Opinion
Case No.: 18cv1927 JO(MSB)
2023-03-28
WORKPLACE TECHNOLOGIES RESEARCH, INC., Plaintiff/Counter-Defendant, v. PROJECT MANAGEMENT INSTITUTE, INC., Defendant/Counter-Claimant.
Jose L. Patino, Justin Edwin Gray, Nicola Anthony Pisano, Regis C. Worley, Jr., Scott A. Penner, Eversheds Sutherland (US) LLP, San Diego, CA, Duane Scott Horning, California Business Law Group, PC, La Mesa, CA, for Plaintiff/Counter-Defendant. Benita Sheung-Won Yu, Emily Horak, Eric James Bakewell, Hannah L. McMeans, Sean Patrick Hanle, Matthew J. Busch, Willkie Farr & Gallagher LLP, Los Angeles, CA, Joshua M. Rosenberg, Witt W. Chang, Venable LLP, Los Angeles, CA, for Defendant/Counter-Claimant.
Jose L. Patino, Justin Edwin Gray, Nicola Anthony Pisano, Regis C. Worley, Jr., Scott A. Penner, Eversheds Sutherland (US) LLP, San Diego, CA, Duane Scott Horning, California Business Law Group, PC, La Mesa, CA, for Plaintiff/Counter-Defendant. Benita Sheung-Won Yu, Emily Horak, Eric James Bakewell, Hannah L. McMeans, Sean Patrick Hanle, Matthew J. Busch, Willkie Farr & Gallagher LLP, Los Angeles, CA, Joshua M. Rosenberg, Witt W. Chang, Venable LLP, Los Angeles, CA, for Defendant/Counter-Claimant.
ORDER:
(1) GRANTING IN PART AND DENYING IN PART WTRI'S MOTION FOR ATTORNEYS' FEES AND RELATED EXPENSES;
(2) DENYING PMI'S RENEWED MOTION FOR JUDGMENT AS A MATTER OF LAW; AND
(3) GRANTING PMI'S MOTION TO STRIKE
(ECF Nos. 415, 419, 436) Jinsook Ohta, United States District Judge
The Court held a fifteen-day jury trial in the above-captioned case. Following a verdict in Plaintiff/Counter-Defendant Workplace Technologies Research, Inc. ("WTRI")'s favor, WTRI filed a motion for attorneys' fees and related expenses. ECF No. 415. Defendant/Counter-Claimant Project Management Institute, Inc. ("PMI") filed a renewed motion for judgment as a matter of law and a motion to strike portions of WTRI's motion for attorneys' fees. ECF Nos. 419; 436. For the reasons stated below, the Court: (1) grants in part and denies in part WTRI's motion for attorneys' fees and related expenses; (2) denies PMI's renewed motion for judgment as a matter of law; and (3) grants PMI's motion to strike.
BACKGROUND
I. Overview
The current action stems from an unsuccessful endeavor between WTRI and PMI to jointly develop a virtual world software program known as the Project Management Institute Advanced Learning ("PAL") project. ECF No. 324 at 2-3, 34. In early 2014, WTRI and PMI began discussions to co-develop a virtual world software program that would provide project management training. Id. at 3, 34. The Parties contemplated WTRI would contribute its experience in building virtual worlds, while PMI would contribute its expertise in the field of project management. Id.
To memorialize their venture, the Parties entered into the two contracts at issue in this case: the Development Agreement and the Services Agreement. ECF Nos. 158-9, Ex. 1 ("Software Technology Development and Purchase Agreement"), Ex. 5 ("Services Agreement"); 324 at 3. Under the Development Agreement, WTRI agreed to develop the PAL project with PMI's collaboration. Development Agreement at § 1.1. In exchange, PMI agreed to pay WTRI a total of $4,000,000 for WTRI's development work and the rights to the PAL project, to be paid in phases when the project reached specific milestones. Id. at § 2.5. The Development Agreement gave PMI the right to evaluate various initial "Alpha" versions of the software developed by WTRI and reject the software if it failed to meet specific requirements. Id. at §§ 2.5, 5. Under the original terms of the Development Agreement, if PMI exercised its reject option, the Parties' working relationship would end. Id. The Parties later agreed to amend the Development Agreement to allow the Parties to continue working with each other under different contractual terms—as set forth in a Services Agreement—if PMI exercised its reject option. ECF No. 324 at 35.
