Opinion
6:21-cv-01592-MK
04-23-2024
NINKASI HOLDING COMPANY, INC., an Oregon corporation; and NINKASI BREWERY, LLC, an Oregon limited liability company, Plaintiffs, v. NUDE BEVERAGES, INC., a Colorado corporation; and MXM BEVERAGES LTD., doing business as NUDE BEVERAGES CO., a Canadian corporation, Defendants.
FINDINGS AND RECOMMENDATION
MUSTAFA T. KASUBHAI (HE / HIM) UNITED STATES MAGISTRATE JUDGE
Plaintiffs Ninkasi Holding Company, Inc., and Ninkasi Brewery LLC filed this breach of contract action against Defendants Nude Beverages, Inc. (“Defendant NBI”) and MXM Beverages LTD (“Defendant MXM”) on November 2, 2021. ECF No. 1. Before the Court is Plaintiffs' Motion for Partial Summary Judgment (ECF No. 64). For the reasons below, Plaintiffs' Motion for Partial Summary Judgment should be denied.
FACTUAL BACKGROUND
I. The Agreements
This case arises out of agreements between Plaintiffs and Defendants “to create a working relationship/partnership between the companies to produce and distribute the Nude Vodka Soda brand of hard seltzer in the US.” Ridge Decl. I Ex. 2, ECF No. 41. Relevant to this motion are Defendant NBI's alleged breach of the Manufacturing Services Agreement and Defendant MXM's alleged breach of the Guaranty Agreement.
A. The Manufacturing Services Agreement
Plaintiffs and Defendant NBI executed a Manufacturing Services Agreement (“MSA”) on November 19, 2020. Kampars Decl. II Ex. 3, ECF No. 65. It was signed on behalf of Defendant NBI by its president and chief executive officer Julius Makarewicz (“Makarewicz”). Id. at 19. The MSA allowed Plaintiffs to produce and co-pack alcoholic beverages under the brand name “Nude.” The MSA provided that during a specified “Licensing Period,” Defendant NBI would engage Plaintiffs to manufacture and package certain products at Plaintiffs' facility in Eugene while Defendant NBI was in the process of obtaining regulatory approvals from state and federal licensing bodies. Id. at 1-3.
The term of the MSA extended from October 1, 2020, through January 31, 2028 (“Initial Term”). Id. at 12. During the Initial Term, Defendant NBI could not terminate the MSA except “for cause” (as defined) or by paying a termination fee of $2,520,000 to Ninkasi. Id.
The MSA assigned obligations to both Plaintiffs and Defendant NBI during the Licensing Period. Specifically, Defendant NBI agreed to “order one or more Products from [Plaintiffs].” Id. at 3. Plaintiffs agreed to “manufacture, package, sell, and make available the Products to [Defendant NBI] or its designee.” Id. Following the Licensing Period, Plaintiffs agreed to provide equipment and services to allow Defendant NBI to manufacture its products at Plaintiffs' facility. Id.
Plaintiffs and Defendant NBI agreed on a minimum volume forecast and minimum reserved line time for each quarter through January 2028. Id. at 20. Under the MSA, Plaintiffs and Defendant NBI would “meet beginning in the fourth quarter of 2019 and periodically thereafter, on a schedule to be mutually determined by the parties, to review and confirm such minimum purchase obligations by [Defendant NBI] and such guaranteed reserved capacity by [Plaintiffs] as may be appropriate to satisfy the Parties' mutual objectives for their ongoing production and supply relationship under [the MSA]. Id. at 3. The MSA also included a “shortfall penalty” to be paid to Plaintiffs if Defendant NBI failed to order the agreed-upon minimum volume. Id. at 4, 20.
B. The Guaranty Agreement
Plaintiffs and Defendant MXM executed a “Guaranty Agreement” which identified Defendant MXM as the “Guarantor” of the “Debtor” Defendant NBI. Kampars Decl. II Ex. 4. The Guaranty Agreement provided that Defendant MXM “absolutely and unconditionally guarantees payment to [Plaintiffs]” on behalf of Defendant NBI in connection with Defendant NBI's obligations under the MSA. Id. at 1. Defendant MXM also represented that it had conducted its own independent “credit analysis” of NBI. Id. The Guaranty Agreement, like the MSA, was signed by Makarewicz, this time in his capacity as president and chief executive officer of MXM. Id. at 3.
