Friday, January 31, 2020

Supreme Court of Texas, Copano Energy, LLC v. Stanley Bujnoch, Life Estate, Docket No. 18-0044


E-mails
(Here multiple e-mails)
Contracts - Conclusion
Statute of Frauds
(Here an easement, so an interest in real estate)
Enforceable Written Contract Satisfying the Statute of Frauds?
Contract Drafting
Texas Law


As happens all the time in modern business, the parties to this contract dispute sent each other many e-mails prior to the anticipated signing of a formal written agreement. Though no formal written agreement was ever executed, the plaintiffs claimed the various e-mails, taken together, amount to an enforceable written contract satisfying the statute of frauds. See TEX. BUS. & COM. CODE §§ 26.01–.02 (Texas’s primary statute of frauds). They sued for breach of that alleged contract and for tortious interference with it. The defendants argued the statute of frauds bars the claims, and the trial court granted summary judgment for the defendants on all claims. The court of appeals affirmed summary judgment on the tortious interference claim but reversed as to the breach of contract claim. The court of appeals concluded that the e-mails, taken together, satisfy the statute of frauds and amount to a contract enforceable against the defendants.

We disagree. The e-mails containing many of the alleged deal’s principal terms are part of a forward-looking request to negotiate a contract. Neither those e-mails nor any other writing evidences the defendant’s agreement to the particular terms stated in the e-mails. As a result, there is no “written memorandum which is complete within itself in every material detail,” as required by the statute of frauds. Cohen v. McCutchin, 565 S.W.2d 230, 232 (Tex. 1978). The court of appeals’ judgment on the contract claim is reversed, and judgment is rendered that the plaintiffs take nothing on all their claims.

On December 6, Debbie Bujnoch, who was Schwartz’s secretary, e-mailed Sanford and informed him that Schwartz was available for a meeting on December 11 or 13. Sanford responded to Bujnoch by e-mail, suggesting December 11 for the meeting. On December 7, Bujnoch and Sanford exchanged several more e-mails. Bujnoch e-mailed Sanford: “In preparation for the meeting on the 11th, Mr. Schwartz needs to know the size of the NGL line Copano is proposing to put in. He needs it for valuation and discussion with our clients.” Sanford responded:
It will be a 24 inch gas line. We will preserve the 2nd line right we purchased for condensate. I will be asking for an additional 20 feet of new right of way. We will be laying the line generally on the North side of the existing 24 inch line (temporary workspace side). I will be asking for an additional 20 feet of temporary workspace. James
Bujnoch responded: “dry gas or liquid?” Sanford responded: “Rich gas.” Bujnoch responded: “By that do you mean NGL?” Sanford finally responded:
When we purchased the original easement for the 24 inch line we purchased the rights for a second 12 inch liquid line. We will be buying an additional 20 foot easement contiguous to the first easement for a 2nd 24 inch gas line. The rights to lay the 12 inch liquid line will be unchanged. James
All of Sanford’s e-mails on December 7 use the subject line “Meeting with Schwartz.” None of the December 6 and 7 e-mails from Sanford to Bujnoch copied Schwartz. No writing indicates whether the anticipated December 11 meeting took place or, if it did, what Sanford and Schwartz discussed or agreed at the meeting.
On January 30, 2013, Sanford and Schwartz exchanged e-mails for the first time. Sanford wrote to Schwartz and Bill Caraway, another attorney for the Landowners, stating:
Mark/Bill,
Pursuant to our conversation earlier, Copano agrees to pay your clients $70.00 per foot for the second 24 inch line it proposes to build. In addition to this amount Copano agrees to address and correct the damages to your client’s property caused due to the construction of the first 24 inch line.
Please confirm that Copano has access to your client’s property for survey and environmental.
Thanks, James
James Sanford,
Director, Right-of-Way Services Copano Energy
Schwartz responded to Sanford: “James: In reliance on this representation we accept your offer and will tell our client you are authorized to proceed with the survey on their property. We would appreciate you letting them know a reasonable time before going on their property. mfs/bbc.”

On February 12, 2013, Sanford sent an e-mail to Schwartz concerning one of the Landowners, Transportation Equipment, Inc. The e-mail states: “Copano agrees that it will pay Transportation, Inc. $88.00 per foot for the easement for the new 24 inch line. Copano will also pay damages from the first 24 inch line in the total of $73,003.00. Give me a call if you have any questions. Thanks, James.” While Sanford offered $88 per foot to Transportation Equipment in this e-mail, Goolsby’s February 22 letter to Transportation Equipment offered only $15 per foot. There are no writings indicating that Transportation Equipment accepted either offer.

On February 13, Debbie Bujnoch e-mailed Sanford, copying Caraway: “Please find revisions made to the amendment of row agreement for execution by our clients. If this is satisfactory please let us know and we will have our clients execute the amendments. Debbie Bujnoch, Secretary to Marcus F. Schwartz.” This e-mail attached an amendment providing that the parties desired to extend the existing easement by an additional 20 feet to accommodate a second pipeline. The amendment references a new easement “described on Exhibit ‘A’ and shown and depicted on Exhibit ‘B,’” but these attachments are not included in the summary judgment record. The amendment relates to one of the properties subject to the original easement, namely a tract held by Landowners Stanley Bujnoch, Betty A. Bujnoch, Susan K. McDowell, Shelly E. Summers, and Sandra Kay Coe. Sanford responded to this e-mail with an e-mail addressed to Bujnoch and copying Caraway: “I am fine with these changes.”

On March 14, 2013, Brent Eubank of Percheron Field Services, on behalf of Copano and purportedly on behalf of Sanford as well, sent an e-mail to Schwartz attaching a “compensation proposal” to the Landowners offering compensation of $20 to $40 per foot under five different scenarios, including scenarios where the new easement would not fully track the existing easement. The e-mail stated,
Mr. Schwartz,
My name is Brent Eubank and I am sending this landowner compensation proposal on behalf of Copano Pipelines/South, L.P. and James Sanford. Attached you will find a landowner compensation proposal letter. Please review this letter to better understand why we are offering your clients the amount we have. These amounts reflect what Copano is willing to pay for each scenario that we have encountered with the original agreements between Copano and your clients along this pipeline.
Although we realize that Mr. Sanford has had prior contact with you on this matter, in efforts to keep compensation as fair as possible, we have provided the same letter to all attorneys representing landowners on this project.
Thank you for your time,
Thomas Goolsby
Project Manager | Percheron Field Services ....
Brent Eubank
Lead Agent | Percheron Field Services

The e-mail copied Thomas Goolsby, James Sanford, and Michael Quinn (another Percheron employee). There are no writings accepting any of these proposals.

