Exclusion of Non-Exclusivity Clause Supports Exclusive Contractual Relationship

In a recent unpublished decision from the Ninth Circuit Court of Appeals (Global BTG, LLC v. National Air Cargo, Inc., 2015 U.S. Dist. LEXIS 70386), the Court affirmed a jury verdict finding an exclusive contractual relationship in the absence of any express exclusivity contractual provision.  Although lacking any express exclusivity, the Court found the extrinsic evidence of intentionally omitting a non-exclusivity provision, the type of business relationship, and industry norms sufficient to support the verdict.

In July 2010, the parties entered into a Letter of Intent (LOI) for financing several commercial airplanes.  Less than a year later, Global brought suit for breach of the LOI.  The jury found in favor of Global and awarded $8 million in damages.

On appeal, National sought review of partial summary judgment, the denial of judgment as a matter of law, and the denial of a motion for a new trial, among other things.  National's main argument on appeal was that the facts did not support a finding of exclusivity.  National argued that the lack of an exclusivity provision - or silence as to the matter - could not amount to an exclusive contractual relationship.  The Court disagreed.  Despsite the lack of an exclusivity provision, the language of the LOI created an exclusive relationship.  The LOI was for the purchase, lease and finance of eight specific aircraft.  That relationship between two parties, for the specific goods identified, could only have been exclusive.

Providing more weight to Global's argumen was the intentionally omission a non-exclusive provision during the parties' negotiations.  Global presented this fact to the jury, along with the fact that a non-exclusive relationship was impractical to its business, and other industry norms.   Because the jury could have reasonably found an exclusive relationship, the Court affirmed the trial court's ruling on summary judgment and refused to reverse the jury verdict or grant a new trial.

Settling plaintiff is prevailing party entitled to costs even if remaining claims are voluntarily dismissed

California Code of Civil Procedure §1032(a)(4) defines the “prevailing party” to include “the party with a net monetary recover” and “a defendant in whose favor a dismissal is entered.”  The statute entitles the prevailing party to the costs in the proceeding.  In a recent proceeding, the California Supreme Court was faced with the question of whether a plaintiff who settles some claims and voluntarily dismisses the remaining claims is considered the prevailing party and therefore entitled to costs.

In DeSaulles v. Community Hospital of the Monterey Peninsula (62 Cal.4th 1140 [2016]), Maureen DeSaulles sued Community Hospital of the Monterey Peninsula (the “Hospital”) for: (1) failing to accommodate physical disability or medical condition; (2) retaliation under Cal. FEHA; (3) breach of implied conditions of an employment contract; (4) breach of the implied covenant of good faith and fair dealing; (5) negligent and (6) intentional infliction of emotional distress; and (7) wrongful termination.  The Hospital successfully moved for summary judgment and the exclusion of evidence for all but DeSaulles' third and fourth claims.

Prior to trial, the parties settled the remaining claims. Under the settlement, the Hospital would pay DeSaulles $23,500, DeSaulles retained the right to appeal the summarily adjudicated claims, and DeSaulles would voluntarily dismiss her remaining causes of action.  After the Court of Appeal affirmed summary judgment in the Hospital’s favor, both parties sought costs as the prevailing party.  The district court held the Hospital to be the prevailing party based on the fact that it succeeded on the majority of claims pleaded.  The Court of Appeal reversed, holding DeSaulles as the prevailing party for obtaining a net monetary recovery.  The Court of Appeal explained that summary judgment did not dispose of the case;  As two causes of action remained for trial, the Hospital at most obtained a partial dismissal.  The California Supreme Court granted review.

The Court explained that an award of costs is justified on the theory that “to a plaintiff […] the default of the defendant made it necessary to sue him, and to a defendant, that the plaintiff sued him without cause.”  Put otherwise, the party responsible for initiation of the lawsuit pays the costs to the blameless party.  Under CCP §1032, a prevailing party is entitled to recover costs and defines the prevailing party as: “a party with a net monetary recovery, a defendant in whose favor a dismissal is entered, a defendant whether neither plaintiff nor defendant obtains any relief, and a defendant against those plaintiffs who do not recover any relief against that defendant.”  A recovery other than monetary relief or outside of the described situations, vests the court with discretion to award costs.  The statutory rule is only a default rule and can be modified by agreement of the parties.

The Hospital relied upon Chinn v. KMR Property Management (166 Cal.App.4th 175 [2008]) for the holding that settlement proceeds are not a “net monetary recovery” that would make the settling plaintiff the prevailing party.  Reviewing the legislative history of Section 1032 and the related case law, the Court overturned the holding in Chinn.  The Court explained that the language providing for costs to a defendant when the plaintiff voluntarily dismissed the case did not include the situation where the plaintiff obtained a monetary settlement as well.  Costs available to a defendant prevented a plaintiff from filing a claim without merit and driving up the costs, only to dismiss on the eve of trial and force the expense of a frivolous lawsuit on the defendant.  A situation where the plaintiff obtained a monetary settlement was separate and distinct.

Since Chinn no longer applied, the question remained whether a plaintiff who obtains a monetary settlement and voluntarily dismisses the remaining claims is entitled to costs as the prevailing party.  The Court found no reason why a monetary settlement was outside the definition of “monetary recovery.”  Just as a plaintiff cannot avoid costs if a suit without merit is dismissed prior to trial, a defendant cannot avoid costs if it settles also prior to trial.

