-BGS DCI Solutions, Inc. v. Urban Outfitters, Inc. et al, No. 3:2010cv00369 - Document 60 (S.D. Cal. 2011)
Court Description: ORDER Granting in Part and Denying in Part Defendant's 47 Motion for Summary Judgment or, in the Alternative, Partial Summary Judgment. The Court grants the motion as it relates to DCI's fraud in the inducement claim and denies the motion as it relates to each of DCI's remaining claims. Signed by Judge Irma E. Gonzalez on 4/5/2011. (jer)(jrd)
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-BGS DCI Solutions, Inc. v. Urban Outfitters, Inc. et al Doc. 60 1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 DCI SOLUTIONS INC., a California corporation, 12 CASE NO. 10cv0369 - IEG (BGS) ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT’S MOTION FOR SUMMARY JUDGMENT OR, IN THE ALTERNATIVE PARTIAL SUMMARY JUDGMENT Plaintiff, 13 vs. 14 15 URBAN OUTFITTERS, INC., a Pennsylvania corporation, and Does 1-20, [Doc. No. 47] Defendants. 16 17 AND RELATED COUNTER CLAIM. 18 19 20 In this contract dispute, Plaintiff DCI Solutions, Inc. (“DCI”) asserts four claims against 21 Defendant Urban Outfitters, Inc. (“Urban”): (1) fraud in the inducement, (2) breach of contract, (3) 22 breach of the implied covenant of good faith and fair dealing, and (4) quantum meruit. Presently 23 before the Court is a motion for summary judgment or, in the alternative, partial summary 24 judgment brought by Urban. Having considered the parties’ arguments, and for the reasons stated 25 below, the Court GRANTS IN PART and DENIES IN PART Urban’s motion. 26 /// 27 /// 28 /// -1- 10cv0369 Dockets.Justia.com 1 2 BACKGROUND I. The Parties 3 Plaintiff DCI Solutions, Inc. (“DCI”) is a company specializing in overhead cost reduction 4 services. Working on a contingency basis, DCI helps companies identify areas where savings are 5 possible. DCI does not charge any up-front fees and begins billing its clients only after the client 6 has begun saving money. Among the services DCI performs for its clients is a “benchmarking” 7 analysis. Benchmarking is the process whereby DCI compares the rates paid by one client for a 8 particular service with the rates other companies pay for the same service. Either DCI or the client 9 can then use the benchmarks to negotiate lower rates with new carriers or renegotiate its rates with 10 its existing carriers. 11 Defendant Urban is a specialty retail company which offers a variety of “lifestyle” 12 merchandise to highly defined customer niches through “Urban Outfitters,” “Anthropologie” and 13 “Free People” retail stores in the United States, Canada, and Europe, as well as through websites, 14 catalogues and wholesale concepts. 15 II. 16 The Contract In 2007, DCI approached Urban about the prospect of providing consulting services to 17 Urban. All negotiations between DCI and Urban were conducted by the same two individuals: 18 Kirk Conole on behalf of DCI and John Kyees on behalf of Urban. 19 In October 2007, DCI and Urban entered into a written, integrated contract. By the terms 20 of the two-page agreement, DCI promised to recommend ways in which Urban could reduce its 21 “Less than Truckload” (“LTL”) and Truckload freight costs. In exchange, Urban agreed to pay 22 DCI a portion of the “Savings” it obtained. “Savings” are defined as any cost reductions that 23 “result from any DCI recommendation during the thirty-six months which follow the completion of 24 the recommendation’s implementation.” The contract provides that “DCI shall not be 25 compensated for any recommendation which Client declines and does not use. Compensation is 26 due if Client receives Savings in area cost where DCI previously disclosed a Savings 27 recommendation.” 28 /// -2- 10cv0369 1 III. 2 Performance under the Contract In November 2007, DCI’s independent contractor, Robert Fike, spent about 90 minutes at 3 Urban’s main distribution center gathering sample invoices and speaking with Urban’s 4 transportation logistics managers. Thereafter, Fike and DCI’s principal, Jim Baker, spent an 5 additional 30 hours performing DCI’s benchmarking analysis. 