The Citri-Lite Company, Inc. v. Cott Beverages, Inc., No. 1:2007cv01075 - Document 65 (E.D. Cal. 2010)

Court Description: Memorandum Decision Re: Defendant's Motion For Summary Judgment or, in the Alternative, Partial Summary Judgment 36 , signed by Judge Oliver W. Wanger on 6/11/2010. (Gaumnitz, R)

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1 2 UNITED STATES DISTRICT COURT 3 EASTERN DISTRICT OF CALIFORNIA 4 5 THE CITRI-LITE COMPANY, a California corporation 1:07-CV-01075-OWW-DLB Plaintiff, 6 7 v. 8 MEMORANDUM DECISION RE: DEFENDANT S MOTION FOR SUMMARY JUDGMENT OR, IN THE ALTERNATIVE, PARTIAL SUMMARY JUDGMENT (DOC. 36) COTT BEVERAGES, INC., dba Cott Beverages U.S.A., a Florida corporation, and DOES 1 through 25, 9 10 Defendants. 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 I. INTRODUCTION Before the court is a motion for summary judgment or, in the alternative, partial summary judgment brought by Defendant Cott Beverages, Inc. ( Cott ). The motion is directed at the claims for breach of contract and breach of the implied covenant of good faith and fair dealing asserted by Plaintiff The Citri-Lite Company ( Citri-Lite ). In this removed diversity action, Citri-Lite contends that Cott breached its contractual obligation to use commercially reasonable efforts to promote and sell Slim-Lite, a beverage that Citri-Lite created. In Cott s summary judgment motion, Cott argues that, under a proper interpretation of the contract, it satisfied its obligation to use commercially reasonable efforts to promote and sell Slim-Lite. Alternatively, Cott argues that CitriLite cannot establish that its purported damages were caused by any breach by Cott, and that Citri-Lite s damages theories are legally 28 1 1 unsound. The following background facts are taken from the 2 parties submissions in connection with the motion and other 3 documents on file in this case.1 II. 4 5 A. BACKGROUND The Parties Cott is a Georgia corporation with its principal place of 6 7 business in Tampa, Florida. 8 distributes 9 drinks, sparkling and flavored mineral waters, energy drinks, juice 10 drinks, ready-to-drink teas, and other non-carbonated beverages. 11 (Id.) Citri-Lite is a California corporation with its principal 12 place of business in Grass Valley, California. (Id.) 13 incorporated in 1996 to produce and market Slim-Lite, a non- 14 carbonated, zero calorie, fruit-flavored drink. (Id. at 2-3.) 15 Between 1996 and 2002, Citri-Lite operated at a loss. (Id.) 16 B. 17 non-alcoholic (Doc. 40 at 2.) beverages Cott produces and including carbonated soft Citri-Lite The Licensing Agreement On December 28, 2003, Citri-Lite and Cott entered into a 18 written agreement entitled Intellectual Property License And 19 Purchase Option Agreement ( Agreement ), which is governed by 20 California law. (Doc. 17 at 6; Doc. 40 at 3.) 21 the Agreement is two (2) years, starting on December 28, 2003, with 22 automatic two-year extensions. (Id.) The initial term of Under Section 8.1, however, 23 1 24 25 26 27 28 A district court does not . . . make findings of fact in ruling on a summary judgment motion. Findings of fact are made on the basis of evidentiary hearings and usually involve credibility determinations. Rand v. Rowland, 154 F.3d 952, 957 n.4 (9th Cir. 1998); see also Scott v. Harris, 550 U.S. 372, 378 (2007) ( As this case was decided on summary judgment, there have not yet been factual findings by a judge or jury . . . . ); Cottrell v. Caldwell, 85 F.3d 1480, 1486 (11th Cir. 1996). 2 1 Cott had the right to terminate the Agreement at any time upon 2 sixty (60) days prior written notice. (Id.; Doc. 40 at 4.)2 3 Under the terms of the Agreement, Citri-Lite granted Cott the 4 exclusive right to use the Slim-Lite® brand identity and all 5 associated 6 Agreement, 7 distribution, sale and marketing of Slim-Lite. (Doc. 17 at 6.) 8 exchange, Cott agreed to make royalty payments to Citri-Lite based 9 on a rate of fifty cents ($0.50) per case of product sold (i.e., 10 fifty cents per 240 ounces of the product sold by Cott), with a 11 guaranteed minimum royalty of $350,000 per year. (Id.; Doc. 40 at 12 4.)3 intellectual for property purposes of rights, the as defined manufacture, by the production, In 13 The Agreement also contained a clause which required Cott to 14 spend a certain amount to market Slim-Lite and to otherwise use 15 commercially reasonable efforts to promote and sell Slim-Lite so 16 as to maintain and enhance the value of the goodwill inhering in 17 Slim-Lite® and produce the maximum amount of royalty under the 18 Agreement: 19 20 21 22 23 2.4. Licensee s Effort To Sell. During the Term, the Licensee will spend on average over each rolling twelve (12) month period during the Royalty Term the sum of Eight Cents ($.80) per Case of Product sold by Licensee during such rolling twelve (12) month period to market the Products. Licensee shall otherwise use commercially reasonable efforts to promote and sell the Products so as to maintain and enhance the value of the goodwill residing in the Intellectual Property and to produce the 24 25 26 27 28 2 Section 8.2 additionally gives Either party, not just Cott, an ability to terminate the Agreement under specified circumstances. 3 The $0.50 per case royalty amount was pro-rated if other configurations of the product were sold. (Doc. 40 at 5.) 3 maximum amount of Royalty under this Agreement consistent with the quality control provisions of this Article 2. 1 2 (Doc. 38, Ex. 3 at 4) (emphasis added.) The Royalty Term is 3 defined in the Agreement as any one-year period during which this 4 Agreement is in effect commencing on the Effective Date [December 5 28, 2003] or an anniversary of the Effective Date. (Id. at 2.) 6 The term Case is defined as the quantity of twelve (12) 7 containers of the product, where each container holds twenty (20) 8 ounces or any configuration of containers. (Id. at 2.) The term 9 Products means the the non-carbonated, zero calorie soft drink 10 marketed and sold by Licensor under the name SLIM-LITE® and/or that 11 contains Citrimax and/or ChromMate. (Id.) The term commercially 12 reasonable efforts is not defined in the Agreement and the 13 Agreement did not identify specific marketing efforts which were 14 required of Cott. (Doc. 40 at 6.) 15 The Agreement gave Cott an option to purchase the exclusive 16 distribution and marketing rights, including numerous intellectual 17 property rights, associated with Slim-Lite for a price of one 18 million dollars ($1,000,000) with certain continued payments to 19 Citri-Lite forty (40) cents per Case of Products sold - for a 20 period of ten years. (Doc. 17 at 7.) 21 C. Cott s Selling And Promoting Of Slim-Lite 22 1. Overview 23 When Cott entered into the Agreement with Citri-Lite, 248 24 Sam s Club stores (or clubs) carried Slim-Lite. (Doc. 40 at 13.) 25 In 2004, during the first year of the Agreement, the sales volume 26 of Slim-Lite increased and more Sam s Clubs began carrying Slim27 Lite than ever before. (Doc. 40 at 13, 17, 45-46.) 28 4 Despite what 1 appeared to be a successful first year, by May 2005 Cott began 2 considering an exit strategy for Slim-Lite. (Doc. 45, Ex. 143; 3 Doc. 42 at 29). 4 Agreement, Cott informed Citri-Lite that it wanted to terminate the 5 Agreement. (Doc. 40 at 52-53). According to Citri-Lite, before the 6 Agreement ended, Cott mishandled the marketing of Slim-Lite in at 7 least three ways, breaching its commitment to use commercially 8 reasonable efforts to promote and sell the product. By October 2005, less than two years into the 9 First, in 2004, after Cott took over Slim-Lite, it continued 10 Citri-Lite s practice of conducting in-store demos of Slim-Lite at 11 Sam s Club. 12 its demo activity at Sam s Club. According to Citri-Lite, this slow 13 down and termination of demo activity negatively impacted Slim- 14 Lite s success at Sam s Club. Second, 15 In 2005, however, Cott reduced and then stopped all of toward the end of 2004, Cott was developing a 16 repackaging strategy for Slim-Lite as part of a major initiative 17 aimed at solidifying long term distribution of Slim-Lite in Sam s 18 Club and Walmart. 19 repackaging change despite recognizing its importance to Slim-Lite s 20 success and despite Sam s Club s request that it be done. Cott, however, failed to actually implement the Third, while focusing its energy on Sam s Club and Walmart, 21 22 Cott 23 merchandiser of Slim-Lite. 24 develop any particular marketing plan for Food Lion and did not 25 engage in sufficient promotional activity at Food Lion. 26 27 28 neglected 2. other retailers, including Food Lion, another According to Citri-Lite, Cott did not Efforts At Sam s Club a. The Buyers During the time Cott marketed Slim-Lite at Sam s Club, it 5 1 worked with two Sam Club buyers: Jim Dragovich and Becky Fields. 2 Both Dragovich and Fields had discretion to modify the distribution 3 of beverages under their respective categories, and both had the 4 discretion to cancel beverages in their categories. (Doc. 40 at 9- 5 10, 12.) b. 6 7 Demos And Packaging Changes In 2004, Cott promoted Slim-Lite at Sam s Club through in-store 8 demos. (Doc. 40 at 37.) 9 the in-store demos and charged the vendor (Cott) approximately $150 10 per demo in each store. (Id. at 13.) Sam s Club also charged the 11 full retail price for the products used in demos, thus requiring the 12 vendor to purchase their own sampled products. (Id.) Demos of Slim- 13 Lite initially led to an approximate 20% increase in sales during 14 demo weeks. 15 Sam s Clubs in 2004. (Id.) (Id.) Sam s Club used its own employees to run Cott spent over $800,000 for Slim-Lite demos at 16 Apart from promoting the product through in-store demos at 17 Sam s Club, by September 2004, Cott employees developed a plan to 18 change the packaging of Slim-Lite to a 24-pack containing 16.9 ounce 19 bottles with registered shrink wrap. (Id. at 24, 27.) 20 Cott was selling Slim-Lite to Sam s Club in a 12-pack containing 20 21 ounce bottles with transparent clear shrink wrap. (Schiederer Dep. 22 59:24-60:3; Doc. 36 at 7.) 23 16.9oz as the preferred serve size from several competitors a 24 trend for the category as a whole. (Doc. 47, Ex. 17.) At the time, Cott was seeing a movement toward 25 Sam s Club regularly worked with suppliers, like Cott, to 26 determine what kind of packaging to use for their products and, 27 according to Dragovich, the idea for Slim-Lite s packaging change 28 originated from Sam s Club. (Dragovich Dep. 42:17-20, 79:19-22.) 6 1 A 16.9 ounce bottle was a focus for Sam s Club as they were 2 trying to line up 16.9 ounce [bottles] [for] all our beverages. 3 (Dragovich Dep. 76:4-8; 79:19-22.) Further, according to Dragovich, 4 tuxedo wrap, the four-color, high graphic wrap was something we 5 were asking our suppliers to look at as well because it promoted 6 their product much better and where we made those changes, we saw 7 increases in sales. (Dragovich Dep. 76:9-13.) 8 that Cott s packaging change would improve Slim-Lite s marketability 9 at Sam s Club. (Dragovich Dep. 141:10-142:8.) Dragovich believed Cott hoped to 10 introduce the packaging change by January or February 2005. 11 40 at 27.) 