Alvarado Orthopedic Research, L.P. et al v. Linvatec Corporation et al, No. 3:2011cv00246 - Document 123 (S.D. Cal. 2013)
Court Description: ORDER denying Defendant's 96 Motion for Summary Judgment. Court denies Dft's Motion for Summary Judgment and Request for Sanctions in its entirety. Signed by Judge Irma E. Gonzalez on 5/24/2013. (jah)
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Alvarado Orthopedic Research, L.P. et al v. Linvatec Corporation et al Doc. 123 1 2 3 4 5 6 UNITED STATES DISTRICT COURT 7 SOUTHERN DISTRICT OF CALIFORNIA 8 9 ALVARADO ORTHOPEDIC RESEARCH, L.P., et al., Plaintiffs, 10 11 12 CASE NO. 11-CV-246-IEG (RBB) vs. [Doc. No. 96] LINVATEC CORP., et al., 13 ORDER DENYING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT AND REQUEST FOR SANCTIONS. Defendants. 14 15 16 17 Before the Court is Defendant Linvatec, Inc.’s motion for summary judgment, which also requests sanctions. [Doc. No. 96.] For the reasons below, the Court hereby DENIES Defendant’s motion in its entirety. BACKGROUND 18 19 20 21 22 23 24 25 26 27 28 This is a breach of contract case arising from a dispute over royalty payments under a technology licensing agreement. In the 1980’s, Dr. Thomas Peterson and metallurgical engineer Kenneth Holko developed surgical saw blade technology, including a nickel-based blade coating (“BRAZOL”) and a “ribbed” blade shape, intended to reduce the accumulation of fine metal debris in open wounds during orthopedic surgery. In 1989, Alvarado Orthopedic Research, Inc., a general partnership whose principal is Dr. Peterson, and the Hall Surgical Division of Zimmer, Inc. (“Zimmer”), entered into the subject license agreement, which gave Zimmer the right to sell products using the saw blade technology in exchange for a $12,000 lump -1- 11cv246 Dockets.Justia.com sum and prospective royalty payments. [See Doc. No. 96-3 (“Agreement”).] The 1 written agreement provides for a 3% royalty to Alvarado for each unit of unribbed 2 product sold, and a 6% royalty for each unit of ribbed product sold. [Agreement 3 IV.A.2.] “Product” is defined as “any Device the manufacture, use or sale of which 4 5 would, but for this Agreement, infringe a Valid Claim or any Device incorporating, 6 or the manufacture, use or sale of which utilizes the Technology.” [Agreement I.F.] “Device” is defined to as “a gall resistant surgical saw blade coated with a 7 8 nickel-based material identified [as] BRAZOL . . .” [Agreement I.B.] “Valid Claim” is defined as “a claim pending in an unexpired patent included 9 10 within the Licensed Patents . . .” [Agreement I.D.] 11 “Technology” is defined as “all information, technical data or other know- 12 how which relates to the manufacture, use or sale of the Device . . .” [Agreement 13 I.E.] 14 When the license agreement was entered, no issued patents yet covered the rib 15 and BRAZOL technologies. But the agreement’s definition for “Licensed Patents” 16 prospectively encompassed “the patent(s) and/or patent applications specified in 17 Attachment B and any and all other patents and/or patent applications [] now or 18 hereinafter during the term of the Agreement,” as well as, inter alia, “any and all . . . 19 continuations, continuations-in-part . . .” [Agreement I.C.] And Attachment B listed, 20 inter alia, three U.S. patent applications and corresponding foreign applications in, 21 among other locales, Canada. [See Doc. No. 96-3 at 22 (“Attachment B”).] 22 The length of the obligation to pay royalties under the agreement hinged on 23 whether patents ever issued. [Agreement XIV.A.] If no patents issued, the 24 “obligation to pay royalties . . . [would] terminate five (5) years after the date of the 25 first commercial sale of Product.” [Id.] If patents did issue, the obligation would 26 expire “upon the expiration of the last to expire of the [licensed] patents.” [Id.] 27 28 In the early 1990’s, five patents issued variously covering the rib and BRAZOL technologies: -2- 11cv246 • U.S. Patent No. 5,002,555 (“‘555 Patent”) 1 • U.S. Patent No. 5,133,728 (“‘728 Patent”) 2 • U.S. Patent No. 5,135,533 (“‘533 Patent”) 3 • U.S. Patent No. 5,149,597 (“‘597 Patent”) 4 • Canadian Patent No. 2,008,117 (“Canadien Patent”) 5 In 1994, Zimmer began using other coatings, e.g., ME-92, with some of its 6 blades in lieu of BRAZOL but still in combination with the licensed rib technology. 7 In 1995, Linvatec, an affiliate of Zimmer, took over the obligation of issuing royalty 8 payments to Alvarado under the license agreement.1 In 1997, Zimmer formally 9 assigned all of its rights and obligations under the license agreement to Linvatec. 