On December 2, 2016, PMI exercised its reject option, but chose to retain its rights to the PAL project and continue working with WTRI on its development. Id. As a result, the second phase of the Parties' relationship, governed by the Services Agreement, began. The Services Agreement required WTRI to perform certain content development, product testing, licensing, promotional, and technical assistance services relating to the PAL project. Services Agreement at § 2. These services included the recruitment of twelve companies for a pilot study. Id. at § 2.2. In exchange, PMI agreed to pay WTRI three separate payments totaling $1,137,623.00. Id. at § 4. PMI also granted WTRI a right to license copies of the completed PAL project software to WTRI's customers. ECF No. 158-9 at 86-93 ("License Agreement.").
Both agreements contained a "Limitation of Liability" provision aimed at capping the Parties' respective exposure in the event of a breach. Development Agreement at § 11; Services Agreement at § 8. These provisions capped the recovery owed to either Party to $2,137,623 and prohibited either Party from recovering certain categories of damages, including lost profits. Id. The Limitation of Liability provisions contained one exception—they did not apply if the breach of contract arose as the result of the "gross negligence" or "willful misconduct" of the Party accused of wrongdoing. Development Agreement at § 11; Services Agreement at § 8.
Recovery was capped at the total amount of payments PMI made to WTRI pursuant to the agreements. From the trial record, this amount was $2,137,623. ECF No. 366 at 215:13-17 (confirming PMI made $1 million payment pursuant to Development Agreement), 222:6-17 (confirming PMI made $1,137,623 payment pursuant to Services Agreement).
Despite significant investment on both sides, the joint endeavor between WTRI and PMI ultimately failed. The Parties spent three years attempting to fully develop the PAL project. ECF No. 367 at 46:9-10. PMI spent an alleged $10 million on the project, while WTRI allegedly incurred $775,000 worth of additional costs. Id. at 46:3-7. Over the course of the Parties' working relationship, PMI alleges it also shared trade secrets with WTRI in order to further their joint venture. ECF Nos. 47 at ¶¶ 39-44; 324 at 10-12. Despite the amount of time and money expended, in 2018, the Parties ultimately discontinued the project; no product was ever completed or sold. Id. at 2. The instant lawsuit followed.
II. Procedural History
On August 20, 2018, WTRI filed its initial Complaint in this action. ECF No. 1. After a period of motion practice, WTRI filed a Third Amended Complaint ("TAC") on August 27, 2019. ECF No. 37. In its TAC, WTRI alleged that PMI: (1) breached the Development and Services Agreements; (2) breached the implied covenant of good faith and fair dealing inherent in the Development and Services Agreements; (3) fraudulently misrepresented its intent to perform under the Parties' agreements; and (4) tortiously interfered with WTRI's relationship with the National Science Foundation ("NSF") and other business partners. Id. at ¶¶ 163-223.
The Parties further refined the pleadings and operative claims through additional motion practice. The Court dismissed WTRI's claims for breach of the implied covenant of good faith and fair dealing inherent in the Services Agreement, fraudulent misrepresentation, and tortious interference. ECF. No. 42 at 8-9. After the close of discovery, WTRI sought to amend its complaint to reinstate its claim for fraudulent misrepresentation and add a claim for fraudulent inducement. ECF No. 97. The Court denied this request. ECF No. 111. On February 19, 2020, PMI filed its Answer and Counterclaims against WTRI. ECF Nos. 46; 47. In its Counterclaims, PMI alleged that WTRI: (1) breached the Development and Services Agreements; (2) breached the implied covenant of good faith and fair dealing inherent in the Development and Services Agreements; and (3) misappropriated PMI's trade secrets. ECF No. 47 at ¶¶ 47-80.
