California Court of Appeal, 11640 Woodbridge Condominium Homeowners’ Association v. Farmers Insurance Exchange, B333848

Insurance Law

 

“All-Risks” Policy

 

Exclusions

 

Nonaccidental Faulty Workmanship

 

Breach of Contract and Breach of the Implied Covenant of Good Faith and Fair Dealing

 

California Law

 

 

 

In 2021, while a building owned by appellant 11640 Woodbridge Condominium Homeowners’ Association (HOA) was being reroofed, two rainstorms penetrated the partially constructed roof and caused extensive interior damage. The HOA made a claim under its condominium policy, which was underwritten by respondent Farmers Insurance Exchange (Farmers). Farmers denied the claim, concluding that the HOA’s losses resulted from nonaccidental faulty workmanship, which the policy did not cover. The HOA then brought the present action, alleging breach of contract and breach of the implied covenant of good faith and fair dealing against Farmers. Farmers moved for summary judgment, and the trial court granted the motion, concluding there was no coverage under the condominium policy as a matter of law. We reverse.  As we discuss, the condominium policy was an “all-risks” policy, which covered all damage to the HOA’s property unless specifically excluded.  There are triable issues of material fact as to whether the exclusions relied on by Farmers—the water damage exclusion and the faulty workmanship exclusion—preclude coverage in the present case. We thus reverse the summary judgment.

 

(…)

 

— “Covered Causes of Loss” are “Risks of Direct Physical Loss” unless the loss is “excluded in Section B” or “limited in Paragraph A.4.” (Italics added.) 

 

The policy also contained two coverage exclusions that are relevant to our analysis:

—Water damage exclusion: Farmers will not pay for loss or damage caused directly or indirectly by “water,” “regardless of any other cause or event that contributes concurrently or in any sequence to the loss.”  However, Farmers will pay for “water damage to the interior of any building or structure caused by or resulting from rain, . . . whether driven by wind or not, if . . . the building or structure first sustains damages by a Covered Cause of Loss to its roof or walls through which the rain . . . enters.” 

—Faulty workmanship exclusion: Farmers will not pay for loss or damage “caused by or resulting from” specified exclusions, including, among others, “faulty, inadequate or defective . . . planning, zoning, development, surveying, siting . . . and workmanship, repair, construction or renovation.” (Italics added.) However, “if an excluded cause of loss . . . results in a Covered Cause of Loss,” Farmers “will pay for the loss or damage caused by that Covered Cause of Loss.”

 

 

(…) Consistent with Dewsnup, Victory Peach, and Wellsville Manor, we conclude that there are triable issues of fact as to whether the water exclusion applied in the present case. As an initial matter, we reject Farmers’s contention that the property was without a “roof” when it suffered rain damage in October 2021. The policy does not define “roof,” and we agree with the cited cases that a common sense meaning of “roof” includes a covering over a building that provides structural integrity and protection from the elements. We note in this regard that because no roof is permanent, all roofs must be periodically replaced. Replacing a roof requires removing worn outer layers and replacing them with new materials, thus leaving a structure not fully protected from the elements for a least a short time. Yet, nothing in the relevant condominium policy informed an insured that it would be without coverage for rain damage during periodic reroofing. To the contrary, the policy defines “covered property” to include “additions under construction, alterations and repairs to the building or structure,” unless covered by other insurance. In view of this language, we conclude that a roof under repair remains a “roof” within the meaning of the policy. In the present case, therefore, the property was never without a “roof” because Bardales removed just some of the roof’s outer layers, leaving the lower layers intact. Specifically, at the time of the first rainstorm, Bardales had removed much of the roof’s top layers, but other layers, including the plywood sheathing and insulation, remained. By the time of the second rainstorm, Bardales had replaced about 80 percent of the insulation and plywood, added a layer of “base paper” and “base felt,” hot-mopped and tarred much of the roof, and covered the entire roof with tarps. Like the courts in Dewsnup, Victory Peach, and Wellsville Manor, we conclude that the remaining layers of roof, even without the roof membrane, were sufficient to constitute a “roof” within the meaning of the policy.

 

 

Having concluded that the property had a “roof” at all points during the repairs, we must consider whether rain entered the property through “damage” to the roof caused by a “Covered Cause of Loss.”

 

 

(…) The policy does not purport to exclude losses that result from workmanship generally, but only from such “workmanship, repair [or] construction” that is “faulty, inadequate or defective.” Under the maxim expression unius est exclusio alterius, “the fact that [a] contract expressly so provides tends to negate any inference that the parties also intended another consequence to flow from the same event.” (Stephenson v. Drever (1997) 16 Cal.4th 1167, 1175; G & W Warren’s, Inc. v. Dabney (2017) 11 Cal.App.5th 565, 576.)  Accordingly, the exclusion for damages caused by negligent workmanship suggests that the policy does not exclude damages caused by workmanship that was not negligent. We therefore conclude that rain damage resulting from roof repairs are covered unless expressly excluded by another provision of the policy, such as the faulty workmanship exclusion. We turn now to that question.

 

 

The parties disagree about the proper characterization of Bardales’s alleged negligence: The HOA asserts Bardales’s alleged negligence was “faulty workmanship,” while Farmers characterizes it as defecting “planning.” We need not decide whether the alleged negligence constitutes faulty “workmanship” or faulty “planning” because both are excluded under the policy if they are direct causes of loss. (Fn. 7).

