Opinion
A159749, A160823
11-22-2021
ELATION SYSTEMS, INC., Plaintiff and Appellant, v. FENN BRIDGE LLC, et al., Defendants and Respondents.
Putterman Yu, Philip J. Wang and Traci M. Keith for Plaintiff and Appellant. Vasquez Benisek & Lindgren, Richard C. Vasquez and Jeffrey T. Lindgren for Defendants and Respondents.
Certified for Partial Publication.
Pursuant to California Rules of Court, rules 8.1105(b) and 8.1110, this opinion is certified for publication with the exception of parts B, C, and D of the Factual and Procedural Background and part A.2 and all of part B of the Discussion.
Putterman Yu, Philip J. Wang and Traci M. Keith for Plaintiff and Appellant.
Vasquez Benisek & Lindgren, Richard C. Vasquez and Jeffrey T. Lindgren for Defendants and Respondents.
Fujisaki, J. Plaintiff Elation Systems, Inc. (Elation) sued defendants Fenn Bridge LLC (Fenn Bridge) and Tiebiao "Joe" Shi (Shi) on multiple causes of action, including (1) breach of a nondisclosure agreement (NDA) (against Shi only) entered during the course of Shi's prior employment with Elation; and (2) breach of a confidential settlement agreement and mutual release (Settlement Agreement) (against both defendants) entered to resolve a prior action between the parties. In turn, defendants filed a cross-complaint that included a cause of action for Elation's breach of the Settlement Agreement. During trial, Elation admitted to liability and stipulated to $10,000 in liquidated damages on the cross-claim for breach of the Settlement Agreement. At trial, the jury found that Shi had breached the NDA and harmed Elation, and awarded Elation $10,000 in damages. The jury also found that defendants had breached the Settlement Agreement, but that Elation had suffered no harm. Following the jury verdict, Elation filed a motion that included a request for entry of a permanent injunction against defendants. Defendants then filed a motion for judgment notwithstanding the verdict (JNOV), challenging (1) the jury's finding on harm and award of damages for the NDA claim; and (2) the jury's finding of breach on the Settlement Agreement claim. The trial court granted the JNOV motion and denied Elation's motion for injunctive relief. Defendants subsequently filed a motion for attorney fees pursuant to Civil Code section 1717. The court entered judgment awarding defendants $700,000 in attorney fees.
Further statutory references are to the Civil Code.
In this consolidated appeal, Elation challenges (1) the JNOV order; and (2) the judgment awarding attorney fees to defendants. In the published portion of this opinion, we conclude the trial court should have awarded Elation nominal damages on its NDA claim, as defendants’ JNOV motion did not challenge the jury's finding that Shi breached the NDA. In the unpublished portion, we conclude that substantial evidence did not support the jury's finding in Elation's favor on its Settlement Agreement claim, and that section 1717 applies to the claims and cross-claims on the Settlement Agreement, but does not apply to Elation's NDA claim.
Accordingly, we affirm the order granting JNOV as to Elation's Settlement Agreement claim but reverse the order granting JNOV as to Elation's NDA claim. We also vacate the award of attorney fees. The matter is remanded to the trial court for further proceedings.
FACTUAL AND PROCEDURAL BACKGROUND
We focus our attention on the evidence and factual background relevant to Elation's claims regarding the sufficiency of evidence on its breach of contract claims and the award of attorney fees.
Shi is a software developer who was employed at Elation from 2005 to 2011. His duties included building its "Labor Compliance Program" (LCP) software during the early stages and adding new features as its client base expanded. According to Elation, LCP software helps to automate reporting, monitoring, and compliance with federal and state-specific prevailing wage laws for public works projects.
A. Nondisclosure and Confidentiality Agreement
As part of his employment at Elation, Shi signed a NDA. Under paragraph 3 of the NDA, Shi agreed "to hold all Confidential Information in strict confidence and secrecy and not to disclose to others or to use" the information, and to make "no copies of Confidential Information" except upon Elation's written authorization. Paragraph 5 of the NDA provided that all copies of such information must be returned upon Elation's request. The NDA also provided: "The parties acknowledge and agree that a breach of the provisions of Paragraphs 3 and 5 of this agreement would cause the other party to suffer irreparable damage and could not be adequately remedied by an action of law. Accordingly, the parties agree that either party shall have the right to seek specific performance of the provisions in Paragraph 3 to enjoin a breach or attempted breach of the provision thereof, such right being in addition to all other rights and remedies that are available to the parties at law, in equity, or otherwise." The NDA did not contain an attorney fee provision.