10 In 2008, Alvarado contacted Linvatec with concerns that (1) Linvatec was not 11 using the then-current list prices of blades to calculate royalties under the agreement 12 and (2) Linvatec failed to include in its reports-and thus failed to pay royalties on- 13 some of the blades it sold. Unsatisfied with Linvatec’s assurances that any decrease 14 in sales stemmed from normal fluctuations in the market, Alvarado requested that 15 Linvatec disclose the actual list prices for each blade sold under the agreement. 16 Upon this disclosure, Alvarado alleges that it discovered Linvatec had been 17 calculating royalty payments based on discounted sales price rather than the 18 advertised list price as required under the agreement. 19 From late 2008 through August 2009, Linvatec assured Alvarado that it would 20 investigate these concerns, but Alvarado was left to rely on Linvatec’s 21 representations in quarterly reports because (1) calculating the royalty payments 22 involved a substantial amount of sales data and (2) only Linvatec had possession of 23 the underlying data. 24 On February 4, 2011, Plaintiffs Alvarado and Holko filed a complaint against 25 Linvatec alleging four causes of action for: (1) breach of contract, (2) breach of 26 fiduciary duty, (3) fraud, and (4) accounting. [Doc. No. 1.] On August 23, 2011, the 27 28 1 At the time, both Zimmer and Linvatec were wholly-owned subsidiaries of Bristol-Myers Squibb. In 1997, Linvatec was sold to ConMed Corporation. -3- 11cv246 Court granted Linvatec’s motion to dismiss and dismissed without prejudice 1 Plaintiffs’ claims for fraud and breach of fiduciary duty and their request for 2 punitive damages. [Doc. No. 14.] On October 17, 2011, Linvatec filed an amended answer, alleging six 3 4 counterclaims for: (1) declaratory judgment; (2) breach of the covenant of good faith 5 and fair dealing; (3) unjust enrichment; (4) breach of contract; (5) accounting; and 6 (6) negligent misrepresentation. [Doc. No. 21.] The Court dismissed the majority of 7 Defendant’s counterclaims on February 8, 2012. [Doc. No. 40.] On February 28, 8 2012, Defendant filed a second amended answer, alleging counterclaims for, inter 9 alia, (1) declaratory judgment and (2) money had and received. [Doc. No. 44.] 10 On October 17, 2012, the Court granted the parties’ joint motion for the 11 voluntary dismissal of Plaintiff Holko’s claims against Linvatec, but leaving 12 Linvatec counterclaims against Holko unaffected. [Doc. No. 61.] Defendant filed the present motion for summary judgment on January 28, 13 14 2013. [Doc. No. 96.] Plaintiff Alvarado and CounterDefendant Holko filed separate 15 opposition briefs on April 22, 2013. [Doc. Nos. 106, 107.] Defendant filed two 16 reply briefs on April 29, 2013. [Doc. Nos. 108, 109.] DISCUSSION 17 18 19 I. Summary Judgment Standard “Summary judgment is appropriate when no genuine and disputed issues of 20 material fact remain, and when, viewing the evidence most favorably to the 21 nonmoving party, the movant is clearly entitled to prevail as a matter of law.” 22 Satterfield v. Simon & Schuster, Inc., 569 F.3d 946, 950 (9th Cir. 2009) (citing Fed. 23 R. Civ. P. 56). A material issue of fact is a question a trier of fact must answer to 24 determine the rights of the parties under the applicable substantive law. Anderson v. 25 Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute is genuine “if the evidence 26 is such that a reasonable jury could return a verdict for the nonmoving party.” Id. 27 28 “When the moving party has the burden of proof at trial, that party must carry its initial burden at summary judgment by presenting evidence affirmatively -4- 11cv246 showing, for all essential elements of its case, that no reasonable jury could find for 1 the non-moving party.” Fara Estates Homeowners Ass’n v. Fara Estates, Ltd., 134 2 F.3d 377, 378 (9th Cir. 1998); see also Houghton v. South, 965 F.2d 1532, 1536 (9th 3 Cir. 1992) (“Where . . . the moving party bears the burden of proof at trial, it must 4 come forward with evidence . . .”) (emphasis omitted). To carry its initial burden 5 when the nonmoving party has the burden of proof at trial, the moving party “must 6 either produce evidence negating an essential element of the nonmoving party’s 7 claim or defense or show that the nonmoving party does not have enough evidence 8 of an essential element to carry its ultimate burden [] at trial.” Nissan Fire & Marine 9 Ins. Co., Ltd. v. Fritz Cos., Inc., 210 F.3d 1099, 1102 (9th Cir. 2000). Under either scenario, “[i]f a moving party fails to carry its initial burden . . . 