 

 

We conclude, in line with other cases that have declined to follow Allstate, that “workmanship” unambiguously refers both to the way a contractor creates a finished product and the finished product itself. (See, e.g., Fourth Street Place, LLC v. Travelers Indem. Co., supra, 270 P.3d at p. 1242 [“the plain and ordinary meaning of the term ‘workmanship’ encompasses the quality of the process utilized to achieve the finished product and the quality of the finished product itself” (italics added)]; Wider v. Heritage Maintenance, Inc. (2007) 14 Misc.3d 963, 975 [827 N.Y.S.2d 837] [“An ordinary business-person applying for a commercial property insurance policy and reading the language of this exclusion would understand that, depending on the type of work done, the faulty workmanship exclusion could apply to the process of doing the work or the finished product”]; Schultz v. Erie Ins. Group (Ind. Ct. App. 2001) 754 N.E.2d 971, 976 [“while the term ‘faulty workmanship’ allows at least two definitions, we see no reason why it must mean either a ‘flawed product’ or a ‘flawed process.’ ”Since ‘workmanship’ denotes both ‘process’ and ‘product,’ an insurer could just as likely have both perils in mind when it drafts a policy’s list of exclusions”].)

 

 

However, although we do not adopt Allstate’s reasoning, we nonetheless conclude that the faulty workmanship exclusion does not unambiguously exclude coverage in this case. To establish the absence of coverage, Farmers had to demonstrate that there were no triable issues regarding the cause of the damage to the HOA’s property—or stated, differently, that the undisputed evidence established that the damage to the HOA’s property was “caused by or resulted” from Bardales’s negligence. But there was evidence that roof damage was caused not only by Bardales’s alleged negligence, but also by wind and rain. Specifically, Bardales testified that rain damaged the exposed plywood and insulation layers on October 4, and wind blew off tarps Bardales placed over the partially constructed roof on October 25. Farmers did not establish that the damage to the plywood, insulation, and tarps—that is, to the “roof”—did not contribute, at least in part, to the interior water damage. Moreover, as the HOA notes, Farmers introduced no evidence that the roof repairs could have been done in a way that would have fully protected the property in the event of a rainstorm. That is, while Farmers’s evidence suggested that Bardales failed to follow industry standards by removing nearly the entire roof membrane at once, it did not establish that compliance with industry standards would have avoided rain damage entirely—and thus that the damage resulted entirely from Bardales’s alleged negligence.

 

 

(…) “An insurer is said to act in ‘bad faith’ when it not only breaches its policy contract but also breaches its implied covenant to deal fairly and in good faith with its insured. ‘A covenant of good faith and fair dealing is implied in every insurance contract. [Citations.] The implied promise requires each contracting party to refrain from doing anything to injure the right of the other to receive the agreement’s benefits. To fulfill its implied obligation, an insurer must give at least as much consideration to the interests of the insured as it gives to its own interests. When the insurer unreasonably and in bad faith withholds payment of the claim of its insured, it is subject to liability in tort.’” (Jordan v. Allstate Ins. Co. (2007) 148 Cal.App.4th 1062, 1071–1072, italics omitted.)

 

 

 

 

 

(California Court of Appeal, March 28, 2025, 11640 Woodbridge Condominium Homeowners’ Association v. Farmers Insurance Exchange, B333848, Certified for Publication)

 

 

California Court of Appeal, Gharibian v. Wawanesa Gen. Ins. Co., Docket No. B325859

Insurance Law

 

Breach of Contract 

 

Breach of the Implied Covenant of Good Faith and Fair Dealing

 

Physical Loss

 

California Law

 

 

 

Following a wildfire near their home, plaintiffs and appellants Hovik Gharibian (Gharibian) and Caroline Minasian (Minasian) submitted a claim to their property insurer, defendant and respondent Wawanesa General Insurance Company (Wawanesa). Wawanesa ultimately paid plaintiffs more than $20,000 for professional cleaning services that they never used. Dissatisfied with the resolution of their claim, plaintiffs filed the instant lawsuit against Wawanesa for breach of contract and breach of the implied covenant of good faith and fair dealing. The trial court granted Wawanesa’s motion for summary judgment, and plaintiffs appeal. Because plaintiffs’ insurance policy did not provide coverage for the claimed loss, Wawanesa did not breach (and could not have breached) the insurance policy. Accordingly, we affirm.

 

 

Plaintiffs obtained a Wawanesa homeowner property insurance policy for their house in Granada Hills covering the period September 8, 2019, to September 8, 2020. In a section of the policy titled “Perils Insured Against,” the policy provides that Wawanesa will “insure against direct physical loss to property.” (Bolding & capitalization omitted.) The policy’s terms include a $2,000 deductible.

 

 

A nearby fire results in debris, but not burn damage, to plaintiffs’ house.

 

On October 10, 2019, the Saddle Ridge wildfire began in the foothills of northern Los Angeles County. The fire burned about half a mile away from plaintiffs’ property; plaintiffs’ property did not suffer any burn damage. Even though plaintiffs kept their doors and windows closed, debris still entered their home, with more debris falling outside their home and in their swimming pool. While there was the smell of wildfire smoke, it dissipated over time. In fact, Minasian testified that she could no longer smell the smoke by December 31, 2019, less than three months after the fire.

 

 

(…) By December 2019, plaintiffs were not aware of any visible wildfire debris that remained either outside or inside their home. Gharibian is not aware of anything at his property that was physically damaged.

