned any unsold inventory to

27

Plaintiff or the unsold inventory of remaining products under Sales Agreement 4(g).

28

Compl. ¶ 13. Rather, Defendant, SciDerma, or both allegedly “authorized destruction of
4
3:17-CV-01124-MMA-WVG

1

unsold inventory” and “some or all of the unsold inventory . . . was allegedly destroyed.”

2

Id. ¶ 13.

3

Further, Plaintiff alleges Defendants or its licensees continued or are continuing to

4

market or sell Vitaphenol despite the May 8 letter and its obligations under the Know-

5

How Agreement to cease use of the Know-How and Vitaphenol trademark. Id. ¶ 14.

6
7
8

DISMISSAL FOR LACK OF SUBJECT-MATTER JURISDICTION
I. Legal Standard
A Federal Rule of Civil Procedure 12(b)(1) motion to dismiss allows for dismissal

9

of a complaint for lack of subject-matter jurisdiction. Subject-matter jurisdiction must

10

exist when the action is commenced. Morongo Band of Mission Indians v. California

11

State Bd. of Equalization, 858 F.2d 1376, 1380 (9th Cir. 1988). Further, subject-matter

12

jurisdiction may be raised “at any stage of the litigation.” Arbaugh v. Y&H Corp., 546

13

U.S. 500, 506 (2006); see also Fed. R. Civ. P. 12(h)(3) (“If the court determines at any

14

time that it lacks subject-matter jurisdiction, the court must dismiss the action.”). A party

15

may properly challenge standing in a Rule 12(b)(1) motion given standing “pertain[s] to a

16

federal court’s subject-matter jurisdiction under Article III.” White v. Lee, 227 F.3d

17

1214, 1242 (9th Cir. 2000).

18

A facial attack on jurisdiction asserts that the allegations in a complaint are

19

insufficient to invoke federal jurisdiction, whereas a factual attack disputes the truth of

20

the allegations that would otherwise confer federal jurisdiction. Safe Air for Everyone v.

21

Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004). In resolving a facial challenge to

22

jurisdiction, the Court accepts the allegations of the complaint as true and draws all

23

reasonable inferences in favor of Plaintiff. See Doe, 557 F.3d at 1073 (citing Wolfe, 392

24

F.3d at 362. In resolving a factual attack, the Court may examine extrinsic evidence

25

“without converting the motion to dismiss into a motion for summary judgment,” and the

26

Court need not accept the allegations as true. Safe Air for Everyone, 373 F.3d at 1039;

27

see also Land v. Dollar, 330 U.S. 731, 735 n.4 (1947) (“[W]hen a question of the District

28
5
3:17-CV-01124-MMA-WVG

1

Court’s jurisdiction is raised . . . the court may inquire by affidavits or otherwise, into the

2

facts as they exist.”).

3

However, a Rule 12(b)(1) motion is “not appropriate for determining jurisdiction . .

4

. where issues of jurisdiction and substance are intertwined. A court may not resolve

5

genuinely disputed facts where ‘the question of jurisdiction is dependent on the resolution

6

of factual issues going to the merits.’” Roberts v. Corrothers, 812 F.2d 1173, 1177 (9th

7

Cir. 1987) (quoting Augustine v. United States, 704 F.2d 1074, 1077 (9th Cir. 1983)).

8

When there is an entanglement, determination of the jurisdictional issue should be

9

determined “on either a motion going to the merits or at trial.” Augustine, 704 F.2d at

10

1077. Unless the summary judgment standard is met, the disputed jurisdictional fact

11

“must be determined at trial by the trier of fact.” Id.

12

II. Discussion

13

Defendant argues Plaintiff lacks standing to bring its breach of contract claim and,

14

therefore, the Court lacks subject-matter jurisdiction.2 Doc. No. 96-1 at 5–14. Defendant

15

contends that Plaintiff “is not part of” the Sales Agreement, and thus there is no contract

16

between Plaintiff and Defendant. Id. at 5, 9. Defendant argues that the Sales Agreement

17

is between York-Goldman Enterprises, Inc.—a separate entity—and Defendant, and that

18

York-Goldman Enterprises, Inc.— not Plaintiff—owned the inventory covered by the

19

Agreement. Id. at 6, 9, 10. Plaintiff responds that the contract refers to the York-

20

Goldman Enterprises entity and Plaintiff collectively under the term “YGE.” Doc. No.

21

97 at 8. Moreover, Plaintiff highlights that Defendant admitted in its own Answer that “it

22

entered into two separate agreements with Plaintiff, one entitled Sales and Distribution

23

Agreement . . . and one agreement with Plaintiff entitled Know-How and Trademark

24

License and Purchase Agreement.” Answer ¶ 2; Doc. No. 97 at 8.

25

26
27
28

2

Plaintiff notes that a Rule 12(b) motion is improper given that Defendant has already filed its Answer.
Plaintiff asserts the motion should be treated as a motion for judgment on the pleadings. Doc. No. 97 at
6–7. Plaintiff is correct as to a motion brought under Rule 12(b)(6), see infra, but not as to a motion
brought under Rule 12(b)(1), which can be brought “at any time.” Fed. R. Civ. P 12(h)(3).
6
3:17-CV-01124-MMA-WVG

1

A. Facial Attack

2

The Court finds Defendant’s facial attack on subject-matter jurisdiction insufficient

3
4

for several reasons.
First, Plaintiff alleged in its Complaint that it entered into both the Sales

5

Agreement and the Know-How Agreement with Defendant. Compl. ¶ 2. By alleging its

6

status as a contracting party under specific contracts and then attaching the referenced

7

contracts, the Court accepts the allegations as true and Plaintiff overcomes the facial

8

challenge. See Doe, 557 F.3d at 1073.

9

Second, the Sales Agreement attached to the Complaint suggests that Plaintiff is a

10

party to the contract because the contract was made “by and between York-Goldman

11

Enterprises, Inc. and La Jolla Spa MD, with a place of business at 7630 Fay Ave. La[

12

]Jolla, CA (hereinafter referred to as ‘YGE’), and Avidas Pharmaceuticals, LLC.”

13

Compl. Ex. 1, at p. 1. Given that the Court must “assume [plaintiff’s] allegations to be

14

true and draw all reasonable inferences in his favor,” Wolfe, 392 F.3d at 362, the court

15

can infer for the limited purposes of this motion that the Sales Agreement refers to both

16

York-Goldman Enterprises, Inc. and Plaintiff collectively as “YGE,” given the

17

agreement’s sentence structure. Similarly, because of the collective reference to “YGE”

18

detailed in the first paragraph of the Sales Agreement, Compl. Ex. 1, at p. 1., the

19

collective reference to “YGE” elsewhere in the Agreement rebuts Defendant’s argument

20

that Plaintiff lacks standing because it seeks to enforce York-Goldman Enterprises, Inc.’s

21

rights and not its own.

22

Third, whereas Plaintiff alleges a breach of the Contract—where “Contract” jointly

23

refers to both agreements, Compl. ¶¶ 2, 19—Defendant only challenges this Court’s

24

subject-matter jurisdiction over the Sales Agreement, not the Know-How Agreement.

25

Thus, dismissal of Plaintiff’s entire breach of contract action would not be appropriate

26

because Defendant fails to challenge the validity of the Know-How Agreement and

27

Plaintiff alleges breach of “two separate, but related agreements.” Id. ¶ 2.