12 (Doc. While the packaging plans were underway, in November 2004, Cott 13 submitted to Sam s Club a 2005 demo plan for Slim-Lite. (Doc. 42 14 at 16.) This plan reduced in-store demos to only one demo per month 15 per store in 2005. (Doc. 42 at 16.)4 16 December 07, 2004, Gilbert Woods, Cott s Senior Manager for Sales 17 and Finance, sent an internal e-mail to Jason Nichol of Cott. Shortly thereafter, on In 18 19 4 20 21 22 23 24 25 26 27 28 According to George Horrigan, Citri-Lite s president, at the time Slim-Lite was transferred to Cott, Citri-Lite s plan for demos at Sam s Club called for two demos per month per club. As to clubs at which Slim-Lite was new, Citri-Lite increased demos to once a week for the first two months, dropping down to two demos per month per club thereafter. (Horrigan Decl. ¶¶ 6, 9.) Although this was Citri-Lite s protocol for demos, Horrigan conceded that deviations from the protocol could and did occur. (Horrigan Decl. ¶ 9.) Horrigan recognized that you[ ]r[e] at their [Sam s Club s] mercy in terms of arranging demos, and it appears no demos were conducted at Sam s Club in February 2003. (Horrigan Dep. 202:13-19, 204:2-2.) According to Jason Nichol, Cott s Vice President of Customer and Business Development, Citri-Lite had been conducting demos very regularly and Cott tried to continue the demoing when Cott took over Slim-Lite. (Nichol Dep. 38:2-4.) 7 1 the e-mail, Woods indicated that he wanted to cancel altogether in- 2 club demos for Slim-Lite. (Doc. 45, Ex. 64.) 3 On January 3, 2005, Charles Calise, Cott s Marketing Manager, 4 e-mailed George Horrigan, Citri-Lite s president, regarding Cott s 5 new packaging plan and other details of Cott s major initiative at 6 solidifying 7 Walmart. long term distribution of Slim-Lite in SAMS Club Calise s e-mail states: 8 Happy New Year George, 9 We appreciate your perspective on the 1L option for SlimLite. We continue to evaluate the feasibility of this and other opportunities that will help ensure the long term success of the Slim-Lite brand. 10 11 12 As you know we are in the midst of a major initiative aimed at solidifying long term distribution of Slim-Lite in SAMS Club and Walmart. This initiative involves: 13 ¢ 14 ¢ 15 ¢ 16 ¢ 17 18 19 20 21 22 23 ¢ ¢ refreshing labels and trays for legal and regulatory compliance launching a 16.9oz line extension to better align with category trends transitioning business from the 20oz format to the 16.9oz format executing a packaging re-design to help improve pallet merchandising, billboard and consumer appeal managing pricing increasing promotional/demo activity[5] We agree with you that Slim-Lite needs distribution beyond Walmart and SAMS Club. As such, we continue to pursue distribution for Slim-Lite around the country through both our Alternative Channels team and our Retailer Specific teams. However, . . . Walmart and SAMS continue to represent the pinnacle for awareness, recognition and sales velocity for any brand that aspires to be a national player. We this in mind, we feel it is critical that we remain focused, continue to pursue our current initiatives and concentrate on activities that 24 25 5 26 27 28 Calise s e-mail states that part of Cott s major initiative for Slim-Lite involved increasing promotional/demo activity. At the same, Woods prior e-mail to Nichol indicated that Cott was seeking to cancel Slim-Lite demo activity at Sam s Club. 8 1 2 will help ensure the success of Slim-Lite within Walmart and SAMS. Once we are confident that the brand is secure with these two key customers, we can then turn our attention toward additional line extensions, etc. 3 (Doc. 38, Ex. 32.)6 4 Later that same month (January 2005), Cott s management did not 5 approve of the anticipated packaging change. 6 In particular, Woods rejected the packaging change purportedly 7 based on less than acceptable gross margins at [the] suggested list 8 price to Sam s. (Doc. 38 at 93.) Woods stated that he would 9 reconsider the packaging change if: (1) Cott could obtain a higher 10 price for Slim-Lite; (2) manufacturing costs could be lowered; (3) 11 freight costs could be reduced by finding a repackaging location 12 closer to Cott production facilities; and (4) Cott could obtain a 13 reduction in the required demo spending. (Doc. 40 at 30-31.) 14 Approximately a week later, Woods received revised information on 15 manufacturing costs which were lower. If combined with a reduction 16 in demo spending to $0.55 per 24-pack case, Woods indicated that the 17 resulting increase in gross margin would enable him to reconsider 18 the proposed packaging change for final approval. (Id. at 31.) 19 By February 2005, Citri-Lite and Cott were discussing amending 20 the Agreement. (Doc. 45, Ex. 189.) Cott prepared a draft amendment, 21 which memorialized the concessions Cott wanted. (Doc. 45, Ex. 94; 22 Doc. 42 at 22.) Cott obtained Horrigan s verbal approval to the 23 substance of the amendment, but apparently Cott failed to follow 24 through and the written amendment was never executed. (Doc. 42 at 25 17, 22; Horrigan Decl. ¶ 35.) 26 27 28 6 According to Horrigan, he never agreed to focus promotional efforts solely on Wal-Mart and Sam's Club. (Horrigan Decl. ¶ 29.) 9 c. 1 2 The Decline Of Slim-Lite At Sam s Club When Cott entered into the Agreement with Citri-Lite, 248 Sam s 3 Club stores (or clubs) carried Slim-Lite. (Doc. 40 at 13.) In 4 December 2004, Slim-Lite s distribution at Sam s Club reached a high 5 of 528 clubs. (Id.) 6 with the demos reduced (as of 2005) and the packaging change still 7 unrealized, Slim-Lite s distribution at Sam s Club declined from 528 8 clubs to 463 clubs. (Id. at 46.) 9 mail, notified Sam s Clubs that it was cancelling all remaining Between December 2004 and March 2005, however, In March 24, 2005, Cott, via e- 10 Slim-Lite demos (Id. at 24.)7 11 Sam s Club cut the distribution of Slim-Lite even further from 463 12 stores to 89 stores. (Id. at 46.) The last demos at Sam s Club were 13 conducted on or about the end of April 2005. (Id. at 22, 24.) Around the beginning of April 2005, 14 As the distribution decreased, Cott scheduled a Leadership 15 Team meeting for April 12, 2005, to decide upon the future of 16 SlimLite. (Doc. 45, Ex. 99.) 17 Conall Dunne, questioned whether Cott really want[ed] to pursue 18 this licensed brand and whether Cott could produce Slim-Lite 19 efficiently. (Id.) 20 strategy for Slim-Lite. 21 from Doreen Gormley, Cott s Vice President of Marketing, to several 22 Cott employees, reads: Cott s Vice President of Finance, By May 23, 2005, Cott considered an exit An internal e-mail dated May 23, 2005, 23 Team: 24 We agreed in our Product Review meeting that we would review our current situation with SlimLite to develop an exit strategy for the brand. We had meetings/discussions with Steve Olinger, Matt, Jason & Rob Schiederer to 25 26 27 28 7 Apparently, Cott believed demos were costly and did not produce a long-term sustained sales increase. (Doc. 36 at 6.) 10 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 discuss options/issues. Charles Calise then compiled a comprehensive situational analysis to assist in determining our next steps . . . . Bottom line is that there is agreement by Steve O. and Jason to transition out of the brand, but we have a significant amount of raws that must be depleted first . . . . We will need to be creative and aggressive in finding ways to sell these goods and/or transfer them to the new supplier but it will require a collaborative effort with the Licensor (George Horrigan) to discount the goods and/or sell them elsewhere. We also want to hold onto our Sam's Club volume as long as feasible. George Horrigan's expectation is that we are building the brand and aggressively pursuing new volume. Now that we have all the information, our recommendation is to now contact George and advise him that we would like to develop an exit strategy for the brand and solicit his assistance in depleting the raws and/or working with a new supplier to absorb some of the raw materials (some are obsolete so we would have to look for solutions to sell through quickly). We will also ask for Matt's assistance in negotiating a reduced full year royalty rate if possible. Before we contact George and formally advise him of our request to exit the agreement and ask for his assistance, I wanted everyone to [be] aware of this strategy in case there are any issues/concerns. There is some risk of losing the Sam's volume quicker than anticipated and/or if he does not agree to help with the depletion of the raw materials. However, there may be a great risk if we don't start the process of working through the issues asap. I think he'll be reasonable so we [would] like to get the dialogue started this week. We will ensure that Matt is involved throughout the entire process. Please advise if you're [in] agreement with this approach or if you have other recommendations. 21 (Doc. 45, Ex. 143.) 22 Charles Calise, along with others from Cott, had a conference 23 call with Horrigan on June 10, 2005. (Doc. 45, Ex. 70) According 24 to Horrigan, during the call, he learned for the first time that 25 Cott had reduced demos at Sam s Club to once a month and that fewer 26 than 90 Sam s Clubs were carrying Slim-Lite. (Horrigan Decl. ¶ 39.) 27 According to Horrigan, Cott did not inform him of Cott s decision 28 11 1 to cancel the demos at Sam s Club or inform him of any plan to exit 2 the Agreement. (Id.) Cott personnel indicated they would endeavor 3 to increase the distribution of Slim-Lite back to the original 248- 4 club level. (Id.) 5 to repackage the product and Horrigan learned for the first time 6 that this had not already been accomplished. (Id.) According to Horrigan, they discussed the need 7 After the cut in distribution, Fields (the Sam s Club buyer) 8 informed Rob Scheiderer, Cott s Director of Sales, that the club 9 count would not be re-established until the packaging change was 10 made and the newly configured product proved itself in existing 11 clubs. (Schiederer Dep. 322:16-20.) 12 not implement the packaging change and the distribution never 13 returned 14 distribution at the beginning of the Agreement. 15 In to 248-store October 2005, level, Cott Ultimately, however, Cott did i.e., notified the original level of (Doc. 40 at 52.)8 Citri-Lite that it was 16 exercising its right to terminate the Agreement, effective December 17 31, 2005. (Id. at 52-53.) 18 Citri-Lite with the design files it developed for the proposed 24- 19 pack, 16.9 ounce package. (Id. at 53-54.) 20 ended, Citri-Lite continued to sell Slim-Lite at Sam s Club until 21 2008, when Sam s Club discontinued the product. (Doc. 40 at 55.) Once the Agreement ended, Cott provided After the Agreement 22 3. Efforts At Food Lion 23 A food broker called Crossmark, and one of its agents, Michael 24 25 8 26 27 28 Incidentally, Cott did introduce a 24-pack of 16.9 ounce bottles in Wal-Mart. (Doc. 42 at 21.) Cott claims, however, that it did not implement the packaging change with respect to Sam s Club primarily because of costs and production capacity issues. (Doc. 36 at 19-20; see also Nichol Dep. 57:24-58:8.) 12 1 McGlothin, initially helped Citri-Lite get Slim-Lite into Food Lion. 2 (Doc. 42 at 7-8.) 3 Lite and Cott began distributing Slim-Lite, 800 Food Lion stores 4 carried the product. (Doc. 40 at 30.) Before 5 When Cott entered into the Agreement with Citri- Cott s involvement with Slim-Lite, Horrigan had 6 previously negotiated that Slim-Lite be sold to Food Lion at $10.20 7 per case. (Id. at 9.) 