10 11 the nonmoving party has no obligation to produce anything” and summary judgment 12 must be denied. Id. at 1102-1103; see also Adickes v. S.H. Kress & Co., 398 U.S. 13 144,161 (1970) (“No defense to an insufficient showing is required.”). If the 14 moving party does carry its initial burden, the nonmoving party “need only present 15 evidence from which a jury might return a verdict in his favor. If he does so, there is 16 a genuine issue of fact that requires a trial.” Anderson, 477 U.S. at 255 (“Credibility 17 determinations, the weighing of the evidence, and the drawing of legitimate 18 inferences from the facts are jury functions, not those of a judge . . . ruling on a 19 motion for summary judgment.”). 20 II. Analysis 21 A. Plaintiff Alvarado’s Breach of Contract Claim 22 Defendant Linvatec seeks summary judgment on Plaintiff Alvarado’s breach 23 of contract claim. [See Doc. No. 96 at 11-20.] In California, “[a] cause of action for 24 breach of contract requires proof of the following elements: (1) existence of the 25 contract; (2) plaintiff’s performance or excuse for nonperformance; (3) defendant’s 26 breach; and (4) damages to plaintiff as a result of the breach.” CDF Firefighters v. 27 Maldonado, 158 Cal. App. 4th 1226, 1239 (2008). Defendant argues that no 28 genuine dispute of material facts remains as to the elements of breach and damages, -5- 11cv246 and thus that summary judgment is appropriate. [See, e.g., Doc. No. 96 at 12.] To 1 the contrary, as discussed below, a genuine dispute of material facts remains as to 2 both elements and thus Defendant is not entitled to summary judgment. 3 4 1. Summary Judgment as to the Element of Breach Defendant asserts a variety of breach arguments, but all suffer from at least 5 one common and fatal flaw. Plaintiff’s breach of contract claim alleges Defendant 6 underpaid royalties under the license agreement. Per the express terms of the 7 agreement, royalties are owed on two categories of “Product”: (1) “any Device” that 8 infringes a “Valid Claim”; and (2) “any Device” that incorporates the “Technology.” 9 Defendant’s breach arguments only address the “Valid Claim” category of royalties. 10 But because the royalties at issue in this case do not necessarily depend on 11 infringement of a “Valid Claim,” even if all of Defendant’s breach arguments are 12 accepted, a genuine dispute of material facts remains as to whether royalties were 13 underpaid as to “Devices” that incorporate “Technology.” This failure alone renders 14 summary judgment inappropriate as to the breach element. 15 16 17 18 Even ignoring this threshold failure, Defendant’s individual breach arguments fail to warrant summary judgment. a. No Royalties Due On Non-BRAZOL Products Defendant argues that no breach can be established for products not coated 19 with BRAZOL, because the express terms of the license agreement only require 20 royalties for products coated with BRAZOL. [See Doc. No. 96 at 12-14.] Plaintiff 21 concedes that the written terms of the agreement entered into in 1989 appear to 22 condition royalties on BRAZOL coating, but argues that the parties’ “conduct and 23 representations from 1995 onward” show that the parties modified the agreement to 24 include royalties for non-BRAZOL product. [Doc. No. 106 at 12.] 25 Under California law, a written agreement may be modified by the parties’ 26 conduct, even if the written agreement includes a clause expressly prohibiting 27 modification. See Wagner v. Glendale Adventist Med. Center, 216 Cal. App. 3d 28 1379, 1388 (Cal. Ct. App. 1989). “When one party has, through oral representations -6- 11cv246 and conduct or custom, subsequently behaved in a manner antithetical to one or 1 more terms of an express written contract, he or she has induced the other party to 2 rely on the representations and conduct or custom. In that circumstance, it would be 3 [] inequitable to deny the relying party the benefit of the other party’s apparent 4 modification of the written contract.” Id.; see also Biren v. Equality Emergency 5 Medical Group, Inc., 102 Cal. App. 4th 125, 141 (Cal. Ct. App. 2002). Thus, 6 “where the subsequent conduct of parties is inconsistent with and clearly contrary to 7 provisions of the written agreement, the parties’ modification setting aside the 8 written provisions will be implied.” Diamond Woodworks, Inc. v. Argonaut Ins. Co., 9 109 Cal. App. 4th 1020, 1038 (Cal. Ct. App. 2003). But “[b]efore a contract 10 modifying a written contract can be implied, the conduct of the parties according to 11 the findings of the trial court must be inconsistent with the written contract so as to 12 warrant