 

 

The elements of a cause of action for breach of an insurance contract are (1) the contract, (2) the insured’s performance or excuse for nonperformance, (3) the insurer’s breach, and (4) resulting damages.  (Janney v. CSAA Ins. Exchange (2021) 70 Cal.App.5th 374, 390.) “‘“While insurance contracts have special features, they are still contracts to which the ordinary rules of contractual interpretation apply.”  [Citations.]’” (Westoil Terminals Co., Inc. v. Industrial Indemnity Co. (2003) 110 Cal.App.4th 139, 145.) Thus, we “interpret insurance policy language ‘“in its ‘ordinary and popular sense,’ unless ‘used by the parties in a technical sense or a special meaning is given to them by usage.’”’ [Citation.] We must also ‘interpret the language in context.’ [Citation.]” (Tustin Field Gas & Food, Inc. v. Mid-Century Ins. Co. (2017) 13 Cal.App.5th 220, 226.) “The insured has the initial burden of showing that a claim falls within the scope of coverage, and a court will not ‘“indulge in a forced construction of the policy’s insuring clause to bring a claim within the policy’s coverage.”’ [Citation.]” (Dua v. Stillwater Ins. Co. (2023) 91 Cal.App.5th 127, 136.)

 

 

Applying these legal principles, we readily conclude that the trial court did not err. In order to defeat Wawanesa’s motion, plaintiffs had to establish (or at least create a triable issue of fact) that their claim was covered by their insurance policy. Thus, they had to show that there was a “direct physical loss to property.”

 

 

“Under California law, direct physical loss or damage to property requires a distinct, demonstrable, physical alteration to property. The physical alteration need not be visible to the naked eye, nor must it be structural, but it must result in some injury to or impairment of the property as property.” (Another Planet Entertainment, LLC v. Vigilant Ins. Co. (2024) 15 Cal.5th 1106, 1117 (Another Planet).) Here there is no evidence of any “direct physical loss to [plaintiffs’] property.” The wildfire debris did not “alter the property itself in a lasting and persistent manner.” (Another Planet, supra, 15 Cal.5th at p. 1149.) Rather, all evidence indicates that the debris was “easily cleaned or removed from the property.” (Another Planet, supra, 15 Cal.5th at p. 1140.) Such debris does not constitute “direct physical loss to property.” (Ibid.)

 

 

Armstrong World Industries, Inc. v. Aetna Casualty & Surety Co. (1996) 45 Cal.App.4th 1, cited by plaintiffs, is readily distinguishable. Armstrong dealt with third party liability coverage, which is “‘wholly different’” than first party property damage coverage. (United Talent Agency v. Vigilant Ins. Co. (2022) 77 Cal.App.5th 821, 837.) Thus, Armstrong is not persuasive precedent in the instant context. (Inns-by-the-Sea v. California Mutual Ins. Co. (2021) 71 Cal.App.5th 688, 701, fn. 16.)

 

 

Urging us to reverse, plaintiffs direct us to Mr. Benjamin’s deposition testimony that “ash can create physical damage to a structure,” and ash was detected at plaintiffs’ property. But plaintiffs ignore Mr. Benjamin’s qualification that ash only causes physical damage to property when it becomes wet, and no such damage existed on plaintiffs’ property.

 

 

In light of our conclusion that Wawanesa did not breach (and could not have breached) its insurance policy because plaintiffs did not have a covered claim, all remaining arguments raised by the parties are moot. (Waller v. Truck Ins. Exchange, Inc. (1995) 11 Cal.4th 1, 36 [without coverage there can be no liability for bad faith on the part of the insurer]; McLaughlin v. National Union Fire Ins. Co. (1994) 23 Cal.App.4th 1132, 1164 [no independent cause of action for punitive damages].)

 

 

 

 

(California Court of Appeal, Feb. 7, 2025, Gharibian v. Wawanesa Gen. Ins. Co., Docket No. B325859, Certified for Publication)

California Court of Appeal, Fox Paine & Company, LLC v. Twin City Fire Insurance Company, A168803

Excess Insurers

 

Exhaustion of the Underlying Policies

 

Attachment Point of the Excess Policy

 

Breach of Contract

 

Insurance Law

 

California Law

 

Croskey, et al., Cal. Practice Guide: Insurance Litigation (The Rutter Group 2023)

 

 

 

(San Francisco County Super. Ct. No. CGC17557275)

 

 

(…) (Archdale v. American International Specialty Lines Ins. Co. (2007) 154 Cal.App.4th 449, 466 [breach of contract cause of action “necessarily relates only to the express promises made by [an insurer] in its policy”]; see also Levy v. State Farm Mutual Auto. Ins. Co. (2007) 150 Cal.App.4th 1, 5, 58 [demurrer properly sustained where plaintiff offered mere allegation of breach without facts demonstrating “a link” between the alleged violations “and the insurance contract”].) And as to the allegation as to what might be a breach of contract, i.e., the failure to pay covered claims, it fails as well, as the policies are excess policies, described this way by the late Justice Croskey in his leading commentary: “‘Excess’ insurance: Excess insurance ‘refers to indemnity coverage that attaches upon the exhaustion of underlying insurance coverage for a claim.’ (Montrose Chemical Corp. Of Calif. v. Superior Court (Canadian Universal Ins. Co., Inc.) (Montrose III) (2020) 9 Cal.5th 215, 222 (internal quotes omitted); Powerine Oil Co., Inc. v. Superior Court (Central Nat’l Ins. Co. Of Omaha) (Powerine II) (2005) 37 Cal.4th 377 (citing text).) “ In other words, excess insurance ‘provides coverage after other identified insurance is no longer on the risk.’ (North American Capacity Ins. Co. v. Claremont Liability Ins. Co. (2009) 177 Cal.App.4th 272, 291.)