Both Parties moved for summary judgment in this case. ECF Nos. 188, 190. WTRI moved for summary judgment on PMI's counterclaims for breach of contract, breach of the implied covenant of good faith and fair dealing, and trade secret misappropriation, and on PMI's affirmative defenses. ECF No. 188. PMI moved for summary judgment on WTRI's breach of contract and breach of the implied covenant of good faith and fair dealing claims. PMI also moved for partial summary judgment of its own claims as follows: (1) that WTRI had breached the Services Agreement; and (2) that PMI met the ownership element of its trade secret claims. ECF No. 190. On October 20, 2021, the Court denied PMI's motion for summary judgment in its entirety. ECF No. 215 at 50. The Court granted WTRI's motion for summary judgment on PMI's "business judgment rule" affirmative defense, finding the California state law doctrine inapplicable to this case. Id. at 48-50. The Court denied WTRI's motion in all other respects. Id. at 50.
Trial in this matter commenced on June 3, 2022, approximately forty-five months after the filing of the lawsuit. The Court originally scheduled trial in this case for July 26, 2021. ECF No. 57 at 7. The Court extended the trial date twice, first to October 25, 2021 and then to January 10, 2022—at the Parties' request. ECF Nos. 107 at 3; 151 at 3. The Court subsequently sua sponte continued the trial date five more times: to February 22, 2022, May 16, 2022, May 18, 2022, June 2, 2022, and finally to June 3, 2022, in order to accommodate the Court's and the Parties' respective schedules, and the transfer of this case to the undersigned. ECF Nos. 231 at 7:24-13:11; 236; 243; 244; 247; 321. The trial lasted fifteen days and concluded on June 27, 2022. ECF Nos. 350, 391.
III. Trial
At the outset of trial, PMI unsuccessfully sought to exclude WTRI's claim for lost profit damages as a matter of law. To that end, on June 3, 2022, PMI filed a motion to limit damages. ECF No. 340. In its motion, PMI pointed to the Limitation of Liability provisions in the Development and Services Agreements, which only allowed for lost profit damages in the case of PMI's "gross negligence" or "willful misconduct." Id. at 11-12. PMI argued that because WTRI did not have any independent tort claims, WTRI could not recover lost profit damages because these provisions invoked a tort standard. Id. at 12-15. On June 7, 2022, the Court denied PMI's motion, finding that WTRI's lack of independent tort claims did not foreclose WTRI from attempting to prove PMI owed it contractual damages for PMI's gross negligence or willful misconduct in breaching the agreements. ECF No. 368 at 382:2-383:5, 387:24-388:24.
As noted above, the Court dismissed WTRI's fraudulent misrepresentation and tortious interference claims at the pleading stage of this case. ECF No. 42 at 8-9. The Court also denied WTRI's request to reinstate its claim for fraudulent misrepresentation and add a claim for fraudulent inducement after the close of discovery. ECF No. 111.
At the conclusion of WTRI's case-in-chief, PMI moved for judgment as a matter of law under Rule 50(a). ECF No. 371 at 775:9-13, 985:2-986:24. The Court deferred ruling on PMI's Motion until after the jury completed its deliberation and issued its verdict. Id. at 986:14-20.
The specific grounds for PMI's Rule 50(a) motion are outlined and discussed by the Court in more detail, infra.
After the close of evidence, the Parties presented two very different pictures of the appropriate damages figures in this case. In closing, WTRI requested that the jury award it $4,798,526 in damages for PMI's alleged breach of the Development Agreement, comprising (1) $1,500,000 in missed milestone payments; (2) $1,050,000 in lost grant revenue; (3) $1,474,234 in the loss of existing customers; and (4) $774,292 in costs WTRI had incurred on the PAL project. ECF No. 387 at 2092:1-2, 2110:21-25. WTRI additionally requested $15.2 million in lost profit damages for PMI's breach of the Services Agreement. ECF No. 385 at 2175:7-11. In contrast, PMI argued in its closing that even assuming WTRI prevailed against PMI on WTRI's contract claims, WTRI was entitled to recover, at most, $457,000. ECF No. 389 at 2260:13-15. PMI requested that the jury instead award PMI either (1) $10.1 million on PMI's contract claims against WTRI, based on the total amount PMI had spent on the PAL project; or (2) $5.6 million, based on the amount PMI had spent on the PAL project, in excess of what PMI had originally budgeted for the project. Id. at 2233:1-7, 2240:3-6, 2264:10-11. PMI additionally requested $1.7 million on its trade secret misappropriation claim. Id. at 2251:20-23.
