Digital Ally, Inc. v. Z3 Technology, LLC

Filing 249

MEMORANDUM AND ORDER denying 199 Motion for Judgment. See text of order for details. Signed by Magistrate Judge K. Gary Sebelius on 6/21/2012. (ch)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
DIGITAL ALLY, INC.,

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Plaintiff and Counterdefendant,
v.
Z3 TECHNOLOGY, LLC,
Defendant and Counterplaintiff.

Case No. 09-2292-KGS

MEMORANDUM AND ORDER
This matter comes before the Court upon Z3 Technology LLC’s Motion to Direct Entry of
Judgment under Fed. R. Civ. P. 54(b) (ECF No. 199). In the current motion, Z3 Technology LLC
(“Z3”) seeks an order from the Court finding that there is no just reason for delay in entering
judgment on Count I of its Counterclaim in the amount of $445,000, plus prejudgment interest at
the rate of 12% per year from April 10, 2009 to the date of judgment. For the reasons stated
below, the Court denies the motion.
I.

Background
On November 1, 2008, Plaintiff Digital Ally, Inc. (“Digital”) and Z3 entered into a contract

entitled Production License Agreement PLA-2008.10.31 (“PLA-2008”). PLA-2008 called for Z3
to design a DM355 module for use in Digital’s products and then manufacture and deliver to
Digital 1,000 units along with the necessary software. On January 2, 2009, Digital and Z3 entered
into a second contract entitled Software/Hardware Design and Production License Agreement
(“PLA-2009”). Under PLA-2009, Z3 agreed to design, manufacture, and deliver to Digital
DM365 hardware modules and related software components.

1

On June 8, 2009, Digital filed this lawsuit against Z3 asserting that Z3 breached PLA-2008
by delivering non-conforming modules. Digital also sought a declaration that PLA-2009 was
rescinded and/or is void because the officer who signed PLA-2009 on behalf of Digital lacked
authority to do so. On November 4, 2009, Z3 filed an Amended Counterclaim asserting two
claims against Digital. In Count I, Z3 asserts that Digital breached PLA-2009; in Count II, Z3
asserts that Digital breached PLA-2008.
On March 29, 2012, the Court granted in part Z3’s motion for summary judgment on Count
I of its Counterclaim.

The Court determined that PLA-2009 was a valid and enforceable

agreement against Digital and that Digital breached PLA-2009.
Z3 asked the Court to enter judgment against Digital in the amount of $4,046,810.50 as a
result of Digital’s breach of PLA-2009. The $4,046,810.50 generally consists of (1) lost profits
from Digital’s failure to place a conditional minimum order of 12,000 units per year for a three
year period; (2) lost profits from Digital’s failure to place an unconditional minimum order of
3,050 units; and (3) $175,000 in unpaid engineering fees.
The Court determined that Z3 was entitled to $175,000 in unpaid engineering fees. The
Court also determined that Z3 was entitled to $270,000 for unpaid royalties, instead of lost profits
on 12,000 units per year for a three year period. However, the Court could not resolve Z3’s
remaining damages, including the lost profits from Digital’s failure to place an unconditional
minimum order of 3,050 units and determined that this was an issue for trial.
In the current motion, Z3 seeks an order from the Court finding that there is no just reason
for delay in entering judgment on Count I of its Counterclaim in the amount of $445,000, plus
prejudgment interest at the rate of 12% per year from April 10, 2009 to the date of judgment.

2

II.

Analysis
Fed. R. Civ. P. 54(b) states, “[w]hen an action presents more than one claim for relief . . . or

when multiple parties are involved, the court may direct entry of a final judgment as to one or
more, but fewer than all, claims or parties only if the court expressly determines that there is no just
reason for delay.” To direct entry of judgment under Rule 54(b), the Court must find that three
prerequisites are met: “(1) multiple claims; (2) a final decision on at least one claim; and (3) a
determination by the district court that there is no just reason for delay.”1 An order must be
“final” in the sense that “it is an ultimate disposition of an individual claim entered in the course of
a multiple claims action.”2
Federal courts construing Rule 54 have held that where partial summary judgment is
rendered with respect to only part of the damages sought by the plaintiff and consideration of
further damages is reserved for a later date, the judgment is not final on an entire claim. For
example, in Wheeler Machinery Co. v. Mountain States Mineral Enterprises, Inc., plaintiff sought
$659,005.43 allegedly due on a contract, attorney fees pursuant to the contract, and interest as
provided by the contract at 18% per annum.3 Plaintiff moved for partial summary judgment on the
issues of liability and principal amount due. 4 The district court granted the motion in favor of
plaintiff in the amount of $636,884.70 as the “minimum undisputed amount” owed by defendant.5
1

Jordan v. Pugh, 425 F.3d 820, 826 (10th Cir. 2005).