 

“An excess insurer’s coverage obligation begins once a certain level of loss or liability is reached; that level is generally referred to as the ‘attachment point’ of the excess policy. [Citations.]” (Croskey, et al., Cal. Practice Guide: Insurance Litigation (The Rutter Group 2023) 8:177.) In Reserve Insurance Co v. Pisciotta (1982) 30 Cal.3d 800—there addressing the issue of insolvency of an underlying insurer—our Supreme Court held that “we must look to the excess policy’s express language to determine whether an excess insurer is obligated” on its policy. (Id. at p. 814.) We do that, and easily conclude that plaintiffs show no such “obligation.” The policies have not, in Justice Croskey’s words, “attached.” The St. Paul policy provides that St. Paul “shall only be liable . . . after the total amount of all Underlying Limits of Liability has been paid in legal currency by the Issuers of all Underlying Insurance as covered loss thereunder.”

 

(…)

 

Finally, there are sound policy reasons why the excess insurers should stay on the sidelines without incurring these unnecessary costs. A strict exhaustion requirement brings stability and predictability to the excess insurance system, both for insurers and insureds. “An excess insurer predicates the premiums it charges upon the obligations that it and the primary insurer assume . . ..”  (Hartford Accident and Indemnity Company v. Continental National Insurance Cos. (1988 861 F.2d184, 1187.) Thus, burdening the excess insurers with prematurely litigating coverage issues before exhaustion upsets insurers’ settled expectations. Again, Iolab is apt, where the court concluded that “requiring the excess insurer to defend against [the insured’s] claim would impose on the excess insurers the unnecessary cost of litigating a claim that may never trigger excess coverage and thereby frustrate the policy adopted by the California courts.” (Iolab, supra, 15 F.3d at pp. 1504−1505.)

 

 

 

 

(California Court of Appeal, Sept. 5, 2024, Fox Paine & Company, LLC v. Twin City Fire Insurance Company, A168803, Certified for Publication)

Data Scraping - Remedies

Data

 

Data Scraping

 

 

Remedies

 

Cease-and-Desist Letter

 

Trespass to Chattels

 

Copyright Infringement 

 

Misappropriation 

 

Unjust Enrichment 

 

Conversion

 

Breach of Contract 

 

Breach of Privacy

 

 

 

 

(…) Entities that view themselves as victims of data scraping are not without resort, even if the CFAA does not apply: state law trespass to chattels claims may still be available. And other causes of action, such as copyright infringement, misappropriation, unjust enrichment, conversion, breach of contract, or breach of privacy, may also lie. See, e.g., Associated Press v. Meltwater U.S. Holdings, Inc., 931 F. Supp. 2d 537, 561 (S.D.N.Y. 2013) (holding that a software company’s conduct in scraping and aggregating copyrighted news articles was not protected by fair use).

 

 

(…) LinkedIn’s cease-and-desist letter also asserted a state common law claim of trespass to chattels. Although we do not decide the question, it may be that web scraping exceeding the scope of the website owner’s consent gives rise to a common law tort claim for trespass to chattels, at least when it causes demonstrable harm. Compare eBay, Inc. v. Bidder’s Edge, Inc., 100 F. Supp. 2d 1058, 1070 (N.D. Cal. 2000) (finding that eBay had established a likelihood of success on its trespass claim against the auction-aggregating site Bidder’s Edge because, although eBay’s “site is publicly accessible,” “eBay’s servers are private property, conditional access to which eBay grants the public,” and Bidder’s Edge had exceeded the scope of any consent, even if it did not cause physical harm); Register.com, Inc. v. Verio, Inc., 356 F.3d 393, 437–38 (2d Cir. 2004) (holding that a company that scraped a competitor’s website to obtain data for marketing purposes likely committed trespass to chattels, because scraping could—although it did not yet—cause physical harm to the plaintiff’s computer servers); Sw. Airlines Co. v. FareChase, Inc., 318 F. Supp. 2d 435, 442 (N.D. Tex. 2004) (holding that the use of a scraper to glean flight information was unauthorized as it interfered with Southwest’s use and possession of its site, even if the scraping did not cause physical harm or deprivation), with Ticketmaster Corp. v. Tickets.Com, Inc., No. 2:99-cv-07654-HLH-VBK, 2003 WL 21406289, at *3 (C.D. Cal. Mar. 7, 2003) (holding that the use of a web crawler to gather information from a public website, without more, is insufficient to fulfill the harm requirement of a trespass action); Intel Corp. v. Hamidi, 30 Cal. 4th 1342, 1364 (2003) (holding that “trespass to chattels is not actionable if it does not involve actual or threatened injury” to property and the defendant’s actions did not damage or interfere with the operation of the computer systems at issue) (Fn. 21).

 

 

 

 

 

(U.S. Court of Appeals for the Ninth Circuit, April 18, 2022, HIQ Labs, Inc. v. LinkedIn Corp., Docket No. 17-16783, for Publication, p. 41)

 

 

U.S. Court of Appeals for the Eight Circuit, Wildhawk Investments, LLC v. Brava I.P., LLC, Docket No. 21-2496

License Agreement and Asset Purchase Agreements

 

Know-How

 

Right of First Refusal

 

Contract Interpretation

 

Extrinsic Evidence of a Contemporaneous Oral Agreement

 

Parol Evidence Rule

 

Breach of Contract

 

Equitable Estoppel Defense

Iowa Law

Contract Drafting

 

 

 

Appeal from United States District Court for the Southern District of Iowa – Central

 

Wildhawk Investments, LLC (“Wildhawk”) initiated this breach of contract action against Brava I.P., LLC (“Brava I.P.”), Paragon Roof Systems, LLC (“Paragon”), and Billibob Boor (collectively, “Paragon Defendants”) for producing composite roofing shingles contrary to an exclusive license agreement. The district court entered a preliminary injunction prohibiting the Paragon Defendants from manufacturing or selling their products. The Paragon Defendants appeal, contending the district court misinterpreted the contract, erroneously rejected their equitable estoppel defense, and improperly found a threat of irreparable harm. We reverse and vacate the preliminary injunction.