28
7
3:17-CV-01124-MMA-WVG

1

Additionally, Plaintiff argues the facial attack fails based on Defendant’s

2

admission that it entered into both agreements with Plaintiff. Doc. No. 97 at 8; see also

3

Answer ¶ 2. Given the fact that a facial attack focuses on the complaint, see Safe Air for

4

Everyone, 373 F.3d at 1039, any admission regarding the presence of a contract by

5

Defendant is not looked at for the purpose of this analysis.

6

B. Factual Attack

7

The Court also finds Defendant’s factual attack on subject-matter jurisdiction

8

insufficient. In support, Defendant relies upon the Sales Agreement attached to the

9

Complaint as well as a page from the Business Search function of the California

10

Secretary of State’s website that pertains to York-Goldman Enterprises, Inc. Doc. No 96-

11

1 at 5–14; Doc. No. 96-3 Ex. A.3 As previously discussed, the relevant terms of the Sales

12

Agreement are insufficient to rebut Plaintiff’s standing. See supra. The business record

13

from the California Secretary of State’s page for the suspended York-Goldman

14

Enterprises, Inc. entity is simply irrelevant to whether the Court has subject-matter

15

jurisdiction over Plaintiff. Thus, Defendant has not carried its burden to support a factual

16

challenge to the Court’s subject-matter jurisdiction.

17

C. Entanglement

18

Moreover, Defendant’s motion fails given that the issue involves an entanglement

19

of jurisdiction and substance. Defendant starts with the premise that “[t]here is no

20

‘contract’” and that “La[ ]Jolla is not a party to the Sales and Distribution Agreement.”

21

22
23
24
25
26
27
28

3

Defendant requests that the Court take judicial notice of the webpage from the California Secretary of
State. Doc. No. 96-1 at 12. Plaintiff not does appear to object. “A court may take judicial notice of
matters of public record.” Lee v. City of Los Angeles, 250 F.3d 668, 689 (9th Cir. 2001) (internal
quotations omitted). Further, “[a] judicially noticed fact must be one not subject to reasonable dispute in
that it is either (1) generally known within the territorial jurisdiction of the trial court or (2) capable of
accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned.”
Fed. R. Evid. 201(b). Based on the webpage’s status as a public record, the Court may take judicial
notice that York-Goldman Enterprises, Inc. is suspended. See Lee, 250 F.3d at 689. However, because
the status of York-Goldman Enterprises, Inc. is irrelevant to disposition of the motions before the Court,
the Court DENIES Defendant’s request for judicial notice. See Ruiz v. City of Santa Maria, 160 F.3d
543, 548 n.13 (9th Cir. 1998) (denying request for judicially notice of facts irrelevant to an issue).
8
3:17-CV-01124-MMA-WVG

1

Doc. No 96-1 at 5, 7 (emphasis omitted). The first element for a breach of contract claim

2

is “the existence of a contract.” EPIS, Inc. v. Fidelity & Guaranty Life Ins. Co., 156 F.

3

Supp. 2d 1116, 1124 (N.D. Cal. 2001) (citing Reichert v. General Ins. Co., 68 Cal. 2d

4

822, 830 (Cal. 1968)). Plaintiff’s standing to assert a breach of contract claim is

5

entangled with the merits of that claim, rendering the disposition of the matter under Rule

6

12(b)(1) inappropriate.

7

D. Conclusion

8

Therefore, the Court DENIES Defendant’s motion to dismiss for lack of subject-

9
10

matter jurisdiction under Rule 12(b)(1). This action must be resolved either on summary
judgment—discussed below—or at trial.

11
12

MOTION FOR JUDGMENT ON THE PLEADINGS
I. Legal Standard

13

“A Rule 12(b)(6) motion must be made before the responsive pleading.” Elvig v.

14

Calvin Presbyterian Church, 375 F.3d 951, 954 (9th Cir. 2004); see also Fed. R. Civ. P.

15

12(b) (“A motion asserting any of these [Rule 12(b)] defenses must be made before

16

pleading if a responsive pleading is allowed.”). When a party files a motion to dismiss

17

for failure to state a claim after filing their answer, “the motion should have been treated

18

as a motion for judgment on the pleadings, pursuant to Rule 12(c) or 12(h)(2).” Elvig,

19

375 F.3d at 954 (citing Aldabe v. Aldabe, 616 F.2d 1089, 1093 (9th Cir. 1980)); see also

20

Hoeft, 967 F.2d at 1301 n.2 (“The defendants moved to dismiss after answering the

21

complaint, and we therefore construe their motions to dismiss as motions for judgment on

22

the pleadings”).

23

Here, Defendant answered the Complaint before filing the present motion. See

24

Answer; Doc. No. 96. As such, Defendant should have brought a Rule 12(c) motion for

25

judgment on the pleadings because the pleadings are closed. See Doe v. United States,

26

419 F.3d 1058, 1061 (9th Cir. 2005) (“[T]he pleadings are closed for the purposes of

27

Rule 12(c) once a complaint and Answer have been filed, assuming, as is the case here,

28

that no counterclaim or cross-claim is made.”).
9
3:17-CV-01124-MMA-WVG

1

However, this error is not procedurally fatal. Indeed, the Ninth Circuit has read

2

Rules 12(c) and 12(h)(2) to mean that “if a motion to dismiss for failure to state a claim is

3

made after the Answer is filed, the court can treat the motion as one for judgment on the

4

pleadings pursuant to [Rule 12(c)].” Aldabe, 616 F.2d at 1093; Hoeft, 967 F.2d at 1301

5

n.2.4 Given the lack of prejudice to the parties, Plaintiff’s own argument that the motion

6

should be treated as one under Rule 12(c), and the similar procedural posture, the Court

7

converts the Rule 12(b)(6) motion to a Rule 12(c) motion. See Jaeger v. Howmedica

8

Osteonics Corp., No. 15-CV-00164-HSG, 2016 WL 520985, at *4 (N.D. Cal. Feb. 10,

9

2016); Tautges v. Glob. Datacenter Mgmt., Inc., No. 09CV785 JLS (BLM), 2009 WL

10

10671734, at *1 n.2 (S.D. Cal. Nov. 13, 2009); Doc. No. 97 at 6–7.

11

In assessing a Rule 12(c) motion, the Court accepts the complaint’s allegations as

12

true, and the Court treats the answer’s allegations that contradict the complaint’s

13

allegations as false. Hoeft, 967 F.2d at 1301 n.2. “Judgment on the pleadings is properly

14

granted when there is no issue of material fact in dispute, and the moving party is entitled

15

to judgment as a matter of law.” Fleming v. Pickard, 581 F.3d 922, 925 (9th Cir. 2009).

16

“Analysis under Rule 12(c) is ‘substantially identical’ to analysis under Rule 12(b)(6)

17

because, under both rules, ‘a court must determine whether the facts alleged in the

18

complaint, taken as true, entitle the plaintiff to a legal remedy.’” Chavez v. United States,

19

683 F.3d 1102, 1108 (9th Cir. 2012) (quoting Brooks v. Dunlop Mfg. Inc., No. C 10–

20

04341 CRB, 2011 WL 6140912, at *3 (N.D. Cal. Dec. 9, 2011)).

21
22
23
24
25
26
27
28

4

Under Rule 12(d), “if, on a motion under Rule 12(b)(6) or 12(c), matters outside the pleadings are
presented to and not excluded by the court, the motion must be treated as one for summary judgment
under Rule 56.” Fed. R. Civ. P. 12(d). Given that the parties rely upon the pleadings and that the Court
does not rely on any extrinsic evidence outside the pleadings, the Court does not treat the Defendant’s
failure to state a claim defense as one for summary judgment. See Lee, 250 F.3d at 688 (“[A] court may
consider ‘material which is properly submitted as part of the complaint’ on a motion to dismiss without
converting the motion to dismiss into a motion for summary judgment.”); Anderson v. Angelone, 86
F.3d 932, 934 (9th Cir. 1996) (noting that the court must also rely on the extraneous materials to convert
the motion into a motion for summary judgment).
10
3:17-CV-01124-MMA-WVG

1

Noting the similarities between a Rule 12(c) and a Rule 12(b)(6) motion, plaintiffs

2

must plead “enough facts to state a claim to relief that is plausible on its face.” Fed. R.