II. Alleged Breaches of Contract
Relying on the MSA and Guaranty Agreement, Plaintiffs incurred costs and purchased additional equipment to meet Defendant NBI's requested and projected production volumes. Ridge Decl. II ¶ 4, ECF No. 65. Defendant NBI consistently fell short of minimum purchase obligations; in the first quarter following the execution of the MSA, Plaintiffs invoiced Defendant NBI a total of $245,862.00 in shortfall penalty on January 15, 2021. Kampars Decl. I Ex. 6, ECF No. 44. In each of the next two quarters, Plaintiffs invoiced Defendant NBI for the full $315,000.00 shortfall penalty, representing a 100% shortfall (i.e., no production) for each of those quarters. Id.
In total, Plaintiffs sent Defendant NBI invoices pursuant to the MSA totaling $1,000,486.98. Ridge Decl. II ¶ 5. When Defendant NBI did not pay the invoices, Plaintiffs requested payment from Defendant MXM pursuant to the Guaranty Agreement. Id. Neither Defendant has paid the outstanding invoices. Id.
III. Procedural History
Plaintiffs filed this action in November 2021 against Defendants. Plaintiffs allege, among other things, that Defendant NBI breached the MSA and that Defendant MXM breached the Guaranty Agreement by failing to pay outstanding invoices.
In December 2021, Defendant NBI answered Plaintiffs' Complaint, asserting various affirmative defenses, while Defendant MXM moved to dismiss for lack of personal jurisdiction. ECF Nos. 8, 9. On July 18, 2022, the District Court denied MXM's motion to dismiss without prejudice and ordered the parties to conduct limited discovery on the issue of whether the Court has personal jurisdiction over MXM. ECF No. 30. Defendant MXM filed a Second Motion to Dismiss for Lack of Personal Jurisdiction on February 28, 2023, again asking the Court to dismiss Plaintiffs' claims against it under Fed.R.Civ.P. 12(b)(2). ECF No. 38. On March 14, 2023, Plaintiffs filed a Motion for Partial Summary Judgment on their first and fifth claims for relief. ECF No. 43. On July 17, 2023, the Court denied both Defendant MXM's motion to dismiss and Plaintiffs' motion for partial summary judgment. ECF No. 57. In that Order, the Court found that it would be premature to grant Plaintiffs' motion for summary judgment as it related to the parties' Guaranty Agreement because Defendant MXM had yet to conduct discovery on Defendant NBI's affirmative defenses. Following that ruling, Defendant MXM received documents from Plaintiffs and Plaintiffs conducted a corporate deposition of Defendant MXM. Fact discovery closed on November 30, 2023, and counsel for Defendants withdrew on December 1, 2023. ECF No. 63.
On December 29, 2023, Plaintiffs partiallyrenewed their motion for partial summary judgment. ECF No. 64. New counsel for Defendants appeared on January 2, 2024. ECF No. 67. Defendant MXM then filed an untimely answer to Plaintiff's Complaint on January 26, 2024, the same day it filed a response to the instant motion. ECF Nos. 70, 71. Defendant MXM's answer asserts the same affirmative defenses as Defendant NBI.
Unlike Plaintiffs' first motion, Plaintiffs do not seek summary judgment on the second count of its first claim for relief against Defendant NBI (breach of a related “Alternating Brewer Agreement”). Accordingly, the Court does not discuss the facts related to that agreement and alleged breach of contract.
STANDARD OF REVIEW
Summary judgment is appropriate if the pleadings, depositions, answers to interrogatories, affidavits, and admissions on file, if any, show “that there is no genuine dispute as to any material fact and the [moving party] is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). Substantive law on an issue determines the materiality of a fact. T.W. Elec. Servs., Inc. v. Pac. Elec. Contractors Ass'n, 809 F.2d 626, 630 (9th Cir. 1987). Whether the evidence is such that a reasonable jury could return a verdict for the nonmoving party determines the authenticity of the dispute. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
The moving party has the burden of establishing the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). If the moving party shows the absence of a genuine issue of material fact, the nonmoving party must go beyond the pleadings and identify facts which show a genuine issue for trial. Id. at 324.