 

Wildhawk approached Boor and Edson about purchasing Brava Roof Tile. In July 2015, Boor sent an email to Wildhawk member Adam Brantman proposing “an exclusive license for manufacturing current roofing products.” Boor specified that Wildhawk would “have a right of first refusal on all new product developments.” Brantman responded with a draft letter of intent reiterating that “Wildhawk would have a first right of refusal on new inventions and developments from Boor/Edson.” Brantman characterized Wildhawk’s offer as “what we believe is a fair price for the business as it exists today.” Boor requested in another message, “Remove other compression mold products wording. This deal is for the four products only as discussed.” Brantman sent back, “Agreed.” The final nonbinding letter of intent, signed on July 14, 2015, included the first refusal language from the earlier draft.

 

On November 25, 2015, the parties executed asset purchase agreements and a license agreement. Wildhawk paid a total of almost $4 million for Brava Roof Tile’s assets and for licenses to its patents, know-how, and intellectual property rights.

 

The license agreement granted Wildhawk “an exclusive, perpetual, license to use the Know-How in practicing the Patents or in the manufacturing of raw materials for the production of Licensed Products in accordance with the Manufacturing Guidelines and Conditions.” Know-How included “all engineering, manufacturing data, formulas, designs, methods and processes, programs, listings, documentation and drawings, notes, flow charts, manuals, manufacturing aids, plans, technology, trade secrets, know-how, and other proprietary information licensed by Licensor and related to the Field of Use.” Field of Use was defined as “the manufacture and sale of quality Roofing Shingles and the related accessories.” Roofing Shingles meant “products used as roofing shingles and related materials and accessories including, as an example, the items shown in the list attached hereto as Exhibit A,” which specifically identified the four existing Brava Roof Tile products. The agreement defined Licensed Products as “all quality Roofing Shingles and Related Materials products licensed for production herein or that, if unlicensed, would infringe or otherwise violate one or more claims of the Patents or utilizes the Know-How.”

 

Moreover, the license agreement conferred on Wildhawk an automatic license to “any Improvements,” defined as “improvements to the Technology, whether patentable or not, including any method, apparatus, design, component, system or device.” Technology meant “the Patents and Know-How, collectively.” Brava I.P., Boor, and Edson also warranted that the “Patents, Know-How and/or Intellectual Property Rights constitute all of the intellectual property used in or necessary to conduct the business of manufacturing and selling plastic roofing shingles as conducted and as currently planned to be conducted by Seller or any other entity owned and/or controlled by Seller.”

 

A month before executing the license agreement, the parties agreed to remove a “New Product Applications” section due to requirements imposed by Wildhawk’s lender. The deleted section read:

In the event that Licensor develops new products under its rights to the Technology, Licensee will have forty five (45) calendar days upon being informed of the new product by Licensor in which Licensee may choose to itself seek to purchase a license to the product prior to Licensor’s entering into a binding agreement with a third party purchaser or licensee.

 

Boor and Wildhawk acknowledge that despite removal of that language, they entered into an oral handshake agreement for a right of first refusal at the time they signed the license agreement.

 

Wildhawk achieved success after the acquisition, growing Brava Roof Tile’s gross annual sales from approximately $1 million to $13 million in four years. None of Wildhawk’s members had previous experience in the composite roofing industry. As a result, Wildhawk retained Boor and Edson as paid consultants subject to initial 18-month noncompete agreements. Brantman referred to Boor as “the most important person in the organization.”

 

In August 2016, Boor sent an email to Wildhawk that began with, “As per our handshake agreement, Gerald and I would like to let you know of, and offer your group first right of refusal on the below products.” Among the proposed products was “Platinum Tile,” a design for composite shingles that would later become known as Natura shake. Boor followed up several months later with an outline of a research and development deal structure for Natura shake that suggested “design and IP rights will remain under Billibob and Gerald ownership until” reaching a $1 million royalty cap. He also mentioned duplicating the deal for a Natura slate design.

 

On May 5, 2017, Boor, Edson, and Wildhawk entered into a confidentiality and nondisclosure agreement (“NDA”) regarding “possible R&D ‘new or enhanced product’ agreements.” The NDA stated in part:

As part of the license agreement, it was agreed that Billibob Boor and Gerald Edson would give Recipient first right of refusal on all new R&D developments that they develop related to the composite roofing industry. This agreement was requested to be made a binding verbal agreement on or before November 2015, between Gerald Edson, Billibob Boor, and Wildhawk Investments LLC, due to restrictions on Recipients SBA financing requirements. Recipient understands that breaching this confidentiality agreement would be a breach of the license agreement.

 

After signing the NDA, Wildhawk responded with a proposal to purchase the Natura shake design. Wildhawk offered an increased $1.5 million royalty cap and requested “a right of first refusal . . . for all future profile/product developments.” A Wildhawk member boasted that “if this deal yields the type of success that both parties anticipate, there would be no reason to think that this deal couldn’t serve as a framework...for subsequent deals including” additional composite shingle designs. The parties continued negotiations throughout late 2018 and early 2019 but failed to reach an agreement.

 

Boor and Edson formed Paragon in May 2019, while Boor was still employed as a consultant for Wildhawk. On August 18, 2019, Boor emailed Wildhawk with a final offer regarding the Natura designs. Boor stated that he and Edson had assessed what “we can make on our own over the next five years producing the materials ourselves while still owning the company and have settled on 10 million USD being the number for us to step away from that and to place the program in the hands of Wildhawk.” The email concluded, “Time is of the essence. If we are going to work on a program and tie ourselves together then the time is now.” Wildhawk never substantively responded to the offer.