3

Civ. P. 12(b)(6); Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). The plausibility

4

standard thus demands more than a formulaic recitation of the elements of a cause of

5

action, or naked assertions devoid of further factual enhancement. Ashcroft v. Iqbal, 556

6

U.S. 662, 678 (2009). Instead, the complaint “must contain allegations of underlying

7

facts sufficient to give fair notice and to enable the opposing party to defend itself

8

effectively.” Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011).

9

In determining the propriety of a dismissal, courts generally may not look beyond

10

the complaint for additional facts. United States v. Ritchie, 342 F.3d 903, 908 (9th Cir.

11

2003). “A court may, however, consider certain materials—documents attached to the

12

complaint, documents incorporated by reference in the complaint, or matters of judicial

13

notice—without converting the motion to dismiss into a motion for summary judgment.”

14

Id. “However, [courts] are not required to accept as true conclusory allegations which are

15

contradicted by documents referred to in the complaint.” Steckman v. Hart Brewing, Inc.,

16

143 F.3d 1293, 1295–96 (9th Cir. 1998). Where dismissal is appropriate, a court should

17

grant leave to amend unless the plaintiff could not possibly cure the defects in the

18

pleading. Knappenberger v. City of Phoenix, 566 F.3d 936, 942 (9th Cir. 2009).

19

II. Discussion
Defendant argues that Plaintiff fails to state a claim for breach of contract. 5 A

20
21
22
23
24
25
26
27
28

breach of contract claim under California law requires “(1) the existence of a contract, (2)

5

Defendant focuses exclusively on the Sales Agreement and does not mention the Know-How
Agreement. Defendant only references the Know-How Agreement with respect to its alternate request
for summary judgment. See Doc. No. 96-1 at 20.
Given the existence of two separate agreements and the joint reference to both in the Complaint
under the term “Contract,” Compl. ¶ 2, the Court addresses whether Plaintiff states a claim for breaches
of both agreements. The separateness of the two contracts is underscored by Plaintiff’s Motion to Leave
to File a Third Amended Complaint and the Court’s subsequent Order. See Doc. Nos. 77, 86. In its
motion, Plaintiff stated that “it has learned that [Defendant] has further breached the contract at issue in
this case by not paying for inventory [Defendant] sold and destroying some or all of the unsold
11
3:17-CV-01124-MMA-WVG

1

plaintiff’s performance or excuse for nonperformance, (3) defendant’s breach, and (4)

2

resulting damage to plaintiff.” EPIS, Inc., 156 F. Supp. 2d at 1124 (citing Reichert, 68

3

Cal. 2d at 830).

4

A. Existence of Contract

5

Referencing its previous argument on subject-matter jurisdiction, see supra,

6

Defendant primarily argues that the parties did not enter into a contract and thus, Plaintiff

7

has failed to state a valid breach of contract claim. Doc. No. 96-1 at 14. Plaintiff

8

responds with its same objections to the subject-matter jurisdiction challenge, namely,

9

that there is a contract between Plaintiff and Defendant. Plaintiff further argues that any

10

contractual ambiguities should be resolved in the nonmoving party’s favor. Doc. No. 97

11

at 9.

12

Taking Plaintiff’s allegations as true, as the Court must, Plaintiff and Defendant

13

entered into two Contracts, both attached to the Complaint. Compl. ¶ 2; see also Frontier

14

Contracting, Inc. v. Allen Eng’g Contractor, Inc., No. CV F 11-1590 LJO DLB, 2012

15

WL 1601659, at *4 (E.D. Cal. May 7, 2012) (“A written contract may be pleaded either

16

by its terms-set out verbatim in the complaint or a copy of the contract attached to the

17

complaint and incorporated therein by reference-or by its legal effect.” (quoting McKell

18

v. Washington Mutual, Inc., 49 Cal. Rptr. 3d 227, 253 (2006))). Further, the collective

19

reference to Plaintiff and the suspended York-Goldman Enterprises, Inc. entity as

20

“YGE,” Compl. Ex. 1, at p. 1, must be viewed in Plaintiff’s favor. See Fleming, 581 F.3d

21

at 925 (“We must accept all factual allegations in the complaint as true and construe them

22

in the light most favorable to the non-moving party.”); see also Lloyd v. Navy Fed. Credit

23

Union, No. 17-CV-1280-BAS-RBB, 2018 WL 1757609, at *7 (S.D. Cal. Apr. 12, 2018)

24

(“[A] breach of contract claim may not be dismissed for failure to state a claim if the

25

contract’s terms are ambiguous”).

26
27
28

inventory after termination in violation of the Sales Agreement.” Doc. No. 77-1 at 4. Thus, the motion
practice in this case appears to further evidence the separateness of the contracts.
12
3:17-CV-01124-MMA-WVG

1

Not only does Plaintiff allege the existence of two contracts, but Defendant admits

2

it entered into the two contracts at issue with Plaintiff. Compare Compl. ¶ 2 (noting that

3

Defendant entered into “two separate, but related agreements” with Plaintiff), with

4

Answer ¶ 2 (“Avidas further admits it entered into two separate agreements with Plaintiff,

5

one entitled Sales and Distribution Agreement . . . and one agreement with Plaintiff

6

entitled Know-How and Trademark License and Purchase Agreement.”). The Court

7

deems Defendant’s acknowledgement of the two agreements as a judicial admission

8

because “[j]udicial admissions are formal admissions in the pleadings which have the

9

effect of withdrawing a fact from issue and dispensing wholly with the need for proof of

10

the fact.” Am. Title Ins. Co. v. Lacelaw Corp., 861 F.2d 224, 226 (9th Cir. 1988)

11

(quoting In re Fordson Eng’g Corp., 25 B.R. 506, 509 (Bankr. E.D. Mich. 1982)). Such

12

admissions are “conclusively binding on the party who made them.” Id. (noting that a

13

statement in a complaint or answer is a judicial admission). Thus, Defendant’s admission

14

is determinative, and any argument to the contrary is not well-taken.

15

Moreover, as noted above, see supra note 5, Defendant’s motion only challenges

16

the existence of the Sales Agreement and is silent as to the existence of the Know-How

17

Agreement—which Plaintiff alleges it entered into with Defendant and Defendant admits.

18

Compl. ¶ 2; Answer ¶ 2.

19

B. Additional Elements

20

Defendant vaguely claims that “the other elements [of Plaintiff’s breach of contract

21

claim] are missing.” Doc. No. 96-1 at 14. Plaintiff, also without elaboration, responds

22

that Defendant is wrong. Doc. No. 97 at 9. The Court agrees with Plaintiff.