the conclusion that the parties intended to modify the written contract.” Id. 13 Here, the license agreement provides royalties only for units of “Product” 14 sold, defines “Product” to require a “Device,” and defines “Device” to require 15 BRAZOL coating. [See Agreement I, IV.] Thus, together, these terms of the written 16 agreement limit royalties to blades with BRAZOL coating. Further, the agreement 17 states that the “parties may modify . . . the provisions of th[e] Agreement, but only 18 by an instrument duly executed by both parties.” [Agreement XX.] 19 Yet, the parties both acknowledge that for many years Linvatec paid royalties 20 for non-BRAZOL coated blades. Moreover, correspondence between the parties and 21 other evidence suggests that these royalty payments were not mistaken, but rather 22 intended. [See, e.g., Doc. No. 96-4, Ex. 11 (May 24, 1995 Letter from Linvatec to 23 Alvarado) (“Additionally, royalties for all Linvatec Products which are not Brazol 24 coated should be paid to you in full.”); Ex. 12 (Sample Royalty Percentage Sheet 25 listing 6% royalty rate for a range of non-BRAZOL coated blades); Ex. 17 at 11 26 (Deposition of Gene Warzecha, Linvatec employee responsible for calculating 27 royalties under the agreement) (“it was my understanding that ribbed, no coat blades 28 were supposed to be paid 6 percent royalty.”).] -7- 11cv246 The conflict between the written agreement’s express terms and the apparently 1 inconsistent conduct of the parties raises genuine factual disputes as to whether the 2 parties intended to modify the contract to provide royalties for non-BRAZOL coated 3 blades.2 See Zarate v. Bruker Nano, Inc., 2013 WL 1247929, at *2 (Cal. Ct. App. 4 2013) (“Where there is conflicting evidence, the question of whether the parties 5 entered into a . . . modification is a question of fact.”). These genuine issues of 6 material fact as to the parties’ intent render summary judgment improper. See U.S. 7 v. Sacramento Municipal Utility Dist., 652 F.2d 1341, 1344 (9th Cir. 1981) (where 8 intent of the contracting parties is unclear “ordinarily summary judgment is improper 9 as differing views of the intent of the parties will raise genuine issues of material 10 facts.”). Because genuine issues of material fact remain regarding the intent of the 11 parties and whether the contract was modified, summary judgment on these grounds 12 is inappropriate. b. 13 14 15 16 17 18 19 20 21 22 23 24 25 Lack of Standing To Sue Because ‘597 and Canadien Patents Were Not Assigned Defendant further argues that because Alvarado never became an assignee of any rights in the ‘597 and Canadian Patents, Alvarado lacks standing to assert breach of contract for underpaying royalties derived from these patents. [See Doc. No. 96 at 14-16.] Defendant’s argument fails on both the facts and the law. Factually, the lack of a written assignment is inconsequential because both the ‘597 and Canadian Patents appear within the agreement’s express definition of the “Licensed Patents.” The “Licensed Patents” encompass “the patent(s) and/or patent applications specified in Attachment B and any and all other patents and/or patent applications [] now or hereinafter during the term of the Agreement,” as well as, inter alia, “any and all . . . continuations, continuations-in-part . . .” [Agreement at I.C.] Attachment B lists, inter alia, the “‘608” patent application, of which the ‘597 26 2 Defendant argues any modification was invalid if not “fully executed.” [Doc. No. 108 at 3.] Although that could be true of a purported oral modification, see Cal. Civ. Code 1698, modification implied by conduct, as asserted here, does not 28 depend on “full execution,” see, e.g., Duke Kelso Construction, Inc. v. Silva, 2013 WL 1393475, at *13 (Cal Ct. App. 2013). 27 -8- 11cv246 patent is a continuation-in-part, and “corresponding foreign applications” in, among 1 other locales, Canada. [See Doc. No. 96-3 at 22.] Thus, because the ‘597 Patent and 2 the Canadian Patent fall within the express language of the license agreement, 3 written assignment appears unnecessary. 4 Legally, Defendant’s argument is misconstrued; it rests on inapposite case law 5 and conflates standing to sue for patent infringement with standing to sue for breach 6 of contract. Defendant relies on several Federal Circuit decisions, concerning 7 whether an assignee has standing to sue for patent infringement, to argue that 8 because the ‘597 and Canadian Patents were never assigned in writing, Alvarado 9 lacks standing to sue for breach of contract here. [See Doc. No. 96 at 14-16.] This 10 line of argument is non sequitur. The present case turns on California law regarding 11 standing to sue for breach of contract, not Federal Circuit law governing standing to 12 sue for patent infringement. Under California law, it is axiomatic that a party to a 13 contract has standing to sue for breach of that contract. See, e.g., Emerald Bay 14 Community Assn. v. Golden Eagle Ins. Corp., 130 Cal. App. 4th 1078, 1092 (Cal. Ct. 15 App. 2005). Here, it is undisputed that Alvarado is a party to the license agreement. 