6 DCI’s recommendations for cost savings were contained in a document entitled Disclosure 7 of Savings to Urban Outfitters, dated November 16, 2007. The Disclosure of Savings referred to 8 an attached spreadsheet, which listed the rates Urban paid for LTL freight shipments to three 9 freight carriers (New Penn, Roadway, and Gilbert), and the “DCI rate” that DCI believed could 10 potentially be obtained with these same carriers. DCI concluded that Urban could “potentially 11 reduce” overall LTL freight costs with the three carriers by “20% to 30%.” DCI’s recommendation 12 further stated that the“Savings” could be obtained by Urban Outfitters’ staff or by DCI. The 13 Disclosure of Savings also included a Letter of Authorization (“Letter”) for John Kyees to sign. 14 The Letter would have empowered DCI to negotiate better rates on Urban’s behalf. 15 Notwithstanding DCI’s attempts, Kyees never signed the Letter. 16 From DCI’s perspective, Urban became less and less cooperative over time. Principally, 17 Urban’s managers failed to provide DCI with the amount of Urban’s “spend” (i.e. the amount spent 18 on shipping). Eventually, DCI obtained some, but not all copies of Urban’s pricing agreements 19 with its carriers. To DCI’s dismay, an Urban manager assigned to oversee the project temporarily, 20 Matt Kaness, denied the existence of a signed agreement between the parties. 21 On July 3, 2008, Urban’s Kenneth McKinney sent Jim Baker an email stating, “I had 22 discussion with John Kyees, and my recommendation to him was that we not engage in a 23 partnership with DCI at this time.” Over the next several weeks, DCI attempted to get Urban to 24 perform under the contract. In July 2008, Baker sent Kyees a letter expressing a number of 25 concerns related to Urban’s performance under the parties’ agreement. Urban broke off all 26 communications with DCI by the end of August 2008. 27 /// 28 /// -3- 10cv0369 1 2 IV. Urban’s Interactions with Carriers Terese Tubbs has been Urban’s Manager of Transportation Logistics since 2003. Tubbs’ 3 responsibilities include negotiating with Urban’s freight carriers to obtain “good rates.” Tubbs 4 testified that believes she has obtained the “best rates possible.” Tubbs also acknowledged it 5 would reflect “poorly” on her if DCI was able to find better available rates. At her deposition, 6 Tubbs was unable to identify any instances in which she asked a carrier for a rate reduction. The 7 following is a summary of evidence DCI has submitted regarding interactions between Tubbs and 8 Urban’s carriers before and after DCI issued its recommendations in November 2007. a. 9 10 New Penn William Sawdey of New Penn has been the account representative for the Urban account 11 for over 18 years. In December 2006, Urban entered into a two-year price agreement with New 12 Penn that increased Urban’s base rate by 3% in the first year and by 2% in the second year. Terese 13 Tubbs did not ask for a rate reduction in connection with the December 2006 pricing agreement. 14 Nor, according to both Tubbs and Sawdey, had Tubbs ever asked for a rate reduction prior to the 15 December 2006 pricing agreement. In its November 2007 Disclosure of Savings, DCI estimated 16 that Urban would be able to save at least 20% on its rates with New Penn. In December 2008, 17 Urban negotiated a 27% rate reduction with New Penn. b. 18 19 Gilbert Prior to November 2007, Tubbs had never asked Gilbert for reduction in general rates. In 20 its November 2007 Disclosure of Savings, DCI estimated that Urban would be able to save at least 21 3% on its rates with Gilbert. In December 2008, Tubbs approached Gilbert and obtained a 3% rate 22 reduction. 23 24 c. Roadway In its November 2007 Disclosure of Savings, DCI estimated that Urban would be able to 25 save at least 30% on its rates with Roadway. In July 2008, Terese Tubbs called Roadway’s 26 attention to the above market rates, and Roadway’s account manager confirmed that if approached 27 by DCI, Roadway “will not do the lower rates.” Yet in April 2009, Urban obtained a 17.5% rate 28 reduction from Roadway. -4- 10cv0369 1 V. Procedural Background 2 In January 2010, DCI filed this action in the Superior Court for the County of San Diego. 