23

First, Plaintiff alleges that it “sold and transferred all of its inventory to Avidas”

24

under the Sales Agreement in exchange for Defendant paying the cost of the inventory

25

plus an 8% royalty. Compl. ¶ 5. Thus, Plaintiff provides a sufficient plain statement of

26

facts without relying on a mere “formalistic recitation of the element[]” that Plaintiff

27

performed under the Sales Agreement. Bell Atl. Corp., 550 U.S. at 555. It has shown

28

that it performed by alleging how it performed.
13
3:17-CV-01124-MMA-WVG

1

As to the Know-How Agreement, Plaintiff alleges that Mitchel Goldman—who is

2

a signatory under Plaintiff in the Agreement—fully complied with the requirements to

3

“cooperate with Avidas as reasonably requested to provide Avidas with all relevant

4

information contemplated by this Agreement . . . [and] to facilitate Avidas’s development

5

of its business utilizing the Know-How and Vitaphenol trademark.” Compl. Ex. 2 at

6

6(a); Compl. ¶¶ 8–10. Thus, Plaintiff has shown performance by alleging its compliance

7

with the Know-How Agreement.

8

Second, Plaintiff pleads breach of the Sales Agreement by alleging that Defendant

9

did not pay for the cost of inventory sold when the Agreement required Defendant to pay

10

for the cost of inventory sold to Defendant’s consumers plus the 8% royalty on the profit

11

of the inventory’s sales. Compl. ¶ 5. Further, Plaintiff alleges Defendant was obligated

12

to return unsold inventory if the contract was terminated. Id. ¶ 13. Additionally, Plaintiff

13

further alleges unpaid royalties under the Sales Agreement. Compl. ¶¶ 12, 15, 19.

14

As to the Know-How Agreement, Plaintiff alleges that Defendant was obligated to

15

pay for the ownership of the “know-how” and Vitaphenol with $1,500,000 from an 8%

16

royalty on Vitaphenol profits. Id. ¶ 6. After payment of $1,500,000 in royalties,

17

Defendant would then pay a 5% royalty. Id. ¶¶ 6–7. Plaintiff further alleges that the

18

Agreement required Defendant—“[i]n the event Avidas subsequently transfers ownership

19

of, or licenses, the Know-How and Vitaphenol trademark”—to require the third-party

20

purchaser or licensee to continue payment of the 5% royalty. Id. ¶ 7; Compl. Ex. 2 at

21

4(b). Defendant entered into a contract with SciDerma in August 2010 where SciDerma

22

“became the exclusive licensee of the Vitaphenol products in the United States . . . and

23

Canada”; however, Plaintiff received no payments under Defendant’s contract with

24

SciDerma. Compl. ¶ 11. Moreover, Plaintiff was unaware of the Defendant-SciDerma

25

contract until Defendant’s court filing in December 2018. Id. As mentioned with the

26

Sales Agreement, Plaintiff alleges Defendant did not pay for the cost of the inventory and

27

stopped paying royalties in mid-2014. Id. ¶¶ 12, 15, 19. Plaintiff has sufficiently pleaded

28

breach of both contracts.
14
3:17-CV-01124-MMA-WVG

1

Third, Defendant specifically argues that Plaintiff has not proved damages because

2

the rights of the contract “are rights of YGE not La[ ]Jolla.” Doc. No. 96-1 at 14.

3

However, Plaintiff alleges that Defendant has continued to market or sell Vitaphenol,

4

which violates the terms of the contract and has deprived Plaintiff of its royalties.

5

Compl. ¶¶ 14, 15, 20. By stating the results of the breach in terms of lost royalties or

6

unreturned inventory, Plaintiff has pleaded sufficient facts to show that it has suffered

7

damages rather than mere boilerplate of suffering damages in vague, conclusory terms.

8

C. Conclusion

9

In sum, the Court DENIES Defendant’s motion for judgment on the pleadings.

10
11
12

MOTION FOR SUMMARY JUDGMENT
I. Legal Standard
A motion for summary judgment should be granted if there is no genuine issue of

13

material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ.

14

P. 56(a). The purpose of summary judgment “is to isolate and dispose of factually

15

unsupported claims or defenses.” Celotex v. Catrett, 477 U.S. 317, 323–24 (1986). The

16

moving party bears the initial burden of informing the court of the basis for the motion,

17

and identifying portions of the pleadings, depositions, answers to interrogatories,

18

admissions, or affidavits that demonstrate the absence of a triable issue of material fact.

19

Id. at 323; see also Nissan Fire & Marine Ins. Co. v. Fritz Companies, Inc., 210 F.3d

20

1099, 1105 (9th Cir. 2000) (“A moving party may not require the nonmoving party to

21

produce evidence supporting its claim or defense simply by saying that the nonmoving

22

party has no such evidence.”). The evidence and all reasonable inferences therefrom

23

must be viewed in the light most favorable to the nonmoving party. T.W. Elec. Serv., Inc.

24

v. Pac. Elec. Contractors Ass’n, 809 F.2d 626, 630–31 (9th Cir. 1987).

25

If the moving party meets its initial burden, the burden then shifts to the

26

nonmoving party to present specific facts showing that there is a genuine issue of

27

material fact for trial. Celotex, 477 U.S. at 324. The opposing party “must do more than

28

simply show that there is some metaphysical doubt as to the material facts.” Matsushita
15
3:17-CV-01124-MMA-WVG

1

Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574, 588 (1986). When a party fails to

2

properly address another party’s assertions of fact, a court may consider these facts as

3

undisputed. Fed. R. Civ. P. 56(e)(2). If the motion and supporting materials, including

4

facts considered undisputed, show the movant is entitled to summary judgment, the court

5

may grant the motion. Fed. R. Civ. P. 56(e)(3). Summary judgment is not appropriate,

6

however, if the nonmoving party presents evidence from which a reasonable jury could

7

resolve the disputed issue of material fact in his or her favor. Anderson v. Liberty Lobby

8

Inc., 477 U.S. 242, 248 (1986); Barlow v. Ground, 943 F.2d 1132, 1136 (9th Cir. 1991).

9

“Credibility determinations, the weighing of the evidence, and the drawing of

10

legitimate inferences from the facts are jury functions, not those of a judge.” Anderson,

11

477 U.S. at 255. “The evidence of the non-movant is to be believed, and all justifiable

12

inferences are to be drawn in his favor.” Id.; see also Demers v. Austin, 746 F.3d 402,

13

409 (9th Cir. 2014). Accordingly, “[s]ummary judgment is not appropriate if a

14

reasonable jury viewing the summary judgment record could find by a preponderance of

15

the evidence that the [nonmoving party] is entitled to a favorable verdict.” Narayan v.

16

EGL, Inc., 616 F.3d 895, 899 (9th Cir. 2010).

17

II. Evidentiary Objections

18
19
20

As an initial matter, the parties object to various items of evidence. The Court
considers each party’s objections in turn.
“A trial court can only consider admissible evidence in ruling on a motion for

21

summary judgment.” Orr v. Bank of Am., NT & SA, 285 F.3d 764, 773 (9th Cir. 2002);

22

see also Fed. R. Civ. P. 56(c). However, courts will consider evidence with content that

23

would be admissible at trial even if the form of the evidence would be inadmissible. See

24

Celotex Corp., 477 U.S. at 324; Fraser v. Goodale, 342 F.3d 1032, 1036–37 (9th Cir.

25

2003) (admitting a diary in considering summary judgment where its contents were

26

within the author’s personal knowledge and could be admitted in several ways at trial

27

despite a hearsay objection). Authentication is a “condition precedent to admissibility.”