That same day, Schwartz e-mailed Sanford regarding the Eubank compensation proposals, telling Sanford, “JAMES: THIS IS NOT OUR DEAL. WHAT IS GOING ON? PLEASE LET BILL AND ME KNOW.” (emphasis in original). Bill Caraway e-mailed Schwartz the same day, with a copy to Sanford, stating: “I say let’s get ready to try some condemnation suits.” In response, Sanford e-mailed Caraway and Schwartz on March 18, stating,
I know that this is not our deal. I believe that we have most of the plats. I think that we can start closing easements no later than the end of March (I want to be done by the end of April). Our deal still stands. Copano does not want to go to court with any of your clients. The letter went out to all of the attorneys that represent landowners on the pipeline. I am not sure why Percheron chose to send you and Mark this letter. They know that we already had a deal for your clients. I am sorry for the confusion.
James

The second pipeline was never built. In February 2014, the Landowners sued Copano for breach of contract, alleging a contract to sell an easement to the Landowners for $70 per foot and to Transportation Equipment for $88 per foot. The Landowners sued defendant Kinder Morgan for breach of contract on the theory that Kinder Morgan assumed Copano’s contract obligations when it merged with Copano. They also sued Kinder Morgan for tortious interference with contract. The defendants moved for summary judgment, arguing in part that the statute of frauds barred the contract claim.

The trial court granted summary judgment and rendered a take-nothing judgment on all claims.

Certain agreements, including “a contract for the sale of real estate,” are “not enforceable unless the promise or agreement, or a memorandum of it” is “in writing” and “signed by the person to be charged with the promise or agreement or by someone legally authorized to sign for him.” TEX. BUS. & COM. CODE § 26.01(a), (b)(4). This requirement is commonly called the statute of frauds. Because an easement is an interest in real estate, a contract for the sale of an easement is subject to the statute of frauds. Pick v. Bartel, 659 S.W.2d 636, 637 (Tex. 1983).

It has long been understood that to satisfy the statute of frauds, “there must be a written memorandum which is complete within itself in every material detail, and which contains all of the essential elements of the agreement, so that the contract can be ascertained from the writings without resorting to oral testimony.” Cohen, 565 S.W.2d at 232.

The required written memorandum need not always be a single document, however. “A court may determine, as a matter of law, that multiple documents comprise a written contract.” City of Houston v. Williams, 353 S.W.3d 128, 137 (Tex. 2011) (quoting Fort Worth Indep. Sch. Dist. v. City of Fort Worth, 22 S.W.3d 831, 840 (Tex. 2000)). Indeed, multiple writings may comprise a contract “even if the parties executed the instruments at different times and the instruments do not expressly refer to each other.” Fort Worth Indep. Sch. Dist., 22 S.W.3d at 840. When considering multiple writings proffered as a single contract, it remains the rule that the “essential elements of the agreement” must be evident “from the writings” themselves, “without resorting to oral testimony.” Cohen, 565 S.W.2d at 232.

The writings described above and relied upon by the Landowners, even when considered together, do not satisfy the statute of frauds.

The Landowners claim their contract with Copano arose on January 30, 2013. On that date, Sanford e-mailed Schwartz, “Pursuant to our conversation earlier, Copano agrees to pay your clients $70.00 per foot for the second 24 inch line it proposes to build.” Schwartz responded 25 minutes later, “In reliance on this representation we accept your offer . . . .” The January 30 e-mails surely contain an offer and an acceptance. But just as surely, they do not say what is being offered and accepted. Other than the price per foot and the pipeline’s size, the January 30 e-mails contain none of the “essential elements of the agreement.” Sanford’s January 30 e-mail indicates that other terms of the deal may have been discussed in “our conversation earlier.” But none of the writings tell us anything about that conversation.

The Landowners acknowledge that the January 30 e-mails do not satisfy the statute of frauds on their own. Instead, they claim to find most of the alleged agreement’s other essential terms—such as the easement’s location and size—in the December 7 e-mails from Sanford to Bujnoch. As the Landowners see it, the easement terms described in Sanford’s December 7 e- mails are what was offered and accepted at $70 per foot on January 30. One of Sanford’s December 7 e-mails to Bujnoch states, in relevant part:
It will be a 24 inch gas line. We will preserve the 2nd line right we purchased for condensate. I will be asking for an additional 20 feet of new right of way. We will be laying the line generally on the North side of the existing 24 inch line (temporary workspace side). I will be asking for an additional 20 feet of temporary workspace.

Later the same day, Sanford also wrote to Bujnoch: “We will be buying an additional 20 foot easement contiguous to the first easement for a 2nd 24 inch gas line.” These e-mails from Sanford to Bujnoch are the contract terms offered and accepted at $70 per foot on January 30, the Landowners contend.

For two reasons, Sanford’s December 7 e-mails do not supply the missing essential terms required to satisfy the statute of frauds. First, the December 7 e-mails themselves reflect no agreement to be bound by the terms they describe. Second, no later writing evidences an agreement to be bound by the terms stated in the December 7 e-mails.

To begin with, Sanford’s December 7 e-mails reflect no agreement to be bound by the easement terms they describe. E-mail is a ubiquitous feature of modern life. It is used by nearly everyone for nearly every type of communication, from the flippantly inconsequential to the bindingly formal. When it is alleged that an e-mail amounts to a contract binding on the sender, the e-mail’s context must be carefully examined to determine whether it truly evidences the grave intent to be legally bound. Here, neither the context of Sanford’s December 7 e-mails nor their verbiage reflects an intent to bind Copano to the easement terms stated in those e-mails.

Considered in their context, the December 7 e-mails are part of Sanford’s request that Bujnoch, Schwartz’s assistant, arrange a meeting on December 11 at which Sanford and Schwartz would discuss a new easement deal. Sanford is not offering easement terms to Schwartz in the December 7 e-mails. Schwartz himself is not even copied on the December 7 e-mails. Instead, Sanford is describing for Bujnoch, Schwartz’s assistant, what Sanford intends to offer to Schwartz at a later in-person meeting Sanford hopes for on December 11. Indeed, Sanford’s first December 7 e-mail is in response to Bujnoch’s e-mail asking for more information “in preparation for the meeting on the 11th.” The entire e-mail thread anticipates a future, in-person meeting at which the terms Sanford’s e-mails describe might or might not actually be offered. Viewed in their context, the December 7 e-mails are nothing more than a request to negotiate at a later meeting. They describe the terms Sanford anticipates offering at the anticipated meeting, but they do not offer those terms. Such “a writing that contemplates a contract to be made in the future does not satisfy the requirements of the statute of frauds.” Southmark Corp. v. Life Inv’rs, Inc., 851 F.2d 763, 767 (5th Cir. 1988) (applying Texas law).

(…) See Hugh Symons Grp., plc v. Motorola, Inc., 292 F.3d 466, 470 (5th Cir. 2002) (holding that “an overture to further joint discussion or ongoing negotiations” is not a “binding agreement”); Columbia/HCA of Houston, Inc. v. Tea Cake French Bakery & Tea Room, 8 S.W.3d 18, 21 (Tex. App.—Houston [14th] 1999, pet. denied) (holding that a letter constituting the “initial starting point for the negotiations” could not “constitute a binding written agreement”).

