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PNY Technologies Inc v. Miller

United States District Court, N.D. California

March 20, 2017

PNY TECHNOLOGIES, INC., Plaintiff,
v.
MILLER, KAPLAN, ARASE & CO., LLP, Defendant.

          ORDER DENYING PLAINTIFF'S MOTION FOR NEW TRIAL

          MAXINE M. CHESNEY United States District Judge.

         Before the Court is plaintiff PNY Technologies, Inc.'s ("PNY") "Motion for a New Trial, " filed December 14, 2016. Defendant Miller, Kaplan, Arase & Co., LLP ("Miller Kaplan") has filed opposition, to which PNY has replied. Having read and considered the papers filed in support of and in opposition to the motion, the Court rules as follows.[1]

         BACKGROUND

         In 2008, PNY, a "seller of USB and S.D. flash memory system products" (see Compl. ¶ 6), entered into a license agreement with SanDisk Corporation ("SanDisk"), under which agreement SanDisk had the right "to have an independent Third Party accounting firm" audit PNY's compliance with the terms of the license agreement (see Tully Decl., filed July 22, 2016, Ex. 55 § 5.11).[2]

         On May 30, 2014, PNY instituted the above-titled action by filing a complaint against Miller Kaplan, alleging claims arising from its assertion that Miller Kaplan, which had been engaged by SanDisk in 2010 to audit PNY's compliance with the license agreement, had engaged in misconduct in connection with the audit. In its complaint, PNY alleges five Counts, titled, respectively, "Breach of Contract - Non-Disclosure Agreement, " "Fraud, " "Intentional Misrepresentation, " "Negligent Misrepresentation, " and "Tortious Interference with Contract."

         By order filed September 28, 2016, the Court granted in part Miller Kaplan' motion for summary judgment. Specifically, the Court granted summary judgment in favor of Miller Kaplan as to the fraud/misrepresentation claims to the extent those claims were based on the theory that Miller Kaplan had made false statements in its audit reports, and as to the claim alleging tortious interference with contract. The Court denied Miller Kaplan's motion for summary judgment as to the remaining claims, specifically, the fraud/misrepresentation claims to the extent those claims were based on the theory that Miller Kaplan had falsely represented it was independent of SanDisk, and as to the breach of contract claim.

         A jury trial on the remaining claims began on October 31, 2016. After the close of evidence, the Court granted Miller Kaplan's motion for judgment, pursuant to Rule 50 of the Federal Rules of Civil Procedure, as to the breach of contract claim. (See Trial Tr. vol. 8, 1581:15-16, 1603:15-20.) The remaining fraud/misrepresentation claims were submitted to the jury, which, on November 15, 2016, found that (a) "Miller Kaplan [made] a false representation to PNY regarding independence, " (b) Miller Kaplan either "[knew] that the representation was false" or "[made] the representation recklessly or without regard for its truth, " (c) "Miller Kaplan intend[ed] that PNY rely on the misrepresentation, " (d) "PNY reasonably rel[ied] on the representation, " but (e) "PNY's reliance on Miller Kaplan's representation" was not "a substantial factor in causing harm to PNY." (See Verdict Form.)

         On November 16, 2016, the Clerk of Court entered judgment in favor of Miller Kaplan and against PNY.

         DISCUSSION

         By the instant motion, PNY seeks, pursuant to Rule 59(a), a new trial on its claims alleging breach of contract and intentional fraud. PNY argues it is entitled to such relief for the reason that, according to PNY, the Court made various erroneous rulings.

         A district court "may grant a new trial only if the verdict is contrary to the evidence, is based upon false or perjurious evidence, or to prevent a miscarriage of justice." See Molski v. M.J. Cable, Inc., 481 F.3d 724, 729 (9th Cir. 2007) (internal quotation and citation omitted). Where, as here, a party seeks a new trial due to assertedly erroneous rulings, the plaintiff must establish the asserted errors "affect[ed] the essential fairness of the trial, " see McDonough Power Equipment, Inc. v. Greenwood, 464 U.S. 548, 553 (1984); stated otherwise, the errors must have "substantially prejudiced" the moving party in its ability to present its case, see United States v. 99.66 Acres of Land, 970 F.2d 651, 658 (9th Cir. 1992).