 

In January 2020, Paragon began producing Natura products in barrel, shake, and slate styles. Ten months later, Wildhawk sued the Paragon Defendants in Iowa state court for breach of contract and other claims not relevant here. The Paragon Defendants removed the case to federal court. The district court granted Wildhawk’s ensuing motion for a preliminary injunction and barred the Paragon Defendants from manufacturing or selling composite roofing products. This appeal followed.

 

A. License Agreement Breach 

The Paragon Defendants principally dispute the district court’s interpretation of the license agreement. “The cardinal rule of contract interpretation is to determine what the intent of the parties was at the time they entered into the contract.” Pillsbury Co. v. Wells Dairy, Inc., 752 N.W.2d 430, 436 (Iowa 2008). The words of the contract provide “the most important evidence of the parties’ intentions at the time of contracting.” Peak v. Adams, 799 N.W.2d 535, 544 (Iowa 2011). Iowa courts “also look to extrinsic evidence such as the situation and relations of the parties, the subject matter of the transaction, preliminary negotiations and statements made therein, usages of trade, and the course of dealing between the parties.” NevadaCare, Inc. v. Dep’t of Hum. Servs., 783 N.W.2d 459, 466 (Iowa 2010) (cleaned up).

 

The license agreement’s plain language belies the argument that Wildhawk purchased only the rights to manufacture and sell the four original Brava Roof Tile products. The contract partially defined Licensed Products as “all quality Roofing Shingles . . . that, if unlicensed, . . . utilizes the Know-How.” And Roofing Shingles merely “included, as an example,” the four Brava Roof Tile products. Adopting the Paragon Defendants’ interpretation would render those provisions meaningless. See Art Etc. LLC v. Angel Gifts, Inc., 686 F.3d 654, 657 (8th Cir. 2012) (“Iowa law strives to give effect to all language in a contract.”). The broad language chosen to define key terms indicates the license extended to yet undeveloped products.

 

The Paragon Defendants next focus on the scope of the license being limited to the Know-How used “in practicing the Patents or in the manufacturing of raw materials for the production of Licensed Products in accordance with the Manufacturing Guidelines and Conditions.” They contend that the Natura products fall outside the license because Wildhawk does not claim patent infringement or the impermissible manufacture of actual raw materials. Yet the word “manufacture” can mean “to work up as or convert into a specified product.” Manufacture, n.2.a., Oxford English Dictionary Online, https://www.oed.com/view/Entry/113770 (last visited Feb. 10, 2022). Construing the license to cover the Know-How utilized in the working up or converting of raw materials for producing Licensed Products is consistent with the context surrounding the contract. During the preliminary negotiations, Boor proposed “an exclusive license for manufacturing . . . roofing products.” Neither Wildhawk nor the Paragon Defendants manufacture the raw materials needed to produce composite shingles. In addition, the referenced Manufacturing Guidelines discuss the process for making finished composite roofing products. “Because an agreement is to be interpreted as a whole, . . . an interpretation which gives a reasonable, lawful, and effective meaning to all terms is preferred to an interpretation which leaves a part unreasonable, unlawful, or of no effect.” C & J Vantage Leasing Co. v. Wolfe, 795 N.W.2d 65, 77 (Iowa 2011) (citation omitted). When interpreted as a whole, the license agreement afforded Wildhawk a license to the Know-How used in producing composite shingles.

 

Finally, the Paragon Defendants claim that the NDA cleared the way for them to produce the Natura products. The NDA portrays the oral handshake agreement as a “first right of refusal on all new R&D developments . . . related to the composite roofing industry.” Since the NDA retroactively describes what the parties allegedly agreed to at the time they executed the license agreement, it is not a modification of the original contract. Instead, the NDA is extrinsic evidence of a contemporaneous oral agreement. See Garland v. Branstad, 648 N.W.2d 65, 69 (Iowa 2002) (noting that the parol evidence rule affects “negotiations or agreements that are prior to or contemporaneous with the writing”). Under the parol evidence rule, “where there is a binding agreement, either completely or partially integrated, evidence of prior or contemporaneous agreements or negotiations is not admissible in evidence to contradict a term of the writing.” Restatement (Second) of Contracts § 215 (Am. L. Inst. 1981). The right of first refusal for all new product developments in the NDA contradicts the full ownership rights granted to Wildhawk in the license agreement. There is no dispute that the license agreement is partially integrated. The Paragon Defendants thus cannot rely on the NDA or any other extrinsic evidence to contradict its written terms. See Bartlett Grain Co. v. Sheeder, 829 N.W.2d 18, 24-25 (Iowa 2013) (rejecting extrinsic evidence that contradicted partially integrated agreement). The district court did not err when interpreting the license agreement.

 

Evidence from the preliminary injunction hearing illustrates that the Paragon Defendants manufactured the Natura products by using the Know-How exclusively licensed to Wildhawk.

 

We discern no error in the district court’s finding that Wildhawk had a fair chance of proving the Paragon Defendants violated the terms of the license agreement.