8 [prior] pricing agreement and Cott s marketing expenditures at 9 Sam s, Cott had no funds available for promotion at Food Lion According to Cott, [a]s a result of this 10 pursuant to ¶ 2.4 of the Agreement. (Doc. 40 at 42.) Cott did not 11 develop any particular marketing plan for Food Lion. (Doc. 42 at 12 28.) 13 According to an e-mail from Larry Thompson, Cott s Food Lion 14 account manager, to Calise, despite the lack of promotional funds, 15 Cott conducted a promotion at Food Lion in the Summer 2004 and 16 obtained some wing displays : 17 18 19 20 Please note that no marketing funds are available as George sold Slim Lite to Food Lion at a dead net cost of $10.20 per Food s Lion s wishes. Food Lion s thinking was the product was so unique that offering an EDLP [every day low price] and good shelf position would move the cases. Never the less (sic), we did support a promo summer of 2004 that got us $1.99 retail and wing displays in all stores . . . . 21 (Doc. 45, Ex. 33.) In his deposition, Thompson explained that dead 22 net cost means that there are no marketing funds available. And 23 if they asked us for money, we ll tell them to drop dead. I mean, 24 no. No marketing funds available and it has [n]othing to do with 25 profit margin. (Thompson Dep. 93:23-94:7.) After Cott ran the 26 summer promo in 2004, McGlothin urged Thompson to run more demos, 27 but Thompson responded that he was not authorized to approve the 28 13 1 funding. (McGlothin Dep. 35:19-36:16.) 2 In January 2005, Calise sent an e-mail to Horrigan, set forth 3 above, in which Calise discussed Cott s major initiative aimed at 4 solidifying long term distribution of Slim-Lite in Sam s Club and 5 Walmart and informed Horrigan of Cott s intent to focus on those 6 retailers. 7 performance, Slim-Lite was removed from 489 smaller Food Lion 8 stores. (Doc. 40 at 44.) 9 Citri-Lite that it was exercising its right to terminate the (Doc. 38, Ex. 32.)9 In March 2005, due to poor Again, in October 2005, Cott notified 10 Agreement, effective December 31, 2005. (Id. at 52-53.) There is 11 no indication in the record that prior to ending the Agreement with 12 Citri-Lite, Cott was able to regain the lost distribution at Food 13 Lion. 14 D. Citri-Lite s Claims And Damages Theories 15 Citri-Lite s complaint against Cott asserts two claims: breach 16 of contract and breach of the implied covenant of good faith and 17 fair dealing. 18 that Cott breached its contractual obligation to use commercial 19 reasonable efforts to promote and sell Slim-Lite. 20 at 7.) 21 other things, that Cott failed to give Citri-Lite s interests as 22 much consideration as its own. (Id. at 8.) 23 Citri-Lite seeks no less than $6,400,000. (Id. at 9.) In its breach of contract claim, Citri-Lite alleges (Doc. 2, Ex. A In its implied covenant claim, Citri-Lite alleges, among In its complaint, 24 Citri-Lite has set forth damages computations in the export 25 reports of Thomas Neches. (Doc. 38, Ex. U; Neches Decl., Exs. 1-3.) 26 27 28 9 According to Horrigan, he never agreed to focus promotional efforts solely on Wal-Mart and Sam's Club. (Horrigan Decl. ¶ 29.) 14 1 Neches has calculated Citri-Lite s economic damages based upon the 2 assumption that Cott failed to use commercially reasonable efforts. 3 In his report, Neches calculates Citri-Lite s claimed lost profit 4 (or but-for royalties ) based on the projected sales of Slim-Lite 5 at Sam s Club that would have been realized but for Cott s alleged 6 failure to use commercially reasonable marketing efforts. (Doc. 38, 7 Ex. U at 3-7.) Neches presents three different damages scenarios, 8 and each scenario has a lower bound and an upper bound of 9 estimated damages. 10 In the first scenario, Cott renews the Agreement five times and 11 continues selling Slim-Lite under the Agreement through 2015. 12 the second scenario, Cott exercises the purchase option and pays the 13 purchase price of $1,000,000 in 2006, and continues selling Slim- 14 Lite through 2015. 15 Agreement in 2005, Citri-Lite sells Slim-Lite through 2015 and then 16 Citri-Lite earns or sells the present value of future profits. (Doc. 17 38, Ex. U at 3-7.)10 18 Lite s purported lost profits is in the millions of dollars. III. 19 In In the third scenario, Cott terminates the Under any of these three scenarios, Citri- SUMMARY JUDGMENT STANDARD 20 "The standards and procedures for granting partial summary 21 judgment, also known as summary adjudication, are the same as those 22 for summary judgment." Mora v. Chem-Tronics, Inc., 16 F. Supp. 2d 23 1192, 1200 (S.D. Cal. 1998). 24 "the pleadings, the discovery and disclosure materials on file, and Summary judgment is appropriate when 25 26 27 28 10 According to his report, Neches also prepared a substitute calculation that included potential lost profits with respect to Food Lion. Neches did not, however, calculate any lost profits with respect to WalMart. 15 1 any affidavits show that there is no genuine issue as to any 2 material fact and that the movant is entitled to judgment as a 3 matter of law." Fed. R. Civ. P. 56©. 4 initial responsibility of informing the district court of the basis 5 for its motion, and identifying those portions of the pleadings, 6 depositions, answers to interrogatories, and admissions on file, 7 together with the affidavits, if any, which it believes demonstrate 8 the absence of a genuine issue of material fact." Celotex Corp. v. 9 Catrett, 10 omitted). 477 U.S. 317, 323 The movant "always bears the (1986) (internal quotation marks 11 With respect to an issue as to which the non-moving party will 12 have the burden of proof, the movant "can prevail merely by pointing 13 out that there is an absence of evidence to support the nonmoving 14 party's case." Soremekun v. Thrifty Payless, Inc., 509 F.3d 978, 984 15 (9th Cir. 2007). 16 made and supported, the non-movant cannot defeat the motion by 17 resting upon the allegations or denials of its own pleading, rather 18 the "non-moving party must set forth, by affidavit or as otherwise 19 provided in Rule 56, specific facts showing that there is a genuine 20 issue for trial.'" Id. (quoting Anderson v. Liberty Lobby, Inc., 477 21 U.S. 22 affidavits and moving papers is insufficient to raise genuine issues 23 of 24 non-movant's bald assertions or a mere scintilla of evidence in his 25 [or her] favor are both insufficient to withstand summary judgment." 26 FTC v. Stefanchik, 559 F.3d 924, 929 (9th Cir. 2009). 242, fact 250 and When a motion for summary judgment is properly (1986)). defeat "Conclusory, summary speculative judgment." Id. testimony Likewise, in "[a] 27 "[S]ummary judgment will not lie if [a] dispute about a 28 material fact is genuine,' that is, if the evidence is such that 16 1 a reasonable jury could return a verdict for the nonmoving party." 2 Anderson, 477 U.S. at 248. 3 judgment, 4 determinations; rather, the "evidence of the non-movant is to be 5 believed, and all justifiable inferences are to be drawn in his 6 favor." Id. at 255.11 the 9 10 court does not make credibility IV. DISCUSSION AND ANALYSIS 7 8 district In ruling on a motion for summary A. Breach Of Contract Claim Commercially Reasonable Efforts In its moving papers, Cott argues that under a proper interpretation of commercially reasonable efforts, Citri-Lite 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 11 Citing to an old Ninth Circuit case, Neff Instrument Corp. v. Cohu Electronics, Inc., 269 F.2d 668, 673-74 (9th Cir. 1959), Citri-Lite contends that Cott has the burden of establishing the nonexistence of any genuine issue of fact. More recent Ninth Circuit authority explains that, on summary judgment, with respect to an issue on which the non-moving party will have the burden of proof at trial, [t]he moving party bears the initial burden of establishing the absence of a genuine issue of material fact, and [t]hat burden may be met by showing - that is, pointing out to the district court-that there is an absence of evidence to support the nonmoving party s case. Fairbank v. Wunderman Cato Johnson, 212 F.3d 528, 531 (9th Cir. 2000) (emphasis added); accord Soremekun, Inc., 509 F.3d at 984; Miller v. Glen Miller Prods, Inc., 454 F.3d 975, 987 (9th Cir. 2006). In other words, a moving defendant may shift the burden of producing evidence to the nonmoving plaintiff merely by showing -that is, pointing out through argument-the absence of evidence to support plaintiff's claim. Fairbank, 212 F.3d at 532. Because Cott does not have the burden of proof at trial on the issues raised in its briefing (i.e., establishing Cott s alleged contractual breaches, causation, and Citri-Lite s damages theories), to meet its initial burden on summary judgment, Cott must simply point out the absence of evidence supporting Citri-Lite s case on these issues. If Cott meets its initial burden, the burden is then on Citri-Lite to demonstrate a genuine issue for trial. Neff Instrument cannot be read to place a higher burden on Cott, the moving party, than more recent cases like Fairbank, Soremekun and Miller establish. 17 1 cannot establish breach. (Doc 36 at 19) (emphasis added.) Both 2 Cott and Citri-Lite advance their own views on the meaning of the 3 term commercially reasonable efforts without providing any bright- 4 line definition.12 5 "Under California law, the interpretation of a written contract 6 is a matter of law for the court even though questions of fact are 7 involved." Southland Corp. v. Emerald Oil Co., 789 F.2d 1441, 1443 8 (9th Cir. 1986). 9 written contract "It is solely a judicial function to interpret a unless the interpretation turns upon the 10 credibility of extrinsic evidence, even when conflicting inferences 11 may be drawn from uncontroverted evidence." Hess v. Ford Motor Co., 12 27 Cal. 4th 516, 527 (2002) (internal quotation marks omitted). 13 "When no extrinsic evidence is introduced, or when the competent 14 extrinsic evidence is not in conflict, the . . . court independently 15 construes the contract, Founding Members, 109 Cal. App. 4th at 955, 16 "according to the generally accepted canons of interpretation." 17 Martin Bros. Constr. v. Thompson Pac. Constr., Inc., 179 Cal. App. 18 4th 1401, 1416 (2009).13 19 The fundamental goal of contractual interpretation is to give 20 effect to the mutual intention of the parties. Bank of the W. v. 21 Superior Court, 2 Cal. 4th. 1254, 1264 (1992). 22 reduced to writing, the parties' intention is determined from the 23 writing alone, if possible." Founding Members of the Newport Beach "When a contract is 24 25 26 27 28 12 A contracting party's "interpretation" of the contract is not the same thing as extrinsic evidence of intent. Cal. Nat l Bank v. Woodbridge Plaza LLC, 164 Cal. App. 4th 137, 143 (2008). 13 No evidence. party has pointed to 18 a conflict in any extrinsic 1 Country Club v. Newport Beach Country Club, Inc., 109 Cal. App. 4th 2 944, 955 (2003). 3 meaning, the contract's words are to be understood in their ordinary 4 and popular sense. Crawford v. Weather Shield Mfg., Inc., 44 5 Cal.4th 541, 552 (2008). 6 "If a Unless the parties have indicated a special contract is capable of two different reasonable 7 interpretations, the contract is ambiguous." Oceanside 84, Ltd. v. 8 Fidelity Federal Bank, 56 Cal. App. 4th 1441, 1448 (1997); see also 9 Cal. Nat l Bank. v. Woodbridge Plaza LLC, 164 Cal. App. 4th 137, 10 143-44 (2008) ( An ambiguity exists when a party can identify an 11 alternative, semantically reasonable, candidate of meaning of a 12 writing. ) (internal quotation marks omitted). 