16 Thus, Alvarado has standing to sue for breach of that agreement. Cf. Applera Corp. 17 v. MP Biomedicals, LLC, 173 Cal. App. 4th 769 (rejecting similar standing 18 challenge, emphasizing that “the case before us is a breach of contract action for 19 royalties against a license, and not a patent infringement action . . .”). 20 In any event, as stated supra, even if these two patents are outside the purview 21 of the license agreement, Defendant fails to explain how that would preclude the 22 existence and extent of the alleged breach. Royalties are based on units sold 23 regardless of which and how many patent claims they infringe. [Agreement at 24 IV.C.] Indeed, under the “incorporate Technology” track, royalties may be due even 25 if no patent claims are infringed. See infra. Consequently, even if Defendant’s 26 position was accepted, a genuine dispute as to whether and to what extent a breach 27 occurred remains rendering summary judgment inappropriate. 28 c. No Breach Because the ‘533 and ‘728 Patents Expired -9- 11cv246 The parties agree that the ‘533 and ‘728 Patents expired in 2004 due to 1 Plaintiff’s own failure to pay required maintenance fees. Defendant argues that thus 2 no royalties could have been owed under these patents post-2004. Coupled with its 3 argument that the statute of limitations renders all breaches prior to 2007 4 nonactionable, Defendant contends no actionable breach can derive from these 5 expired patents. But a genuine dispute remains as to when the statute of limitations 6 began to run. See infra. Thus, notwithstanding the expiration of these patents in 7 2004, a genuine dispute remains as to whether pre-2004 breaches related to these 8 patents remain actionable. 9 Moreover, even as to post-expiration breaches, the expiration of these patents 10 does not necessarily impact the royalties due under the terms of the licensing 11 agreement. The license agreement requires royalties based on each unit of Product 12 sold “regardless of the number of Valid Claims of Licensed Patents covering the 13 same.” [Agreement at IV.C.] Defendant fails to show the number of units sold that 14 are not subject to royalty but for the validity of these two patents. Without such a 15 showing, a genuine dispute remains as to whether the expiration of these two patents 16 had any affect on the royalties owed under agreement. 17 And even if expiration of two of five patents does eliminate royalties based on 18 units infringing the claims in those patents, royalties could still be due on those very 19 same units for infringing claims in the other three patents. Also, even if the 20 expiration of these two patents shows that certain units do not infringe any claim, 21 royalties could still be due on the basis that the units of Product incorporate 22 “Technology” under the terms of the agreement. At bottom, under the terms of the 23 agreement, royalties owed may be the same regardless of whether and when these 24 patents expired. 25 Nor does the doctrine announced in Brulotte v Thys Comp., 379 U.S. 29 26 (1964), bar royalties beyond the expiration of the ‘533 and ‘728 Patents. Defendant 27 28 - 10 - 11cv246 overstates this controversial3 Supreme Court opinion as holding that “a patentee 1 cannot enforce a licensee’s obligations to pay royalties under a patent license 2 agreement beyond a patent’s expiration date.” [Doc. No. 96 at 18.] The Ninth 3 Circuit acknowledges that where, as here “the contract at issue covers a bundle of 4 patents that expire at different times,” “Brulotte explicitly h[olds] that royalties on a 5 product are unenforceable only ‘after the last of the patents incorporated into the 6 machines . . . expire[s].” Zila, Inc. v. Tinnell, 502 F.3d 1014, 1025-26 (9th Cir. 7 2007) (quoting Brulotte, 379 U.S. at 29-30). 