The jury adopted neither approach wholesale. Instead, on June 27, 2022, the jury returned its verdict, finding in favor of WTRI. ECF Nos. 391; 397. The jury found PMI had breached both the Development and Services Agreements and that PMI's gross negligence or willful misconduct was a substantial factor in causing WTRI harm. ECF No. 397 at 2-4. As such, the jury awarded WTRI $929,500 for PMI's breach of the Development Agreement and $2,250,000 for PMI's breach of the Services Agreement. Id. Additionally, the jury found WTRI had also breached both the Development and Services Agreements, but that PMI had not been harmed by WTRI's breaches. Id. at 5-7. The jury also found against PMI on its trade secret misappropriation claim, finding PMI had not met its burden of establishing it owned a trade secret. Id. at 8. The jury did not, therefore, award PMI any damages. Id. at 5-10.
Pursuant to the jury's findings, judgment was entered in favor of WTRI and against PMI in the total amount of $3,179,500. ECF No. 413 at 2. On July 26, 2022, WTRI filed a post-trial motion for attorneys' fees and related expenses seeking an award of prejudgment and postjudgment interest and attorneys' fees and costs incurred defending against PMI's trade secret misappropriation claim. ECF No. 415. On August 9, 2022, PMI filed its post-trial renewed motion for judgment as a matter of law requesting that the Court overturn the jury's verdict and enter judgment as a matter of law in PMI's favor. ECF No. 419. On October 4, 2022, PMI filed its post-trial motion to strike certain allegedly inadmissible evidence from WTRI's motion for fees and expenses. ECF No. 436.
ANALYSIS
I. Evidentiary Objections
WTRI and PMI each filed myriad objections to evidence the other side submitted in support of their post-trial Motions. ECF Nos. 435-29; 435-30; 435-31; 439-4; 440-4. For the reasons stated below, the Court finds an objection-by-objection analysis is unnecessary in this case. See Doe v. Starbucks, Inc., No. SACV 08-0582 AG (CWx), 2009 WL 5183773, at *1, 2009 U.S. Dist. LEXIS 118878, at *2 (C.D. Cal. Dec. 18, 2009) (in addressing motions with numerous objections, "it is often unnecessary and impractical for a court to methodically scrutinize each objection and give a full analysis of each argument raised.").
First, the Court notes many of the Parties' evidentiary objections are, in actuality, attorney argument regarding whether certain evidence has persuasive weight or supports an offered argument. See e.g., ECF Nos. 435-29 at ¶ 1 (objecting on basis that "speculative projections" are not probative); 439-4 at 4 (objecting to declaration on grounds that declaration was self-serving); 440-4 at ¶ 3 (objecting to evidence because it purportedly does not support a party's "broad assertions"). All of the Parties' objections on these grounds are overruled as superfluous. The Court does not rely on the Parties' characterization of the evidence in this case, but instead, conducts a careful, independent review of the record.
Second, the Parties raised a number of objections on evidence already admitted at trial. Post-trial motions are not the proper juncture for the Parties to raise evidentiary objections they failed to raise before or during trial. See Kelly v. City of Oakland, 198 F.3d 779, 786 (9th Cir. 1999) ("Objections to evidence must be made contemporaneously."). Nor are post-trial motions an appropriate place for the Parties to raise objections the Court already considered and ruled on—especially without any basis for the Court to reconsider its rulings.
As just one example, despite PMI's insistence, the admissibility of Ryan LaMotta's opinions as WTRI's damages expert was already resolved at trial; the Court will not reconsider this issue now at this post-trial juncture. ECF No. 440-4 at ¶ 1. PMI was given multiple opportunities to object to Mr. LaMotta's testimony, including at the Court's June 3, 2022 Daubert hearing. At the hearing, the Court also informed both Parties that so long as the baseline standards for qualification and reliability had been met, the Court would defer the admissibility of expert testimony for the voir dire process at trial. ECF No. 339 at 13:21-14:9. PMI was subsequently given the opportunity to voir dire Mr. LaMotta and seek the exclusion of his testimony at trial. Prior to PMI's voir dire, in a sidebar conference, PMI raised concerns Mr. LaMotta's expert opinion was not supported by sufficient financial documents, especially documents that proved WTRI had lost customers as a result of PMI's actions. ECF No. 370 at 615:20-616:3. PMI did not raise any other specific concerns to the Court, including any of the other arguments it set forth to exclude Mr. LaMotta's testimony in its Daubert motion. Compare ECF No. 136-1 with ECF No. 370 at 615:20-616:3.