The future-tense phrasing of the December 7 e-mails further confirms the absence of an agreement to be bound by the terms stated therein. Sanford twice writes that Copano “will be asking for” various terms. He also writes that Copano “will be buying” an additional easement, “will be laying the line generally on the North side,” and “it will be a 24 inch gas line.” This future-tense language confirms what is already evident from the e-mails’ context: Sanford’s description of the proposed easement is not a present-tense offer of contract terms. It is a description of the terms he “will be asking for” when he later meets with Schwartz. Courts applying Texas law have confirmed that such writings couched in futuristic language contemplating later negotiations do not satisfy the statute of frauds. E.g., Hartford Fire Ins. Co. v. C. Springs 300, Ltd., 287 S.W.3d 771, 778–79 (Tex. App.—Houston [1st Dist.] 2009, pet. denied) (holding that a writing containing “futuristic” language only contemplating “a contract or promise to be made in the future does not satisfy the requirement of the statute of frauds”).

(…) Thus, forward-looking writings like the December 7 e-mails could conceivably be used to supply essential terms if another writing confirmed that the parties later agreed to the terms stated in the forward-looking writing.

(…) The court of appeals identified one set of writings containing many essential terms (the December 7 e-mails) and another set of writings evidencing an agreement (the January 30 offer and acceptance). It correctly observed that the statute of frauds permits these writings to be “read together” because they “relate to the same transaction.” 581 S.W.3d at 271. But it did not require any of the writings to evidence the lynchpin of the Landowners’ alleged contract—Copano’s agreement to be bound by the terms stated in the December 7 e-mails. As explained above, the December 7 e-mails themselves reflect no such intent to be bound by their terms. As explained below, nor does any other writing proffered by the Landowners.

On January 30, 2013, Sanford wrote to Schwartz: “Pursuant to our conversation earlier, Copano agrees to pay your clients $70.00 per foot for the second 24 inch line.” Schwartz responded immediately, “In reliance on this representation we accept your offer . . . .” The Landowners attempt to portray these e-mails as an offer and acceptance of the terms described in Sanford’s December 7 e-mails. Nothing in the January 30 e-mails, however, reflects an agreement to the terms described in the December 7 e-mails. To the contrary, Sanford offered $70 per foot to Schwartz’s clients “pursuant to our conversation earlier.” He did not offer $70 per foot “pursuant to my December 7 e-mails.” The writings reflect nothing about “our conversation earlier.” They do not tell us whether the planned December 11 meeting took place or whether any other meetings or conversations occurred. The January 30 e-mails suggest there was a “conversation earlier,” but no writing indicates what was discussed in that conversation or what easement terms Sanford had in mind when he used the words, “Pursuant to our conversation earlier.” There is simply no way of knowing from the writings whether the parties agreed in “our conversation earlier”—and therefore in the January 30 e-mails—to the easement terms described in the December 7 e-mails.

To satisfy the statute of frauds, the writing or writings “must contain the essential terms of a contract, expressed with such certainty and clarity that it may be understood without recourse to parol evidence to show the intention of the parties.” Wilson, 188 S.W.2d at 152 (emphasis added). Tellingly, the Landowners point for support to Schwartz’s affidavit, in which he states that Sanford offered the alleged easement terms both through e-mail and at an in-person conversation. The need for witness testimony to explain that “our conversation earlier” recapitulated the easement terms contained in December 7 e-mails demonstrates that the proffered writings do not “contain the essential terms of the contract . . . without recourse to parol evidence to show the intention of the parties.” Id. The December 7 and January 30 e-mails do not show with certainty and clarity that the acceptance of the $70 price on January 30 also included acceptance of the terms described in the December 7 e-mails.

(…) There is no way for a court, on this record, to piece together with certainty and clarity a collection of writings showing the essential terms of an easement contract and the parties’ agreement to be bound by those terms. As a result, under the statute of frauds, the Landowners’ proffered contract “is not enforceable,” TEX. BUS. & COM. CODE § 26.01(a), and Copano cannot be liable for breach of it. The trial court’s summary judgment for Copano on the breach of contract claim was proper.


(Supreme Court of Texas, January 31, 2020, Copano Energy, LLC v. Stanley Bujnoch, Life Estate, Docket No. 18-0044, Justice Blacklock)

Monday, January 27, 2020

Supreme Court of the State of Delaware, Germaninvestments AG, v. Allomet Corp., Docket No. 291, 2019


Foreign Law
Burden of Proof
Delaware Law


Saudi Arabian Law
Islamic Law
Ijtihad
Hanbali Guild



Court of Chancery Rule 44.1 provides:
A party who intends to raise an issue concerning the law of a foreign country shall give notice in his pleadings or other reasonable written notice. The Court, in determining foreign law, may consider any relevant material or source, including testimony, whether or not submitted by a party or admissible under Rule 43. The Court’s determination shall be treated as a ruling on a question of law.

This holding is consistent with decisions of the Court of Chancery and the Superior Court. See, e.g., Vichi v. Koninklijke Philips Elecs., N.V., 85 A.3d 725, 765 (Del. Ch. 2014) (“In cases where foreign law may be applicable, the party seeking the application of foreign law has the burden of not only raising the issue that foreign law applies, but also the burden of adequately proving the substance of foreign law.” (citation and internal quotation marks omitted)); see also Rep. of Pan. v. Am. Tobacco Co., 2006 WL 1933740, at *4 (Del. Super. June 23, 2006), aff’d sub nom. State of São Paulo of Federative Rep. of Braz. v. Am. Tobacco Co., 919 A.2d 1116 (Del. 2007) (“In order for the Court to consider the application of foreign law, the party seeking the application of foreign law has the burden of not only raising the issue that foreign law applies, but also the burden of adequately proving the substance of foreign law.”); 9 JAMES WM. MOORE ET AL., MOORE’S FEDERAL PRACTICE § 44.1.04[1] (3d ed. 2006) (“The party that wishes to rely on foreign law has the responsibility of demonstrating its content.”); Jeffrey F. Ghent, Annotation, Pleading and Proof of Law of Foreign Country, 75 A.L.R.3d 177, § I.2[a] (1977) (“the courts appear to be in agreement on the general rule that the burden of proving the law of a foreign country is on the party relying on it”).

We sympathize with the trial judge as there are very few decisions from this Court that can serve as a reference in this area. Generally, the process by which foreign law is determined is necessarily context-specific, and trial judges have wide latitude in determining what evidence to consider and in what form. Even so, that latitude is not unbounded. We highlight a few decisions to discern some general guideposts.

Saudi Basic Indus. Corp. v. Mobil Yanbu Petrochemical Co. (866 A.2d 1 (Del. 2005)), a case mentioned by the Vice Chancellor, is one such case where this Court approved the process by which the trial judge ascertained the substance of the foreign law at issue. There, this Court considered whether the Superior Court had engaged in a proper methodology and analytical process to determine Saudi Arabian law. Appellant, Saudi Basic Industries Corporation (“SABIC”) argued that the trial court, although purporting to employ the methodology that a Saudi judge would follow to determine the applicable Saudi law, ijtihad, in fact invoked ijtihad merely as an after-the-fact rationalization for foreign law rulings that were essentially arbitrary and unprincipled.