8 In Zila, the Ninth Circuit applied the Brulotte doctrine to a license agreement 9 royalty provision that did “not reference any specific patent,” but rather provided “a 10 five percent (5%) royalty on gross sales . . . of the invention.” Id. at 1024. The 11 Ninth Circuit refused to “read Brulotte so mechanically as to render the royalty 12 provision [] necessarily unenforceable as of [] expiration.” Id. Had the provision 13 “provided royalties only on the [expired] patent, those royalties could not be 14 enforced after [expiration].” Id. at 1025. But because the provision provided 15 royalties on sales of the “invention,” royalties could be owed on products 16 embodying the “invention” independent of the expired patent. Id. In so holding, the 17 Ninth Circuit reasoned that “[w]hen an inventor is listed on an application for a 18 patent, and a patent issues, he has . . . the right to exploit the federal patent 19 monopoly, empowering him to exact royalties as high as he can negotiate with the 20 leverage of that monopoly.” Id. at 1026. “Whether this monopoly consists of one 21 patent or a dozen, the ability to exact royalties runs to the last of the patents 22 providing monopoly protection.” Id. 23 Here, as in Zila, the license agreement at issue covers a number of patents 24 with different expiration dates, and under its express terms, royalties are not limited 25 to any specific patent; rather royalties depend on units of product sold. “Product” 26 27 3 See Zila, 502 F.3d at 1022 (noting “the lack of economic logic laid at [Brulotte’s] feet by . . . a bevy of commentators.”); see also Scheiber v. Dolby Labs., 28 Inc., 293 F.3d 1014, 1017 (7th Cir. 2002) (“The decision has, it is true, been severely, and as it seems to us, with all due respect, justly, criticized.”) (Posner, J.). - 11 - 11cv246 warranting royalties is two-fold, encompassing both “any Device . . . which would . . 1 . infringe a Valid Claim,” and also “any Device incorporating, or the manufacture, 2 use or sale of which utilizes the Technology.” [See Agreement I.] Thus, the license 3 agreement provides for royalties regardless of infringement of any patent claim. 4 And by its very terms, the obligation to pay royalties does not depend on any 5 specific patent, but rather “remain[s] in effect until and will expire upon the 6 expiration of the last to expire of the patents, U.S and foreign, licensed [under the 7 agreement].” [Agreement XIV.A.] As such, consistent with Brulotte, royalties are 8 recoverable per the terms of license agreement until the last patent expires. Zila, 502 9 F.3d at 1026. 10 11 12 13 In light of the foregoing, Defendant’s arguments regarding the expiration of the ‘533 and ‘728 Patents do not warrant summary judgment. 2. Summary Judgment as to the Element of Damages Defendant also moves for summary judgment on the grounds that no genuine 14 dispute of material fact remains as to damages. In support, Defendant argues that 15 any alleged damages prior to February 4, 2007 are barred by the statute of 16 limitations and that overpayment of royalties during 2004-2009 exceed any damages 17 purportedly suffered by Alvarado. [See, e.g., Doc. No. 96-1 at 11 n.4.] Because a 18 genuine dispute remain as to both arguments, Defendant is not entitled to summary 19 judgment on the element of damages. 20 21 a. Statute of Limitations “The statute of limitations is an affirmative defense.” Ladd v. Warner Bros. 22 Entertainment, Inc., 1847 Cal. App. 4th 1298, 1309 (Cal. Ct. App. 2010); Samuels v. 23 Mix, 22 Cal.4th 1, 10 (Cal. 1999). As with any affirmative defense, Defendant bears 24 the burden of proof at trial, see id, and thus “must carry its initial burden at summary 25 judgment by presenting evidence affirmatively showing, for all essential elements of 26 its case, that no reasonable jury could find for the non-moving party.” Fara Estates, 27 134 F.3d at 378. Where, as here, a defendant asserts that “a part of plaintiff’s claim 28 for damages is barred by the statute of limitations . . . the defendant pleading the - 12 - 11cv246 statute as an affirmative defense has the burden of specifically proving which 1 portion of plaintiff’s damages are barred by the statute. Failure to so prove will 2 result in a complete failure of the affirmative defense . . . The obligation to segregate 3 the damage should fall upon the wrongdoer and not upon the person he has harmed.” 4 Ladd, 1847 Cal. App. 4th at 1310. 5 “California’s statute of limitations for breach of a written contract is four 6 years.” Gabriel Tech. Corp. v. Qualcomm Inc., 857 F.Supp.2d 997, 1010 (S.D. Cal. 7 2012) (citing Cal.Code Civ. Proc. § 337). “Generally, a cause of action for breach of 8 contract ‘accrues at the time of the breach’ and the statute begins to run ‘regardless 9 of whether any damage is apparent or whether the injured party is aware of their 10 right to sue.’” Id. (quoting Perez-Encinas v. AmerUs Life Ins. Co., 468 F.Supp.2d 11 1127, 1134 (N.D. Cal. 2006)). But a “more lenient ‘discovery rule’ is applied in 12 select cases where (1) ‘[t]he injury or the act causing the injury, or both, have been 13 difficult for the plaintiff to detect’; (2) ‘the defendant has been in a far superior 14 position to comprehend the act and the injury’; and (3) ‘the defendant had reason to 15 believe the plaintiff remained ignorant he had been wronged.’” Id. (quoting Perez- 16 Encinas, 468 F.Supp.2d at 1134). 