Taking PMI's concerns into account, after PMI's voir dire, the Court ruled Mr. LaMotta was a qualified expert that met Rule 702's requirements. ECF No. 370 at 624:21-25. The Court first found Mr. LaMotta's education and professional experience met the requirements necessary to qualify him as an expert on the valuation of WTRI's damages. Id. at 603:14-604:4. The Court next considered Mr. LaMotta's testimony on the methodologies he used to arrive at the "five buckets" of WTRI's damages and found them reliable for the following reasons. First, Mr. LaMotta's opinions properly attributed WTRI's damages to specific instances of PMI's alleged wrongdoing, such as PMI's decision to discontinue the PAL project. Id. at 610:14-19. Second, Mr. LaMotta relied on sufficient record evidence to extrapolate the losses WTRI suffered as a result of (1) losing profits from the licensing of a completed PAL product; (2) losing milestone payments under the Development Agreement; (3) losing grant revenue; (4) losing existing customers; and (5) having to take on tasks PMI was allegedly responsible for. Id. at 605:20-606:5, 607:1-18, 610:1-611:14, 612:23-614:7, 617:16-618:11, 618:24-619:4, 619:10-620:12, 622:5-13, 623:4-25. Third, with respect to Mr. LaMotta's opinions on WTRI's lost profits, Mr. LaMotta used a generally reliable statistical technique known as a Monte Carlo simulation. Lyondell Chem. Co. v. Occidental Chem. Corp., 608 F.3d 284, 294 (5th Cir. 2010) (the "Monte Carlo simulation is not inherently untestable: courts routinely admit statistical evidence, and [ ] can gauge reliability by examining input values and requiring transparency from testifying experts."). The inputs Mr. LaMotta injected into this simulation were generally sound and derived from record evidence. For example, Mr. LaMotta testified the first input of the simulation he ran was the number of customers in the first year of a potential WTRI licensing program, which was derived from a list of existing WTRI customers and the number of pilot participants for the prototype PAL project. Id. at 623:4-25. Given the above, the court concluded PMI's challenges to Mr. LaMotta's testimony went to the weight of his testimony, not its admissibility, and that PMI would have ample opportunity at trial to cross-examine Mr. LaMotta on his methodology, the evidence underlying his opinions, and any other concerns. Kennedy v. Collagen Corp., 161 F.3d 1226, 1230-31 (9th Cir. 1998) (" 'Disputes as to the strength of [an expert's] credentials, faults in his use of [a particular] methodology, or lack of textual authority for his opinion, go to the weight, not the admissibility, of his testimony.' ") (quoting McCullock v. H.B. Fuller Co., 61 F.3d 1038, 1044 (2d Cir. 1995)). It is not appropriate at this late juncture for PMI to again raise evidentiary objections as to the admissibility of Mr. LaMotta's trial testimony, including objections as to the evidence supporting his opinions or his purported lack of personal knowledge. ECF No. 440-4 at ¶ 1. The Court, therefore, overrules all of PMI's objections to the admissibility of Mr. LaMotta's expert opinions at trial. For similar reasons, the Court also overrules all other objections raised by either Party that the Court already ruled on prior to or during trial, or which should have been raised earlier and are now untimely.