3 Urban removed the action to this Court based on diversity jurisdiction. In its complaint, DCI has 4 asserted four claims: (1) fraud in the inducement, (2) breach of contract, (3) breach of the implied 5 covenant of good faith and fair dealing, and (4) quantum meruit. In response to DCI’s complaint, 6 Urban filed an answer and several counterclaims. In May 2010, the Court dismissed all but one of 7 Urban’s counterclaims. Urban filed an amended answer and amended counterclaims, and DCI 8 filed an answer. Urban filed the present motion on January 21, 2011. DCI filed an opposition, and 9 Urban filed a reply along with objections to evidence. The Court heard oral argument on February 10 28, 2011. 11 12 13 DISCUSSION I. Legal Standard for a Motion for Summary Judgment Summary judgment is proper where the pleadings and materials demonstrate “there is no 14 genuine issue as to any material fact and . . . the movant is entitled to judgment as a matter of law.” 15 Fed. R. Civ. P. 56(c)(2); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). A material issue of 16 fact is a question a trier of fact must answer to determine the rights of the parties under the 17 applicable substantive law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute 18 is genuine “if the evidence is such that a reasonable jury could return a verdict for the nonmoving 19 party.” Id. 20 The moving party bears “the initial responsibility of informing the district court of the basis 21 for its motion.” Celotex, 477 U.S. at 323. To satisfy this burden, the movant must demonstrate 22 that no genuine issue of material fact exists for trial. Id. at 322. Where the moving party does not 23 have the ultimate burden of persuasion at trial, it may carry its initial burden of production in one 24 of two ways: “The moving party may produce evidence negating an essential element of the 25 nonmoving party’s case, or, after suitable discovery, the moving party may show that the 26 nonmoving party does not have enough evidence of an essential element of its claim or defense to 27 carry its ultimate burden of persuasion at trial.” Nissan Fire & Marine Ins. Co., v. Fritz Cos., 210 28 F.3d 1099, 1106 (9th Cir. 2000). To withstand a motion for summary judgment, the non-movant -5- 10cv0369 1 must then show that there are genuine factual issues which can only be resolved by the trier of fact. 2 Reese v. Jefferson Sch. Dist. No. 14J, 208 F.3d 736, 738 (9th Cir. 2000). The non-moving party 3 may not rely on the pleadings alone, but must present specific facts creating a genuine issue of 4 material fact through affidavits, depositions, or answers to interrogatories. Fed. R. Civ. P. 56(e); 5 Celotex, 477 U.S. at 324. 6 The court must review the record as a whole and draw all reasonable inferences in favor of 7 the non-moving party. Hernandez v. Spacelabs Med. Inc., 343 F.3d 1107, 1112 (9th Cir. 2003). 8 However, unsupported conjecture or conclusory statements are insufficient to defeat summary 9 judgment. Id.; Surrell v. Cal. Water Serv. Co., 518 F.3d 1097, 1103 (9th Cir. 2008). Moreover, the 10 court is not required “‘to scour the record in search of a genuine issue of triable fact,’” Keenan v. 11 Allan, 91 F.3d 1275, 1279 (9th Cir.1996) (citations omitted), but rather “may limit its review to the 12 documents submitted for purposes of summary judgment and those parts of the record specifically 13 referenced therein.” Carmen v. San Francisco Unified Sch. Dist., 237 F.3d 1026, 1030 (9th Cir. 14 2001). 15 II. Analysis 16 A. 17 Urban has filed 26 objections to the evidence submitted by DCI in opposition to Urban’s Objections to Evidence 18 motion. The Court does not need to address the bulk of Urban’s objections because they relate to 19 evidence or characterizations of evidence upon which the Court has not relied. The Court 20 therefore OVERRULES AS MOOT objections 2, 3, 4, 6, 10, 11, 12, 13, 14, 15, 18, 22, 23, 24, 21 25, and 26. The Court rules on the remainder of Urban’s objections as follows: 22 1. Declaration of Steven C. Finley ¶¶ 10, 15, and 28 (Objection Nos. 1, 5, 7, 8, 9, 16, 17, and 21) 23 A declaration used to support or oppose a motion must be made on personal knowledge, set 24 out facts that would be admissible in evidence, and show that the declarant is competent to testify 25 on the matters stated. Fed. R. Civ. P. 56(c)(1)(4).1 In preparing his declaration, Steven Finley 26 reviewed and relied on Urban’s pricing agreements, tariffs, and invoices from its freight carriers. 