This Court rejected those contentions because the record clearly established that the trial judge “went to extraordinary lengths to understand the applicable Saudi law and to make rulings that were consistent with the numerous Saudi law sources presented to her.” We found that the trial judge was keenly mindful of key distinctive features of Saudi law and the problems that it created for defining the elements of, and remedies for, ghasb (usurpation) and how to instruct the jury on these issues. As an example of such distinctive features, Islamic law does not embrace the common law system of binding precedent and stare decisis. In Saudi Arabia, judicial decisions are not in themselves a source of law, and with minor exceptions, court decisions in Saudi Arabia are not published or even open to public inspection. Instead of relying upon statutes or decisional precedent to discern the applicable law, Saudi judges use scholarly treatises as guides to identify a spectrum of possibilities on a given question, as opposed to a single correct answer. Thus, the critical inquiry was whether the proper analytical procedures (or ijtihad) were followed in reaching the results.

We found that the trial judge properly recognized the proper analytical procedures in reaching the result. 76 The trial judge made “exceptional efforts to ensure that she was fully informed of the Hanbali teachings upon which to ground her legal rulings.”77 Before trial, the parties presented the trial judge with seven reports from four Saudi law experts (two from each side), as well as each expert’s lengthy deposition. Perceiving a conflict in the experts’ opinions, the trial judge retained an independent expert and obtained his advice on the critical issues. This expert prepared an initial report, a supplemental report, and was deposed for a full day. After reviewing nine reports and over one thousand pages of deposition testimony, the trial judge held a day-long pre-trial hearing to permit the parties to present live testimony of the independent expert, among others. The court considered two additional reports post- trial. On that record, this Court concluded that there was no basis for SABIC to contend that the trial court’s analytical process was arbitrary, unprincipled, or lawless.


76 For example, the trial judge stated that “when faced with the daunting task of determining the elements of ghasb and the damages available for this tort, the Court, weighing the credibility of each Saudi law expert, exercised, as best it could under the circumstances, ijtihad, to reach the ‘right’ result.” Id. at 31. 

77 Id. at 31. The Hanbali is an Islamic law guild or school of thought. “In Saudi Arabia, the judges are instructed to rule exclusively in accordance with the teaching of the Hanbali guild.” Id. at 30.



(Supreme Court of the State of Delaware, January 27, 2020, Germaninvestments AG, v. Allomet Corp., Docket No. 291, 2019)

California Court of Appeal, First Appellate District, Destiny Thimon, v. City of Newark, Docket No. A152093, Certified for Publication


Tort
Dangerous Condition Liability
Public Defendant
Dangerous Condition of Public Property
Substantial Risk Test
Traffic Case
California Law
Evidence: Expert Declaration: The proffer of an expert declaration opining that a condition is dangerous does not preclude summary judgment

Destiny Thimon, then 14 years old, was crossing Cherry Street in Newark, California one morning when she was hit by a car driven by Bihn Soudachanh, who did not see her because the sun was in his eyes. Thimon was seriously injured as a result.

Through her guardian ad litem, Thimon sued the City of Newark (Newark), asserting that a variety of alleged defects in the intersection and its surrounds rendered it a dangerous condition that partially caused the accident. Newark filed a motion for summary judgment contending, among other things, that the intersection did not constitute a dangerous condition and that Thimon could not show it was a dangerous condition. The trial court granted summary judgment on these grounds and entered judgment in favor of Newark. Thimon timely appealed. We affirm.

The governing law in this dispute over the condition of the Cherry/Redeker intersection is the Government Claims Act (Gov. Code, § 810 et seq. (the Act)).
“Section 835 . . . of the Act . . . prescribes the conditions under which a public entity may be held liable for injuries caused by a dangerous condition of public property. [Citation.] Section 835 provides that a public entity may be held liable for such injuries ‘if the plaintiff establishes [1] that the property was in a dangerous condition at the time of the injury, [2] that the injury was proximately caused by the dangerous condition, [and] [3] that the dangerous condition created a reasonably foreseeable risk of the kind of injury which was incurred.’ In addition, the plaintiff must establish [4] that either: (a) ‘a negligent or wrongful act or omission of an employee of the public entity within the scope of his employment created the dangerous condition,’ or (b) ‘the public entity
had . . . notice of the dangerous condition . . . a sufficient time prior to the injury to have taken measures to protect against the dangerous condition.’ ” (Cordova v. City of Los Angeles (2015) 61 Cal.4th 1099, 1105 (Cordova).)

“The Act defines a ‘ “dangerous condition” ’ as ‘a condition of property that creates a substantial (as distinguished from a minor, trivial or insignificant) risk of injury when such property or adjacent property is used with due care in a manner in which it is reasonably foreseeable that it will be used.’ ([Gov. Code,] § 830.) Public property is in a dangerous condition within the meaning of [Government Code] section 835 if it ‘is physically damaged, deteriorated, or defective in such a way as to foreseeably endanger those using the property itself.’ ” (Cordova, supra, 61 Cal.4th at p. 1105.) “But public property has also been considered to be in a dangerous condition ‘because of the design or location of the improvement, the interrelationship of its structural or natural features, or the presence of latent hazards associated with its normal use.’ ” (Bonanno v. Central Contra Costa Transit Authority (2003) 30 Cal.4th 139, 149 (Bonanno).) “A dangerous condition of public property can come in several forms and may be based on an ‘amalgam’ of factors.” (Salas v. Dept. of Transportation (2011) 198 Cal.App.4th 1058, 1069 (Salas).) “A condition is not dangerous ‘if the trial or appellate court, viewing the evidence most favorably to the plaintiff, determines as a matter of law that the risk created by the condition was of such a minor, trivial, or insignificant nature in view of the surrounding circumstances that no reasonable person would conclude that the condition created a substantial risk of injury when such property or adjacent property was used with due care in a manner in which it was reasonably foreseeable that it would be used.’ ([Gov. Code,] § 830.2.)” (Cordova, at pp. 1104-1105.)

The fact that Soudachanh’s negligence was a proximate cause of Thimon’s injury does not preclude a finding of dangerous condition. “If a condition of public property ‘creates a substantial risk of injury even when the property is used with due care’ [citation], a public entity ‘gains no immunity from liability simply because, in a particular case, the dangerous condition of its property combines with a third party’s negligent conduct to inflict injury.’ ” (Cordova, supra, 61 Cal.4th at p. 1105.) When a third party’s conduct is the immediate cause of a plaintiff’s harm, the question becomes whether the dangerous condition “increased or intensified” the risk of injury from the third party’s conduct. (Zelig v. City of Los Angeles (2002) 27 Cal.4th 1112, 1137; Cerna v. City of Oakland (2008) 161 Cal.App.4th 1340, 1348.)

On the other hand, a public entity is not required to assume that third parties such as Soudachanh will act negligently or recklessly. “As one court has observed, any property can be dangerous if used in a sufficiently improper manner. For this reason, a public entity is only required to provide roads that are safe for reasonably foreseeable careful use. [Citation.] ‘If it can be shown that the property is safe when used with due care and that a risk of harm is created only when foreseeable users fail to exercise due care, then such property is not “dangerous” within the meaning of section 830, subdivision (a).’ ” (Chowdhury v. City of Los Angeles (1995) 38 Cal.App.4th 1187, 1196.)