Third, in addressing WTRI's post-trial argument that PMI brought a baseless trade secret claim in bad faith, both Parties devoted considerable briefing addressing evidence not admitted at trial. ECF Nos. 436, 443, 444. The Court has discretion not to consider unadmitted evidence in a post-trial proceeding. See San Miguel Pure Foods Co. v. Ramar Int'l Corp., 625 F. App"x 322, 326 (9th Cir. 2015) (declining to consider evidence not introduced at trial) (citing Ortiz v. Jordan, 562 U.S. 180, 184, 131 S.Ct. 884, 178 L.Ed.2d 703 (2011) (once a case proceeds from summary judgment to trial, claims "must be evaluated in light of the character and quality of the evidence received in court.")). Here, WTRI requests that the Court consider an unadmitted screenshot and YouTube video that it purports will demonstrates PMI's alleged trade secret was widely known to the general public before PMI "conceived" of it. ECF No. 415-1 at 18-19. PMI argues this evidence should be stricken from WTRI's briefing, but nevertheless submits new witness declarations for the Court to consider in determining the merit of WTRI's contention. ECF Nos. 435-21; 436. The Court declines to consider such unadmitted evidence, especially when WTRI's purpose in introducing such evidence is to have the Court make an independent determination on a question of fact that was the province of the jury at trial—whether PMI's "discovery" actually constituted a trade secret. See Thompson v. Impaxx, Inc., 113 Cal. App. 4th 1425, 1430, 7 Cal.Rptr.3d 427 (2003) ("The issue of whether information constitutes a trade secret is a question of fact."). PMI's motion to strike is, therefore, granted. Similarly, the Parties' objections with regards to unadmitted evidence are sustained.
As an unpublished Ninth Circuit memorandum disposition, the San Miguel Pure Foods Co. decision is not precedent, but may still be considered for its persuasive value. See Fed. R. App. P. 32.1; see also Gladstone v. Travelers Prop. Cas. Co. (In re Garden Fresh Rests., LLC), No. 21-CV-1440 JLS (KSC), 2022 WL 4356104, at *4, 2022 U.S. Dist. LEXIS 170238, at *10 n.4 (S.D. Cal. Sep. 20, 2022). This principle applies to all of the unpublished Ninth Circuit memorandum dispositions the Court has cited in this opinion.
The Court will not, however, require that the Parties refile their briefs in order to omit the stricken materials.
Finally, the Court notes many of the objections the Parties raise are moot in light of the Court's rulings below. The Court, therefore, overrules all such objections.
II. WTRI's Request for Prejudgment and Postjudgment Interest
WTRI seeks an award of prejudgment interest at a rate of 10% per annum calculated from either (1) December 15, 2016—the execution date of the Services Agreement; or (2) August 20, 2018—the filing date of WTRI's Complaint. ECF No. 415-1 at 12-14. WTRI also requests postjudgment interest at a rate of 2.86% calculated from July 12, 2022—the date judgment was entered. Id. at 14-15.
A. WTRI's Request for Prejudgment Interest
The Court looks to California law to determine whether to award prejudgment interest in this case arising under diversity jurisdiction. See Mutuelles Unies v. Kroll & Linstrom, 957 F.2d 707, 714 (9th Cir. 1992) ("In diversity jurisdiction, state law governs all awards of pre-judgment interest."). California Civil Code section 3287 provides the applicable state law framework for awarding or denying prejudgment interest. Section 3827(a) mandates prejudgment interest on liquidated claims—claims where damages that are "certain, or capable of being made certain by calculation." N. Oakland Med. Clinic v. Rogers, 65 Cal. App. 4th 824, 828, 76 Cal. Rptr.2d 743 (1998); Cal. Civ. Code § 3287(a). In contrast, section 3287(b) makes discretionary prejudgment interest on unliquidated claims—claims where "the exact amount of damage is in dispute." A & M Produce Co. v. FMC Corp., 135 Cal. App. 3d 473, 496, 186 Cal.Rptr. 114 (1982); Cal. Civ. Code § 3287(b). The Court will examine, in turn, whether WTRI is entitled to prejudgment interest because WTRI's claims were liquidated under section 3827(a), and if not, whether the Court should exercise its discretion to award prejudgment interest under section 3287(b).