27 28 1 The Federal Rules of Civil Procedure were amended effective December 1, 2010. Prior to the effective date of change, the rule was contained in Fed. R. Civ. P. 56(e)(1). -6- 10cv0369 1 Finley has adequately articulated the basis for his declaration, relied on personal knowledge, and 2 relied on admissible evidence. The pricing agreements and related documents upon which Finley 3 relied are business records and, in any event, qualify as admissible under the residual exception to 4 the hearsay rule. Accordingly, the Court OVERRULES Urban’s objections as they relate to 5 Steven Finley’s summary of Urban’s pricing agreements, tariffs, and invoices from its freight 6 carriers. 7 2. Relevance of Rate Reductions with Gilbert (Objection Nos. 19 and 20) 8 It is undisputed that DCI’s recommendations identified potential savings with Gilbert, and 9 Urban has not argued in its motion or reply that Gilbert is not an LTL carrier. Instead, in a 10 “supplemental statement of facts” filed a week after its motion for summary judgment, Urban 11 asserted that Gilbert is a “pool carrier,” not an LTL carrier. Based on its assertion that Gilbert is a 12 “pool carrier,” Urban objects to relevance of evidence regarding rate reductions Urban obtained 13 from Gilbert. In doing so, Urban relies on the deposition testimony of Robert Fike. Although Fike 14 acknowledged that Gilbert is a “pool carrier,” he also stated that a “pool carrier” and an LTL 15 carrier are the same thing. See Urban’s Supp. Lodgment, Ex. 8. The Court therefore 16 OVERRULES Urban’s objection to evidence regarding rate reductions with Gilbert. 17 B. Fraud in the Inducement 18 Urban argues there is no factual basis for DCI’s fraud in the inducement claim. Urban 19 points out that the contract was negotiated entirely by two individuals, John Kyees on behalf of 20 Urban and Kirk Conole on behalf of DCI. Based on portions of Conole’s deposition, Urban argues 21 there is no evidence indicating that Kyees made any affirmative misrepresentations. DCI does not 22 contend that Kyees, or any other Urban employee, made any affirmative misrepresentations. 23 Instead, DCI argues that Urban fraudulently concealed the fact that it never intended to honor its 24 contractual obligations in the first place. DCI points to instances in which Urban was 25 uncooperative in providing requested information, denied the existence of a contract, and 26 otherwise hindered DCI’s performance under the agreement. 27 Fraud in the inducement, or promissory fraud, is a subspecies of fraud and deceit. Engalla 28 v. Permanente Medical Group, Inc., 15 Cal. 4th 951, 974 (1997). “A promise to do something -7- 10cv0369 1 necessarily implies the intention to perform; hence, where a promise is made without such 2 intention, there is an implied misrepresentation of fact that may be actionable fraud . . . An action 3 for promissory fraud may lie where a defendant fraudulently induces the plaintiff to enter into a 4 contract.” Id. (citation omitted). The elements of fraud are a “(a) misrepresentation (false 5 representation, concealment, or nondisclosure); (b) knowledge of falsity (or ‘scienter’); (c) intent to 6 defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.” Engalla v. 7 Permanente Medical Group, Inc., 15 Cal. 4th 951, 974 (1997). Something more than 8 nonperformance is required to prove a defendant’s intent not to perform his promise. Tenzer v. 9 Superscope, Inc., 39 Cal. 3d 18, 30 (1985) (citations omitted). However, fraudulent intent must 10 often be established by circumstantial evidence, and “fraudulent intent has been inferred from such 11 circumstances as defendant’s insolvency, his hasty repudiation of the promise, his failure even to 12 attempt performance, or his continued assurances after it was clear he would not perform.” Id. 13 (citation omitted). 