In April 2011, Shi left his employment at Elation and formed a business entity called Efen Bridge.
See footnote *, ante .
E. Verdict
On Elation's NDA claim, the jury returned a verdict that Shi had breached the contract and harmed Elation, but initially awarded zero damages. After receiving additional instructions on damages, including an instruction on nominal damages, the jury awarded Elation $10,000. On Elation's Settlement Agreement claim, the jury found that defendants had each breached one obligation under the Settlement Agreement by failing to do something it was required to do, but also found that Elation was not harmed by their breaches. The verdict form also included a supplemental question: "Is the act by Tiebiao Shi that you find to have been a breach of the 2005 contract [i.e., the NDA] the same act by Tiebiao Shi that you find to have been a breach of the 2011 contract [i.e., the Settlement Agreement]?" The jury answered, "No."
On the trade secrets claim, the jury did not reach the question of misappropriation because it found that Fenn Bridge was a successor in interest to Efen Bridge.
Elation's operative complaint asserted four causes of action: (1) breach of the NDA (against Shi only); (2) breach of the Settlement Agreement (against Shi and Fenn Bridge, a successor entity to Efen Bridge); (3) violation of the California Uniform Trade Secrets Act (against Fenn Bridge only) (§ 3426, et seq.); and (4) declaratory relief. As a successor in interest, Fenn Bridge was covered by the mutual release in the Settlement Agreement.
F. Posttrial Motions
Following the jury verdict, Elation filed a motion for permanent injunctive and other relief. Elation argued that the conditions for entry of the parties’ Stipulated Injunction, which had been attached to the Settlement Agreement, were met because the jury had determined that Shi violated his NDA obligations and both defendants defaulted on their Settlement Agreement obligations. Based on the evidence at trial, Elation also argued that Fenn Bridge and Shi still possessed Elation's confidential information, and thus "[n]othing short of injunctive relief can protect Elation's interest."
Fenn Bridge and Shi then filed a JNOV motion challenging (1) the jury's findings of harm and damages on Elation's NDA claim; and (2) the jury's finding of breach on Elation's Settlement Agreement claim. The trial court granted the JNOV motion, and accordingly denied Elation's permanent injunction motion. On the NDA claim, the court found there was no evidence showing that, "if not for Defendant's misappropriation, Plaintiff would have been awarded any contract or made any additional profits. Contrary to Plaintiff's argument in opposition, a jury finding that the City of Richmond would have continued to use Plaintiff's software would rest on nothing but speculation." It also found there was no evidence supporting the $10,000 damages award. On the Settlement Agreement claim, the court found that Elation had "stipulated to its own prior breach" consisting of Elation's loss of the USB drive containing Efen Bridge's original LCP, which was the "exclusive version against which Defendants’ code could be compared for any future claims of misappropriation" and that "[t]he promise to maintain the USB drive was a material term of the 2011 settlement—without the drive, the parties’ agreed regime for adjudicating future claims of misappropriation became impossible."
Fenn Bridge and Shi subsequently filed a motion for $718,778.85 in attorney fees pursuant to section 1717 and the attorney fee provision in the Stipulated Injunction. The court determined that Fenn Bridge and Shi were the prevailing parties on both the complaint and the cross-complaint, and that section 1717 was applicable as the fees "were incurred in defending against Elation's attempt to enforce the stipulated judgment which was part of the 2011 settlement agreement." Finding that "[a]ll causes of action in the complaint were in actuality different legal theories directed to Elation's singular request to enforce the settlement agreement," the court entered judgment awarding Fenn Bridge and Shi $700,000 in attorney fees.