Special rules of construction apply when evaluating a summary judgment motion: (1) all reasonable doubts as to the existence of genuine issues of material fact should be resolved against the moving party; and (2) all inferences to be drawn from the underlying facts must be viewed in the light most favorable to the nonmoving party. T.W. Elec., 809 F.2d at 630.
DISCUSSION
Plaintiffs argue that they are entitled to summary judgment on (1) Count 1 of their First Claim of Relief for NBI's breach of the MSA; and (2) their Fifth Claim for Relief for MXM's breach of the Guaranty Agreement.
I. NBI's Alleged Breach of the MSA (First Claim for Relief, Count 1)
Plaintiffs argue that they are entitled to summary judgment on Count 1 of their First Claim for Relief because there is no issue of material fact as to whether Defendant NBI breached the MSA.
It is undisputed that Defendant NBI failed to make payments to Plaintiffs under the MSA. The issue before the Court is whether outstanding issues of material fact exist with respect to Defendant NBI's obligations under the MSA that would preclude summary judgment.
Defendants argue that the Court should deny summary judgment for the same reasons laid out in its Findings and Recommendation on Plaintiffs' first summary judgment motion: because there are outstanding issues of fact on Defendants NBI's affirmative defenses.
In their renewed motion, Plaintiffs argue generally that because Defendant MXM's corporate designee could not identify evidence supporting Defendant NBI's affirmative defenses, there is no longer a genuine dispute of fact as to any of the affirmative defenses. Plaintiffs also offer additional argument and evidence on specific affirmative defenses.
First, Plaintiffs rely on several statements from Makarewicz's Rule 30(b)(6) corporate deposition on behalf of Defendant MXM in which he could not identify evidence related to various affirmative defenses. They argue that Makarewicz's statements constitute admissions that there is no such evidence. As an initial matter, Plaintiffs have cited no controlling authority to support the proposition that corporate admissions on behalf of one corporation are binding on another simply because the individual deposed is an officer of both corporations.
Even if the corporate admissions of Defendant MXM were binding on Defendant NBI, the Court does not find that Makarewicz's statements preclude consideration of the other evidence in the record regarding the affirmative defenses. The Ninth Circuit has cautioned against overstating the principle that a corporation “generally cannot present a theory of the facts that differs from that articulated by the designated Rule 30(b)(6) representative.” Snapp v. UnitedTransp. Union, 889 F.3d 1088, 1103 (9th Cir. 2018) (emphasis in original). The Court noted that “it is important to distinguish between the use of a Rule 30(b)(6) designee's comments as to ultimate legal conclusions as contrasted with statements to establish background facts,” and cited case law that explains that “Rule 30(b)(6) testimony is not binding in the sense that it precludes the deponent from correcting, explaining, or supplementing its statements.” Id. at 1104, citing Keepers, Inc. v. City of Milford, 807 F.3d 24, 34 (2d Cir. 2015). Defendant MXM's failure to identify facts supporting specific legal defenses does not conclusively establish that no such facts exist. Plaintiffs have cited no case law that supports the sweeping conclusion that a corporate deponent's lack of knowledge of facts supporting a party's legal arguments can conclusively establish the absence of such facts. Defendants are entitled to present evidence of such facts, and a jury may weigh those against Defendant MXM's admissions as to its lack of knowledge.
Second, with respect to Plaintiffs' arguments that there are no genuine issues of material fact on any of the specific affirmative defenses, the Court finds that none of the evidence before it provides a basis to depart from its previous conclusion that issues of fact remain. Defendant NBI raised several affirmative defenses, including a prior material breach of contract by Plaintiffs that excuses any alleged breach of the MSA. As the Court addressed in its prior Findings and Recommendation on the first motion for summary judgment, Section 2(b) of the MSA required the parties to meet periodically to “review and confirm” the minimum purchase obligations. The Court found that the contractual requirement to periodically “confirm” these obligations under the MSA arguably suggests that the parties were required to reach an agreement as to the ongoing minimum purchase obligations, and Plaintiffs' declaration confirms that the parties failed to reach any agreement. Upon reviewing the record and drawing all inferences in the light most favorable to Defendants, the Court found that Defendants raised a genuine issue of material fact as to whether Plaintiffs failed to meet their obligations under Section 2(b) of the MSA and therefore whether Defendant NBI's failure to pay the minimum purchase obligations under the MSA was excused by Plaintiffs' nonperformance. ECF No. 55.
