The opinion of the court was delivered by: William Alsup, United States District Judge.
ORDER GRANTING IN PART AND DENYING IN PART MOTION FOR JUDGMENT AND
DENYING MOTION FOR NEW TRIAL
This case illustrates an important distinction under California fraud
law: the difference between lost-profit damages and
benefit-of-the-bargain damages. The jury found defendant Eller Media
Company liable for $9,800,000. It now moves for judgment as a matter of
law or for a new trial. As to the fraud verdict of nine million dollars,
this order concludes that relief is required under FRCP 50. Judgment must
be for Eller on plaintiff's fraud claim. As to the unfair-competition
verdict, defendant's similar motion is DENIED. Defendant's motion for a
new trial is DENIED.
As this order on post-trial motions will be the last ruling by the
district court before appeal, the following procedural summary may assist
the court of appeals. This lawsuit arises out of plaintiff's failed
attempt to win a public-works competition in San Francisco. In essence,
the action blames the prevailing bidder for misleading
plaintiff in connection with prospective bids.
On March 12, 1998, the City and County of San Francisco issued a
request for proposals ("RFP") for a "Comprehensive Pedestal-Mounted News
Rack Program for the City and County of San Francisco." As part of its
plan to eliminate newsrack blight, San Francisco sought to outlaw
conventional newsracks and to substitute up to 1,000 new
multi-publication, modular newsracks. The RFP sought a contractor to
furnish, install and maintain the newsracks in return for the vendor
receiving the right to sell advertising on the backs of a portion of the
newsracks and/or through free-standing advertisements.
City Solutions, Inc., is a company that designs, constructs, installs
and operates modular newsracks. Eller Media Company (now known as Clear
Channel Outdoor, Inc.) is a leading outdoor-advertisement firm. Adshel,
Inc., is a company that builds and operates bus shelters which, like
modular newsracks, are another type of "street furniture." Clear Channel
Communications, Inc., was the parent company of Eller Media Company at
all material times and acquired Adshel shortly before the bids were due,
a timing circumstance important to the fact pattern in this case.
During the spring of 1998, pursuant to a written confidentiality
agreement, CSI and Eller executives held several meetings concerning a
possible joint bid. The parties disagree as to what promises or
representations were made at these meetings and whether those promises
were false when made. All agree that steps were taken toward a joint bid
before Eller told CSI, only a few days before the deadline for
submissions, that Eller would not bid with CSI after all. Eller then bid
with Adshel and won. CSI bid with others and lost.
CSI then sued Eller, Adshel and Clear Channel in state court. CSI sued
Eller for breach of fiduciary duty, breach of the written confidentiality
agreement, breach of an oral joint venture agreement, fraud and deceit,
common law unfair competition, and violation of the California Trade
Secrets Act. It sued Adshel for interference with contract and common law
unfair competition, and it sued Clear Channel for common law unfair
competition. Defendants removed this action to this court on the basis of
diversity. Plaintiff then amended its complaint, alleging that Eller owed
CSI fiduciary duties arising out of their confidentiality agreement and
an oral joint venture formed between them as partners to bid for the San
Francisco newsrack contract.
In January 2001, Judge Charles Legge, to whom this case originally was
assigned, denied summary judgment motions filed by defendants as well as
plaintiff.*fn1 On November 21, 2001, partial summary judgment was granted
for defendants on CSI's claim that it and Eller formed an oral joint
venture to bid for the newsrack contract. The Court held that while in
certain contexts contractors may reach an actionable agreement to be a
team and to submit a bid together, here no such teaming agreement was
formed as the parties merely formed an unenforceable "agreement to
On March 13, 2002, partial summary judgment was granted for defendants
on plaintiff's fiduciary-duty claims. Since the Court had already found
that the parties had not entered into a joint venture, such an agreement
could not have formed the basis of a fiduciary relationship.
Furthermore, the order held that the parties were not fiduciaries by
virtue of their written confidentiality agreement.
Trial commenced on September 23, 2002. Plaintiff's contract and
fiduciary-duty claims having been eliminated on summary judgment, what
remained for the jury were the issues of breach of the confidentiality
agreement, fraud, and unfair competition. At the end of plaintiff's
case, defendants moved for a directed verdict on all claims. A
Rule 50 motion was granted as to defendant Clear Channel Communications only.
Defendants renewed their motion for judgment as a matter of law at the
close of their case. The motion was denied without prejudice.
By a special verdict returned on October 10, 2002, the jury found Eller
liable for $9,000,000 on the fraud claim and $800,000 on the
unfair-competition claim. The jury found that Eller had breached the
written confidentiality agreement but awarded no damages. It further
found that Eller had not misappropriated any trade secret. The jury found
no liability for Adshel on plaintiff's unfair-competition claim.