1. WTRI's Entitlement to Mandatory Prejudgment Interest for Liquidated Damages
In deciding whether WTRI is entitled to mandatory prejudgment interest, the Court must determine whether WTRI's damages were liquidated, i.e., certain or calculable. "The test for determining certainty under section 3287(a) is whether the defendant knew the amount of damages owed to the claimant or could have computed that amount from reasonably available information." Howard v. Am. Nat'l Fire Ins. Co., 187 Cal. App. 4th 498, 535, 115 Cal.Rptr.3d 42 (2010). Damages are not certain or liquidated "when the amounts due turn on disputed facts," Olson v. Cory, 35 Cal. 3d 390, 402, 197 Cal.Rptr. 843, 673 P.2d 720 (1983), or when the amount "depends upon the jury's resolution of conflicting evidence," Marine Terminals Corp. v. Paceco, 145 Cal. App. 3d 991, 995, 193 Cal.Rptr. 687 (1983). A large discrepancy between the damages claimed by a plaintiff and the final judgment awarded supports the conclusion a plaintiff's damages are not certain or calculable. See Polster, Inc. v. Swing, 164 Cal. App. 3d 427, 435, 210 Cal.Rptr. 567 (1985); Chesapeake Indus., Inc. v. Togova Enters., Inc., 149 Cal. App. 3d 901, 910, 197 Cal. Rptr. 348 (1983). In contrast, when the only dispute concerns liability rather than the amount of damages, damages are generally considered certain. Olson, 35 Cal. 3d at 402, 197 Cal.Rptr. 843, 673 P.2d 720.
This was not a case where the amount of WTRI's damages was a foregone conclusion leaving liability as the only issue for the jury. To the contrary, the jury needed to resolve myriad factual disputes to arrive at its ultimate damages award. For example, to determine whether it should award lost profits damages to WTRI, the jury needed to gauge the likelihood that either Party could have finished the PAL project and licensed it in the absence of the breach. It then needed to determine whether WTRI had customers interested in licensing the finished PAL project and how much they would be willing to pay in order to reach a number on WTRI's lost profits. See e.g., ECF Nos. 368 at 244:12-252:8; 389 at 2205:2-8. In determining the amount of WTRI's lost profit damages, the jury also had to decide whether WTRI's loss of reputation due to its failed business venture with PMI caused the NSF to deny WTRI's subsequent grant applications. See e.g., ECF Nos. 367 at 137:12-25; 370 at 607:9-12; 389 at 2260:17-2263:10. The jury was required to resolve the above—and many other factual disputes—by weighing conflicting evidence presented during a fifteen-day long trial. The sheer number of factual disputes the jury needed to resolve in order to arrive at its damages award militates against a finding the amount of WTRI's damages was certain or calculable. See Marine Terminals Corp., 145 Cal. App. 3d at 995, 193 Cal.Rptr. 687.
Moreover, the significant difference between the damages WTRI requested, PMI's valuation of these same damages, and the final judgment awarded by the jury also weighs against a finding WTRI's damages were certain or calculable for the purposes of section 3287(a). In its closing argument, WTRI requested over $19 million in damages. ECF Nos. 387 at 2110:21-2111:3 (requesting $4,798,526 in damages for breach of the Development Agreement); 385 at 2175:7-8 (requesting $15,200,000 in damages for breach of the Services Agreement). PMI vigorously contested the amount of WTRI's damages, the methodology used to calculate those damages, and the evidence supporting those calculations. See e.g., ECF Nos. 158-1 at 24-30; 389 at 2203:20-22, 2255:12-2263:23. Rather than $19 million, PMI contended WTRI was entitled to, at most, $457,000 in missed milestone payments. ECF Nos. 374 at 1418:4-1419:12; 389 at 2260:13-15. The jury ultimately awarded WTRI a little over $3 million, which is far different than the $19 million requested by WTRI or PMI's $457,000 valuation of WTRI's case. ECF No. 397. This large discrepancy militates against a finding of certainty. Polster, 164 Cal. App. 3d at 435, 210 Cal.Rptr. 567 ("[W]here there is a large discrepancy between the amount of damages demanded in the complaint and the size of the eventual award, that fact militates against a finding of the certainty mandated by Civil Code section 3287, subdivision (a).").
Because its contractual claims for damages against PMI were unliquidated, WTRI is not entitled to prejudgment interest as a matter of right. The Court, therefore, denies WTRI's request for mandatory prejudgment interest under section 3287(a). See Kiewit Power Constructors Co. v. City of L.A., 813 F. App'x 261, 266 (9th Cir. 2020) (district court did not abuse its discretion in denying prejudgment interest where damages were not certain until jury verdict); Milhouse v. Travelers Commer. Ins. Co., 641 F. App"x 714, 718 (9th Cir. 2016) (same).