13 term is not defined in the [contract] does not make it ambiguous. 14 Muzzi v. Bel Air Mart, 171 Cal. App. 4th 456, 462-63 (2009) 15 (alteration in original) (internal quotation marks omitted). 16 does [d]isagreement concerning the meaning of a phrase, or the fact 17 that a word or phrase isolated from its context is susceptible of 18 more than one meaning." Id. (alteration in original) (internal 19 quotation marks omitted). 20 construed in the context of that instrument as a whole, and in the 21 circumstances of that case, and cannot be found to be ambiguous in 22 the abstract." Powerline Oil Co., Inc. v. Superior Court, 37 Cal. 23 4th 377, 391 (2005) (internal quotation marks omitted). The fact that a Nor "[L]anguage in a contract must be 24 Whether a contract is ambiguous can be determined from the face 25 of the contractual language or from extrinsic evidence of the 26 parties' intent. Oceanside 84, Ltd., 56 Cal. App. 4th at 1448; 27 Supervalu, Inc. v. Wexford Underwriting Managers, Inc., 175 Cal. 28 App. 4th 64, 74 (2009). Under the latter approach, "[i]f the trial 19 1 court decides, after receiving the extrinsic evidence, the language 2 of the contract is reasonably susceptible to the interpretation 3 urged, 4 contract." Founding Members, 109 Cal. App. 4th at 955. 5 evidence may resolve the ambiguity or it may not. 6 no other cannons of contract construction resolve the ambiguity, the 7 contract may be construed against the drafter. Oceanside 84, Ltd., 8 56 Cal. App. 4th at 1448. the evidence is admitted to aid in interpreting the Extrinsic If not, and if 9 In the briefing, the main dispute between Cott and Citri-Lite 10 over the meaning of commercially reasonable efforts is whether 11 this term allowed Cott to take into consideration its own business 12 interests, including the costs to Cott of such efforts (Doc. 36 13 at 17), or whether Cott had to exert efforts to promote and sell 14 Slim-Lite 15 According to Cott, the term commercially reasonable efforts 16 allowed Cott to take into account all pertinent economic factors, 17 provided its eventual decisions reflected overall fairness both to 18 itself 19 interpretation, the meaning of commercially reasonable efforts 20 must be judged in light of all the circumstances. (Id. at 18.) 21 Citri-Lite, on the other hand, contends that the term "commercially 22 reasonable efforts" does not permit Cott to take into account its 23 perceived economic self-interest and has "nothing to do with 24 Cott's business interests." (Doc. 41 at 12) (emphasis added.) 25 and without to regard to Citri-Lite. Citri-Lite s its economic (Doc. interpretation of 36 the at business 16.) Agreement interests. Under Cott s creates an 26 absurdity and cannot be adopted. 27 Cal. App. 4th 1476, 1498 (2008) ( [T]he court shall avoid an 28 interpretation which will make a contract extraordinary, harsh, 20 County of Humboldt v. McKee, 165 1 unjust, inequitable or which would result in absurdity. ) (internal 2 quotation marks omitted); Kassbaum v. Steppenwold Prods, Inc., 236 3 F.3d 487, 491 (9th Cir. 2000) (applying California law, stating 4 [w]e may not read the contract in a manner that leads to an absurd 5 result ). 6 in the manner Citri-Lite suggests would require Cott to engage in 7 promotional and selling efforts without any regard to its economic 8 business interests, which it has a legal privilege to protect. 9 Gonsalves v. Hodgson, 38 Cal. 2d 91, 99 (1951) ( There is no rule 10 that parties to a contract may not act for their own interest during 11 the execution of the contract. ) (internal quotation marks omitted). 12 Both 13 Agreement and it is an absurdity to suggest a reasonable business 14 entity would contractually obligate itself to operate without regard 15 to its business interests.14 Interpreting the term commercially reasonable efforts parties obviously expected to mutually benefit from the 16 At oral argument on the motion, Cott recognized the difficulty 17 in defining the term commercially reasonable efforts but, at a 18 minimum, Cott argued that Citri-Lite s position on the meaning of 19 the term should be rejected. 20 extreme, at oral argument, Citri-Lite clarified (if not entirely 21 changed) its position on the meaning of commercially reasonable 22 efforts. 23 be considered as one factor, among others, in assessing whether Cott 24 used commercially reasonable efforts. This concession avoids the Recognizing its stance was too Citri-Lite conceded that Cott s business interests can 25 26 27 28 14 While Citri-Lite points to some evidence on the circumstances purportedly surrounding the inclusion of the "commercially reasonable efforts" term, this evidence does not suggest that the parties intended the term to preclude consideration of Cott's business interests. 21 1 absurdity noted above and is consistent with the case law on 2 commercially reasonable efforts.15 3 One California case which Cott cites, Gifford v. J&A Holdings, 4 54 Cal. App. 4th 996, 1005 (1997), defined commercially reasonable 5 effort as that term is used in the uniform commercial code. See 6 Cal. Com. Code § 6107© ( A buyer who made a good faith and 7 commercially reasonable effort to comply with the requirements of 8 Section 6104 or to exclude the sale from the application of this 9 division under subdivision © of Section 6103 is not liable to 10 creditors for failure to comply with the requirements of Section 11 6104. The buyer has the burden of establishing the good faith and 12 commercial reasonableness of the effort. ). The Gifford court, 13 citing other UCC cases, stated [c]ommercial reasonableness is not 14 expressly defined in the statute, but has been defined elsewhere [in 15 other 16 commercial practices of responsible businesses which afford all 17 parties fair treatment. 54 Cal. App. 4th at 1005 (emphasis added). 18 Gifford found that commercial reasonableness primarily involve[s] 19 questions of fact. Id. at 1006. cases involving the UCC] to include commonly accepted 20 A more recent unpublished case from California, Sempra Energy 21 Resources v. California Department of Water Resources, No. D043397, 22 2005 WL 1459950 (Cal. Ct. App. June 21, 2005), considered the 23 meaning of the term commercially reasonable efforts in the 24 25 26 27 28 15 In its moving papers, Cott notes that there is sparse case law on the term commercially reasonable efforts. 22 1 parties Energy Purchase Agreement. 16 2 contract did not define the term, nor is the term defined in the 3 law. Id. at *9. 4 record 5 commercially reasonable manner, the issue turns on factual questions 6 of reasonableness under the circumstances and cannot be resolved on 7 summary judgment. Id. at *9. 8 [a]lthough economic feasibility and profitability of a particular 9 Project may be one circumstance of commercial reasonableness, other 10 factors, particularly those in the electric generation industry, 11 will be relevant to the determination. Id. at *9 n.12. presents The court noted that the The court concluded that [w]here, as here, the a dispute as to whether a party acted in a In a footnote, the court stated that 12 Another unpublished case from Ohio, Castle Properties v. Lowe s 13 Home Centers, Inc., No. 98 CA 185, 2000 WL 309395 (Ohio Ct. App. 14 Mar. 15 purchaser of land to use all commercially reasonable efforts to 16 achieve certain objectives, including getting the land rezoned. 17 Rejecting the argument that the term all commercially reasonable 18 efforts was ambiguous, the court stated: 19 20 21 22 23 20, 2000), analyzed a contract provision requiring the Although no Ohio court has previously defined the phrase all commercially reasonable efforts, it does not follow that the phrase itself is ambiguous. The phrase has ordinary meaning which is not contradicted by the terms of the agreement and which does not result in absurdity. It appears that the language used is capable of only one reasonable construction, that Lowe's [the purchaser] was required to make every effort to obtain the required zoning that a reasonable business entity would have made 24 25 26 27 16 Although not precedential, a federal court can consider unpublished California cases. See Employers Ins. of Wausau v. Granite State Ins. Co., 330 F.3d 1214, 1220 n.8 (9th Cir. 2003). 28 23 under similar circumstances.17 1 2 Id. at *3. 3 A Minnesota district court, LeMond Cycling, Inc. v. PTI 4 Holding, Inc., No. Civ. 03-5441 PAM/RLE, 2005 WL 102969, at *1 (D. 5 Minn. Jan. 14, 2005), analyzed the term commercially reasonable 6 efforts in a licensing agreement. The court rejected the view that 7 only 8 reasonableness determination. Id at *5. The court reasoned that 9 [n]o to industry business standards would agree are to relevant perform to the its commercial detriment, and 10 therefore whether or not [defendant] performed with commercial 11 reasonableness also depends on the financial resources, business 12 expertise, and practices of [defendant]. Id. at *5. 13 Cott cites a New York district court, Bear Stearns Funding, 14 Inc. v. Interface Group-Nevada, Inc., No. 03 Civ. 8259(CSH), 2007 15 WL 1988150, 16 discussed a contract term in a loan agreement which required Bear 17 Stearns 18 Securitization which results in the lowest Spread possible. 19 court did not, however, provide much analysis on the meaning of the 20 term. 21 Stearns from using its business discretion. Id. at *22. The court 22 also stated that [a] violation of the good faith duty to obtain a 23 fair market price-or to use commercially reasonable efforts to to at use *3 (S.D.N.Y. July 10, 2007), where the court commercially reasonable efforts to achieve a The The court suggested that the term did not preclude Bear 24 25 26 27 17 The word every required to make every a reasonable business circumstances appears contractual phrase all in the court s conclusion that Lowe s was effort to obtain the required zoning that entity would have made under similar tethered to the word all in the commercially reasonable efforts. 28 24 1 obtain the best price-cannot be established simply by observing, in 2 hindsight, that Bear Stearns could have done something differently 3 that would have produced a better result. Id. 4 language in its briefing. Cott s cites this 5 There is no settled or universally accepted definition of the 6 term commercially reasonable efforts. These cases are consistent 7 with the principle that commercially reasonable efforts permits 8 the performing party to consider its economic business interests. 9 When considering all circumstances bearing on performance, 10 including Cott s business interests, summary judgment is not 11 warranted in Cott s favor. 12 reasonable efforts is a factually intense issue. 13 Cal. App. 4th at 1006; Sempra Energy Resources, 2005 WL 1459950 at 14 *9; see also Smith v. Selma Community Hosp., 164 App. 4th 1478, 1509 15 (2008) ( [T]he question of reasonableness is ordinarily one of 16 fact. ). Viewing the evidence in a light most favorable Citri-Lite, 17 with respect to Sam s Club and Food Lion, there is a triable issue 18 as to whether Citri-Lite performed commercially reasonable efforts 19 under the circumstances. Whether Cott exerted commercially See Gifford, 54 20 1. Sam s Club 21 Viewing the evidence in a light most favorable to Citri-Lite, 22 with respect to Sam s Club, Cott reduced (Doc. 42 at 16) and then 23 cancelled Slim-Lite demos on March 24, 2005 (Doc. 40 at 24), which 24 the evidence suggests is an important means of promoting a product 25 at Sam s Club (Dragovich Dep. 44:22-24; 74:8-9; 117:16-19.)18 26 27 18 See also part IV.B.2 (discussing the importance of demos). 