“Ordinarily, the existence of a dangerous condition is a question of fact, but whether there is a dangerous condition may be resolved as a question of law if reasonable minds can come to but one conclusion. [Citation.] ‘It is for the court to determine whether, as a matter of law, a given defect is not dangerous. This is to guarantee that cities do not become insurers against the injuries arising from trivial defects.’ ” (Salas, supra, 198 Cal.App.4th at p. 1070.) Moreover, “expert opinions on whether a given condition constitutes a dangerous condition of public property are not determinative: ‘The fact that a witness can be found to opine that such a condition constitutes a significant risk and a dangerous condition does not eliminate this court’s statutory task pursuant to [Government Code] section 830.2, of independently evaluating the circumstances.’ ” (Sun v. City of Oakland (2008) 166 Cal.App.4th 1177, 1189 (Sun).)

(…) Newark proffered evidence establishing that Cherry has no blind corners, elevation variances, trees, plants or shrubbery that would obstruct a driver’s view of a pedestrian in the area of the Cherry/Redeker intersection; that the intersection had a crosswalk painted with white lines; that signs warning of pedestrians had been installed on the approach to the intersection; that although the sun impeded Soudachanh’s view, he was aware of the glare well before he approached the intersection; that Soudachanh was neither wearing sunglasses nor the prescription glasses required by his license, but instead was only wearing drug store reading glasses; that police found Soudachanh violated the Vehicle Code (by failing to yield to a pedestrian in a crosswalk and traveling at an unsafe speed), which caused the accident; and that despite the heavy morning commute traffic and sun glare during certain months there was no history of collisions at this crosswalk involving pedestrians in the 10 years prior to this accident. (See, e.g., Salas, supra, 198 Cal.App.4th at pp. 1062-1064.) The absence of prior similar accidents supports the inference that drivers exercising due care, such as by driving more slowly or taking other precautions to mitigate the effect of the sun’s glare, would not have caused such an accident. (Id. at pp. 1064, 1071; Mixon v. Pacific Gas & Elec. Co. (2012) 207 Cal.App.4th 124, 138 (Mixon).) This in turn indicates the “substantial risk” requirement of Government Code section 830, subdivision (a) cannot be met, and there was thus no dangerous condition.

(…) It also presented a study by a consulting company conducted shortly after the accident that analyzed whether a traffic signal was warranted at the intersection based on the criteria for traffic signals in the California Manual on Uniform Traffic Control Devices, which study concluded a traffic signal was not warranted.

(…) Thimon correctly points out that Soudachanh’s negligence does not preclude a finding of dangerous condition. When third-party negligence or misconduct has proximately caused a plaintiff’s injury, the question is whether the alleged dangerous condition “ ‘increased or intensified’ the danger to users from third party conduct.” (Bonanno, supra, 30 Cal.4th at p. 155; Cerna, supra, 161 Cal.App.4th at p. 1348.)

(…) Evid. Code, § 664 [presumption that official duty has been regularly performed].)

(…) (See Huffman v. City of Poway (2000) 84 Cal.App.4th 975, 992 [whether condition of property poses substantial risk of injury to foreseeable users exercising due care is objective standard measured by risk posed to ordinary foreseeable user].)

(…) Evidence shows the conditions Thimon claims are dangerous were apparent to pedestrians

(…) Cherry Street at, approaching and beyond the crosswalk was straight and level, without significant curves, elevation variances, blind corners or sight obstructions. Nor were there trees, plants or shrubbery that would prevent drivers from seeing pedestrians or, conversely, pedestrians from observing the oncoming traffic on Cherry Street. Thus, nothing prevented pedestrians from observing the volume of the oncoming traffic or its speed. Given these conditions, there is no reason to believe the width of Cherry at the intersection with Redeker was not apparent to any pedestrian using the crosswalk. The same is true of the absence of a signal or other traffic controls. Likewise, all pedestrians walking on Cherry who exercised due care by looking both ways before crossing would be exposed to the same intense sun glare as southward traveling motorists experienced. (Cf. Mixon, supra, 207 Cal.App.4th at p. 134 [“ ‘it is obvious to all when a streetlight is out’ ”]; Chowdhury v. City of Los Angeles, supra, 38 Cal.App.4th at p. 1194 [obviously inoperative traffic signals during a power outage did not amount to dangerous condition as a matter of law].)

(…) We also note that the overwhelming weight of authority, including from our own court, strongly suggests that an intersection with a crosswalk but no signals, whether marked or unmarked, is not a dangerous condition within the meaning of the Government Claims Act even when it is located on a high-speed, high-traffic road, particularly in the absence of a history of other collisions.

(…) The proffer of an expert declaration opining that a condition is dangerous does not preclude summary judgment. (Sun, supra, 166 Cal.App.4th at p. 1189.)

(…) We so conclude here. In light of the undisputed evidence, including the lack of any similar collisions over the 10 years preceding the accident during which tens of millions of vehicles passed through this intersection, we agree with the trial court that the tragic accident and injury plaintiff suffered was caused entirely by the negligence of a driver and not by any dangerous condition of public property

(…) Plaintiff’s expert’s review of citywide speed studies indicated the average daily traffic on Cherry Street at the intersection with Redeker from 2006 up to the time of the accident ranged from 18,348 to 27,212 vehicles, indicating that roughly 80 million vehicles passed through the intersection during that time without the occurrence of a single vehicle-pedestrian accident similar to the one that injured Thimon. Similar statistics have led other courts to conclude there was no dangerous condition. (Salas, supra, 198 Cal.App.4th at pp. 1064, 1071 [31.5 million vehicles over 10 years with no accidents]; Mixon, supra, 207 Cal.App.4th at p. 138 [7.8 million vehicles over five years with only one accident].) Such evidence tends to prove that any risk is remote, rather than constitutes a risk that meets Government Code section 830’s requirement that it be “substantial.”


(California Court of Appeal, First Appellate District, January 27, 2020, Destiny Thimon, v. City of Newark, Docket No. A152093, Certified for Publication)

Supreme Court of the State of Delaware, Germaninvestments AG, v. Allomet Corp., Docket No. 291, 2019


Forum Selection Clause
Mandatory Forum Selection Clause
Permissive Forum Selection Clause
Conflict of Laws
Contract Drafting
Brussels Regulation on Jurisdiction, Recognition and Enforcement
Information on Foreign Law to Be Provided, Burden of Proof
Delaware Law


(…) See Nat’l Indus. Grp. (Hldg.) v. Carlyle Inv. Mgmt. L.L.C., 67 A.3d 373, 387 (Del. 2013) (“The enforcement of an international forum selection clause is not an issue of comity. It is a matter of contract enforcement and giving effect to substantive rights that the parties have agreed upon.”).