14 Here, DCI has not attempted to refute Urban’s argument that John Kyees exercised good 15 faith in negotiating and entering into the contract on Urban’s behalf. Instead, DCI argues that the 16 Urban employees to whom Kyees delegated responsibility (Kenneth McKinney, Matt Kaness, and 17 Terese Tubbs) denied the existence of the contract and failed to provide DCI with requested 18 information. However, DCI has not submitted any evidence connecting McKinney, Kaness, and 19 Tubbs to the contract negotiations or its formation. Indeed, nothing in the record indicates those 20 individuals even knew about DCI at the time the parties entered into the contract. Accordingly, to 21 the extent McKinney and Kaness “acted as if they were unaware” of the contract, see Compl. ¶ 4, 22 there is no basis for ascribing a fraudulent motive to such behavior. That McKinney, Kaness, and 23 Tubbs may have become displeased with the contract and failed to cooperate with DCI’s 24 representatives does not necessarily bear on whether Urban fraudulently concealed an intent not to 25 perform at the time it entered into the contract. To defeat summary judgment, DCI must introduce 26 evidence beyond Urban’s failure to perform or cooperate under the agreement. See Tenzer, 39 Cal. 27 3d at 30. Based on the foregoing, the Court concludes the record is insufficient to create a triable 28 fact as to whether, at the time it entered into the contract, Urban fraudulently concealed an intent -8- 10cv0369 1 not to perform its obligations thereunder. Accordingly, the Court GRANTS Urban’s motion for 2 summary judgment as it relates to DCI’s fraud in the inducement claim. 3 C. 4 5 Breach of Contract 1. Opportunity to Cure Urban maintains that DCI failed to provide Urban with an opportunity to remedy its alleged 6 breach, and that such failure is a bar to this action. DCI responds, and the Court agrees, that the 7 opportunity to remedy any breach is a condition on termination of the contract, and it does not 8 preclude a party from seeking legal recourse in the event of a breach.2 In any event, DCI provided 9 written notice of the alleged breach in a July 2008 letter from Jim Baker to John Kyees. 10 2. Relationship between “Savings” and Fees 11 The parties dispute the relationship between the “Savings” and “Fees and Timing” 12 provisions of the contract. DCI points out that, because of the nature of services it provides, there 13 is always a possibility that a client can claim its savings resulted from factors besides DCI’s 14 recommendations. DCI argues that the mechanism for calculating “Savings” accounts for that 15 possibility, and that DCI is entitled to “Fees” regardless of whether Urban used its 16 recommendations. Urban maintains that DCI is entitled to “Fees” only if Urban used its 17 recommendations. 18 DCI’s focus on the calculation of “Savings” is misplaced. The contract expressly defines 19 “Savings” as limited to those savings that “result from any DCI recommendation.” Moreover, 20 under the heading “Fees and Timing,” the contract provides that “DCI shall not be compensated for 21 any recommendation which [Urban] declines and does not use.” Accordingly, the Court rejects 22 DCI’s argument that it is entitled to compensation regardless of whether Urban used its 23 recommendations. 24 3. Whether Urban Used DCI’s Recommendations 25 Although Urban repeatedly emphasizes that “DCI shall not be compensated for any 26 recommendation which [Urban] declines and does not use,” the inverse is also true. DCI is entitled 27 2 28 The contract provides: “In the event any breach is alleged, Client or DCI shall have, upon written notice from the other, 30 days to remedy said breach. If breach is not remedied within 30 days, the engagement shall be considered terminated.” -9- 10cv0369 1 to compensation for recommendations which Urban does use. This action centers on the question 2 of whether Urban secretly used DCI’s recommendations. DCI has submitted evidence to indicate 3 that Urban had not negotiated for, or obtained, discounts with any of its carriers prior to receipt of 4 DCI’s recommendations. DCI has also submitted evidence to indicate that Urban obtained rate 5 reductions from its carriers after DCI disclosed its recommendations. 