28 25 1 Having, over the course of a year, substantially increased the 2 distribution of Slim-Lite from its 248-club store location level to 3 a couple hundred additional clubs, Cott s reduction/cancellation of 4 demos came at a time when Slim-Lite was sold in a large number of 5 club stores and was relatively new to some club stores. (Doc. 38, 6 Ex. 39; Nichol Dep. 73:8-23; Doc. 40 at 45-46.) 7 in bulk, i.e., in a 12-pack and not individually (Doc. 38, Ex. 57), 8 and the evidence suggests that demos are an important means of 9 fostering sales to new customers because demos allow customers to 10 taste the product before they commit to purchase an entire case 11 (Fields Dep. 117:3-19; Dragovich Dep. 148:16-149:2). Slim-Lite was sold 12 In addition to reducing and then cancelling Slim-Lite demos, 13 Cott failed to follow through on another promotional effort a 14 packaging 15 importance of implementing the packaging change as part of its major 16 marketing initiative to solidify long-term distribution in Sam s 17 Club (Doc. 38, Ex. 32), and Sam s Club suggested that it be done, 18 believing it would increase the product s marketability (Dragovich 19 Dep. 76:4-9; 79:19-22).19 Despite recognizing the importance of 20 implementing the packaging change and Sam s Club s suggestion that 21 it be done, Cott did not implement the packaging change. Even after 22 the cut in distribution, when Fields informed Scheiderer that the 23 club count would not be re-established until the packaging change 24 was made and the newly configured product proved itself in existing 25 clubs, (Schiederer Dep. 322:16-20), Cott did not make the change. change for Slim-Lite. Cott itself recognized the 26 27 19 See also part IV.B.2 (discussing the importance of the packaging change). 28 26 1 Apart from the demos Cott reduced and then cancelled, and apart 2 from the packaging change Cott never implemented, Cott has pointed 3 to one other effort it made to promote and sell Slim-Lite at Sam s 4 Club, i.e., lowering the price at which it sold Slim-Lite to Sam s 5 Club in order to get Slim-Lite into more clubs. 6 the July 2004 - November 2004 time frame. (Doc. 45, Exs. 8, 39)20 7 In a footnote, however, Cott concedes that this price change was 8 never passed on to consumers in the form of lower retail prices at 9 the register. (Doc. 36 at 6 n.3.) In addition, even if reducing the 10 price at which Cott sold Slim-Lite to Sam s Club led to an increase 11 in the number of clubs carrying Slim-Lite, Cott s efforts to promote 12 and sell Slim-Lite thereafter are at issue in this case. 13 example, after the number of clubs carrying Slim-Lite significantly 14 increased, an important time for promotional efforts and to attend 15 to Sam s Club s suggestions, Cott reduced and then cancelled its 16 demos and failed to implement the packaging change. 17 suggests 18 sufficient 19 reasonable efforts to promote and sell Slim-Lite. that to simply getting Slim-Lite into satisfy Cott s obligation to This was done in more use For No party clubs was commercially 20 By May 23, 2005, after the number of clubs carrying Slim-Lite 21 fell from 463 stores to 89, Cott was considering an exit strategy 22 for Slim-Lite. (Doc. 45, Ex. 143; Doc. 42 at 29). By October 2005, 23 24 25 26 27 20 Apparently, Sam s Club agreed to increase distribution if Cott could lower the price to Sam s Club. Accordingly, Nichol asked Horrigan if Cott could use the $.80 marketing allowance in the Agreement against the cost in Sam s Club only, which would move the price from $6.86 to $5.88. Horrigan responded [g]o ahead. (Doc. 45, Ex. 8.) 28 27 1 Cott notified Citri-Lite that it was exercising its right to 2 terminate the Agreement, effective December 31, 2005. (Doc. 40 at 3 52-53.) 4 distribution of Slim-Lite up, at one point in late 2005, to around 5 116 clubs, well short of the original 248-club level (Doc. 40 at 13, 6 52.) Before the Agreement ended, Cott was only able to get the 7 Cott s reduction and cessation of demos, and its failure to 8 implement the Slim-Lite packaging change, are sufficient to create 9 a triable issue as to whether Cott breached its obligation to use 10 commercially reasonable efforts to promote and sell Slim-Lite as 11 required by the Agreement. 12 demo decisions at Sam s Club and its failure to implement the 13 packaging change, when the evidence is viewed in a light most 14 favorable to Citri-Lite, it cannot be concluded, as a matter of law, 15 that 16 commercially reasonable efforts. Cott did not breach Although Cott rationally defends its its contractual obligation to use 17 2. Food Lion 18 Similarly, with respect to Food Lion, when viewing the evidence 19 in a light most favorable to Citri-Lite, there is a triable issue 20 at to whether Cott breached its obligation to use commercially 21 reasonable efforts to promote and sell Slim-Lite. There is evidence 22 that Cott did not allocate funding for marketing efforts at Food 23 Lion, as it focused its efforts on Sam s Club and Walmart, (Thompson 24 Dep. 93:20-94:7; Doc. 38, Ex. 32). 25 not agree to this approach. (Horrigan Decl. ¶ 29.) 26 evidence that Cott did not develop any particular marketing plan for 27 Food Lion. (Doc. 42 at 28.) According to Horrigan, he did There is also After Cott ran the summer promo in 28 28 1 2004, McGlothin urged Thompson to run more demos, but Thompson 2 responded that he was not authorized to approve the funding. 3 (McGlothin Dep. 35:19-36:16; Doc. 42 at 29.) 4 Viewing the evidence in a light most favorable to Citri-Lite, 5 Cott s non-allocation of funding for marketing efforts at Food Lion, 6 its focus on other retailers besides Food Lion, its lack of any 7 particular marketing plan for Food Lion, and its lack of promotions 8 after being prompted to do so by the food broker, suggest that Cott 9 did not use commercially reasonable efforts to promote and sell 10 Slim-Lite at Food Lion. Cott suggests that it was excused from 11 spending money on and/or engaging in marketing efforts with respect 12 to Food Lion, but the evidence, when viewed in a light most 13 favorable to Citri-Lite, does not resolve this issue. Although Cott 14 rationally defends its actions with respect to Food Lion, when the 15 evidence is viewed in a light most favorable to Citri-Lite, it 16 cannot be concluded, as a matter of law, that Cott did not breach 17 its contractual obligation to use commercially reasonable efforts. 18 3. 19 As Cott argues, as Citri-Lite conceded at oral argument, and the Conclusion 20 as case law suggests, Cott s 21 represent a factor that can be considered when determining whether 22 Cott engaged in commercially reasonable efforts to promote and sell 23 Slim-Lite as required by the Agreement. 24 Cott s business interests among the totality of the circumstances, 25 however, for the reasons stated, summary judgment is DENIED on the 26 ground that Cott did not breach its obligation to use commercially 27 reasonable efforts to promote and sell Slim-Lite. Whether Cott used 28 29 economic business interests Even when considering 1 commercially reasonable efforts remains a triable issue.21 2 B. Causation22 3 Causation between breach and damage is an essential element of 4 a claim for breach of contract and breach of the implied covenant 5 of good faith and fair dealing. Thompson Pacific Construction, Inc. 6 v. City of Sunnyvale, 155 Cal. App. 4th 525, 541 (2007); Vu v. Cal. 7 Commerce 8 fundamental rule of law is that whether the action be in tort or 9 contract compensatory damages cannot be recovered unless there is 10 a causal connection between the act or omission complained of and 11 the injury sustained. McDonald v. John P. Scripps Newspaper, 210 12 Cal. App. 3d 100, 104 (1989) (internal quotation marks omitted). 13 Club, Inc., 58 Cal. App. 4th 229, 234 (1997). A The requisite causation, or causal connection, is established 14 15 16 17 18 19 20 21 22 23 24 25 26 27 21 In the briefing, in addition to Sam s Club and Food Lion, Cott discusses its efforts with respect to Walmart in its statement of facts. In the argument section of its briefing, however, Cott does not address the commercial reasonableness issue as to Walmart. In its opposition briefing, Citri-Lite does not address Walmart, and Citri-Lite s expert did not prepare any damages calculations as to Walmart. Accordingly, it appears that Cott s efforts as to Walmart are not, or are no longer, at issue in this case. If Citri-Lite contends otherwise, it should so notify the court at the forthcoming scheduling conference, and supplemental briefing may be requested. Similarly, Citri-Lite did not advance any argument that the failure to make a powdered version of Slim-Lite constituted a breach of the Agreement, and Cott barely touched upon the issue. From this, it is inferred that Cott s failure to make a powdered version is no longer an issue in this case. If Citri-Lite contends otherwise, it should so notify the court at the scheduling conference, and supplemental briefing may be requested. 22 For purposes of its causation arguments, Cott assumes a breach of the Agreement and the implied covenant of good faith and fair dealing. 28 30 1 when the plaintiff demonstrates that the defendant s breach was a 2 substantial factor in causing damage. Haley v. Casa Del Rey 3 Homeowners Ass n, 153 Cal. App. 4th 863, 871 (2007); US Ecology, 4 Inc. v. State, 129 Cal. App. 4th 887, 909 (2005); Linden Partners 5 v. Wilshire Linden Associates, 62 Cal. App. 4th 508, 530 (1998); 6 Bruckman v. Parliament Escrow Corp., 190 Cal. App. 3d 1051, 1063 7 (1987). 8 9 10 11 12 13 As explained in US Ecology: The test for causation in a breach of contract (or [implied covenant]) action is whether the breach was a substantial factor in causing the damages. Causation of damages in contract cases, as in tort cases, requires that the damages be proximately caused by the defendant's breach, and that their causal occurrence be at least reasonably certain. A proximate cause of loss or damage is something that is a substantial factor in bringing about that loss or damage. The term substantial factor has no precise definition, but it seems to be something which is more than a slight, trivial, negligible, or theoretical factor in producing a particular result. 14 129 Cal. App. 4th at 909 (internal citations and quotation marks 15 omitted). Damages which are speculative, remote, imaginary, 16 contingent or merely possible cannot serve as a legal basis for 17 recovery. McDonald, 210 Cal. 3d at 104. 18 Cott s causation arguments focus on the reduction of 19 distribution of Slim-Lite at Sam s Club. To put Cott s causation 20 arguments in context, as of December 2004, 528 Sam s Club stores 21 carried Slim-Lite. (Doc. 40 at 45-46.) As of 2005, Cott reduced its 22 demos to one demo per month per club. (Doc. 42 at 16). Between 23 December 2004 and March 2005, distribution declined to 463 stores. 24 (Doc. 40 at 46.) On March 24, 2005, Cott notified Sam s Club that 25 it was cancelling demos altogether. (Doc. 40 at 24.) Around the 26 beginning of April 2005, Sam s Club cut the number of stores 27 28 31 1 carrying Slim-Lite from 463 to 89 stores. (Id. at 46.) 2 1. 