28

Orr, 285 F.3d at 773. Documents authenticated through personal knowledge must be
16
3:17-CV-01124-MMA-WVG

1

“attached to an affidavit that meets the requirements of [Federal Rule of Civil Procedure

2

56(c)] and the affiant must be a person through whom the exhibits could be admitted into

3

evidence.” Id. at 774 (emphasis added) (quotation omitted). Foundation does not require

4

personal knowledge where it can be based on the methods permitted by Federal Rules of

5

Evidence 901(b) or 902. Id. at 774. Furthermore, “‘objections to evidence on the ground

6

that it is irrelevant, speculative, and/or argumentative, or that it constitutes an improper

7

legal conclusion are all duplicative of the summary judgment standard itself’ and

8

unnecessary to consider here.” Holt v. Noble House Hotels & Resort, Ltd, 370 F. Supp.

9

3d 1158, 1164 (S.D. Cal. 2019) (quoting Burch v. Regents of Univ. of Cal., 433 F. Supp.

10

2d 1110, 1119 (E.D. Cal. 2006)).

11

A. Plaintiff’s Objections6

12

First, Plaintiff objects to sixty-five documents produced in discovery by

13

Defendants—identified with bates stamps A_001001 and A_001003 to A_001066—

14

contained within Exhibit J to the Chovanes Declaration in Support of Defendant’s Motion

15

of Summary Judgment. Doc. No. 97-2 at 2; see also Doc. No. 96-5 Ex. J. The

16

documents appear to be business record accounting summaries pertaining to product

17

sales. Doc. No. 97-2 at 2. Plaintiff asserts that the offered evidence cannot be introduced

18

in an admissible form at trial pursuant to Rule 56(c)(2). Plaintiff also argues the

19

documents lack foundation because they have not been authenticated by someone with

20

personal knowledge and instead have been authenticated by Ms. Chovenes, who neither

21

created nor originally received the documents. Id. Further, Plaintiff objects to

22

handwriting on the documents on hearsay grounds. Id.

23
24

The sixty-five documents appear to be Defendant’s records pertaining to its
relationship with Plaintiff, including a total summary chart as well as monthly records

25
26

27

6

28

The Court notes that Defendant fails to specifically address Plaintiff’s evidentiary objections.
Irrespective of Defendant’s lack of response, the Court has an affirmative obligation to determine the
admissibility and propriety of the evidence before it.
17
3:17-CV-01124-MMA-WVG

1

with attached checks and some additional handwriting. Advidas’s records are

2

authenticated by a declaration from its attorney, who fails to convey the necessary

3

“personal knowledge and competence” to testify to the foundation of the produced

4

discovery. Barthelemy v. Air Lines Pilots Ass’n, 897 F.2d 999, 1018 (9th Cir. 1990);

5

Clark v. Cty. of Tulare, 755 F. Supp. 2d 1075, 1083 (E.D. Cal. 2010) (“An attorney may

6

submit a declaration as evidence to a motion for summary judgment. However, the

7

declaration must be made upon personal knowledge and sets forth fact that would

8

admissible in evidence if the attorney were testifying at trial”). The total summary and

9

monthly records do not indicate who created and maintained the documents or what the

10

charts purport to show. See Clark, 755 F. Supp. 2d at 1084 (holding documents produced

11

inadmissible when produced in discovery that had foundation only merely established by

12

attorney declaration).

13

Where a declaration is used to support a motion for summary judgment, the

14

declarant generally “must be a person through whom the exhibits could be admitted into

15

evidence.” Orr, 285 F.3d at 774 (citing Canada v. Blain’s Helicopters, Inc., 831 F.2d

16

920, 925 (9th Cir. 1987)). But see Maljack Prods., Inc. v. GoodTimes Home Video Corp.,

17

81 F.3d 881, 889 n.12 (9th Cir. 1996) (deeming discovery documents offered by the

18

party-opponent as authentic); Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd., 454

19

F. Supp. 2d 966, 972 (C.D. Cal. 2006) (deeming authentication satisfied by judicial

20

admission); 31 Federal Practice & Procedure: Evidence § 7105, at 39 (same). Defense

21

counsel does not appear to have the requisite personal knowledge required under Rule

22

56(c)(4) to authenticate the documents. Although the rule requires that the declaration

23

merely “set out facts that would be admissible in evidence,” the rule also requires that the

24

declarant have personal knowledge. Fed. R. Civ P. 56(c)(4) (emphasis added). Further,

25

because the records were produced by Avidas—not its party opponent—and were not on

26

company letterhead or otherwise coupled with similar identifying information, these facts

27

are distinguishable from those in Maljack. See Maljack Prods., Inc., 81 F.3d at 889 n.12

28

(deeming documents authenticated when offered by the party opponent, were on
18
3:17-CV-01124-MMA-WVG

1

letterhead of the producing party, and their authenticity was not questioned). Thus, even

2

if the facts of the summaries would be admissible, Defendant lacks proper personal

3

knowledge for the records.

4

Additionally, no information is provided as to who made the handwritten

5

annotations on several of the monthly records. However, the checks produced on several

6

of the pages are admissible for summary judgment purposes because the contents of the

7

checks appear to be “sufficiently genuine.” Orr, 285 F.3d at 778 n.24; see also Fed. R.

8

Evid. 901(b)(4) (stating that authentication is satisfied by “[t]he appearance, contents,

9

substance, internal patterns, or other distinctive characteristics of the item, taken together

10
11

with all the circumstances”).
As to the objection on hearsay grounds, the objection fails for two reasons. First,

12

overall summary and monthly summaries appear to be business records kept in the

13

regular course of business. See Fed. R. Evid. 803(6). Second, even if the overall

14

summary and monthly summaries are in an inadmissible hearsay form, they contain

15

admissible content and, thus, may be considered for the purpose of summary judgment.

16

See Fraser, 342 F.3d at 1037. For example, the records could be admitted perhaps

17

through refreshing a witness’s recollection, evidence of a recorded recollection, or direct

18

testimony. See, e.g., id.

19

Therefore, to the extent the Court relies on the information, the Court SUSTAINS

20

Plaintiff’s objections to the summary chart, monthly records, and handwritten annotations

21

but OVERRULES Plaintiff’s objections to the checks.

22

Second, Plaintiff objects to a letter from the Defendant’s President to Dianne York

23

dated June 10, 2014, contained within Exhibit P to the Chovanes Declaration in Support

24

of Defendant’s Motion of Summary Judgment. Doc. No. 97-2 at 3; see also Doc. No. 96-

25

5 Ex. P. Plaintiff again argues that the letter lacks foundation and proper authentication,

26

and contains inadmissible hearsay. Doc. No. 97-2 at 3.

27
28

Unlike the above authentication issues, the letter does not raise the same concerns
because—even though Defense counsel does not have personal knowledge sufficient to
19
3:17-CV-01124-MMA-WVG

1

authenticate the document—personal knowledge of the declarant is not necessary where

2

evidence is self-authenticating. See Fed. R. Evid. 902. Here, the letter from Avidas’s

3

President is on Avidas letterhead with its logo that falls within the trade inscription self-

4

authentication category because the logo indicates “origin.” Id. at 902(7) (“An

5

inscription, sign, tag, or label purporting to have been affixed in the course of business

6

and indicating origin, ownership, or control.”); see also Los Angeles News Serv. v. CBS

7

Broad., Inc., 305 F.3d 924, 935 (9th Cir. 2002), opinion amended on denial of reh’g, 313

8

F.3d 1093 (9th Cir. 2002) (finding a news clip and its identifying broadcast slate properly

9

self-authenticated because the “slate itself provides prima facie evidence of its own

10
11

authenticity”).
As to the hearsay grounds, Plaintiff’s objection again fails regardless of whether

12

the letter itself is admissible. Even if the form of the letter constitutes inadmissible

13

hearsay, which is debatable because it is arguably a business record, the content is

14

admissible because it appears to contain information within the personal knowledge of an

15

agent of Defendant. Fraser, 342 F.3d at 1036–37.