The Court held that a dismissal pursuant to a monetary settlement is not a dismissal in the defendant’s “favor” and the plaintiff is entitled to costs.  The rule only clarified the default rule, while leaving open the availability of a private agreement between the parties apportioning costs.  The Court disapproved the holding of Chinn and affirmed the Court of Appeal’s judgment.    

Judge Real Extends TRO Enjoining Defendants Conduct Until Resolution of Case

On April 11, 2016, Judge Real of the Central District of California granted an ex parte application for a temporary restraining order in favor of our client ReachLocal, Inc.  ReachLocal sought to prevent defendants Kieran Cassidy and his company, PPC Claim (collectively, the "Defendants"), from contacting its clients, employees, and investors.  The article on the TRO can be accessed here.  After granting the TRO, Judge Real set an expedited hearing for April 11 for a preliminary injunction.

On April 11, 2016, at 10:00 a.m., Judge Real heard arguments from counsel for the issuance of a preliminary injunction against the Defendants.  Judge Real granted the preliminary injunction and issued an order shortly after setting forth the same terms for the preliminary injunction as the TRO.  A copy of the minute order granting the preliminary injunction can be found here.

Preliminary Injunction Issued Barring Delegation of .Africa Top-Level Domain Until Case Resolution

On Tuesday, April 12, 2016, the Honorable R. Gary Klausner of the Central District of California granted a preliminary injunction in favor of our client DotConnectAfrica Trust (“DCA”). The preliminary injunction prohibits defendant Internet Corporation for Assigned Names and Numbers from delegating the rights to the generic top-level domain (“gTLD”) “.Africa” until the case resolves. 

As a initial issue to the preliminary injunction motion (and central to ICANN’s opposition), ICANN argued that DCA was barred from pursuing any court-related relief as a result of a provision included in the gTLD application Guidebook.  The relevant portions of the provision are as follows: 

"Applicant hereby releases ICANN…from any and all claims by applicant that arise out of, are based upon, or are in any way related to, any action, or failure to act, by ICANN…in connection with ICANN’s…review of this application…Applicant agrees not to challenge, in court…any final decision made by ICANN with respect to the application, and irrevocably waives any right to sue or proceed in court…on the basis of any other legal claim against ICANN….with respect to the application.”

DCA argued that because the provision barred relief from any and all claims arising out of the application process – including fraudulent or intentional wrongdoing - the release was void as a matter of law pursuant to Cal. Civil Code §1668.  Section 1668 provides that “[a]ll contracts which have for their object, directly or indirectly, to exempt anyone from responsibility for his own fraud, or willful injury to the person or property or another, or violation of law, whether willful or negligent, are against the policy of the law.”  The Court agreed with DCA, finding the provision “against the policy of law” by exempting ICANN from fraudulent or intentional wrongdgoin.  The court rejected both of ICANN’s arguments that (1) the release had to affect public policy to be void, and (2) because DCA’s motion for a preliminary injunction was not based on DCA’s claims for fraud, the provision was enforceable here.  The Court held that DCA alleged intentional misconduct and those allegations sufficed for purposes of finding the provision unenforceable.

Continuing through its analysis, the Court found serious questions as to the merits of DCA’s declaratory relief claim that ICANN be ordered to follow the decision of its internal review process and continue to process DCA’s .Africa application in accordance with ICANN’s bylaws and articles of incorporation.  Agreeing with DCA, the Court emphasized the fact that .Africa can only be issued once; if DCA’s application was improperly processed and ICANN is not barred from delegating the .Africa rights, DCA could suffer irreparable harm losing the chance to control the .Africa domain.  Balancing this fact against any potential harm to ICANN, the scales tipped sharply in DCA’s favor.  Finally, with respect to the public interest involved in the issuance of a preliminary injunction, ICANN claimed that delay would prejudice the African community.  ICANN put forth a declaration to support this claim from Moctar Yedaly – the head of the AUC’s Information Society Division of the Infrastructure and Energy Department.  As the AUC was alleged to have improper involvement in the processing of DCA’s application, the Court noted Mr. Yedaly's conflict of interest and gave little weight to the declaration.  The Court stated that “it is more prejudicial to the African community, and the international community in general, if the delegation of .Africa is made prior to a determination of the fairness of the process by which it was delegated.”

A copy of the order can be accessed here.


A/C Privilege - Common Interest Doctrine

In Seahaus La Jolla Owners Association v. Superior Court (224 Cal.App.4th 754), the California Court of Appeals explained the Common Interest Doctrine of the attorney-client privilege.  The defendant sought to obtain information disclosed by counsel of the HOA at pre-litigation meetings; the defendant claimed that the presence of homeowners (who were affiliated with the defendant) at the pre-litigation meetings waived the attorney-client privilege. The plaintiff claimed the disclosure was was protected under the Common Interest Doctrine and contested the defendant's request.

The Court ruled in favor of the plaintiff and held the information privileged. As the Court explained, the Common Interest doctrine was a qualified privilege dependent on the content and circumstances of the communication sought to be privileged.  The qualification required that all parties (to the allegedly privileged communication) have (1) a common interest in securing legal advice related to the same matter, and (2) the communications are made to advance that common interest.  Since the homeowners were concerned with their respective property values in relation to the claim made by the HOA, they shared a common interest in the legal status of the HOA’s claim.  Since the disclosures were also made pursuant to the HOA’s claims, they were made to advance said common interest.  Because the HOA was required by law to notify all homeowners of upcoming litigation, its was required to disclose the information to homeowners affiliated with the defendant, and that did not destroy the privilege.

The court concluded that the decision did not expand the scope of the attorney-client privilege, but only applied recognized rules to an unusual set of facts.