17 “Under the ‘discovery rule,’ a breach of contract claim accrues when the 18 plaintiff ‘discovers or could have discovered, through the exercise of reasonable 19 diligence, all of the facts essential to his cause of action.’” Id. “When a plaintiff 20 reasonably should have discovered facts for purposes of the accrual of a [cause] of 21 action or application of the delayed discovery rule is generally a question of fact, 22 properly decided as a matter of law only if the evidence . . . can support only one 23 reasonable conclusion.” Broberg v. Guardian Life Ins. Co. of America, 171 Cal. 24 App. 4th 912, 921 (Cal. Ct. App. 2009) (citing Jolly v. Eli Lilly & Co., 44 Cal. 3d 25 1103, 1112 (Cal. 1988)). 26 Here, Defendant fails to carry its burden. Defendant makes no attempt to 27 show that the discovery rule is inapplicable; rather, in a footnote in its reply, 28 Defendant implies the burden is on the Plaintiff. [Doc. No. 108 n.4 (“Alvarado - 13 - 11cv246 provides no justification for the use of the more lenient discovery rule.”).] Alvarado 1 need not justify the application of the discovery rule, for the burden lies with 2 Defendant. See Broberg, 171 Cal. App. 4th at 921. Moreover, uncontroverted facts 3 in the record at the very least raise a genuine dispute as to the discovery rule’s 4 applicability. For example, because Defendant alone possessed the underlying sales 5 and derivative royalty data, Defendant appears to have been in a superior position 6 than Plaintiff to detect underpayment of royalties based on that data. [See, e.g., Doc. 7 No. 1 at 4-6 (describing Linvatec’s “superior position over Alvarado and Holko 8 concerning the amount of royalties due” and “unequal” access to “sales data . . . used 9 to calculate the amount owing under the Licensing Agreement”.] This disparity in 10 access to data and ability to comprehend the injury can support application of the 11 discovery rule to breach of contract claims. See Gabriel Tech. Corp., 857 F.Supp.2d 12 at 1010; see also Gryczman v. 4550 Pico Partners, Ltd., et al., 107 Cal. App. 4th 1, 13 5-6 (Cal. Ct. App. 2003). 14 Nor does Defendant attempt to establish when in fact Plaintiff should have 15 discovered the alleged underpayment of royalties. In a footnote in its opening brief, 16 without any supporting facts, Defendant merely states that “Alvarado could have 17 discovered the underpayments allegedly owed by Linvatec through the exercise of 18 reasonable diligence.” [See Doc. No. 96 at 11 n.4.] On reply, Defendant similarly 19 asserts that “[b]ecause Alvarado alleges Linvatec’s underpayment began prior to 20 2004, Alvarado’s breach of contract claim is barred under the traditional statute of 21 limitations.” [Doc. No. 108 at 9.] These conclusory assertions fall far short of 22 establishing that no reasonable jury could find other than for Defendant as to when 23 Plaintiff’s claims were discoverable. Thus, Defendant fails to carry its initial burden 24 on the statute of limitations affirmative defense. 25 26 27 28 b. Evidence of Over- or Under- Payment of 2004-2009 Royalties But even had Defendant established that Plaintiff’s claims were discoverable as of February 7, 2007, summary judgment on damages would still be inappropriate because Defendant has failed to establish specifically what damages are time-barred. - 14 - 11cv246 Ladd, 1847 Cal. App. 4th at 1310 (“the defendant pleading the statute as an 1 affirmative defense has the burden of specifically proving which portion of 2 plaintiff’s damages are barred by the statute. Failure to so prove will result in a 3 complete failure of the affirmative defense”). Defendant merely declares that it 4 overpaid by approximately $3 million during 2004-2009. [See, e.g., Doc. No. 96 at 5 19-20.] This amount does not necessarily, let alone specifically, reflect any portion 6 of Plaintiff’s alleged damages, time-barred or otherwise. It simply reflects an 7 amount paid by Defendant. Moreover, even if this amount exceeds Plaintiff’s 8 alleged damages during 2004-2009, the purported overpayment says nothing of 9 whether Plaintiff suffered post-2009 damages. Accordingly, Defendant fails to carry 10 