In this renewed motion, Plaintiffs identify evidence of ongoing communications between the parties about minimum purchase obligations, proposals to reduce those obligations, and alleged agreement regarding them. See Ridge Decl. II ¶ 6, Kampars Decl. Exs. 2, 5. That evidence does nothing to change the Court's prior conclusion that there is evidence in the record that no agreement was reached as arguably required under Section 2(b) of the MSA. Plaintiffs' newly cited evidence only continues to raise questions about who had the authority to enter into such agreements, whether such an agreement occurred, and whether the conduct at issue amounted to a material breach by Plaintiffs. These are questions for the jury to resolve.
Because genuine issues of material fact exist as to at least one of Defendant NBI's affirmative defenses, Plaintiffs should not be granted summary judgment on Count 1 of their First Claim for Relief.
Because the Court finds that genuine issues of material fact on the “prior material breach” defense which precludes entry of summary judgment for Plaintiffs, it does not address the remaining arguments on Defendants' other affirmative defenses and damages issues.
II. MXM's Alleged Breach of the Guaranty Agreement (Fifth Claim for Relief)
Plaintiffs next argue that they are entitled to summary judgment on their Fifth Claim for Relief because there is no genuine issue of material fact as to whether Defendant MXM breached the Guaranty Agreement. Here, Defendant MXM has relied on Defendant NBI's affirmative defenses-now asserted by Defendant MXM itself in its newly-filed answer-to excuse its performance under the Guaranty Agreement, and MXM has been afforded the opportunity to conduct full fact discovery on these defenses. In their renewed motion for summary judgment on their Fifth Claim for Relief, Plaintiffs argue (1) that Defendant MXM should be precluded from relying on Defendant NBI's affirmative defenses to defeat summary judgment because its answer was not timely filed, and (2) that testimony from Defendant MXM's corporate deposition shows that there are no outstanding issues of fact on the breach of the Guaranty Agreement.
On the first issue, Plaintiffs acknowledge that “a guarantor is entitled to rely on the defenses of an obligor under Oregon law,” but argue that the guarantor-here, Defendant MXM-must still affirmatively plead such defenses and carry its burdens on summary judgment and at trial. Pl. Reply 6. Thus, because Defendant MXM did not file a response asserting affirmative defenses before Plaintiffs' filing this motion, it cannot rely on Defendant NBI's affirmative defenses to avoid summary judgment. The Court disagrees. Plaintiffs were on notice of Defendant MXM's intent to rely on Defendant NBI's affirmative defenses and conducted discovery on those defenses, including deposing Defendant MXM. Plaintiffs have identified no prejudice to them in the late filing of Defendant MXM's answer, and no default was sought or entered. Particularly here, where Defendant MXM's liability is derivative of Defendant NBI's and the affirmative defenses at issue are the same, the Court will consider whether Defendant NBI's affirmative defenses-asserted in turn as anticipated by Defendant MXM-preclude entry of summary judgment on the claim against Defendant MXM for breach of the Guaranty Agreement.
As to Plaintiffs' second argument, the Court has already explained that genuine issues of material fact still exist on the issue of Plaintiffs' alleged prior material breach of Section 2(b) of the MSA. Accordingly, issues of fact on that affirmative defense preclude entry of summary judgment against Defendant MXM. Plaintiffs' motion for summary judgment on their Fifth Claim for Relief should therefore be denied.
RECOMMENDATION
For the reasons above, Plaintiffs' motion for partial summary judgment (ECF No. 64) should be DENIED.
This recommendation is not an order that is immediately appealable to the Ninth Circuit Court of Appeals. Any notice of appeal pursuant to Federal Rule of Appellate Procedure 4(a)(1) should not be filed until entry of the district court's judgment or appealable order. The Findings and Recommendation will be referred to a district judge. Objections to this Findings and Recommendation, if any, are due fourteen (14) days from today's date. See Fed.R.Civ.P. 72. Failure to file objections within the specified time may waive the right to appeal the district court's order. Martinez v. Ylst, 951 F.2d 1153, 1157 (9th Cir. 1991).