In this case, we consider whether the Court of Chancery correctly determined that a provision in a Restructuring and Loan Agreement between the parties (the “R&L Agreement”) is a mandatory, as opposed to a permissive, forum selection clause. That clause reads: “The agreement is subject to Austrian law. The place of jurisdiction is Vienna.” The Court of Chancery held that Austrian law governs the analysis of the forum selection provision, and determined that the provision is governed by Article 25 of the European Regulation on Jurisdiction and Recognition and Enforcement of Judgments in Civil and Commercial Matters (the “Brussels Regulation”). Applying Article 25 of the Brussels Regulation, it held that the forum selection clause was mandatory. Based upon these conclusions, the court granted Defendants’ Rule 12(b)(3) motion to dismiss, without prejudice, in favor of the Vienna, Austria forum.

We hold that the Appellees, who raised Austrian law as a basis for their motion to dismiss, had the burden of establishing the substance of Austrian law. We further hold that, given the complexity of the foreign law issues raised and the absence of any focused and orderly engagement by the parties on these issues, the Court of Chancery erred in determining that Appellees had carried that burden. Accordingly, we hold that, given the Appellees’ failure of proof, the forum selection provision analysis should proceed exclusively under Delaware law.

Applying Delaware law, the forum selection provision is merely permissive, not mandatory. As such, the forum selection provision is no bar to the litigation proceeding in Delaware. We affirm the Court of Chancery’s holding that 8 Del. C. § 168 was not the proper mechanism for the relief Appellants seek. Therefore, this matter is AFFIRMED in part, REVERSED in part, and REMANDED to the Court of Chancery for further proceedings in accordance with this opinion.

Appellant, Plaintiff-below, Germaninvestments Aktiengesellschaft (AG) (“Germaninvestments”) is a Swiss holding company formed to manage assets for the Herrling family.

Allomet Corporation (“Allomet”), is a Delaware corporation founded in 1998 with its headquarters in North Huntingdon Township, Pennsylvania. It manufactures high-performance, tough-coated metal powders using a proprietary technology for coating industrial products. Non-party, Fobio Enterprises, Ltd. (“Fobio”), a Hong Kong limited company, initially owned 52,249 of Allomet’s 54,132 outstanding shares of common stock and all of its 1,304 shares of preferred stock. In April 2016, Fobio acquired the remaining 1,883 shares of Allomet’s common stock, previously held by the Estate of Richard E. Toth.

Non-party, AHMR GmbH (“AHMR”), an Austrian limited company, was formed solely for the purpose of holding all of the equity interest in Allomet and Yanchep, Allomet’s intellectual property, and Yanchep’s assets. Non-party, Hereth, a citizen of Switzerland, owns 100% of Fobio through various entities. Hereth is also a director and the Chairman of the Board of Directors of Allomet.

On May 29, 2017, a draft of what was to become the R&L Agreement was circulated among the various parties. The express purpose of the R&L Agreement was “to regulate the funding of the Allomet Corporation until the establishment, under Austrian law, of a holding company in which [Herrling] and [Hereth] shall acquire a 50% stake and which shall later hold all of the shares (100%) of the Allomet Corporation.” The R&L Agreement memorialized the terms of the loans Herrling had extended to Allomet, the potential framework for continued discussions concerning a potential Austrian-based joint venture, and the funding each party was expected to contribute to the joint venture.

As noted above, the R&L Agreement states: “The agreement is subject to Austrian law. The place of jurisdiction is Vienna.” We refer to this provision as the “Forum Clause.”

The parties formed the Austrian holding company contemplated by the R&L Agreement, AHMR, on July 3, 2017. AHMR was registered with the commercial register of the commercial court in Vienna, Austria the following month.

The Proceedings in the Court of Chancery
Appellants filed their Verified Complaint on September 7, 2018, alleging three counts. Count I seeks to enforce the R&L Agreement and related agreements invoking 8 Del. C. § 168 to require Allomet to “reissue” its stock certificates in AHMR’s name as contemplated by the R&L Agreement and SPA. Count II alleges breach of the R&L Agreement and related agreements and seeks specific performance of those agreements. Count III alleges unjust enrichment as a result of Appellees’ failure to transfer all of Allomet’s outstanding stock, Allomet’s intellectual property, and Yanchep’s membership units and real property to AHMR as agreed in the R&L Agreement.

Appellees moved to dismiss the action on December 16, 2018, primarily arguing that the court should grant the motion so that the parties may litigate these claims in Vienna, Austria. Appellees provided scant information to the Court of Chancery on Austrian law in their opening brief in support of their motion to dismiss. They cited to and attached Article 25 of the Brussels Regulation, but cited no cases in support of their 12(b)(3) motion on the substance of Austrian law. Nor did they cite any secondary sources of information or proffer any expert testimony.

(…) During the oral argument on Appellees’ motion to dismiss, the Vice Chancellor expressed some obvious discomfort with the state of the record on the foreign law issues.

(…) As more fully explained below, we affirm the Vice Chancellor’s decision to apply Austrian law in its analysis of the Forum Clause because Austrian law bears a material relationship to the transactions at issue. But the court erred in determining that Appellees satisfied their burden of proof in establishing foreign law. As a result of Appellees’ failure to carry their burden, we hold that the Court of Chancery should apply the law of the forum (Delaware law) in analyzing the Forum Clause. Applying Delaware law to the Forum Clause, the provision is clearly permissive, not mandatory. Accordingly, we hold that the Forum Clause is no bar to the matter proceeding in Delaware.

“When a contract contains a forum selection clause, this court will interpret the forum selection clause in accordance with the law chosen to govern the contract.” Choice of law provisions control so long as the jurisdiction selected bears some material relationship to the transaction. This Court has stated that a material relationship exists where a party’s principal place of business is located within a foreign jurisdiction, a majority of the activity underlying the action occurred within the foreign jurisdiction, and where parties to a contract performed most of their services in the foreign state. However, a foreign jurisdiction’s laws may not be used to interpret a contractual provision “in a manner repugnant to the public policy of Delaware.”

The facts alleged here involve connections to several jurisdictions. Allomet is a Delaware corporation with headquarters in Pennsylvania. Yanchep is a Delaware LLC with assets in Pennsylvania. The stock at issue is located in Delaware by operation of 8 Del. C. § 169. Germaninvestments is a Swiss company, with headquarters in Switzerland. Herrling is domiciled in Switzerland. Hereth is a citizen of Switzerland. Fobio is a Hong Kong limited company. The parties executed the R&L Agreement in Switzerland, and Plaintiffs allege that all negotiations occurred in Switzerland, other parts of Europe, or Pennsylvania. The R&L Agreement, a focal point of Plaintiffs’ Complaint, contains the Forum Clause and selects Austrian law as the governing law. The SPA and MIPA, which relate to the purchase of Delaware equity, are governed by Delaware law. Non-party AHMR was formed in Austria. The safe-deposit box containing the Delaware certificates is physically located in Austria.

(…) We agree with the Court of Chancery’s determination that the connection to Austria is sufficiently material so as to require the analysis of the Forum Clause to be examined under Austrian law.