11 its burden. Because Defendant fails to carry the initial summary judgment burden on its 12 statute of limitations affirmative defense, the burden does not shift to Plaintiff to 13 come forward with evidence raising a genuine dispute of material fact as to the 14 statute of limitations. See Adickes, 398 U.S. at 161. But even if Defendant had met 15 its initial burden, a genuine dispute of material facts is plainly apparent from the 16 record preventing summary judgment on statute of limitations grounds. Plaintiff 17 has produced declarations of persons familiar with the patents, license agreement, 18 and years of royalty payments thereunder, which declare based on an analysis of the 19 license agreement and discovery produced by Linvatec that “at least $900,000 in 20 royalties were not paid from 2004 through 2009 alone.” [See Doc. No. 106-2]. 21 22 For all the foregoing reasons, Defendant fails to warrant summary judgment as to the element of damages. 23 B. Defendant Linvatec’s Counterclaims 24 In addition to seeking summary judgment on Plaintiff’s breach of contract 25 claim, Defendant seeks summary judgment on its own money had and received and 26 declaratory judgment counterclaims, and requests sanctions against Plaintiff’s 27 counsel. [See Doc. No. 96 at 21-22.] For all the reasons discussed above, a genuine 28 dispute remains as to, inter alia, whether and to what extent each party owes the - 15 - 11cv246 other under the license agreement. See supra. This alone renders summary 1 judgment on Defendant’s counterclaims inappropriate. So too, because genuine 2 dispute remains, Plaintiff’s claims can hardly be labeled frivolous, let alone 3 sanctionable. 4 5 1. Linvatec’s Money Had and Received Counterclaim Under California law, “[a] claim for money had and received is stated where a 6 plaintiff alleges that a defendant is indebted to the plaintiff in a certain sum for 7 money had and received by the defendant for the use of the plaintiff.” Mahoney v. 8 Fidelity Nat. Title Co., 2008 WL 4286934, at *4 (C.D. Cal. Sept. 15, 2008) (quoting 9 Schultz v. Harney, 27 Cal.App.4th 1611, 1623 (1994)). Here, Defendant Linvatec 10 asserts that it should recover mistakenly overpaid royalties. For all the reasons 11 discussed above, Defendant has not established that it in fact overpaid royalties, nor 12 that any such payment was mistaken. Thus, Defendant is not entitled to summary 13 judgment on its money had and received counterclaim. 14 15 2. Linvatec’s Declaratory Judgment Counterclaim Defendant also seeks declaratory judgment on the following, all of which 16 parallel its challenges to Plaintiff’s breach of contract claim, i.e., (1) that Plaintiff 17 lacks standing as to the ‘597 and Canadian Patents; (2) that no royalties required for 18 non-BRAZOL coated blades; (3) that no royalties owed on expired patents post- 19 expiration; (4) that overpaid royalties exceed any damages to Plaintiff; and (5) that 20 Linvatec is entitled to recover overpaid royalties. [See, e.g., Doc. No. 109 at 9-10.] 21 For all the reasons discussed above, Defendant is not entitled to summary judgment 22 on its declaratory judgment counterclaims. 23 24 3. Linvatec’s Request for Sanctions Defendant also cursorily requests that Plaintiff’s counsel be sanctioned under 25 28 U.S.C. § 1927 and the Court’s inherent authority “for continuing to litigate a 26 legally deficient claim.” [Doc. No. 96 at 21.] “[S]ection 1927 sanctions must be 27 supported by a finding of subjective bad faith,” which “is present when an attorney 28 knowingly or recklessly raises a frivolous argument, or argues a meritorious claim - 16 - 11cv246 for the purpose of harassing an opponent.” B.K.B. v. Maui Police Dept., 276 F.3d 1 1091, 1107 (9th Cir. 2002). Sanctions under the Court’s inherent authority are 2 similarly available only if “the court specifically finds bad faith or conduct 3 tantamount to bad faith.” Id. at 1108. 4 As discussed supra, Plaintiff’s claims are not frivolous. Even if they are, 5 Defendant makes no attempt to show any intent to harass, bad faith, or conduct 6 tantamount to bad faith by Plaintiff. Thus, sanctions are wholly unwarranted under 7 either section 1927 or the Court’s inherent authority. B.K.B., 276 F.3d at 1107-1108. 8 CONCLUSION 9 10 11 12 13 14 For the foregoing reasons, the Court hereby DENIES Defendant’s motion for summary judgment in its entirety. IT IS SO ORDERED. DATED: May 24, 2013 ______________________________ IRMA E. GONZALEZ United States District Judge 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 17 - 11cv246
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