DISCUSSION
A. JNOV
A motion for JNOV "may be granted only if it appears from the evidence, viewed in the light most favorable to the party securing the verdict, that there is no substantial evidence in support." ( Sweatman v. Department of Veterans Affairs (2001) 25 Cal.4th 62, 68, 104 Cal.Rptr.2d 602, 18 P.3d 29.) " ‘Substantial evidence means such evidence as a reasonable fact trier might accept as adequate to support a conclusion; evidence which has ponderable legal significance, which is reasonable in nature, credible and of solid value.’ " ( Jimenez v. Pacific Western Construction Co. (1986) 185 Cal.App.3d 102, 111–112, 229 Cal.Rptr. 575.) In deciding whether to grant the motion, the trial court does not weigh the evidence or assess witness credibility. ( Hansen v. Sunnyside Products, Inc. (1997) 55 Cal.App.4th 1497, 1510, 65 Cal.Rptr.2d 266.) "On appeal, we determine de novo whether there is substantial evidence to support the verdict and whether the moving party is entitled to judgment in its favor as a matter of law." ( Paykar Construction, Inc. v. Spilat Construction Corp. (2001) 92 Cal.App.4th 488, 494, 111 Cal.Rptr.2d 863.)
Here, Elation argues that the trial court improperly granted JNOV on its two contractual claims—breach of the NDA and breach of the Settlement Agreement. We address each claim in turn.
1. Breach of the NDA
Elation argues the trial court erred in granting JNOV as to its claim for breach of the NDA for two reasons. First, Elation contends the jury's finding on harm and award of damages were supported by substantial evidence that Elation "would have retained or regained the contract with the City of Richmond but for Appellee Shi's breach of his 2005 Nondisclosure Agreement." We are not persuaded.
"Lost profits to an established business may be recovered if their extent and occurrence can be ascertained with reasonable certainty; once their existence has been so established, recovery will not be denied because the amount cannot be shown with mathematical precision." ( Berge v. International Harvester Co. (1983) 142 Cal.App.3d 152, 161–162, 190 Cal.Rptr. 815.) In this regard, the plaintiff must demonstrate "a reasonable probability that profits would have been earned except for the defendant's conduct" and "has the burden to produce the best evidence available in the circumstances to attempt to establish a claim for loss of profits." ( S.C. Anderson, Inc. v. Bank of America (1994) 24 Cal.App.4th 529, 536, 30 Cal.Rptr.2d 286 ( S.C. Anderson ).)
To establish its claim for lost profits, Elation relied on the parties’ stipulation that in 2013, Anovo Systems, LLC (Anovo) won a bid to provide the City of Richmond with software and services; that Elation had also bid on the project; that Anovo did not use defendants’ software in the initial bid, but subsequently entered into contracts with Fenn Bridge to use its software for the project starting in 2015; and that by 2018, Anovo had paid Fenn Bridge $82,433.35 for work done on the project. Notwithstanding these stipulated facts, Elation failed to present evidence demonstrating that "except for" Shi's breach of the NDA, Elation would have received profits from the City of Richmond project. ( S.C. Anderson , supra , 24 Cal.App.4th at p. 536, 30 Cal.Rptr.2d 286 ; see also Brandon & Tibbs v. George Kevorkian Accountancy Corp. (199) 226 Cal.App.3d 442, 457, 277 Cal.Rptr. 40 ["The only prerequisite to recovery of lost profits is proximate causation: the lost profits must be the natural and direct consequences of the breach"].)
Significantly, Anovo won the initial bid for the project without Fenn Bridge or Shi's software. While Anovo eventually used the Fenn Bridge software for the project, there was no evidence showing that Anovo would have been unable to continue servicing the project without Elation's confidential information purportedly contained in the software. Moreover, there was no evidence that Elation would have "regained" the City contract had Anovo been unable to perform. Although "anticipated profits dependent upon future events are allowed where their nature and occurrence can be shown by evidence of reasonable reliability" ( Grupe v. Glick (1945) 26 Cal.2d 680, 693, 160 P.2d 832 ), the evidence that Elation did some unidentified prior work for the City and had bid on the project did not demonstrate with "reasonable reliability" that the City would have gone back to Elation to complete the project. ( Ibid . ) In sum, there was insufficient evidence to support the jury's finding on harm.
Given our conclusion, we need not address the claimed propriety of the jury's $10,000 damages award based on its finding of harm.
Second, Elation contends that even if the jury's findings on harm and damages were not supported by substantial evidence, the jury's finding on breach —which defendants did not challenge in their JNOV motion—entitled Elation to nominal damages. Indeed, Elation raised the prospect of nominal damages when the jury returned its initial verdict finding breach but awarding zero damages. The trial court then instructed the jury on nominal damages.