(…) Typically, the movant will submit enough ‘relevant material’ to the Court to sufficiently establish the content of foreign law. But that did not happen here. Appellees, as movants, supplied only the text of Article 25 of the Brussels Regulation. They cited no cases, commentaries, or other authorities, and proffered no expert testimony. They offered academic support in the form of secondary sources, but only in their reply papers after Appellants had responded to their motion. Thus, Appellants had no real or meaningful opportunity to respond to these authorities prior to the court’s ruling.

(…) The failure to identify, early on, and properly join the issues, coupled with the lack of any expert input on the numerous nuances of Austrian and European law that were ultimately raised, leads us to conclude that the Court of Chancery erred in determining that Appellees had satisfied their burden of proof.

(…) As the Court of Chancery correctly observed, “under Delaware law, if the forum selection provision does not state that it is exclusive in crystalline terms, our courts will construe the provision as permissive.” Thus, under Delaware law, the Forum Clause is merely permissive, not mandatory. Accordingly, we hold that the Forum Clause presents no bar to the litigation proceeding in Delaware.

(…) See, e.g., In re Avantel, S.A., 343 F.3d 311, 322 (5th Cir. 2003) (affirming lower court’s application of the “well-settled principle” that when the parties fail to conclusively establish foreign law, a court is entitled to look to its own forum’s law).


(Supreme Court of the State of Delaware, January 27, 2020, Germaninvestments AG, v. Allomet Corp., Docket No. 291, 2019)

Thursday, January 23, 2020

U.S. Court of Appeals for the Sixth Circuit, BleachTech LLC, v. United Parcel Service Co., Docket No. 17-2244


Arbitration Agreement
May Arbitration Clause Govern Disputes Predating Its Enactment?
Waiver (of the Right to Arbitrate)
Contract Drafting
Michigan Law


The arbitration agreement UPS invokes is not found in the contract in place during the period when Solo and BleachTech assert they were charged the improper fee. The Original UPS Terms describe a claim-filing process that serves as a prerequisite to seeking “any legal or equitable relief whatsoever,” but the terms do not mention arbitration. The Amended UPS Terms, enacted after the relevant shipments, require that “any controversy or claim, whether at law or equity, arising out of or related to the provision of services by UPS, regardless of the date of accrual of such dispute, shall be resolved in its entirety by individual (not class-wide nor collective) binding arbitration.” The question presented is, did the parties intend the arbitration provision in the Amended UPS Terms to govern preexisting disputes, or only disputes arising during that contractual period?

We have recognized that a broadly worded arbitration clause may govern disputes predating its enactment. For example, when a contract requires the parties to arbitrate “any dispute or claim arising from or in connection with this agreement or the services provided by [the plaintiff],” the natural reading is that “the language covers more than claims arising ‘out of the agreement’” and so applies outside the agreement’s timeframe. Watson Wyatt & Co. v. SBC Holdings, Inc., 513 F.3d 646, 650 (6th Cir. 2008) (quoting the contract at issue) (quoting Kristian v. Comcast Corp., 446 F.3d 25, 33 (1st Cir. 2006)).

But we do not imply retroactivity where it is not contemplated in the contractual language. Thus, when a contract required arbitration of “all employment-related disputes . . . which . . . arise between [the parties],” the use of present- and future-tense language led us to conclude that “the parties signed this agreement to head off future lawsuits, not to cut off existing ones.” Russell v. Citigroup, Inc., 748 F.3d 677, 679–80 (6th Cir. 2014) (quoting the contract at issue). The presumption of arbitrability, moreover, cannot bridge a textual gap. “While ambiguities in the language of the agreement should be resolved in favor of arbitration, . . . we do not override the clear intent of the parties, or reach a result inconsistent with the plain text of the contract, simply because the policy favoring arbitration is implicated.” GGNSC Louisville Hillcreek, LLC v. Est. of Bramer, 932 F.3d 480, 485 (6th Cir. 2019) (quoting EEOC v. Waffle House, Inc., 534 U.S. 279, 294 (2002)). In other words, courts may not “use policy considerations as a substitute for party agreement,” Granite Rock Co. v. Int’l Bhd. of Teamsters, 561 U.S. 287, 303 (2010), because the Supreme Court “has made consent the cornerstone of arbitration,” GGNSC, 932 F.3d at 485.

To determine whether the parties intended the Amended UPS Terms to have retroactive effect, we construe the two “contracts as a whole, giving harmonious effect, if possible, to each word and phrase.” Wilkie v. Auto-Owners Ins. Co., 664 N.W.2d 776, 781 n.11 (Mich. 2003). Here, the critical language appears in the introduction to both versions of the Terms: “In tendering a shipment for service, the shipper agrees that the version of the Terms . . . in effect at the time of shipping will apply to the shipment and its transportation.” This clear instruction answers the question before us: the parties intended all disputes about shipping to be resolved according to the “version of the Terms . . . in effect at the time of shipping,” not an older or newer version. See Sec. Watch, Inc. v. Sentinel Sys., 176 F.3d 369, 374 (6th Cir. 1999) (“Given the fact that the arbitration provision in the present case arises in a later contract, much more is needed to infer an intention to apply the provision to previous contracts.”).

Consider, as an example, a customer who ships a package on the final day the Amended UPS Terms are in effect. That package arrives damaged three days later; she attempts to sue a year after that. Assuming annual contracts, she shipped under one set of terms, her claim accrued under another, and she began the suit under a third. The contract provides a clear guide for how to proceed. The Amended UPS Terms that were “in effect at the time of shipping” govern her claim, and “regardless of the date of accrual,” she must arbitrate her suit under those terms. If she had sent her shipment a year earlier, just before the Amended UPS Terms went into effect (like Solo and BleachTech), the same analysis would apply. The version “in effect at the time of shipping” would still control, and she would not be obligated to arbitrate. As we have recognized before, parties entering into a series of contracts can and do change dispute resolution mechanisms over time, opting for litigation under one contract and arbitration under another.

Next, UPS argues that the Original UPS Terms contemplate modifications. Specifically, the Terms “comprise the complete and exclusive agreement of the parties, except as modified by any existing or future written agreement between the parties.” But we have already rejected the argument that a boilerplate merger clause renders an arbitration provision from one contract applicable to another. See Sec. Watch, 176 F.3d at 372. And while subsequent modifications to the operative contract might be relevant if a new contract entirely subsumes the original, see Highlands Wellmont Health Network v. John Deere Health Plan, 350 F.3d 568, 575 (6th Cir. 2003), the Amended UPS Terms reiterate that the version in effect at the time of shipping controls.

The dispositive issue here is not whether the Amended UPS Terms amount to “a valid agreement to arbitrate”; it is whether shipments that predate those Terms “fall within the substantive scope of the agreement.” Hergenreder, 656 F.3d at 415–16 (quoting Mazera, 565 F.3d at 1001). Both contracts direct that the version of the Terms “in effect at the time of shipping” governs. That instruction amounts to “forceful evidence” that the parties did not agree to arbitrate disputes that predated the Amended UPS Terms. See Russell, 748 F.3d at 681 (quoting Watson Wyatt, 513 F.3d at 650). “The FAA does not require parties to arbitrate when they have not agreed to do so.” Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 478 (1989). They have not agreed to do so here.