16
17
18

Therefore, to the extent the Court relies on the information, the Court
OVERRULES Plaintiff’s objections to the letter.
Third, Plaintiff objects to two accounting summaries for Vitaphenol products

19

contained within Exhibit Q to the Chovanes Declaration in Support of Defendant’s

20

Motion of Summary Judgment. Doc. No. 97-2 at 4; see also Doc. No. 96-5 Ex. Q.

21

Plaintiff argues that the documents lack foundation and authentication, and are

22

inadmissible double hearsay. Doc. No. 97-2 at 4.

23

These accounting summaries are of the same variety from the first objection. See

24

supra. Given the similarities, the same analysis follows for both the objections on

25

authentication and hearsay grounds. Therefore, to the extent the Court relies on the

26

information, the Court SUSTAINS Plaintiff’s objection to the two accounting

27

summaries.

28
20
3:17-CV-01124-MMA-WVG

1

Fourth, Plaintiff objects to e-mails between Joe Kuchta and Defendant’s President

2

contained within Exhibit T to the Chovanes Declaration in Support of Defendant’s

3

Motion of Summary Judgment. Doc. No. 97-2 at 5; see also Doc. No. 96-5 Ex. T.

4

Plaintiff asserts the same objections as the above objections: authentication and

5

hearsay—hearsay pertaining to the e-mails by Mr. Kuchta. Doc. No. 97-2 at 5.

6

The e-mails provide several indications of reliability and genuineness as to pass

7

muster under authentication. Rather than the e-mails having generic addresses from

8

publicly available e-mail providers, the addresses here appear to be issued from an

9

employer and contain the employee’s name in the address. See Jimena v. UBS AG Bank,

10

Inc., No. 1:07-CV-00367 OWW, 2011 WL 2551413, at *6 (E.D. Cal. June 27, 2011),

11

aff’d sub nom. Jimena v. Standish, 504 F. App’x 632 (9th Cir. 2013). Moreover, the

12

several e-mails cover an identifiable matter common to both participants in the

13

conversation and refer to nonpublic information regarding their agreement and

14

termination of sales of Vitaphenol. See Jimena, 2011 WL 2551413, at *6–7 (holding e-

15

mails were not admissible where the e-mails in question were not work e-mails provided

16

by an employer, included the employee’s name in the address, or indicated substantive

17

and unique information pertaining to the subject matter before the court). The totality of

18

the circumstances surrounding the emails indicate sufficient distinctive characteristics to

19

sustain authentication under Rule 901(b)(4). Therefore, the Court OVERRULES

20

Plaintiff’s objection to the e-mail correspondence.

21

B. Defendant’s Objections

22

Defendant generally argues that Plaintiff’s evidence is “attorney argument and

23
24

expert declarations—inadmissible hearsay.” Doc. No. 99 at 2.
As to Defendant’s objection regarding “attorney argument,” the objection is

25

improper given it is duplicative of the summary judgment standard and thus redundant.

26

See Holt, 370 F. Supp. 3d at 1164. Furthermore, Defendant’s objections are “boilerplate

27

and devoid of any specific argument or analysis as to why any particular exhibit or

28

assertion in a declaration should be excluded.” Ferguson v. United States, No.
21
3:17-CV-01124-MMA-WVG

1

15CV1253 JM (MDD), 2018 WL 3570283, at *2 (S.D. Cal. July 25, 2018) (quoting

2

United States v. HVI Cat Canyon, Inc., 213 F. Supp. 3d 1249, 1257 (C.D. Cal. 2016)).

3

Therefore, the Court OVERRULES Defendant’s general objection to Plaintiff’s

4

evidence.

5

As to Defendant’s objection regarding “expert declarations,” without more

6

information, the Court can only infer Defendant refers to Robert Taylor’s expert witness

7

report submitted by Plaintiff. See Doc. No 97-4. Given that Taylor’s expert report is

8

attached to a declaration signed by Taylor, and that the content of his expert opinion

9

would be admissible as an opinion within his own personal knowledge, any issue as to

10

whether the form of the report is admissible is immaterial at the summary judgment

11

stage. See Fraser, 342 F.3d at 1036–37. Moreover, Defendant does not object to

12

Taylor’s status as an expert witness, and the Court otherwise finds Defendant’s objection

13

to be mere boilerplate. See Ferguson, 2018 WL 3570283, at *2. Therefore, the Court

14

OVERRULES Defendant’s objection to Plaintiff’s “expert declaration.”

15

III. Discussion

16

As mentioned above, to establish liability for breach of contract, a plaintiff must

17

prove “(1) the existence of a contract, (2) plaintiff’s performance or excuse for

18

nonperformance, (3) defendant’s breach, and (4) resulting damage to plaintiff.” EPIS,

19

Inc., 156 F. Supp. 2d at 1124 (citing Reichert, 68 Cal. 2d at 830). The Court considers

20

whether a genuine issue of material fact precludes summary judgment by examining each

21

element in turn.

22

A. Existence of Contract

23

Defendant once again argues that there is no contract between the parties. Doc.

24

No. 96-1 at 23. Defendant does not clearly differentiate between the Sales Agreement

25

and the Know-How Agreement.7 Plaintiff again argues it is a party to the Sales

26
27
28

7

As noted above, Plaintiff’s allegations regarding the two contracts—albeit two related contracts—
require the Court to address each breach of contract claim on its own merits.
22
3:17-CV-01124-MMA-WVG

1

Agreement as confirmed by the face of the Agreement itself. Plaintiff also highlights that

2

Defendant fails to address whether the Know-How Agreement is a valid contract between

3

the parties. Doc. No. 97 at 11.

4

Defendant is not entitled to judgment in its favor because it fails to demonstrate as

5

a matter of law that no contract existed. To carry its burden, Defendant offers the Sales

6

Agreement itself and emphasizes that the contract is between it and York-Goldman

7

Enterprises, Inc. Doc. No. 96-1 at 10. It points to the specific language in the Agreement

8

that “YGE has inventory of some of the products . . . and Avidas desires to purchase such

9

Inventory” and that

10
11
12
13

“YGE[] has the complete authority to enter into this Agreement and its
affiliated company La Jolla Spa MD, Inc. has the authority to negotiate and
execute the agreement conveying the Vitaphenol trademark and licensing the
use of the La Jolla Spa MD trademark on packaging and/or promotion of the
Vitaphenol Products.”