We agree the trial court should have awarded nominal damages in light of the jury's unchallenged finding of breach. Section 3360 provides: "When a breach of duty has caused no appreciable detriment to the party affected, he may yet recover nominal damages." California courts have applied section 3360 to conclude that "[a] plaintiff is entitled to recover nominal damages for the breach of a contract, despite inability to show that actual damage was inflicted upon him." ( Sweet v. Johnson (1959) 169 Cal.App.2d 630, 632, 337 P.2d 499 ( Sweet ).) Nominal damages may be properly awarded for the violation of a contractual right because "failure to perform a contractual duty is, in itself, a legal wrong that is fully distinct from the actual damages." ( Ibid. )
In arguing to the contrary, defendants rely on federal cases concluding that breach of contract claims are not actionable in California without a showing of appreciable and actual damage. In particular, they cite Ruiz v. Gap, Inc. (9th Cir. 2010) 380 Fed.Appx. 689, 692 ( Ruiz ), which in turn relied on Aguilera v. Pirelli Armstrong Tire Corp . (9th Cir. 2000) 223 F.3d 1010 ( Aguilera ). These federal authorities are not controlling (see Carter v. California Dept. of Veterans Affairs (2006) 38 Cal.4th 914, 930, fn. 8, 44 Cal.Rptr.3d 223, 135 P.3d 637 ), and for the reasons below they do not alter our conclusion.
In Ruiz , supra , 380 Fed.Appx. 689, the plaintiff argued that the district court erred in granting summary judgment on his breach of contract claim for failure to show actual and appreciable damage. ( Id. at p. 691.) While referring to Sweet , supra , 169 Cal.App.2d 630, 337 P.2d 499, and acknowledging its holding that "nominal damages are presumed as a matter of law to stem merely from the breach of a contract," the Ninth Circuit ultimately concluded it was bound by Aguilera's holding to the contrary. ( Ruiz , at p. 692.)
In Aguilera , supra , 223 F.3d 1010, the plaintiffs claimed they were actually damaged by the defendants’ breach of certain employment contracts and were injured by " ‘fear of future layoff.’ " ( Id. at pp. 1014–1015.) Aguilera concluded the plaintiffs had not shown they suffered a legally cognizable harm ( id . at p. 1015 ) and affirmed the district court's grant of summary judgment ( id. at p. 1020 ). In determining that "[u]nder California law, a breach of contract claim requires a showing of appreciable and actual damage," Aguilera relied on two California decisions: Buttram v. Owens–Corning Fiberglas Corp. (1997) 16 Cal.4th 520, 66 Cal.Rptr.2d 438, 941 P.2d 71 ( Buttram ) and Patent Scaffolding Co. v. William Simpson Const. Co. (1967) 256 Cal.App.2d 506, 511, 64 Cal.Rptr. 187 ( Patent Scaffolding ). ( Aguilera , at p. 1015,.) But neither Buttram nor Patent Scaffolding supports Aguilera ’s conclusion on the point.
Significantly, Buttram involved a tort action where the defendant sought to limit its liability under certain tort reform measures after the plaintiff had won a products liability judgment for exposure to the defendant's asbestos-containing products. ( Buttram , supra , 16 Cal.4th at p. 524, 66 Cal.Rptr.2d 438, 941 P.2d 71.) In concluding that the applicability of the reform measures depended on the accrual date of the plaintiff's cause of action for damages arising from a latent and progressive disease, Buttram observed that "[i]n California, harm or injury to the plaintiff is an essential element of a ripe cause of action in negligence or strict liability." ( Id. at p. 531, fn. 4, 66 Cal.Rptr.2d 438, 941 P.2d 71.) Inasmuch as Buttram was clearly articulating settled principles of actionable harm in the tort context (see Budd v. Nixen (1971) 6 Cal.3d 195, 200, 98 Cal.Rptr. 849, 491 P.2d 433 ), the decision provides no meaningful support for Aguilera ’s understanding and purported application of California contract law. (See Aguilera , supra , 223 F.3d at p. 1015.) As explained, breach of a contractual duty "is, in itself, a legal wrong that is fully distinct from the actual damages" and nominal damages may be recoverable for such breach. ( Sweet , supra , 169 Cal.App.2d at p. 632, 337 P.2d 499 ; § 3360.)
