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Mighty Enterprises, Inc. v. She Hong Industrial Co. Ltd.

United States District Court, C.D. California

March 7, 2017

Mighty Enterprises, Inc.
v.
She Hong Industrial Co. Ltd.

          Present: The Honorable Jay C. Gandhi, United States Magistrate Judge.

          CIVIL MINUTES - GENERAL

         Proceedings: (IN CHAMBERS) ORDER DENYING DEFENDANT'S RENEWED MOTION FOR JUDGMENT AS A MATTER OF LAW AND MOTION FOR A NEW TRIAL

         The Court is in receipt of: (1) Defendant's renewed motion for judgment as a matter of law (“JMOL Motion”), Plaintiff's opposition (“Opp. to JMOL Motion”), and Defendant's reply (“Reply Re JMOL Motion”), [see Dkt. Nos. 182, 186, 198, 201]; and (2) Defendant's motion for a new trial or, alternatively, remittitur (“New Trial Motion”), Plaintiff's Opposition (“Opp. to New Trial Motion”), and Defendant's reply (“Reply Re New Trial Motion”), [Dkt. Nos. 182, 187, 199, 202, 203]. The Court also held a hearing on Defendant's motions on February 17, 2017. [Dkt. Nos. 204, 205.]

         For the reasons discussed below, Defendant's JMOL Motion and New Trial Motion are both DENIED.

         I. Background

         On August 19, 2014, Plaintiff sued Defendant for, inter alia, breach of oral contract, breach of implied contract, interference with contractual business relations, and fraud. [See Dkt. No. 1.]

         In November 2016, this Court presided over a jury trial in this matter in which Plaintiff argued each of those claims. [See Dkt. Nos. 149-150, 153, 156, 158.] On each claim, Plaintiff bore the burden of proof by a preponderance of the evidence. Wong Kwai Sing v. Dulles, 265 F.2d 131, 133 n.2 (9th Cir. 1959) (finding that the “ordinary civil” burden of proof is preponderance of the evidence).

         During trial, Defendant requested that its proposed jury instructions based on California Commercial Code section 2309 be given. [Dkt. No. 155.] The Court denied the request, in part because it was duplicative of the jointly proposed, and eventually issued, instruction regarding benefit of the bargain damages. [Dkt. No. 161 at 28; Dkt. No. 194 at 690.]

         After four days of evidence and argument, and several hours of deliberation, the jury returned a verdict for Plaintiff on all claims, issued a damages award of $6, 203, 000, and also found that Defendant engaged in malice, oppression or fraud by clear and convincing evidence. [Dkt. No. 168.] Following the verdict, the parties proceeded with the punitive damages phase of the trial. [Dkt. No. 195 at 932:11-16.] Following arguments by both parties, the jury deliberated and issued a punitive damages award of $6, 000, 000. [See Dkt. Nos. 169.] Judgment was entered thereafter. [Dkt. No. 177.]

         Defendant argues that judgment as a matter of law is warranted because: (1) Plaintiff did not present sufficient evidence to establish Defendant's liability for breach of contract and fraud; and (2) Plaintiff did not present sufficient evidence to establish the amount of compensatory damages awarded by the jury. (See generally JMOL Mot.; Reply Re JMOL Mot.) Relatedly, Defendant also argues that a new trial is warranted because: (1) the Court allegedly failed to instruct the jury on California Commercial Code Section 2309; (2) Plaintiff's expert's testimony was inadmissible, unreliable, and prejudicial; (3) the jury's verdict was against the clear weight of the evidence; and (4) the total damages awarded were excessive and against the clear weight of the evidence. (See generally New Trial Mot.; Reply Re New Trial Mot.) Defendant alternatively requests a remitter on both the compensatory and punitive damages awarded. (Id.)[1]

         The Court addresses each of these contentions below, and finds that each lacks merit.

         II. Legal Standards

         A. Judgment as a Matter of Law

         A motion for judgment as a matter of law after the verdict renews the moving party's prior Rule 50(a) motion for judgment as a matter of law at the close of all the evidence. Fed.R.Civ.P. 50(b). Judgment as a matter of law after the verdict may be granted only when the “evidence and its inferences, construed as a whole and viewed in the light most favorable to the nonmoving party, can support only one reasonable conclusion” as to the verdict. Kern v. Levolor Lorentzen, Inc., 899 F.2d 772, 775 (9th Cir.1990). Where there is sufficient conflicting evidence, or if “reasonable minds could differ over the verdict, ” judgment as a matter of law after the verdict is improper. See Air-Sea Forwarders, Inc. v. Air Asia Co., 880 F.2d 176, 181 (9th Cir.1989) (internal citation and quotation marks omitted).

         Moreover, when the sufficiency of the evidence is questioned and is the basis of a Rule 50(b) motion, the inquiry is whether there was “substantial evidence” in favor of the jury's verdict. Janes v. Wal-Mart Stores, Inc., 279 F.3d 883, 888 (9th Cir.2002). Substantial evidence is “evidence adequate to support the jury's conclusion, even if it is also possible to draw a contrary conclusion from the same evidence.” Johnson v. Paradise Valley Unified Sch. Dist., 251 F.3d 1222, 1227 (9th Cir. 2001).