In an extensive motion, Eller moved alternatively for judgment as a
matter of law or for a new trial. CSI opposed the motion but failed to
cite to any portion of the reporter's trial transcript to support the
verdict, leaving the Court to fumble through its own notes of the trial
for possible support for the various factual issues in dispute. On
December 19, 2002, oral argument was heard. The Court asked plaintiff's
counsel about the trial testimony regarding plaintiff's reliance on
Eller's fraud. Plaintiff's counsel stated that he could not specifically
detail any testimony because plaintiff had not ordered the trial
transcripts. Eller's counsel volunteered to provide plaintiff with a copy
of all trial transcripts at its own expense. The Court ordered
supplemental briefing on the reliance issue. On January 9, 2003, the
parties filed simultaneous briefs providing specific trial evidence on
plaintiffs detrimental reliance. Both of Eller's motions are addressed
together, as the same issues arise under both motions.
CSI's fraud claim revolved around three meetings with Eller in San
Francisco in 1998. Although the facts were disputed, this order must
indulge all reasonable inferences in plaintiff's favor based on the
evidence. At these meetings, Eller stated that it would bid with CSI and
that it would not bid with Adshel. The latter issue arose because it was
known that Eller's corporate parent was then trying to acquire Adshel. At
a meeting held on March 31, 1998, CSI's President, Tom Trento, and
Executive Vice President, David Hughes, again spoke with William Hooper,
President of Eller's Northern California Region, about bidding together.
Hooper said that Eller would not bid with Adshel in San Francisco, and
that if Eller bid at all in San Francisco, it would be with CSI. In
anticipation that they might form a team to bid, on April 2, 1998, CSI
and Eller signed a written confidentiality agreement. The agreement
allowed the parties to exchange confidential information during their
preliminary negotiations but did not create any agency, partnership, or
On April 13, 1998, CSI executives again met with Hooper and George
Broder, Eller's Public Affairs Manager, and discussed bidding together.
On May 21, it was publicly announced that Adshel had been acquired by
Eller's parent company, defendant Clear Channel Communications. Because
of the acquisition, at a meeting on May 26, Trento of CSI asked Hooper
Broder of Eller if the CSI-Eller team was still going to go forward
together. They answered yes. Significantly, however, Trento of CSI
testified that at least up to this commitment, Eller had every right to
walk away from its negotiations with CSI. The parties had not yet reached
agreement on the contents of the bid nor on any joint-venture division of
profits; nor did they ever do so.
In this time period, Hooper of Eller decided that he would not bid with
CSI after all but would instead bid with Adshel. The parties dispute
whether this change occurred shortly before or shortly after the May 26
reaffirmation. This order assumes that it took place before as plaintiff
argues (despite strong evidence that it occurred shortly after May 26).
Hooper notified Trento on June 3. He told Trento that the decision was
made by "others." Hooper later admitted, however, that in fact the
decision to terminate Eller's relationship with CSI was solely his
decision. Thereafter, CSI had to scramble to replace Eller in the
lineup. CSI prepared a bid utilizing advertising companies Foster Media
and Jamison Cawdry instead of Eller. Meanwhile, Eller did not return two
copies of a draft bid CSI prepared on May 26 until June 12, in violation
of the written confidentiality agreement. Ultimately, San Francisco
awarded the bid to Adshel-Eller. The Adshel-Eller bid outscored the
CSI-Foster-Jamison bid by seventy-six points, a very substantial margin
The final jury instructions regarding damages on CSI's fraud (and unfair
competition) claims was as follows:
I will now discuss with you the damages that City
Solutions may recover for fraud or unfair competition
claims. Damages means the amount, if any, which will
reasonably and fairly compensate City Solutions for
any injury you find was caused by the defendant. In
determining the amount of damages, you should consider
City Solutions' out-of-pocket costs from March 31,
1998 to June 3, 1998. Out-of-pocket costs are defined
as costs paid out of one's own funds.
With respect to the fraud verdict, the threshold issue is whether lost
profits can ever be recovered under California fraud law. This order holds
that lost profits may be recovered. The issue then reduces to whether in
this case the lost profits can be traced to detrimental reliance. This
order holds that the trial record fails to support such an award. No
reasonable jury could have found that in the absence of detrimental
reliance on the false promise, plaintiff would have beaten the winning
Judgment as a matter of law pursuant to FRCP 50(b) is proper when the
evidence and its inferences, considered as a whole and viewed in the
light most favorable to the nonmoving party, can support only one
reasonable conclusion — that the moving party is entitled to
judgment notwithstanding the adverse verdict. Reeves v. Sanderson
Plumbing Prods., Inc., 530 U.S. 133, 150-51 (2000).
A new trial should be granted pursuant to FRCP 59 where the verdict is
contrary to the clear weight of the evidence or a "miscarriage of
justice" has occurred. Murphy v. City of ...