Aguilera ’s reliance on Patent Scaffolding does not fare materially better. Patent Scaffolding was a subrogation case in which three insurers compensated their insured subcontractor for a construction site fire loss and thereafter brought a breach of contract claim in the subcontractor's name against the general contractor. ( Patent Scaffolding , supra , 256 Cal.App.2d at pp. 507–508, 64 Cal.Rptr. 187.) As relevant here, Patent Scaffolding focused on the circumstances that the subcontractor had been fully compensated for its fire loss and that any payment of insurance premiums was not incurred as a result of the breach. ( Id . at p. 511, 64 Cal.Rptr. 187.) Because the subcontractor "suffered no uncompensated detriment caused by [the general contractor's] breach of contract" and could not have successfully sued the general contractor, the court concluded the insurers’ breach of contract claim was not actionable. ( Ibid . )
Notably, neither Aguilera nor Patent Scaffolding considered the availability of nominal damages in the absence of actual damage. Rather, Aguilera examined the requisite showing for actual damages with respect to determining breach, while Patent Scaffolding examined the requisite causal connection between breach and actual damages. ( Aguilera , supra , 223 F.3d at p. 1015 ; Patent Scaffolding , supra , 256 Cal.App.2d at p. 511, 64 Cal.Rptr. 187.) Accordingly, we follow California law as provided in section 3360 and Sweet , supra , 169 Cal.App.2d 630, 337 P.2d 499, and do not find Aguilera or Ruiz persuasive on the point.
Moreover, we conclude that the failure to award nominal damages here is sufficient grounds for reversal of the judgment. Such an error is reversible where nominal damages would provide an "absolute entitlement to costs" or "determine some question of permanent right." ( Staples v. Hoefke (1987) 189 Cal.App.3d 1397, 1406, 235 Cal.Rptr. 165.) Here, Elation concedes that a nominal damages award would only give rise to a discretionary award of costs. ( Code Civ. Proc. §§ 1032, subd. (a)(4) & 1033, subd. (a).) But the nominal damages award, coupled with the jury's finding on breach of the NDA, could affect Elation's rights under the NDA to equitable relief. As detailed above, the NDA provided that "either party shall have the right to seek specific performance of the provisions in Paragraph 3 to enjoin a breach or attempted breach of the provision thereof, such right being in addition to all other rights and remedies that are available to the parties at law, in equity, or otherwise." In sum, we conclude that the trial court erred in granting JNOV on Elation's NDA claim. While the court correctly concluded that substantial evidence did not support the jury's finding of harm or $10,000 in damages for that harm, it should have awarded Elation nominal damages on this cause of action. We thus reverse the JNOV order as to Elation's cause of action against Shi for breach of the NDA. Given our conclusion, we also grant Elation's request for remand to reconsider its motion for permanent injunctive and other relief.
2. Breach of Settlement Agreement
See footnote *, ante .
See footnote *, ante .
DISPOSITION
The order granting JNOV is reversed as to Elation's cause of action for breach of the NDA, but affirmed as to Elation's cause of action for breach of the Settlement Agreement. We vacate the judgment insofar as it (1) ordered that Elation recover nothing on its cause of action for breach of the NDA; (2) entered judgment in favor of Fenn Bridge and Tiebiao Shi on Elation's cause of action for breach of the NDA; (3) deemed Fenn Bridge and Tiebiao Shi as the prevailing parties under section 1717 beyond the claim and cross-claim for breach of the Settlement Agreement; and (4) awarded Fenn Bridge and Tiebiao Shi $700,000 in attorney fees. The judgment is otherwise affirmed.
On remand, the trial court should conduct other proceedings consistent with the opinion, including but not limited to: (1) reconsideration of Elation's motion for permanent injunctive and other relief; and (2) reconsideration of whether and to what extent fees should be apportioned. Any subsequent entry of judgment shall include an award of nominal damages to Elation on its cause of action for breach of the NDA. The parties shall bear their own costs on appeal. ( Cal. Rules of Court, rule 8.278(a)(5).)
WE CONCUR:
Tucher, P.J.
Judge of the Superior Court of San Mateo County, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.