14
15

Doc. No. 96-1 at 6; Compl. Ex. 1 at p. 1. Defendant argues this language underscores

16

that Plaintiff is not party to the Sales Agreement and Plaintiff was not the owner of the

17

Agreement’s inventory. Doc. No. 96-1 at 6–7. However, Defendant overlooks key

18

aspects of the same evidence upon which it relies. The Sales Agreement in the first

19

paragraph appears to define the term “YGE” to encompass more than only York-

20

Goldman Enterprises, Inc. Again, the opening paragraph states:

21

26

THIS SALES AND DISTIBUTION AGREEMENT is made and
entered into on this 19th[] day of August 2008 by and between YorkGoldman Enterprises, Inc. and La Jolla Spa MD, with a place of business at
7630 Fay Ave. La[ ]Jolla, CA (hereinafter referred to as “YGE”), and
Avidas Pharmaceuticals, LLC, a limited liability Corporation with a place of
business at 196 West Ashland Street, Doylestown, PA 18901, USA
(hereinafter referred to as “Avidas”).”

27

Compl. Ex. 1 at p. 1 (emphasis added). Given this definitional language coupled with the

28

Court’s duty to view the evidence in the light most favorable to the nonmoving party,

22
23
24
25

23
3:17-CV-01124-MMA-WVG

1

T.W. Elec. Serv., Inc, 809 F.2d at 630–31, the Court cannot find that Defendant has

2

carried its initial burden. Moreover, Defendant has not provided evidence outside the

3

pleadings to meet its burden. Thus, given that a “trier of fact might resolve the issue in

4

favor of the nonmoving party, summary judgment must be denied” on the language of the

5

contract alone. Id. (citing Matsushita Elec. Indus. Co., 475 U.S. at 587; First Nat. Bank

6

of Ariz. v. Cities Serv. Co., 391 U.S. 253, 287–88 (1968)).

7

At best, Defendant could argue that the Sales Agreement is ambiguous; however,

8

this argument still precludes summary judgment. “Whether a contract is ambiguous is a

9

question of law.” U.S. v. Sacramento Mun. Util. Dist., 652 F.2d 1341, 1343–33 (9th Cir.

10

1981). “[A]mbiguity in a contract raises a question of fact precluding summary

11

judgment” because it “raises a question of intent.” Bank of Am. Nat’l Tr. & Sav. Ass’n v.

12

Allstate Ins. Co., 29 F. Supp. 2d 1129, 1139 (C.D. Cal. 1998) (citing National Union Fire

13

Ins. Co. v. Argonaut Ins. Co., 701 F.2d 95, 97 (9th Cir.1983)); Nat’l Union Fire Ins. Co.

14

of Pittsburgh, Pa., 701 F.2d at 97. Here, the use of the defined term “YGE” is

15

ambiguous when applied in specific sections of the Sales Agreement. See SDR Capital

16

Mgmt., Inc. v. Am. Int’l Specialty Lines Ins. Co., 320 F. Supp. 2d 1043, 1046 (S.D. Cal.

17

2004) (citing MacKinnon v. Truck Ins. Exch., 73 P.3d 1205, 1213 (Cal. 2003)) (“A

18

contract provision is considered ambiguous when the provision is susceptible to more

19

than one reasonable interpretation.”). For example, although the first paragraph appears

20

to define York-Goldman Enterprises, Inc. and Plaintiff collectively as “YGE,” there are

21

several times when the Agreement refers to both YGE and Plaintiff in the same sentence.

22

See, e.g., Compl. Ex. 1 at 1(a), 1(d). This phrasing opens the contract to more than one

23

reasonable interpretation because—depending on the parties’ intent—Plaintiff is either a

24

party or not a party under the Agreement. This question of fact forecloses summary

25

judgment.

26

However, even more problematic is Defendant’s judicial admission in its own

27

Answer as well as in its other representations. Elsewhere in the record, Defendant plainly

28

“admits it entered into two separate agreements with Plaintiff, one entitled Sales and
24
3:17-CV-01124-MMA-WVG

1

Distribution Agreement . . . and one agreement with Plaintiff entitled Know-How and

2

Trademark License and Purchase Agreement.” Answer ¶ 2. As discussed supra, the

3

Court deems the admission as a formal admission with “the effect of withdrawing a fact

4

from issue.” Am. Title Ins. Co., 861 F.2d at 226 (quoting In re Fordson Eng’g Corp., 25

5

B.R. at 509). Plaintiff notes Defendant’s apparent contradiction in its opposition to the

6

instant motion. Doc. No. 97 at 5. Plaintiff also highlights two other instances where

7

Defendant admits entering into the Sales Agreement with Plaintiff. First, Defendant’s

8

President Margaret Gardner testified during deposition that Defendant entered into the

9

Sales Agreement with Plaintiff. Doc. No. 97-6 at 35:9–15. Second, Defendant made the

10

same claim in its Opposition to Plaintiff’s Motion to Leave to File a Third Amended

11

Complaint. See Doc. No. 47 at 4. Defendant fails to address its previous representations,

12

to which the Court will hold Defendant accountable.

13

Therefore, the Court determines that Defendant has failed to demonstrate that no

14

reasonable jury would find the existence of a Sales Agreement between Defendant and

15

Plaintiff. In light of Defendant’s judicial admission in its Answer, as well as the

16

ambiguous nature of the contract, a reasonable jury could conclude that there was a Sales

17

Agreement between the parties.

18

As to the Know-How Agreement, Defendant does not contest that it entered into

19

the Agreement with Plaintiff. Accordingly, the Court finds that Defendant has not

20

carried its burden of summary judgment on this element as to the Know-How Agreement.

21

B. Performance or Excuse

22

Defendant argues this element could not have been satisfied with respect to the

23

Sales Agreement given the lack of a contract between Plaintiff and Defendant. Doc. No.

24

96-1 at 23. However, Defendant provides the termination notice sent from Defendant to

25

Plaintiff, which suggests at minimum some performance has been rendered pursuant to

26

an unspecified “Agreement.” Furthermore, because of the relatedness in terms and

27

subject-matter of the two agreements, there is a degree of uncertainty as to what

28

“Agreement” the termination notice refers. Viewing the evidence in the light most
25
3:17-CV-01124-MMA-WVG

1

favorable to the nonmoving party, the Court finds there is a disputed material fact as to

2

the element of performance of the terms of the Sales Agreement.

3

As to the Know-How Agreement, Defendant fails to “inform[] the court of the

4

basis for the motion” or “demonstrate the absence of a triable issue of material fact” as to

5

performance. Celotex, 477 U.S. at 323–24. As such, Defendant has not met its burden

6

under Rule 56 as to the performance or excuse element of the Know-How Agreement.

7

C. Breach

8

Defendant argues that no reasonable jury could find a breach of the agreements

9

occurred because it has not been selling Vitaphenol products or licensing rights. Doc.

10

No. 96-1 at 19, 23. Plaintiff argues that a genuine issue of fact exists regarding whether

11

Defendant (1) failed to pay Plaintiff the cost of inventory and royalties for Defendant’s

12

sales to SciDerma in August 2010 before the contracted terminated, (2) failed to return

13

unsold inventory under the Sales Agreement upon termination, and (3) failed to pay

14

Plaintiff the cost of inventory and royalties for Defendant’s sales after the contracted

15

terminated. Doc. No. 97 at 12–14; Complaint ¶¶ 12–15, 17.8

16

As to the cost of inventory and royalties before termination, Defendant provides

17

miscellaneous accounting summaries and checks contained within Exhibit J to the

18

Chovanes Declaration in Support of Defendant’s Motion of Summary Judgment. Doc.