 

B. Equitable Estoppel 

All that said, Wildhawk’s conduct after executing the license agreement leads us to conclude that success on the merits of the breach of contract claim is unlikely. Under Iowa’s equitable estoppel doctrine, “the parties to a valid contract may estop themselves from asserting any right under the contract by conduct inconsistent with the continued existence of the original contract.” Margeson v. Artis, 776 N.W.2d 652, 659 (Iowa 2009) (internal quotation marks omitted). An equitable estoppel defense requires clear and convincing evidence that: (1) the opposing party made a false representation or concealed material facts; (2) the party asserting estoppel lacked knowledge of the true facts; (3) the opposing party intended the party asserting estoppel to act upon the representation or concealment; and (4) the party asserting estoppel relied on the representation or concealment and thereby suffered prejudice. Sioux Pharm, Inc. v. Summit Nutritionals Int’l, Inc., 859 N.W.2d 182, 191 (Iowa 2015). “To establish false representation or concealment, there must be evidence the party acted ‘with the intent to mislead the injured party. ’”Boehme v. Fareway Stores, Inc., 762 N.W.2d 142, 147 (Iowa 2009) (quoting Hook v. Lippolt, 755 N.W.2d 514, 525 (Iowa 2008)).

 

Wildhawk professed that the NDA “did not accurately state . . . Wildhawk’s understanding of the right of first refusal arrangement.” Boor’s repeated proposals to sell the Natura designs plainly revealed he thought they came within the right of first refusal rather than the preexisting license. Meanwhile, Brantman testified that Wildhawk believed “we had already paid for this” from the moment Boor sent the initial offer in August 2016. Wildhawk representatives never shared that belief with Boor during the protracted negotiations. Standing alone, silence from a party to an arms-length transaction is insufficient to sustain an equitable estoppel defense. EMC Ins. Grp. v. Shepard, 960 N.W.2d 661, 674 (Iowa 2021). But Wildhawk did more than stand mute. It affirmatively signed the NDA, which ostensibly reserved only a right of first refusal in “all new R&D developments . . . related to the composite roofing industry.” When fairly read, that language necessarily included the Natura products. Wildhawk then proceeded to offer Boor millions of dollars in royalties to purchase the Natura designs and negotiated for months as if the right of first refusal applied. A Wildhawk member went so far as to suggest the possibility of more deals for Boor’s composite shingle designs in the future. Wildhawk misrepresented its position on its entitlement to the Natura products in a manner inconsistent with the license agreement.

 

As for intent to induce reliance, again in its own words, “Wildhawk executed the NDA in an effort to continue its valuable relationship with Boor.” Boor asked Wildhawk to sign the NDA as an assurance before deciding to renew his consulting agreement. Brantman testified that because Boor was “very valuable” to Wildhawk, “we weren’t ready to really pick a fight with him.” He went on to describe “the idea that Boor wouldn’t be working with us as a sales consultant” as “concerning.” That concern led Wildhawk to sign the NDA and to go along with Boor’s offers to sell the Natura designs without ever claiming an existing right to them under the license agreement. Cf. Hawkeye Land Co. v. Iowa Power & Light Co., 497 N.W.2d 480, 487 (Iowa Ct. App. 1993) (deeming intent element met where opposing party “never informed” party asserting estoppel “it was receiving anything less than a full and complete permanent easement” as envisioned by oral contract). Wildhawk intended to entice Boor to stay on as a consultant by misrepresenting its understanding of the right of first refusal arrangement.

 

The remaining equitable estoppel elements are satisfied as well. Boor lacked knowledge of Wildhawk’s true understanding. The preliminary negotiations for the license agreement, offers to sell the Natura designs, and hearing testimony uniformly evince that Boor believed Wildhawk had nothing more than a right of first refusal in all new product developments, even those related to the composite roofing industry. See Bricker v. Maytag Co., 450 N.W.2d 839, 840-41 (Iowa 1990) (upholding estoppel defense notwithstanding relevant contract language due to opposing party’s representations). Boor testified he would not have formed Paragon or incurred over $1 million in expenses to commence production if he had known about Wildhawk’s legitimate claim to the Natura products. Equity bars Wildhawk from now declaring ownership after the Paragon Defendants detrimentally relied on its representations.

 

Uncontroverted evidence establishes each element of equitable estoppel. The district court abused its discretion in rejecting the defense and in finding Wildhawk had a likelihood of success on its breach of contract claim.

 

C. Irreparable Harm 

We have doubts about whether Wildhawk faced a threat of irreparable harm. To demonstrate irreparable harm, the movant “must show that the harm is certain and great and of such imminence that there is a clear and present need for equitable relief.” Roudachevski v. All-Am. Care Ctrs., Inc., 648 F.3d 701, 706 (8th Cir. 2011) (citation omitted). The absence of irreparable harm “is an independently sufficient ground upon which to deny a preliminary injunction.” Grasso Enters., LLC v. Express Scripts, Inc., 809 F.3d 1033, 1040 (8th Cir. 2016) (quoting Watkins Inc. v. Lewis, 346 F.3d 841, 844 (8th Cir. 2003)).

 

The district court determined that Wildhawk would suffer irreparable harm by losing customers and market share to Paragon. “Economic loss, on its own, is not an irreparable injury so long as the losses can be recovered.” DISH Network Serv. L.L.C. v. Laducer, 725 F.3d 877, 882 (8th Cir. 2013). Wildhawk submitted an itemized list of all Paragon’s sales from inception and specifically identified which sales came from its past customers. Such harm is compensable by money damages. See MPAY Inc. v. Erie Custom Comput. Applications, Inc., 970 F.3d 1010, 1020 (8th Cir. 2020) (“It appears that any harm plaintiff may suffer in the form of lost customers and lost profits is quantifiable and compensable with money damages . . . meaning this harm is not irreparable.”); Mgmt. Registry, Inc. v. A.W. Cos., 920 F.3d 1181, 1183-84 (8th Cir. 2019) (concluding that plaintiff lacked threat of irreparable harm where only injury was calculable loss of revenue).