         B. New Trial and Remittitur

         Under Federal Rule of Civil Procedure 59(a), a federal court may grant a new jury trial for “grounds that have been historically recognized.” Zhang v. Am. Gem. Seafoods, Inc., 339 F.3d 1020, 1035 (9th Cir. 2003). In other words, “[t]he trial court may grant a new trial only if the verdict is contrary to the clear weight of the evidence, is based upon false or perjurious evidence, or to prevent a miscarriage of justice.” Passantino v. Johnson & Johnson Consumer Prods., 212 F.3d 493, 510 n.15 (9th Cir. 2000). Notably, “a district court may not grant a new trial simply because it would have arrived at a different verdict.” Silver Sage Partners, Ltd. v. City of Desert Hot Springs, 251 F.3d 814, 819 (9th Cir. 2001).

         In deciding a motion for a new trial, “the district court may, in its discretion, grant the motion and order a new trial . . . or deny the motion and reinstate the judgment . . ., or grant a remittitur with the alternative of a new trial if the remittitur is not complied with.” Milhouse v. Travelers Commercial Ins. Co., 982 F.Supp.2d 1088, 1093 (C.D. Cal. 2013) (internal citation and quotation marks omitted), aff'd, 641 F. App'x 714 (9th Cir. 2016). A motion for remittitur of a jury verdict is subject to the same standard as a motion for new trial under FRCP 59. Morris v. Walgreen Oshkosh, Inc., 2016 WL 1704320, at *3 (D. Or. Apr. 28, 2016), appeal dismissed (Sept. 20, 2016). If the Court “decides to offer the option of a remittitur, the jury's verdict should be reduced to the maximum amount sustainable by the proof.” Milhouse, 982 F.Supp.2d at 1093 (internal citation and quotation marks omitted).

         III. Discussion

         A. Neither Judgment as a Matter of Law Nor a New Trial is Warranted on the Grounds that Plaintiff Failed to Present Sufficient Evidence for Breach of Contract and Fraud[2]

         1. There was Substantial Evidence of a Breach of Contract

         Defendant claims that: (1) “[Plaintiff] failed to show that the alleged exclusive distributorship agreement even existed, as there was no meeting of the minds”; (2) “there was insufficient evidence to show that [Plaintiff] provided adequate consideration to [Defendant] for its exclusivity”; and (3) there is a “lack of evidence that [Defendant] terminated [Plaintiff].” (JMOL Mot. at 4, 9.)

         As a rule, the elements of a breach of oral contract claim are the same as those for a breach of written contract: a contract; its performance or excuse for nonperformance; breach; and damages. Stockton Mortg., Inc. v. Tope, 233 Cal.App.4th 437, 453 (2014). Relatedly, “[a] cause of action for breach of implied contract has the same elements as does a cause of action for breach of contract, except that the promise is not expressed in words but is implied from the promisor's conduct.” Yari v. Producers Guild of Am., Inc., 161 Cal.App.4th 172, 182 (2008). Notably, “[u]sage or custom may be looked to, both to explain the meaning of language and to imply terms, where no contrary intent appears from the terms of the contract.” Howard Entm't, Inc. v. Kudrow, 208 Cal.App.4th 1102, 1114 (2012) (internal citation and quotation marks omitted).

         Here, as Defendant admits, “[Plaintiff] produced evidence showing that [Defendant] referred to [Plaintiff] as its exclusive dealer in the United States.” (JMOL Mot. at 5.) Specifically, according to the testimony of Peter Tsai (“Mr. Tsai”), Plaintiff's founder and CEO: (1) he and Defendant's founder, Joseph Chen (“Mr. Chen”), agreed in 1987 that “Defendant will build machinery and not sell to any other people in the USA market, ” and “Plaintiff will . . . only bring [Defendant's] machine and not . . . [those] from any other competitor”; (2) in 2003, Mr. Chen told him that Plaintiff had an “exclusive relationship” with Defendant; and (3) in the same year, Mr. Chen told him that the relationship between the two companies “will be running for” another 20 years. [Dkt. No. 189 at 141:13-15, 142:10-24; 160:9-14.] There was also documentary evidence of the exclusivity arrangement, such as: (1) a 2013 email from Mr. Chen to one of Plaintiff's dealers, in which Mr. Chen states that “[Plaintiff] is our formal exclusive dealer in USA, ” [id. at 159:1-10; Dkt. No. 200-2 at 2]; and (2) a 2013 email from Daniel Lu (“Mr. Lu”), sales manager for Defendant, to Mr. Tsai, in which Mr. Lu says “[Plaintiff] is our exclusive dealer in USA (whole territory), ” [Dkt. No. 189 at 160:15-161:21; Dkt. No. 200-3 at 17]. As such, there was substantial evidence of an exclusive distributorship agreement (“Distribution Agreement”) between the two parties.