3 Cott Carson s Expert Report attacks Citri-Lite s expert John Carson s causation 4 theory. Citing page 15 of Carson s expert report, Cott argues that 5 Carson engaged in speculation that the cancellation of demos at 6 Sam s Club could have caused Dragovich [/Sam s Club] to reduce 7 distribution at Sam s to 89 clubs. 8 oversimplifies Carson s report. 9 10 11 12 13 14 15 (Doc. 36 at 21.) Cott Page 15 of Carson s report states: It should be noted that Cott s marketing manager for Slim-Lite testified that the packaging changes would demonstrate to the Sam s Club buyer Cott s continued dedication to the brand and efforts to do whatever we could to help them sell. (Calise depo 345:2-346:12.) As noted above, the decision by the Sam's Club buyer to reduce the number of clubs from 464 to 90 [actually 89][23] was apparently made in late March 2005. This decision was made within days after receiving an email from Cott to terminate all of the remaining demos for 2005. It is also likely that the Sam's Club buyer was also influenced by Cott's failure to make packaging changes to Slim-Lite which had been discussed for nearly a year. 16 17 18 Thus, the failure of Cott to make changes in the packaging and configuration of Slim-Lite was a substantial factor in Cott's inability to maintain sustained sales of Slim-Lite at Sam's Club. . . . . 19 20 21 22 23 24 As discussed above, sales of Slim-Lite rapidly declined as the demos were reduced. Substantial sales were also lost when the number of Sam's Clubs was reduced in April 2005 from approximately 500 to about 90 [actually 89]. It appears that the reduction was implemented by the Sam's Club buyer [Dragovich] shortly after Cott requested that all remaining demos be terminated for 2005, and after Cott failed to implement packaging changes he had requested. He testified that if an item was not meeting its sales objectives, he would recommend that the supplier do demos. (Dragovich depo 44:9-24). 25 26 27 23 Carsons figures appear to be slightly off, but any minor deviation is immaterial for purposes of a causation analysis. 28 32 In the fall of 2004, Cott estimated the sale of 1,903 million cases of Slim-Lite from Sam s Club for 2005. (Woods Depo, 205:5-206:8; Exhibit 22) In fact, the loss of sales in comparison with their forecast was more than substantial. The retail value of this number of cases, at Sam s Club price of $6.86 per case, is $13,053,000, which, for a total of 500 clubs, would be weekly sales per club of just over $500. There is nothing in the record which indicates why this estimate was not reasonable or why this estimate would not have been realized had Cott[] provided the appropriate marketing efforts to the Slim-Lite brand at Sam s Club. 1 2 3 4 5 6 7 8 (Doc. 45, Ex. L at 15.) 9 reveals that he is A review of Carson s report, at page 15, not suggesting or speculating that the 10 cancellation of the demos, standing alone, caused Dragovich (or 11 Sam s Club) to reduce the distribution of Slim-Lite to 89 clubs. 12 Rather, to the extent Carson s report is focused on the cut in 13 distribution as a source of damage to Citri-Lite, Carson suggests 14 that Cott s reduction and cancellation of demos and Cott s failure 15 to 16 distribution. 17 2. 18 Perhaps implement the packaging change influenced the cut in on the Dragovich and Fields recognizing that it focused too narrowly 19 cancellation of demos and the cut in distribution, Cott argues that 20 Citri-Lite has not shown any link between Cott s conduct and the 21 loss in business at Sam s. 22 neither Dragovich nor Fields the two buyers with virtually 23 unfettered discretion to determine the fate of Slim-Lite at Sam s 24 Club identified [in their deposition] any acts by Cott that led 25 them 26 distribution. (Id.) In its moving papers, Cott cites excerpts from 27 Dragovich s and Fields deposition testimony in support of its to (Doc. 36 at 21.) Cott represents that cut distribution, or which led them not to increase 28 33 1 argument. 2 Cott s argument, and Citri-Lite s response, raise different 3 theories of causation, both of which involve the cut in distribution 4 from 463 to 89 stores. 5 in distribution is the main issue. 6 cause of Cott s failure, after the cut in distribution, to raise the 7 level of distribution (i.e., increase the number of clubs carrying 8 Slim-Lite) is the focal point. Under the first theory, the cause of the cut Under the second theory, the Under the first theory, Cott's breach caused the cut in 9 10 distribution which damaged Citri-Lite. Under this theory, Cott s 11 reduction and cessation of demos, and its failure to implement the 12 packaging change, (i.e., the breach), purportedly caused Sam s Club 13 to cut the distribution of Slim-lite. 14 support of this theory is thin, but enough to survive summary 15 judgment. The record evidence in The cut in distribution occurred around the time that the Slim- 16 17 Lite buyer at Sam s Club changed from Dragovich to Fields. 18 Dragovich nor Fields recalled what prompted the cut in distribution. 19 (Dragovich 20 recalled only generally discussing the possibility of cutting the 21 number of Clubs that were selling Slim-Lite. (Dragovich Dep. 91:12- 22 22.) Dep. 89:19-25; Fields Dep. 122:12-23.) Neither Dragovich 23 As to whether the reduction and cancellation of demos played 24 a role in the distribution cut, Dragovich testified that demos drive 25 sales (Dragovich Dep. 44:22-24) and Dragovich views a supplier s 26 willingness to demo as an indication of its commitment to the 27 product (Dragovich Dep. at 121:10-13). 28 34 Dragovich recalled a 1 discussion about Cott s backing off of their commitment to demo 2 and Slim-Lite s overall performance at Sam s Club. (Dragovich Dep. 3 160:17-19.) 4 as well at clubs at which it was relatively new as opposed to the 5 clubs in which it had longer exposure. (Dragovich 72:25-73:5.) 6 Although Dragovich recalled Cott s backing off of their commitment 7 to demo (even at clubs at which the product was relatively new), and 8 although Dragovich stated that demos drive sales and indicate a 9 supplier s commitment to the product, Dragovich did not believe (at 10 his deposition) that Cott s cessation of demos and the cut in 11 distribution were related. (Dragovich Dep. 162:8-15; 167:17-21.) 12 Dragovich, however, acknowledged that he did not recall the cut in 13 distribution (Dragovich Dep. 89:19-25), and, naturally, did not 14 testify as to what caused the cut in distribution. 15 discussed a few things which could account for a significant change 16 in the distribution of a product. 17 18 19 20 21 22 23 24 25 26 Dragovich acknowledged that Slim-Lite did not perform Dragovich Q. If Sam s Club were to make a decision to cut hundreds of stores at a time, what would the drivers be to make that dramatic of a decision? A. The only one that comes to mind is production ability and capacity. I mean, I don t recall any circumstances where we would cut that many Clubs at one time. Q. You mentioned the only thing you could think of is production ability and capacity. Can you expand on that and explain what you mean by production ability. A. Or switching to a new package or cancelling an item because it s not available or we re transitioning to a new package where there is another item number built and another, you know, 200 stores added, 200 Clubs added, 200 Clubs added over here. Q. Is that what you mean when you refer to production ability and capacity? 27 28 35 1 A. Yes, that would be the only thing that would trigger why that dramatic of a change would have occurred. 2 (Dragovich Dep. 90:18-91:11). Although a cancellation of demos is 3 not one of the factors which Dragovich associated with cutting 4 hundreds of stores at a time, he admitted that he could not recall 5 any circumstances where we would cut that many Clubs at one time. 6 (Dragovich Dep. 90:22-24.) 7 For her part, Fields testified that she (and Sam s Club) prefer 8 when suppliers conduct demos. (Fields Dep. 117:3-14.) Fields, 9 however, was not concerned that Cott was not conducting demos of 10 Slim-Lite. (Doc. 40 at 50.) It appears from Fields testimony, and 11 Citri-Lite concedes, that Cott did not do anything to adversely 12 affect Fields decisions regarding Slim-Lite, and that Cott met her 13 expectations as a buyer regarding Slim-Lite. (Doc. 40 at 50.) 14 As to whether Cott s failure to implement the packaging change 15 played a role in the cut in distribution, Dragovich testified 16 regarding the importance of changing Slim-Lite s packaging. 17 Dragovich acknowledged that he felt a packaging change from a 1218 pack with 20 ounce bottles to a 24-pack with 16.9 ounce bottles 19 would improve Slim-Lite s marketability at Sam s Club. (Dragovich 20 Dep. 141:10-142:8.) Dragovich also acknowledged that the idea for 21 the packaging change originated from Sam s Club and that a 16.9 22 ounce bottle was a focus for Sam s Club as they were trying to 23 line up 16.9 ounce [bottles] [for] all our beverages. (Dragovich 24 Dep. 76:4-8; 79:19-22.) Dragovich also noted that tuxedo wrap, the 25 four-color, high graphic wrap was something we were asking our 26 suppliers to look at as well because it promoted their product much 27 28 36 1 better and where we made those changes, we saw increases in sales. 2 (Dragovich Dep. 76:9-13.) Dragovich also testified that he compared 3 the performance of Slim-Lite with the performance of another drink 4 that Sam s Club carried, Diet Ice, and Diet Ice was outselling Slim- 5 Lite 6 Dragovich acknowledged that he may have recommended a packaging 7 change for Slim-Lite as something Cott could do to improve the sales 8 performance of Slim-Lite. (Dragovich Dep. 74:3-8.) on an average-per club basis. (Dragovich Dep. 73:16.) 9 While Dragovich recognized the value of changing Slim-Lite s 10 packaging, he did not specifically state, one way or the other, 11 whether a failure to make a packaging change could account for a 12 drastic cut in distribution like the one Slim-Lite experienced. 13 did acknowledge that transitioning or switching to a new package 14 could explain a drastic cut in the distribution of a particular 15 product, as the newly configured product would get a new item number 16 and, presumably, be ordered separately while the old configuration 17 is phased out of distribution. (Dragovich Dep. 91:2-7.) 18 deposition testimony, in the record, does not address the packaging 19 change or Cott s failure to implement it. 20 He Fields The circumstantial evidence suggesting that it was Cott s 21 reduction and cancellation of the demos, and its failure to 22 implement the packaging change, that caused the cut in distribution 23 is inconclusive. 24 issue of fact as to causation. It is, however, sufficient to create a triable 25 Interpreting the evidence in a light most favorable to Citri- 26 Lite and drawing all reasonable inferences in favor of Citri-Lite, 27 the evidence suggests that demos drive sales, they are preferred by 28 37 1 Sam s Club, and they demonstrate a supplier s commitment to its 2 product. The evidence further suggests that another beverage, Diet 3 Ice, was outperforming Slim-Lite on an average per-club basis and 4 that Dragovich/Sam s Club recommended a packaging change for Slim- 5 Lite believing it would increase the product s marketability. 