19

No. 96-1 at 18, 19, 20, 24, 25, 26; Doc. No. 96-5 Ex. J. As mentioned supra, the

20

financial summaries in Defendant’s Exhibit J—proffered to show sufficient payment

21

from Defendant—are inadmissible for the purposes of summary judgment. Defendant

22
23

24

8

25
26
27
28

The Court again notes that both parties are unclear when referring to the different contract breach
elements that correspond to each particular contract. As to the breach element, both parties do not
cleanly differentiate between the two agreements—an issue compounded by the fact that both
agreements have similar, overlapping sections. Given that the moving party carries the burden and all
reasonable inferences are viewed in nonmoving party’s benefit, any imprecision on the part of the
moving party in informing the court of the basis for the motion and clearly tying its argument to the
cause of action before the court acts to the detriment of the moving party in meeting its burden. See
Celotex, 477 U.S. at 323–24; T.W. Elec. Serv., Inc., 809 F.2d at 630–31.
26
3:17-CV-01124-MMA-WVG

1

also attaches copies of the checks to the summaries to support its claim that it paid

2

royalties for SciDerma’s sales under the sublicense agreement. These checks are

3

sufficient to show that Defendant made payments to Plaintiff under both agreements

4

because they tend to suggest payment during the 2010 through 2014 period.

5

To support its assertion that Defendant did not make full payments before

6

termination, Plaintiff supplies the expert report of Robert Taylor. See Doc. No. 97-7.

7

Taylor’s financial accounting details that Defendant has not paid Plaintiff royalties and

8

product cost associated with the Vitaphenol inventory sold to SciDerma. Doc. No 97-4 at

9

11, 14. Based on the financial accounting and expert opinion of Taylor, there is a

10

genuine dispute such that a reasonable jury could find in Plaintiff’s favor regarding pre-

11

termination payments.

12

As to the unreturned inventory, it is undisputed that Defendant did not return the

13

remaining unsold Vitaphenol inventory. Compl. ¶ 13; Answer ¶ 12–13; Doc. No. 97-3 at

14

12–13 (admitting the retention of the unsold Vitaphenol products given Defendant

15

untimely served its responses for requests for admission in light of the Magistrate Judge’s

16

scheduling order for discovery and Rule 36(a)(6)); Doc. No. 97-6 at 262:8–264:11

17

(deposition of Defendant). However, the parties dispute whether return of the unsold

18

inventory was required under the agreements. In admitting it did not return the inventory,

19

Defendant—in its Answer—focuses on language in the Know-How Agreement:

20
21
22
23
24

In the event of early termination, Avidas shall have the right to dispose of its
stock of Product and shall have the right to manufacture such finished
Product as may be necessary to balance out inventory or to convert raw
materials, or goods in process, into finished goods. All sales made pursuant
to this section shall be subject to the payments of royalties as provided
above.

25

Compl. Ex. 2 at 8(f) (emphasis added); Answer ¶ 12–13. However, Plaintiff emphasizes

26

language in the Sales Agreement:

27
28

In the event of early termination in whole or in respect of any product,
Avidas shall return all unsold inventory to YGE or unsold Inventory of
27
3:17-CV-01124-MMA-WVG

1
2
3
4
5

terminated product(s) (SKUs) if the Agreement is terminated in respect of
fewer than all products. Upon early termination of this Agreement Avidas
shall immediately cease its promotional activities for the Vitaphenol
Products and discontinue any use of the Vitaphenol and La Jolla Spa MD
Trademarks. After any early termination of this Agreement YGE shall
retain the right to the Vitaphenol Products but will remove any information
bearing Avidas’s Trademarks and logos from Product and Product materials.

6
7

Compl. Ex. 1 at 4(g) (emphasis added); Compl. ¶ 13. Both parties fail to address one

8

another’s emphasis on the different contract provisions that appear to govern the same

9

question: what happens to the inventory when the contract is terminated early? The

10

Know-How Agreement’s terms appear to allow Defendant to dispose of the Vitaphenol

11

products—subject to the royalty payments. The Sales Agreement’s terms require

12

returning unsold inventory. The Court finds an ambiguity in interpreting Defendant’s

13

obligation given the differing requirements provided in the Sales Agreement and Know-

14

How Agreement. The ambiguity presents an issue of fact foreclosing summary

15

judgment. See Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., 701 F.2d at 97.

16

As to cost of inventory and royalties after the contract terminated in July 2014,

17

Defendant argues it made no further sales and has paid all royalties—appearing to rely on

18

the various accounting documents in Exhibit J. Doc. No. 96-1 at 19, 20; Doc. No. 96-5

19

Ex. J. Plaintiff responds that there is a genuine issue of material fact. The parties

20

reference ten bottles and cartons of the Vitaphenol product purchased from the Internet

21

by Plaintiff, with Plaintiff claiming these are proof of further sales by Defendant. Doc.

22

No. 96-1 at 23–24; Doc No. 97 at 14. Defendant claims the ten units all have the

23

Plaintiff’s “markings and information.” Doc. No. 96-1 at 24. Defendant claims this

24

proves the units are from its inventory sold before November 15, 2012, and asserts that

25

full royalties were paid. Id. Plaintiff correctly notes that Defendant fails to provide

26

evidence or facts regarding the bottles. Doc. No. 97 at 14. The arguments of counsel are

27

insufficient to carry Defendant’s burden to show the absence of a dispute of material fact

28

as to whether there were sales of Vitaphenol after contract termination. See Fed. R. Civ.
28
3:17-CV-01124-MMA-WVG

1

P. 56(c)(1). Additionally, Plaintiff produces deposition testimony from EPI Printers—

2

which produced Vitaphenol packaging at SciDerma’s request and then shipped the orders

3

to SciDerma customers—that illustrates EPI Printers last shipped a specific Vitaphenol

4

product in June 2016. Doc. No 97-12 at 37:12–38:3. Thus, as with cost of inventory and

5

royalties before termination, a genuine dispute of material fact exists as to whether

6

Defendant satisfied its payment obligations after termination and whether there were

7

Vitaphenol sales after contract termination.

8

D. Damages

9

Defendant argues Plaintiff is not entitled to damages as a matter of law. See Doc.

10

No. 91-1 at 23, 22. Plaintiff counters that because of Defendant’s breaches, there are

11

ascertainable damages, which a jury must determine at trial. Doc. No. 97 at 12–14.

12

Defendant relies on financial summaries that the Court has declared inadmissible for

13

examination in this motion. Moreover, Plaintiff supplies an expert report indicating that

14

Defendant has not made all required inventory and royalty payments owed to Plaintiff

15

and provides estimates for calculated damages resulting from the alleged breach. Doc.

16

No. 97-4 at 7, 14–15. Therefore, Defendant has not met its initial burden to show an

17

absence of disputed material facts. Even if it had, Plaintiff’s estimated damages

18

constitute sufficient evidence of a factual dispute when viewed in the light most favorable

19

to Plaintiff.

20

E. Conclusion

21

In sum, Defendant has not met its burden of demonstrating the absence of a

22

genuine dispute of material fact as to Plaintiff’s breach of contract claim.

23

///

24

///

25

///

26

///

27

///

28

///
29
3:17-CV-01124-MMA-WVG

1
2

CONCLUSION
Based on the foregoing, the Court finds that Defendant is not entitled to dismissal

3

of Plaintiff’s claims or summary judgment in its favor. Accordingly, the Court DENIES

4

Defendant’s motion in its entirety. The Court will issue a pretrial scheduling order

5

forthwith.

6

IT IS SO ORDERED.

7
8
9
10
11

Dated: October 4, 2019
_____________________________
Hon. Michael M. Anello
United States District Judge

12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
30
3:17-CV-01124-MMA-WVG