         A. Breach of Contract Claim

         PNY's breach of contract claim was based on the theory that, in June and July of 2011, Miller Kaplan, in violation of the terms of a non-disclosure agreement, provided SanDisk with PNY's confidential business records, obtained by Miller Kaplan in connection with the audit, and that PNY was damaged by such alleged disclosures in that, after SanDisk allegedly received the confidential records, PNY lost market share to SanDisk.

         To support its theory that it had lost market share to SanDisk, PNY sought to introduce testimony from Gadi Cohen ("Cohen"), PNY's Chief Executive Officer. PNY proposed that Cohen would testify that, in 2011, PNY suffered a loss of market share and that he would rely on material published by a third party, "NPD, " to establish a causal link between PNY's loss of market share and the above-referenced alleged disclosures by Miller Kaplan to SanDisk. (See Pl.'s Opp. to [Def.'s] Objection, filed October 31, 2016, at 1:9-12, 3:14-17.)[3] More specifically, PNY sought to offer through Cohen five exhibits that were "market share trial demonstratives" PNY had "created from public market share research . . . available to anyone with [a] subscription to the market-based research group NPD." (See Pl.'s Opp. to [Def.'s] Objection, filed October 31, 2016, at 1:9-12.)

         Miller Kaplan objected to admission of the five demonstrative exhibits, as well as to any testimony regarding their content, on several grounds, including hearsay. The Court sustained the objection, finding the contents of the demonstratives to be inadmissible hearsay. (See Trial Tr. vol. 3 at 610:1 - 613:19.) PNY thereafter failed to offer other evidence to support its claim that it was damaged by the alleged breach of the non-disclosure agreement. At the close of evidence, Miller Kaplan moved for judgment on the claim, on the ground that PNY had not offered any evidence of damage. The Court, as noted above, granted Miller Kaplan's motion, and the breach of contract claim was not presented to the jury.

         In the instant motion, PNY argues it is entitled to a new trial on its breach of contract claim, for the asserted reason that the Court, when it excluded the five demonstrative exhibits and testimony based thereon, did not comply with the requirements set forth in R & R Sails, Inc. v. Insurance Co., 673 F.3d 1240 (9th Cir. 2012). The Court disagrees, as the requirements in R & R Sails are inapplicable given the basis for the order of exclusion challenged here.

         In R & R Sails, the Ninth Circuit held that where imposition of a discovery sanction imposed under Rule 37(c)(1) would "amount[ ] to dismissal of a claim, " the district court must consider "whether the claimed noncompliance involved willfulness, fault, or bad faith" and "the availability of lesser sanctions." See id. at 1247. Here, however, the Court did not exclude the demonstratives and testimony based thereon as a discovery sanction, but, rather because such evidence constituted inadmissible hearsay.[4] As PNY does not contend the Court erred in finding the subject evidence to be inadmissible hearsay, PNY fails to identify any basis for a new trial on its breach of contract claim.

         Accordingly, to the extent PNY seeks a new trial on its claim alleging breach of contract, the motion will be denied.

         B. Intentional Misrepresentation Claim

         PNY's intentional misrepresentation claim was based on the theory that Miller Kaplan falsely represented to PNY that Miller Kaplan was independent of SanDisk, and that, prior to the audit, had PNY known of such lack of independence, it would have requested that SanDisk retain a different auditor. With respect to injury, PNY's theories were that Miller Kaplan issued a flawed audit report that was a substantial factor in causing SanDisk to file a lawsuit against PNY for breach of the license agreement and to cease negotiations with PNY as to the terms of a possible agreement to sell SanDisk products to PNY. As noted, the jury found Miller Kaplan made a false representation to PNY regarding independence, and that, although PNY reasonably relied thereon, PNY's reliance was not a substantial factor in causing the injuries claimed by PNY.

         PNY argues that it is entitled to a new trial as to both of its theories of injury. As discussed below, the Court disagrees.