6 reasonable inference from the evidence is that Cott s decision to 7 cancel 8 reduction in future sales (especially at clubs at which Slim-Lite 9 was relatively new) and also demonstrated a lack of commitment to 10 the product, an inference all the more plausible given that Cott had 11 not implemented a packaging change that Sam s Club recommended as 12 a tool for increasing the product s marketability. 13 extremely close timing between Cott s cancellation of demos and the 14 reduction in the number of clubs carrying Slim-Lite, Citri-Lite has 15 enough evidence to create a triable issue of fact as to causation. 16 Cott does not identify 17 distribution 18 arising from the suspicious timing.24 Again, neither Dragovich nor demos altogether signaled any a potential instability One or Added to the non-breach reason for the cut in that would otherwise dispel a negative inference 19 20 21 22 23 24 25 26 27 24 Cott s inability to articulate a non-breach reason (or any reason) for the cut in distribution is comparable to an employer who cannot identify a non-retaliatory reason for an adverse employment action in an employment retaliation case. In employment retaliation cases, timing evidence (i.e., a close temporal connection between an employee s engagement in protected activity and the employer s adverse employment action) can supply sufficient evidence of causation to create a prima facie case. Villiarimo v. Aloha Island Air, Inc., 281 F.3d 1054, 1065 (9th Cir. 2002) ( [C]ausation can be inferred from timing alone where an adverse employment action follows on the heels of protected activity. ); see also Davis v. Team Elec. Co., 520 F.3d 1080, 1094 (9th Cir. 2008). At the summary judgment stage, the failure of an employer 28 38 1 Fields could recall the cut in distribution, and, naturally, neither 2 testified as to its cause. 3 not 4 distribution were related, viewing the evidence in the light most 5 favorable to Citri-Lite, Dragovich s inability to recall the cut in 6 distribution at all (and, by extension, what prompted it) reduces 7 the effect of his testimony as to the relationship between Cott s 8 cessation of demos and cut in distribution. 9 testify that Cott s reduction and cessation of demos combined with 10 Cott s failure to implement the packaging change were unrelated to 11 the cut in distribution. 12 believe At that summary Cott s judgment, Although, in hindsight, Dragovich did cessation of Citri-Lite demos does and the cut in Dragovich did not not have to prove 13 causation by a preponderance of the evidence; rather, the evidence 14 need only create a genuine issue of fact. 15 there is a triable issue of fact as to whether Cott s reduction and 16 cancellation of demos, along with its failure to implement the Based on the evidence, 17 18 19 20 21 22 23 24 25 26 27 to identify a non-retaliatory reason for the adverse employment action would not overcome the inference of causation created by the timing evidence, and the employee would survive summary judgment. See, e.g., Davis, 520 F.3d at 1094; see also Mesnick v. General Elec. Co., 950 F.2d 816, 824 (1st Cir. 1991) ( If the plaintiff has made out his prima facie case, and the employer has not offered a legitimate, nondiscriminatory reason to justify the adverse employment action, then the inference of discrimination created by the prima case persists, and the employer's attempt to secure summary judgment should be rebuffed. ). Here, Cott s inability to identify a non-breach reason (or any reason) for the cut in distribution leaves intact the negative inference created by the suspicious timing. Moreover, Citri-Lite has more than just mere timing evidence to create an inference of causation between Cott s purported breach (i.e., the reduction and cancellation of demos, and the failure to implement the packaging change) and the cut in distribution. 28 39 1 packaging change, caused the cut in distribution. 2 Under the second theory, after the cut in distribution, Cott s 3 breach caused the distribution of Slim-Lite to remain at low levels. 4 Under this theory, Cott s cessation of demos, and its failure to 5 implement the packaging change, (i.e., the breach), negatively 6 affected the sales of Slim-Lite and kept the distribution of Slim- 7 Lite at lower levels resulting in damage to Citri-Lite. 8 evidence 9 judgment. supporting this theory is enough to survive The summary 10 After Sam s Club cut the number of stores carrying Slim-Lite, 11 Cott informed Citri-Lite that it would endeavor to increase the 12 number 13 (Horrigan Decl. ¶ 39; Doc. 40 at 51.) Cott did not meet this 14 objective. 15 reintroduce demos after the cut in distribution. Demos drive sales, 16 they are preferred by Sam s Club, and they demonstrate a supplier s 17 commitment to its product. 18 even 19 testified that in making decisions to increase distribution, he 20 considers the current performance of the product in existing clubs. 21 (Dragovich Dep. 61:22.) 22 improve performance is to conduct demos. (Dragovich Dep. 44:22-24; 23 73:22-74:9.) of stores after carrying Slim-Lite back to previous Cott ceased conducting demos of Slim-Lite and did not the Cott, however, did not utilize demos distribution was drastically cut. Dragovich Based on Dragovich s testimony, one way to Demos increase sales: 26 Q. Would I be correct in assuming that although supplier paid money to demo, that Sam's Club saw benefit of demo'ing, not in getting money from suppliers, but in increasing the sales as a result of demos. 27 A. Yes. 24 25 levels. 28 40 the the the the 1 (Dragovich Dep. 119:18-23.) 2 As to the packaging, again Dragovich acknowledged that the idea 3 for the packaging change originated from Sam s Club and that a 16.9 4 ounce bottle was a focus for Sam s Club. 5 was viewed by Dragovich/Sam s Club as a way to increase the 6 product s marketability. 7 in distribution, Fields informed Scheiderer that the club count 8 would not be re-established until the packaging change was made and 9 the newly configured product proved itself in existing clubs. Changing the packaging According to Scheiderer, after the cut 10 (Schiederer Dep. 322:16-20.) 11 Cott, however, did not implement the packaging change. 12 Viewing the evidence in a light most favorable to Citri-Lite, 13 and drawing all reasonable inferences in its favor, the performance 14 of a product is something which Dragovich/Sam s Club considers when 15 deciding 16 according to Dragovich, demos drive sales and increase performance. 17 A reasonable inference from this evidence is that conducting demos 18 is way to lay the foundation for a sales increase and an increase 19 in distribution. 20 The evidence also suggests that Sam s Club recommended a packaging 21 change for Slim-Lite and implementing it was important to re- 22 establishing club count. 23 packaging change and the distribution of the product remained at low 24 levels. 25 triable issue of fact as to whether Cott s cessation of demos along 26 with 27 distribution of Slim-Lite to remain at depressed levels after the its whether to increase a product s distribution, and, Cott did not pursue this promotional alternative. Cott, however, did not implement the The circumstantial evidence is sufficient to create a failure to implement 28 41 the packaging change caused 1 cut in distribution resulting in damage to Citri-Lite. Cott s 2 motion 3 C. summary adjudication on the issue of causation is DENIED. 4 for Damages 5 1. 6 Citing Martin v. U-Haul Co. of Fresno, 204 Cal. App. 3d 396 7 (1988), Cott argues that the termination clause in the Agreement, 8 which permits Cott to terminate the agreement upon sixty (60) days 9 advance notice, imposes a substantive limitation on the scope of 10 The Termination Period As A Limit On Damages Citri-Lite s recoverable damages. Cott is correct. In Martin, the plaintiff entered into a dealership agreement 11 12 with defendant, U-Haul Company of Fresno ( U-Haul Company ), 13 pursuant to which the plaintiff rented out U-Haul Company vehicles 14 and other equipment to customers, gave the gross receipts to U-Haul 15 Company, and then received commissions in return. Id. at 400. 16 dealership agreement permitted termination by either party without 17 cause on thirty days written notice or termination without 18 previous written notice upon violation by the opposite party of any 19 promise or condition mentioned in the agreement. Id. at 405. The 20 U-Haul Company terminated the agreement without any previous written 21 notice to plaintiff. 22 termination, the U-Haul Company arrived at the plaintiff s business 23 premises and took back the U-Haul vehicles and equipment. Id. at 24 402-04. The Id. at 402-03, 405, 410. On the day of 25 The jury found that the U-Haul Company had terminated the 26 dealer agreement without good cause, i.e., that the U-Haul Company 27 violated the termination provision. 28 42 The jury entered a verdict for 1 plaintiff and awarded $29,000 in compensatory damages. Id. at 400, 2 407. The trial judge granted defendant a new trial unless plaintiff 3 consented to a reduction of damages to $725, which represented the 4 amount of money plaintiff would have earned in an additional thirty 5 days of U-Haul dealership business. Id. at 400, 410-11. 6 reduction assumed that, at the time of the breach, had plaintiff 7 received prior written notice of termination as provided for in the 8 agreement, plaintiff could expect to stay in business, and receive 9 monetary benefits from the agreement, only for another thirty days. 10 This Id. at 410-411. The appellate court affirmed. 11 After reviewing older cases such as Jewell v. Colonial Theater 12 Co., 12 Cal. App. 681 (1910), Cline v. Smith, 96 Cal. App. 697 13 (1929), and Pecarovich v. Becker, 113 Cal. App. 2d 309 (1952), the 14 appellate court concluded that, in light of the provision permitting 15 termination of the dealership agreement without cause upon thirty- 16 days advance written notice, plaintiff could not reasonably expect, 17 and was not entitled to receive, compensatory damages for a period 18 exceeding thirty days. 19 20 21 22 The court reasoned: The specific rule that a termination clause limits recoverable damages to the notice period is consistent with the general requirement that contract damages are limited to those foreseeable by the parties at the time of contracting. Parties who agree that a contract may be terminated for any reason, or no reason, upon the giving of the specified notice could not reasonably anticipate that damages could exceed that notice period. 23 . . . . 24 25 26 27 Civil Code section 3358 provides in pertinent part, no person can recover a greater amount in damages for the breach of an obligation, than he could have gained by the full performance thereof on both sides. Thus, courts will not, except where exemplary damages are awarded, permit a party to a contract to recover more on the 28 43 1 2 3 4 5 6 7 8 9 10 11 12 13 breach thereof than he would have received by due performance of the agreement. If U-Haul had followed the notice requirements in its dealership contract, it could have terminated Martin's dealership after providing a 30-day notice. Full performance by U-Haul would only have resulted in an additional 30 days of U-Haul dealership business for Martin. That 30-day period is all that Martin could reasonably be assured of remaining in business. Because of the 30-day notice provision neither party to the dealership contract could reasonably anticipate that damages resulting from a breach of that contract would exceed those potentially accruing during a 30-day period after the breach. Furthermore, awarding the wronged party damages which exceed those attributable to the 30 days immediately following the breach would place that party in a better position than that resulting if the breaching party had performed in accordance with the terms of the agreement. Therefore, the trial court was correct when it granted the new trial motion conditioned upon Martin's consent to a reduction in the damage award from $29,000 to $725. Martin, 204 Cal. App. 3d at 409-11. 