6 For example, in December 2006, Urban entered into a two-year price agreement with New 7 Penn that increased Urban’s base rate by 3% in the first year and by 2% in the second year. See 8 Pl.’s Lodgment, Ex. 17.2. Urban’s Terese Tubbs did not ask for a rate reduction in connection 9 with the December 2006 pricing agreement. See Pl.’s Lodgment, Ex. 5.3. Nor had Tubbs ever 10 asked for a rate reduction prior to the December 2006 pricing agreement, according to Tubbs and 11 New Penn’s account manager, William Sawdey. See Pl.’s Lodgment, Exs. 3.6 and 5.4. In its 12 November 2007 Disclosure of Savings, DCI estimated that Urban would be able to save at least 13 20% on its rates with New Penn. A few months after DCI and Urban ceased all communications, 14 in December 2008, Urban negotiated a 27% rate reduction with New Penn. Finley Decl. ¶ 10. 15 Urban obtained rate reductions from the other carriers as well. In its November 2007 16 Disclosure of Savings, DCI estimated that Urban would be able to save at least 3% on its rates with 17 Gilbert. In December 2008, Urban approached Gilbert and obtained a 3% rate reduction. Finley 18 Decl. ¶ 28. DCI estimated that Urban would be able to save at least 30% on its rates with 19 Roadway. In July 2008, Terese Tubbs called Roadway’s attention to the above market rates, and 20 Roadway’s account manager confirmed that if approached by DCI, Roadway “will not do the lower 21 rates.” See Pl.’s Lodgment, Exs. 15.1-2. Yet in April 2009, Urban obtained a 17.5% rate 22 reduction from Roadway. Finley Decl. ¶ 15. 23 Based on the foregoing, there is a material dispute as to whether Urban used DCI’s 24 recommendations in order to negotiate better rates with carriers and obtain “Savings.” 25 Accordingly, the Court DENIES Urban’s motion for summary judgment as it relates to DCI’s 26 breach of contract claim. 27 /// 28 - 10 - 10cv0369 1 D. 2 Urban argues that it satisfied all express provisions of the contract, and therefore it cannot Breach of the Implied Covenant of Good Faith and Fair Dealing 3 be liable for breach of the implied covenant of good faith and fair dealing. In doing so, Urban 4 points out that DCI managed to issue its Disclosure of Savings in November 2007. DCI responds 5 that Urban failed to cooperate in providing pricing agreements and other information, that Urban 6 managers denied the existence of the contract, and that Terese Tubbs contacted Roadway’s account 7 manager to ensure Roadway would not agree to DCI’s proposed rates. 8 9 “There is an implied covenant of good faith and fair dealing in every contract that neither party will do anything which will injure the right of the other to receive the benefits of the 10 agreement.” Kransco v. American Empire Surplus Lines Ins. Co., 23 Cal.4th 390, 400 (Cal. 2000) 11 (quotation omitted). The covenant does not impose substantive duties or limits on the contracting 12 parties beyond those incorporated in the specific terms of their agreement. Guz v. Bechtel 13 National, Inc., 24 Cal.4th 317, 349-50 (Cal. 2000). It exists merely to prevent one contracting 14 party from unfairly frustrating the other party’s right to receive the benefits of the agreement. Id. at 15 349. A breach of the implied covenant shows that the defendant’s conduct, “whether or not it also 16 constitutes a breach of a consensual contract term, demonstrates a failure or refusal to discharge 17 contractual responsibilities, prompted not by an honest mistake, bad judgment or negligence but 18 rather by a conscious and deliberate act, which unfairly frustrates the agreed common purposes and 19 disappoints the reasonable expectations of the other party thereby depriving that party of the 20 benefits of the agreement.” Careau & Co. v. Security Pacific Business Credit, Inc., 222 Cal. 21 App.3d 1371, 1395 (Cal. Ct. App. 1990). 