         1. SanDisk's Filing of Lawsuit Against PNY

         As noted, PNY asserted that Miller Kaplan's issuance of the audit report was a substantial factor in causing SanDisk to file against PNY a lawsuit alleging breach of the license agreement.

         At trial, in support of its argument that PNY could not show a causal connection between the audit report and SanDisk's decision to file its lawsuit against PNY, Miller Kaplan offered the testimony of Jim Brelsford ("Brelsford"), SanDisk's chief legal officer at the time SanDisk decided to file its lawsuit against PNY. Brelsford testified PNY's "failure to provide information over the course of an extended period of time" led him to "believe[ ] that [PNY] [was] not operating in good faith" (see Brelsford Dep. (Tully Decl., filed July 22, 2016, Ex. A) at 289:11-18), [5] a perception that "existed independent and irrespective of whatever dollar estimates may have been included in any Miller Kaplan audit" (see id. at 290:7-14). Brelsford further testified that SanDisk and PNY had a legal dispute over the meaning of the license agreement, specifically, a dispute as to what products were covered thereunder, and that PNY had refused to mediate the dispute. (See id. at 319.) When asked whether the "difference of opinion between SanDisk and PNY about what was covered and not covered and the need for a legal resolution through a lawsuit existed independent of and irrespective of any Miller Kaplan audit report, " Brelsford answered, "[y]eah, I would say so." (See id. at 319:22 - 320:4.)

         After Miller Kaplan rested its case, PNY sought to offer testimony from Cohen, its CEO, in rebuttal to Brelsford's testimony. Specifically, PNY, after noting that Brelsford had testified he understood a mediation provision in the license agreement to be mandatory in nature, proposed that Cohen would testify he interpreted the provision as not being mandatory when an audit was "underway." (See Trial Tr. vol. 8 at 1568:13-19, 1569:9 - 1570:6.)[6] Miller Kaplan objected to the introduction of the proposed testimony, and the Court sustained the objection, on the ground Cohen came to such interpretation long after the time at which SanDisk proposed mediation, and that neither he nor anyone else at PNY had ever communicated such interpretation to SanDisk. (See Trial Tr. vol. 8 at 1571:5 - 1577:16.)

         PNY argues the Court erred in not allowing Cohen to testify in rebuttal as to his interpretation of the mediation provision. PNY, however, does not dispute that, at the time it sought to offer Cohen in rebuttal, it did not offer to prove, nor does it do so by way of the instant motion, that the reason PNY declined to mediate was because PNY had, at that time, interpreted the mediation provision as being permissive in light of the pendency of the audit. Nor has PNY shown that Cohen's interpretation of the license agreement would have been relevant to any other disputed issue. In short, PNY has failed to show the order sustaining Miller Kaplan's objection to Cohen's proffered rebuttal testimony was erroneous.

         Lastly, in a footnote, PNY observes that Miller Kaplan, in its closing argument, stated that Brelsford had "no axe to grind" and "no motive to do anything but tell the truth" (see Trial Tr. vol. 9 at 1713:1-2, 1714:8), as he "is retired" (see id. at 1713:4) and "doesn't work for SanDisk anymore, " and thus "has no connection to SanDisk whatsoever" (see id. at 1714:3-5); (see Pl.'s Mot. for New Trial at 19:25-28). PNY argues the statements were false because Brelsford is not "retired, " in that, at the time he gave his testimony, he was working for the law firm of Skadden, Arps, Slate, Meagher & Flom, and, in such capacity, "has worked on SanDisk legal matters." (See id. at 20:26-28 (citing Robertson Decl., filed December 14, 2016, Ex. 13 (Brelsford Dep.) at 86:21 - 87:2).) To the extent PNY may be arguing that the assertedly false statements caused a "miscarriage of justice" or otherwise entitle it to a new trial, see Molski, 481 F.3d at 729, the Court disagrees, as PNY fails to show the statements were false or misleading. Read in context, the reference to Brelsford's being "retired" and having "no connection to SanDisk" was likely intended by counsel for Miller Kaplan and ...


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