14 The Martin court s analysis of the termination clause, and its 15 impact on recoverable damages, must be understood in light of the 16 circumstances of the case. 17 agreement, the U-Haul Company had the power to and did take back its 18 vehicles and equipment. 19 the contract upon thirty days advance written notice, the plaintiff 20 could reasonably expect to conduct U-Haul business for the next 21 thirty days before the U-Haul Company took back its vehicles and 22 equipment. 23 equipment left on his lot, the plaintiff could not expect any 24 further economic benefit from the dealer agreement. 25 [f]ull performance by U-Haul would only have resulted in an 26 additional 30 days of U-Haul dealership business for plaintiff and 27 nothing Upon termination of the dealership Had the U-Haul Company properly terminated Beyond that point, however, with no U-Haul vehicles or more. Id. at 410. At 28 44 the same time, Accordingly, awarding him 1 compensatory damages in excess of those attributable to the 30 days 2 immediately following the breach would have placed him in a better 3 position than if the U-Haul Company had performed in accordance with 4 the terms of the agreement. Id. at 410-11. Martin s 5 reasoning applies here and limits Citri-Lite s 6 recoverable damages. Cott properly terminated the Agreement without 7 cause by providing Citri-Lite, in October 2005, a sixty-day advance 8 written notice that it was terminating the Agreement.(Doc. 40 at 52- 9 23, 64).25 After that sixty-day notice period elapsed, the 10 Agreement terminated and Citri-Lite could not reasonably expect 11 further performance or royalty payments from the Agreement beyond 12 that point. 13 theories, however, projects Cott s sales of Slim-Lite and royalty 14 payments to Citri-Lite through 2015. 15 presuppose more than full performance by Cott as limited by the 16 contract s express terms. 17 for lost royalty payments beyond the termination of the Agreement, 18 Plaintiff is barred from recovering those damages. At oral argument 19 on the motion, Citri-Lite conceded the point, agreeing that Martin 20 precludes 21 Agreement. At least one, if not more, of Citri-Lite s damages recovery of These damages theories To the extent Citri-Lite seeks damages lost royalties beyond the term of the 22 Recognizing Martin s impact, Citri-Lite argues that is not 23 simply seeking lost royalties. (Doc. 41 at 9.) Rather, Citri-Lite 24 is seeking lost royalties during the Agreement and forseeable and 25 permanent damage to its goodwill. (Id.) Martin did not explicitly 26 27 25 Citri-Lite does not assert that Cott acted improperly in terminating the Agreement. 28 45 1 deal with the loss of goodwill. Citri-Lite is correct to the extent 2 it suggests that Martin does not preclude recovery for loss of 3 goodwill. 4 In Martin, the plaintiff did not retain the U-Haul vehicles or 5 equipment upon the termination of the dealership agreement, 204 Cal. 6 App. 3d at 402-03, and, accordingly, the plaintiff did not expect 7 any future stream of U-Haul business after the cessation of the 8 agreement. 9 back at the end of the agreement: the product and the brand it Here, however, the plaintiff, Citri-Lite, got something 10 created, Slim-Lite. At the end of the Agreement, Citri-Lite 11 continued to sell Slim-Lite. (Doc. 40 at 55.) 12 extent Cott s alleged breaches during the Agreement harmed Slim- 13 Lite s reputation and goodwill in the marketplace, Citri-Lite, as 14 the original product owner, can seek to recover for a loss of 15 goodwill. 16 Martin does, however, preclude Citri-Lite from projecting what its 17 goodwill would have been in the future on the assumption that Cott 18 continues to promote and sell Slim-Lite beyond the term of the 19 Agreement. Had Cott fully performed, Citri-Lite would have obtained 20 Cott s promotional and selling efforts through the remainder of, and 21 not beyond, the sixty-day termination period. Citri-Lite s goodwill 22 damages, if any, cannot assume any performance by Cott beyond the 23 termination 24 goodwill. 25 premised on Cott s performance beyond the termination of Agreement, 26 Citri-Lite 27 adjudication on the limitations on recovery of lost royalty payments Martin does not suggest otherwise. of the Agreement and any Accordingly, to the The reasoning of corresponding impact on To the extent the goodwill damages Citri-Lite seeks are is barred from recovering 28 46 those damages. Summary 1 and goodwill damages is GRANTED. 2 Cott also argues in reply that, with respect to goodwill 3 damages, Neches report is flawed because it does not contain any 4 goodwill valuation, only a lost profits calculation, and Neches 5 cannot now prepare a goodwill valuation that he omitted from his 6 report. 7 goodwill valuation at all because a goodwill valuation includes a 8 computation of the current value of future loss profits minus the 9 value of the plaintiff s net assets, and Neches failed to determine According to Cott, Neches damages calculation is not a 10 the 11 incorporated some goodwill component in his future lost profits 12 analysis. (Neches Decl. ¶¶ 5, 13.) 13 and that Neches report does not contain goodwill calculations, Cott 14 has not filed a separate motion attacking Neches expert report for 15 this deficiency and Cott s argument is better raised in the context 16 of a motion in limine, such as a motion under Rule 37. See generally 17 Yeti by Molly, Ltd. v. Deckers Outdoor Corp., 259 F.3d 1101, 1105-06 18 (9th Cir. 2001); Tracinda Corp. v. DaimlerChrysler AG, 362 F. Supp. 19 2d 487, 505-11 (D. Del. 2005). The thrust of Cott s argument is not 20 that Citri-Lite lacks any evidence from which to prepare a viable 21 goodwill valuation but rather that Neches damages calculation is 22 not a goodwill valuation at all, and, citing Yeti by Molly, Cott 23 argues that Neches [cannot] prepare a goodwill calculation now at 24 this stage in the litigation. (Doc. 51 at 9.) 25 latter. To the In extent his declaration Citri-Lite Mr. Neches claims to have Even assuming Cott is correct seeks damages for lost royalty 26 payments beyond the termination of the Agreement, Citri-Lite is 27 barred from recovering such damages. To the extent Citri-Lite seeks 28 47 1 goodwill damages which are premised on performance by Cott beyond 2 the termination of Agreement, Citri-Lite is barred from recovering 3 those damages. Cott s challenge to Neches s report does not provide 4 a separate basis upon which to grant summary judgment in favor of 5 Cott and can be raised, if necessary, in an appropriate motion. 6 2. Speculative Damage Theories 7 Cott argues that, aside from the damages limitation imposed by 8 the 60-day termination period, two of Citri-Lite s proposed 10-year 9 profit or royalty projections are improperly speculative. Under 10 Citri-Lite s first damages scenario, Citri-Lite (or its expert, 11 Neches) assumes that Cott would have renewed the Agreement five 12 times. 13 assumes that Cott would have exercised the purchase option in 2006. 14 Damages which are speculative, remote, imaginary, contingent or 15 merely possible cannot serve as a legal basis for recovery. 16 McDonald, 210 Cal. 3d at 104. Evidence to establish profits must 17 not be uncertain or speculative. Continental Car-Na-Var Corp. v. 18 Moseley, 24 Cal. 2d 104, 113 (1944). Under Citri-Lite s second damages scenario, Citri-Lite 19 There is no evidence that Cott would have renewed the Agreement 20 once, let alone five times, and there is no evidence that Cott would 21 have exercised the purchase option. 22 are based on purely imaginary and speculative events. 23 speculative nature of these damages theories is, however, a moot 24 issue. 25 presuppose 26 terminated the Agreement in 2005. By assuming that Cott would renew 27 the Agreement on successive occasions and/or exercise the purchase Citri-Lite s damages theories The These damages theories are infirm under Martin because they more than full performance 28 48 by Cott which properly 1 option in 2006, Citri-Lite s damages theories provide Citri-Lite 2 with more damages than full performance would have provided Cott s 3 promotional and selling efforts through the sixty-day termination 4 period 5 judgment/adjudication as to the speculative nature of the first and 6 second damages scenarios is DENIED as moot. 7 D. and nothing further. Cott s motion for summary Objections 8 Cott raises objections to certain of Citri-Lite s statements 9 of disputed facts and certain paragraphs in declarations filed by 10 Citri-Lite in opposition to Cott s motion. (Doc. 52.) To the extent 11 Cott s motion for summary judgment/adjudication is denied, no 12 reliance has been placed on any statements in Citri-Lite s disputed 13 facts or in Citri-Lite s declarations which are subject to a proper 14 objection. Accordingly, Cott s objections are DENIED as moot. V. CONCLUSION 15 16 17 For the reasons stated above: 1. Cott s motion for summary judgment/adjudication on the 18 grounds that Cott did not breach its obligation to use commercially 19 reasonable efforts to promote and sell Slim-Lite is DENIED. 20 21 22 23 24 2. Cott s motion for summary judgment/adjudication as to causation is DENIED. 3. Cott s motion for summary judgment/adjudication as to Citri-Lite s damages theories is GRANTED in part and DENIED in part: a. To the extent Citri-Lite seeks damages for lost 25 royalty payments beyond the termination of the Agreement, Citri-Lite 26 is barred from recovering those damages; GRANTED; 27 b. To the extent Citri-Lite seeks goodwill damages which 28 49 1 are premised on performance by Cott beyond the termination of 2 Agreement, Citri-Lite is barred from recovering those damages; 3 GRANTED; c. 4 Cott's challenge to Neches's report that it does not 5 contain a goodwill valuation and that Neches cannot now prepare a 6 goodwill valuation, does not provide a separate basis upon which to 7 grant summary judgment in Cott s favor; the issue will be heard in 8 limine; d. 9 grounds Cott s motion for summary judgment/adjudication on 10 the that the first and 11 second damages scenarios are speculative is DENIED as moot. 12 Consistent with Rule 56(d)(1), both parties shall have five (5) 13 days following service of this decision to file a list of material 14 facts which each party believes are not genuinely at issue for 15 purposes of trial. 16 shall not exceed five pages. To the extent practicable, the parties 17 should meet and confer to determine whether and to what extent any 18 material facts are agreed upon for purposes of trial. 19 facts should be listed in a joint filing. If separately filed by the parties, these lists Agreed upon 20 The parties are instructed to contact the courtroom deputy 21 clerk to set a mutually convenient further telephonic scheduling 22 conference. 23 24 IT IS SO ORDERED. 25 Dated: b2e55c June 11, 2010 /s/ Oliver W. Wanger UNITED STATES DISTRICT JUDGE 26 27 28 50

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