22 Urban is wrong to suggest that because DCI was able to provide some recommendations, 23 Urban performed all of its contractual obligations. The contract expressly required Urban “to 24 cooperate in good faith with DCI and readily furnish any data requested by DCI to complete 25 implementation or confirm existence/amount of Savings.”3 Pl.’s Lodgment, Ex. 6.1. DCI has 26 27 28 3 DCI cites John Kyees’ failure to sign a letter of authorization as evidence of bad faith. However, the contract provided that either DCI or Urban could implement DCI’s recommendations. See Pl.’s Lodgment, Ex. 6.1. In addition the contract provided that Urban could “decline and not use” DCI’s recommendations. Id. - 11 - 10cv0369 1 submitted evidence that Urban employees, most notably Terese Tubbs, refused to cooperate in 2 good faith and thereby frustrated the purpose of the agreement. Tubbs acknowledged at her 3 deposition that it would reflect poorly on her if DCI were able to obtain lower rates from carriers. 4 See Pl.’s Lodgment, Ex. 3.9. In July 2008, Tubbs contacted Roadway’s account manager to ensure 5 that Roadway would not accede to DCI’s “push for lower rates.” See Pl.’s Lodgment, Ex. 15.1. 6 Although Terese Tubbs was the only person at Urban that could provide the amount of 7 Urban’s “spend,” (i.e. the amount spent on shipping), no one from Urban asked Tubbs to collect 8 the data regarding Urban’s spend. DCI’s independent contractor, Robert Fike, did contact Tubbs 9 directly, but Tubbs did not cooperate in sending copies of Urban’s pricing agreements to DCI. See 10 Conole Decl. ¶ 6; Baker Decl. ¶ 10; Pl.’s Lodgment, Exs. 2.7-2.8, 10.1-10.3. She eventually sent 11 some, but not all, of the requested agreements after DCI’s representatives called John Kyees to 12 complain. See Conole Decl. ¶ 6; Baker Decl. ¶ 10; Pl.’s Lodgment, Exs. 2.7-2.8, 10.1-10.3. 13 Finally, at a certain point, John Kyees temporarily delegated oversight of the project to 14 Urban’s Strategic Planning Manager, Matt Kaness. See Baker Decl. ¶ 9; Pl.’s Lodgment, Ex. 14.1. 15 Kaness refused to cooperate with DCI and even denied that there was a signed contract between 16 the parties. See Baker Decl. ¶ 9; Pl.’s Lodgment, Ex. 14.1. 17 Based on the evidence in the record, and drawing all reasonable inferences in favor of DCI, 18 the Court concludes there is a material dispute as to whether Urban deliberately frustrated the 19 purpose of the agreement. Accordingly, The Court DENIES Urban’s motion for summary 20 judgment as it relates to DCI’s claim for breach of the implied covenant of good faith and fair 21 dealing. 22 E. 23 Urban argues that because the parties had an express written agreement covering Quantum Meruit 24 compensation, DCI cannot pursue a quantum meruit claim. DCI responds that quantum meruit is 25 an available remedy when the contractually agreed upon amount of compensation is not a 26 “liquidated debt.” To the extent damages cannot be calculated with reasonable certainty, DCI 27 argues it is entitled to pursue a quantum meruit claim. 28 In advancing its argument that the existence of a written contract covering compensation - 12 - 10cv0369 1 precludes a quantum meruit recovery, Urban relies on Hedging Concepts, Inc. v. First Alliance 2 Mortgage Co., 41 Cal. App. 4th 1410 (1996), Wal-Noon Corp. v. Hill, 45 Cal. App. 3d 605 (1975), 3 and Wagner v. Glendale Adventist Medical Center, 216 Cal. App. 3d 1379 (1989). However, none 4 of those cases stands for the proposition that a contract term covering compensation invariably bars 5 a quantum meruit recovery. 6 In Hedging Concepts, the trial court awarded plaintiff a quantum meruit recovery although 7 plaintiff had failed to perform an express condition precedent to the right to be paid under the 8 contract. 41 Cal. App. 4th at 1419. On appeal, the California Court of Appeal reversed the award, 9 concluding that the trial court’s award, along with its finding that plaintiff had not performed the 10 condition precedent, conflicted with the express terms of the contract. Like Hedging Concepts, 11 Wal-Noon and Wagner are cases in which courts have refused to imply contract terms “at 12 variance” with the express contract. 