 

Wildhawk’s alternative assertion that the Paragon Defendants will irreparably injure its “business reputation and goodwill,” Med. Shoppe Int’l, Inc. v. S.B.S. Pill Dr., Inc., 336 F.3d 801, 805 (8th Cir. 2003), is undermined by its decision to wait more than a year to bring this lawsuit despite knowing Boor and Edson intended to produce the Natura products themselves. See Benisek v. Lamone, 585 U.S. ___, 138 S. Ct. 1942, 1944 (2018) (per curiam) (explaining that “a party requesting a preliminary injunction must generally show reasonable diligence”); Adventist Health Sys./Sunbelt, Inc. v. U.S. Dep’t of Health & Hum. Servs., 17 F.4th 793, 806 (8th Cir. 2021) (finding lack of irreparable harm where plaintiff delayed suit until one year after adoption of challenged policy). When Boor gave Wildhawk a final opportunity to purchase the Natura products in August 2019, he implied that he and Edson planned to “produce the materials ourselves while still owning the company” if Wildhawk declined the offer. Boor emphasized that “time was of the essence.” Rather than tell Boor about its putative ownership rights or expeditiously file suit, however, Wildhawk did not meaningfully respond to the offer and waited until November 2020 to commence this action.

 

The Paragon Defendants were prejudiced by Wildhawk’s delay. See Kroupa v. Nielsen, 731 F.3d 813, 821 (8th Cir. 2013) (evaluating prejudice where defendant claimed delay in seeking preliminary injunction counseled against irreparable harm). Boor incurred over $1 million in expenses to start manufacturing the Natura products through Paragon, which he had formed eight months earlier. Wildhawk waited until Paragon had been producing the Natura products for ten months before making its ownership claim. Wildhawk failed to show either reasonable diligence or harm that cannot be compensated by money damages.

 

 

(U.S. Court of Appeals for the Eight Circuit, Feb. 23, 2022, Wildhawk Investments, LLC v. Brava I.P., LLC, Docket No. 21-2496)

U.S. Court of Appeals for the Ninth Circuit, BladeRoom Group Ltd. v. Emerson Electric Co., Docket No. 19-16583

 

Punitive Damages

Breach of Contract Awards

Trade Secret Misappropriation

California Law

 

 

Under California law, a party cannot collect punitive damages for breach of contract awards.

 

(…) Finally, the same reasons support vacating the jury’s damages findings. The jury awarded damages in two lump sums that did not separate damages for breach of contract from misappropriation. As a result, we have no way to know how much damages the jury intended to allocate for each claim. And because we do not know whether the jury would have found Emerson liable under breach of contract or misappropriation, we cannot tell whether the damages findings would be the same. We therefore vacate the jury’s damages findings.

 

(…) Given the complex issues on appeal, we also address a couple of issues for consideration on the awards of damages and prejudgment interest should they be determined after a new trial.

California Civil Code § 3426.3(a) allows an aggrieved party to recover actual damages and any unjust enrichment on a trade secret misappropriation claim. Because the jury here found that Emerson willfully and maliciously misappropriated BladeRoom’s trade secrets, the district court awarded punitive damages equal to the $30 million in compensatory damages.

Under California law, however, a party cannot collect punitive damages for breach of contract awards. Applied Equip. Corp. v. Litton Saudi Arabia Ltd., 7 Cal. 4th 503, 516 (1994). Because the jury awarded a lump sum for breach of contract and misappropriation damages, Emerson correctly argued that the district court could not assume that the whole award went to misappropriation.

Courts that apply California law use three factors to award punitive damages. Neal v. Farmers Ins. Exch., 21 Cal. 3d 910, 928 (1978). The second factor, “the amount of compensatory damages awarded,” id., helps balance a punitive damages award with actual harm that is caused. See id. (“In general, even an act of considerable reprehensibility will not be seen to justify a proportionally high amount of punitive damages if the actual harm suffered is small.”). When weighing the second factor, the district court here merely noted that under Neal, 21 Cal. 3d at 928, “compensatory damages are a ‘relevant yardstick’ for punitive damages.” And, in a footnote, the district court explained that “the trial evidence shows that either the breach of contract or misappropriation claim for which the jury found liability could support the amount of compensatory damages it awarded.”

The district court misapplied the second factor for two reasons. One, the district court abused its discretion based on an earlier order denying Emerson’s motion to compel. And second, the district court never explained why it allocated compensatory damages the way it did.

First, in the earlier order, the district court found that “there is no way for the parties or the court to know how much was awarded for breach of contract and how much was awarded for misappropriation of trade secrets.” To be sure, the district court confirmed that “only the jury knows the number.”

A district court abuses its discretion when it “reaches a result that is illogical, implausible, or without support in inferences that may be drawn from the facts in the record.” United States v. Hinkson, 585 F.3d 1247, 1262 n. 21 (9th Cir. 2009) (collecting cases from other circuits). It was illogical for the district court to find how much the jury awarded for each claim when it already found that it had “no way” to do just that. See id. The district court should have explained why its reasoning changed. Instead, after awarding punitive damages, the district court issued another order that adopted the same reasoning in the order that denied Emerson’s motion to compel. In brief, the district court flipped its reasoning twice without explaining why. And the inconsistency visibly benefited BladeRoom because it cost Emerson millions in punitive damages that the district court would not have awarded otherwise. In sum, the inconsistency was “beyond the pale of reasonable justification” and an abuse of discretion. Harman v. Apfel, 211 F.3d 1172, 1175 (9th Cir. 2000).

 

(U.S. Court of Appeals for the Ninth Circuit, August 30, 2021, BladeRoom Group Ltd. v. Emerson Electric Co., Docket No. 19-16583, For Publication)