         There was also evidence of a contract term governing the manner in which a party could terminate. Specifically: (1) Mr. Tsai testified that pursuant to the “machine tool industry in the United States” and the Distribution Agreement between Plaintiff and Defendant, Defendant would have to buy back the equipment it previously sold to Plaintiff if it wished to terminate, [Dkt. No. 189 at 143:7-144:14]; (2) Plaintiff's Vice President of Marketing, Bo Jean (“Mr. Jean”), testified that it was customary for the seller of machinery/equipment to buy back its equipment from the buyer/dealer if the seller intended to terminate the business relationship, [Dkt. No. 192 at 496:11-497:13]; (3) Mr. Tsai testified that, in 2010, he told Mr. Lu that Defendant would have to buy back “all the inventory” and “outstanding machines” if it wanted to terminate the Distribution Agreement, [Dkt. No 190 at 279:8-280:3]; (4) Mr. Tsai further testified that Mr. Lu did not object to such a condition, [id. at 280:4-7]; and (5) Mr. Lu confirmed that Mr. Tsai had told him in a 2010 email that Defendant could terminate only after it bought back the machinery and parts in Plaintiff's possession, [Dkt. No. 191 at 355:3-7].[3]

         There was also evidence that, in consideration of these terms, Plaintiff was prohibited from selling the same kind of machines that it was getting from Defendant. [Dkt. No. 189 at 142:16-24 (testimony of Mr. Tsai).] Furthermore, Plaintiff was required to install the machines at their customers' premises, honor warranty and service obligations, and maintain a trained service staff and parts department. [Id.; Dkt. No. 190 at 299:10-300:12 (testimony of Andrew Chen, son of Mr. Chen and Defendant's current chairman), 319:2-14 (testimony of Mr. Lu); Dkt. No. 192 at 443:8-18 (testimony of Alex Tseng (“Mr. Tseng”), Defendant's sales specialist).]

         Moreover, Plaintiff presented evidence in support of its claim that Defendant terminated the Distribution Agreement. Specifically, Defendant's representative emailed Mr. Jean and Mr. Tsai on June 23, 2014, and imposed onerous conditions on Plaintiff (i.e., limitation of sales to 10 U.S. states and a prohibition on selling “other Taiwan[-]brand[-]assembled center machines”). [Dkt. No. 192 at 526:1-10; Dkt. No. 200-4 at 9.] The jury could have inferred that such terms constructively terminated the Distribution Agreement because adherence to them would have effectively put Plaintiff out of business. [Dkt. No. 189 at184:21-185:13 (Mr. Tsai's testimony that Plaintiff would have had to give up half of its revenue as a result, and that Defendant was “trying to kill us and take everything away”); Dkt. No. 192 at 526:1-527:1 (Mr. Jean's testimony that Plaintiff would have had to sacrifice “way more” than “half of [its] revenue” if it complied with such conditions).]

         Furthermore, Plaintiff presented evidence indicating that Defendant breached the agreement. Importantly, and preliminarily, although “[Defendant] had the right to terminate [Plaintiff] as its exclusive domestic distributor, ” there was evidence that “[Defendant] breach[ed] the agreement by the way it terminated the agreement.” (Opp. to JMOL Mot. at 15.) For example, Plaintiff presented evidence that from 2013 to 2014, Defendant attempted to solicit not just other distributors in the United States, but more specifically, Plaintiff's dealers.[4] [Dkt. No. 189 at 177:15-181:9; Dkt. No. 191 at 345:4-23, Dkt. No. 192 at 444:5-14, 484:17-485:14, 522:15-523:7; Dkt. No. 200-3 at 23-24]; (see also Section III.A.2., infra). Based on this evidence, the jury could have inferred that such actions violated the aforementioned exclusivity term and the implied covenant of good faith and fair dealing. See Boland, Inc. v. Rolf C. Hagen (USA) Corp., 685 F.Supp.2d 1094, 1103 (E.D. Cal. 2010) (“[I]n the context of an oral contract . . . the scope of the implied duty must be determined by the trier of fact.”). Also, the fact that Defendant did not buy back the inventory it sold to Plaintiff could have been construed as a breach of the aforementioned termination terms. [Dkt. Nos. 191 at 355:9-12; 193 at 545:20-547:6.][5]

         Lastly, there is evidence that, as a result of Defendant's breach of the Distribution Agreement's terms, Plaintiff suffered the following damages described by Plaintiff's damages expert, Jason Engel (“Mr. Engel”), and confirmed by Mr. Jean: (1) costs of repairing and repurchasing defective machines; and (2) costs of purchasing and keeping machines/parts inventory with marginal value. [See Dkt. No. 193 at 542:14-543:17, 545:11-546:2, 546:11-547:6]; (see also Section III.B., infra).

         Accordingly, the jury's verdict that Defendant breached the terms of the Distribution Agreement is supported by substantial evidence and not contrary to the clear weight of the evidence.

         2. There was Substantial Evidence of Fraud

         Defendant also claims that there was insufficient evidence of fraud because: (1) Plaintiff was aware of Defendant's intention to find another distributor; (2) Defendant had no duty to disclose its intention to commit tortious interference to Plaintiff; and (3) Plaintiff did not present any evidence of a fiduciary relationship with ...


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