45 Cal. App. 3d at 613; 216 Cal. App. 3d at 1393. That is not 13 what DCI asks the Court to do here. DCI merely asks the Court to preserve its right to seek 14 restitution in the event contract damages cannot be calculated with reasonable certainty.4 15 Under California law, a party who has been injured by a breach of contract may generally 16 decide which remedy it will seek. Chodos v. West Publishing Co., 292 F.3d 992, 1001 (9th Cir. 17 2002). “He may treat the contract as rescinded and may recover upon a quantum meruit so far as 18 he has performed; or he may keep the contract alive, for the benefit of both parties, being at all 19 times ready and able to perform; or, third, he may treat the repudiation as putting an end to the 20 contract for all purposes of performance, and sue for the profits he would have realized if he had 21 not been prevented from performing.” Id. (quoting Alder v. Drudis, 182 P.2d 195 (Cal. 1947). If a 22 plaintiff has fully performed a contract, damages for breach are often the only available remedy. 23 Chodos, 292 F.3d at 1001. However, “full performance does not make restitution unavailable if 24 any part of the consideration due from the defendant in return is something other than a liquidated 25 debt.” Id. (citing Oliver v. Campbell, 43 Cal.2d 298, 306 (1954) (emphasis deleted). 26 In Chodos, a writer entered into a contract with a publisher. 292 F.3d at 995. In exchange 27 4 28 The California courts use the terms “quantum meruit” and “restitution” interchangeably. Chodos v. West Publishing Co., 292 F.3d 992, 1001 n.8 (9th Cir. 2002) (citing In Re Estate of Ford, 96 Cal. App.4th 386 (Cal. Ct. App. 2002). - 13 - 10cv0369 1 for writing a legal treatise, the writer was entitled to receive 15% of the gross revenues from sales 2 of the treatise. Id. When the publisher failed to publish the book, the writer sought a recovery in 3 quantum meruit. Id. at 996. The district court granted summary judgment to the publisher, and the 4 Ninth Circuit reversed. Id. at 1000-03. According to the court, “whether [the writer] can recover 5 on a quantum meruit claim turns on whether the 15% of the gross revenues provided for in the 6 agreement constitutes a ‘liquidated debt.’” Id. at 1000-03. The Court held that “[t]he mere 7 existence of a fixed percentage royalty in a contract does not render that royalty a ‘liquidated debt,’ 8 if the revenues to which that percentage figure is to be applied cannot be calculated with 9 reasonable certainty.” Id. at 1002. Notably, although the Ninth Circuit assumed for purposes of its 10 analysis that the writer had completed performance, it cast doubt on its own assumption, observing 11 that the publisher’s rejection of the manuscript prior to completion of the editing process had 12 prevented the writer from completing performance. Id. at 1002 n.9. 13 This case resembles Chodos in important respects. It is unclear whether DCI completed its 14 performance under the contract. There is material dispute as to whether Urban failed to cooperate 15 and thereby prevented DCI from completing its obligations under the contract. In addition, the 16 contract provides for a fixed percentage contingency fee. Compare Pl.’s Lodgment, Ex. 6.1 17 (“Client’s fee to DCI shall be an amount equal to thirty-three (33%) of the cumulative Savings.”), 18 with Chodos, 292 F.3d at 995 (“The Author Agreement provided for no payments to Chodos prior 19 to publication, and a 15% share of the gross revenues from sales of the work.”). Although Urban 20 did not render its own performance impossible, as did the publisher in Chodos, the question of 21 whether and to what extent Urban secretly implemented DCI’s recommendations and obtained 22 “Savings” is materially disputed. As a result, even if the Court were to conclude that DCI fully 23 performed under the contract, the Court is unable to conclude at this stage that this case involves a 24 “liquidated debt.” Accordingly, the Court DENIES Urban’s motion for summary judgment as it 25 relates to DCI’s quantum meruit claim. 26 /// 27 /// 28 /// - 14 - 10cv0369 1 2 CONCLUSION Based on the foregoing, the Court GRANTS IN PART and DENIES IN PART Urban’s 3 motion for summary judgment or, in the alternative, partial summary judgment. The Court 4 GRANTS the motion as it relates to DCI’s fraud in the inducement claim and DENIES the motion 5 as it relates to each of DCI’s remaining claims. 6 7 IT IS SO ORDERED. DATED: April 5, 2011 8 9 IRMA E. GONZALEZ, Chief Judge United States District Court 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 15 - 10cv0369
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