Waiver:
Even if the scope of the arbitration agreement in the Amended UPS Terms were ambiguous, the district court properly concluded that UPS waived its right to arbitrate.

The benefits of “efficient and speedy” arbitration are lost if a party seeks arbitration only after insisting upon court process. Thus, although “we will not lightly infer a party’s waiver of its right to arbitration,” we may find waiver if a party (1)“takes actions that are completely inconsistent with any reliance on an arbitration agreement; and (2) ‘delays its assertion to such an extent that the opposing party incurs actual prejudice.’” Hurley v. Deutsche Bank Tr. Co. Ams., 610 F.3d 334, 338 (6th Cir. 2010) (quoting O.J. Distrib., Inc. v. Hornell Brewing Co., 340 F.3d 345, 356 (6th Cir. 2003)).

We begin with the first prong—action that is inconsistent with reliance on arbitration— and UPS’s motion to dismiss. “Not every motion to dismiss is inconsistent with the right to arbitration.” Hooper v. Advance Am., Cash Advance Ctrs. of Mo., Inc., 589 F.3d 917, 922 (8th Cir. 2009) (collecting cases). For example, the Eighth Circuit has held that a motion to dismiss raising “jurisdictional and quasi-jurisdictional grounds” but seeking “no action with respect to the merits of the case” is not inconsistent with later seeking arbitration. Dumont v. Sask. Gov’t Ins., 258 F.3d 880, 886–87 (8th Cir. 2001). Similarly, where a complaint asserts a mix of arbitrable and nonarbitrable claims, “the portions of the motion [to dismiss] addressed to nonarbitrable claims do not constitute a waiver.” Sweater Bee by Banff, Ltd. v. Manhattan Indus., 754 F.2d 457, 463 (2d Cir. 1985). On the other hand, a motion to dismiss that seeks “a decision on the merits” and “an immediate and total victory in the parties’ dispute” is entirely inconsistent with later requesting that those same merits questions be resolved in arbitration.

We turn next to the prejudice prong. We have previously found prejudice where, “in addition to an eight-month delay and expenses involved with numerous scheduling motions and court-supervised settlement discussions, plaintiffs also engaged in discovery.” Johnson Assocs., 680 F.3d at 720; see also Hurley, 610 F.3d at 340.


(U.S. Court of Appeals for the Sixth Circuit, January 23, 2020, BleachTech LLC, v. United Parcel Service Co., Docket No. 17-2244, Recommended for Publication)




Tuesday, January 21, 2020

Court of Appeal of the State of California, Second Appellate District, Techno Lite, Inc., v. Emcod, LLC, Docket No. B284989 c/w B289486


Labor Law
Agreement Not to Compete
Contract Drafting
Preparations to Compete Before Resigning
Solicitation of An Employer’s Customers
Interference with Prospective Economic Advantage
Cause of Action for Breach of Contract
California Law


Business and Professions Code section 16600 has consistently been interpreted as invalidating any employment agreement that unreasonably interferes with an employee’s ability to compete with an employer after his or her employment ends. (See Muggill v. Reuben H. Donnelley Corp. (1965) 62 Cal.2d 239, 242 [42 Cal. Rptr. 107, 398 P.2d 147].) However, the statute does not affect limitations on an employee’s conduct or duties while employed. ‘While California law does permit an employee to seek other employment and even to make some “preparations to compete” before resigning [citation], California law does not authorize an employee to transfer his loyalty to a competitor. During the term of employment, an employer is entitled to its employees’ “undivided loyalty.” [Citation.]’ (Fowler v. Varian Associates, Inc. (1987) 196 Cal.App.3d 34, 41 [241 Cal. Rptr. 539].) (Angelica Textile Services, Inc. v. Park (2013) 220 Cal.App.4th 495, 509 (Angelica).)

In Mamou, (Mamou v. Trendwest Resorts, Inc. (2008) 165 Cal.App.4th 686 (Mamou)) the court found employees could prepare to compete with their employer “‘so long as they do so on their own time and with their own resources.’” (Mamou, supra, 165 Cal.App.4th at 719.) But the court recognized “‘while an employee may secretly incorporate a competing business prior to departing, the employee may not use his or her principal’s time, facilities or proprietary secrets to build the competing business.’” (Ibid., quoting Chemfab Corp. v. Integrated Liner Tech. Inc. (N.Y. App. Div. 1999) 263 A.D. 2d 788, 790.) As particularly relevant here, the court noted that “‘solicitation of an employer’s customers likely will constitute a violation of the duty of loyalty in almost every case . . . .’” (Ibid., quoting Futch v. McAllister Towing of Georgetown (1999) 335 S.C. 598, 609-610.)

Appellants do not cite -- and we have not found -- a single case in which Section 16600 was held to invalidate an agreement not to compete with one’s current employer while employed by that employer. The public policy behind Section 16600 is to ensure “that every citizen shall retain the right to pursue any lawful employment and enterprise of their choice” (Metro Traffic Control, Inc. v. Shadow Traffic Network (1994) 22 Cal.App.4th 853, 859) and to encourage “open competition and employee mobility” (Edwards, supra, 44 Cal.4th at p. 946); it is not to immunize employees who undermine their employer by competing with it while still employed. “We state the obvious in observing that no ‘firmly established principle of public policy’ [citation] authorizes an employee to assist his employer’s competitors.” (Fowler v. Varian Associates, Inc., supra, 196 Cal.App.3d at p. 43; see also ibid. [a company has good cause to terminate an employee who helped “in obtaining financing for an enterprise organized to become [his employer]’s direct competitor”].) It should be even more obvious that no firmly established principle of public policy authorizes an employee to become his employer’s competitor while still employed. Section 16600 is not an invitation to employees to bite the hand that feeds them.

Interference with Prospective Economic Advantage:
Substantial evidence supports the trial court’s finding that Techno Lite likely would have realized an economic benefit if not for appellants’ wrongful actions. It is undisputed that the customers in question had all previously purchased product from Techno Lite. This fact alone supported the inference that Techno Lite’s relationship with such customers would have continued, thus providing it with an economic benefit. Indeed, appellants admit Village View Lighting was an account Techno Lite would not have lost, absent Emcod’s actions. The sole evidence to challenge this inference came from Drucker, whom the court expressly found to be not credible.

Cause of action for breach of contract:
“The elements of a cause of action for breach of contract are ‘“(1) the contract, (2) plaintiff’s performance or excuse for nonperformance, (3) defendant’s breach, and (4) the resulting damages to plaintiff.”’” (Tribeca Companies, LLC v. First American Title Ins. Co. (2015) 239 Cal. App.4th 1088, 1109.) “Mutual assent or consent is necessary to the formation of a contract.” (Alexander v. Codemasters Group Limited (2002) 104 Cal.App.4th 129, 141.)


(Court of Appeal of the State of California, Second Appellate District, January 21, 2020, Techno Lite, Inc., v. Emcod, LLC, Docket No. B284989 c/w B289486, Certified for Partial Publication)