2

Curtiss-Wright Corp. v. Gen. Elec. Co., 446 U.S. 1, 7 (1980).

3

Wheeler Mach. Co. v. Mountain States Mineral Enters., Inc., 696 F.2d 787, 788 (10th Cir.

4

Id.

5

Id.

1983).

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The district court reserved all other issues including the claims for interest, attorney’s fees, and the
difference between the amount awarded by the court’s order and the amount sought by plaintiff.6
Under Fed. R. Civ. P. 54, the district court determined that there was no just reason for delay in
entering judgment in the amount set out in its order.7
The Tenth Circuit disagreed and concluded that the district court’s order was not final
because it did not resolve the claims for interest and the disputed principal.8 The Tenth Circuit
held that the partial summary judgment order stood as an interlocutory determination of liability
and partial damages.9
Other courts have followed a similar approach. For example, in International Controls
Corp. v. Vesco, a purported final judgment had been entered against the defendant, but the
judgment afforded the plaintiff the opportunity to prove additional damages in subsequent
proceedings. 10 The Second Circuit rejected plaintiff’s argument that the judgment could be final
“as long as it specifies some amount of damages which the plaintiff can collect” and that finality
does not require that a judgment specify all damages as long as it provides a minimal dollar figure
that the plaintiff can collect while proving additional damages.11 Rather, the Second Circuit
concluded that a judgment cannot be considered final as long as it leaves open the question of
6

Id.

7

Id. at 789.

8

Id.

9

Id.

10

Int’l Controls Corp. v. Vesco, 535 F.2d 742, 746-47 (2d Cir. 1976), cert. denied, 434
U.S. 1014 (1978).
11

Id.
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additional damages.12
Because this Court’s summary judgment order resolved only a portion of the damages
potentially recoverable for Digital’s breach of PLA-2009, the Court finds that it is not a final
judgment on one claim within the meaning of Fed. R. Civ. P. 54(b).
The Court defers ruling on the issue of whether Z3 is entitled to prejudgment interest under
Nebraska law.
Accordingly,
IT IS THEREFORE ORDERED that Z3 Technology LLC’s Motion to Direct Entry of
Judgment under Fed. R. Civ. P. 54(b) (ECF No. 199) is hereby denied.
IT IS SO ORDERED.
Dated this 21st day of June, 2012 at Topeka, Kansas.
s/K. Gary Sebelius
K. Gary Sebelius
U.S. Magistrate Judge

12

Id. at 747-48; see also Sussex Drug Prods. v. Kanasco, Ltd., 920 F.2d 1150, 1155 (3d.
Cir. 1990) (holding that “[w]hen liability rests on the same transaction . . . a count for punitive
damages, although of a different order than compensatory damages, does not constitute a separate
claim under Rule 54(b). . . . this is simply an example of an attempt to split a cause of action”);
Kaszuk v. Bakery & Confectionary Union & Indus. Int’l Pension Fund, 791 F.2d 548, 553 (7th Cir.
1986) (holding that partial judgment that did not dispose of request for pre-judgment interest did
not finally adjudicate plaintiff’s entitlement to damages and stating that “[t]here is no material
difference between an order that leaves all damages issues open . . . and an order that leaves one,
important damages issue open . . . . In either event the order is not a final disposition of a claim . .
.”); Choice Fin. Grp. v. Schellpfeffer, 696 N.W.2d 504, 507 (N.D. 2005) (relying on Fed. R. Civ. P.
54 rulings to interpret similar South Dakota rule and conclude that partial summary judgment did
not adjudicate an entire claim because it allowed only partial damages and left the remainder to be
determined at trial).
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