2. WTRI's Entitlement to Discretionary Prejudgment Interest
Having determined WTRI is not entitled to mandatory prejudgment interest for liquidated damages, the Court next examines whether discretionary prejudgment interest under section 3287(b) is warranted in this case.
A court should award prejudgment interest under section 3287(b) only if it is "reasonable in light of the factual circumstances of a particular case." Lewis C. Nelson & Sons v. Clovis Unified Sch. Dist., 90 Cal. App. 4th 64, 69, 108 Cal. Rptr.2d 715 (2001). While there is no authoritative list of criteria for determining whether an award of discretionary prejudgment interest is reasonable, courts that have decided the issue have considered factors such as: "(1) the time between the lawsuit's filing and the judgment; (2) whether awarding interest will penalize the defendant for litigating a bona fide dispute; and (3) whether the plaintiff made settlement offers such that the defendant's refusal could be construed as placing the prejudgment interest amount at risk." Zargarian v. BMW of N. Am., LLC, 442 F. Supp. 3d 1216, 1226 (C.D. Cal. 2020) (internal quotation marks omitted); see also Glob. Videos, Inc. v. Niekerk, 187 F. App'x 689, 691 (9th Cir. 2006) (finding district court's award of prejudgment interest was a proper exercise of discretion given length of case and the fact that breach of contract was willful); A & M, 135 Cal. App. 3d at 496, 186 Cal.Rptr. 114 (award of prejudgment interest upheld where case had gone on for over seven years and plaintiff had offered to settle case).
Here, contrary to WTRI's argument, the jury's findings that PMI acted with gross negligence or willful misconduct does not, by itself, justify WTRI's request for discretionary prejudgment interest. It was far from certain WTRI would successfully convince the jury that PMI's actions, such as PMI's allocation of staff and resources to the PAL project, constituted gross negligence or willful misconduct as opposed to simple negligence or reasonable efforts in light of the circumstances. Although WTRI ultimately prevailed at trial, this was not a one-sided case. As PMI notes, the jury found WTRI had also failed to perform certain obligations under both the Development and Services Agreement. ECF No. 397 at 5, 7. To award prejudgment interest in this case would unfairly penalize PMI for litigating a bona fide dispute with multiple, highly contested issues concerning liability and damages that the Parties tried to a jury verdict. See Fresno Rock Taco, LLC v. Nat'l Sur. Ins. Corp., No. 1:11-cv-845-SKO, 2015 WL 135720 at *28, 2015 U.S. Dist. LEXIS 2819 at *82 (E.D. Cal. Jan. 8, 2015) (denying request for prejudgment interest where interest award would result in penalizing defendant for litigating a bona fide dispute).
Neither does the length of litigation weigh in favor of prejudgment interest in this case. The litigation took approximately forty-five months to progress from WTRI's initial filing of its complaint to jury trial. This is not an unreasonable lifespan for a civil case in this district. The Court further notes that WTRI joined in or requested the first two continuances of the trial date in this case. ECF Nos. 106; 151 at 2. The Court ordered further continuances due to the Court's scheduling concerns, the availability of both Parties and their witnesses for trial, and to accommodate the transfer of this case to the undersigned for trial. The duration of this action was neither unduly protracted nor directly attributable to any delay tactics on PMI's part. Given the above, it would be inequitable for the Court to weigh any delays in the timing of trial against PMI. See Patriot Rail Corp. v. Sierra R.R. Co., No. 2:09-cv-0009-TLN-AC, 2014 WL 5426446 at *1, 2014 U.S. Dist. LEXIS 150713 at *6 (E.D. Cal. Oct. 22, 2014) (denying request for prejudgment interest where delays in matter were not attributable to either party).
In sum, taking the above factors into consideration, as well as the evidence presented before, during and after trial, the Court exercises its discretion and denies WTRI's request for prejudgment interest under section 3287(b).
B. WTRI's Request for Postjudgment Interest
The Court next turns to WTRI's request for postjudgment interest. While state law governs prejudgment interest in diversity actions, the Court looks to federal law to determine whether to award postjudgment interest. Northrop Corp. v. Triad Int'l Marketing Corp., SA., 842 F.2d 1154, 1155 (9th Cir. 1988). Under 28 U.S.C. § 1961, postjudgment interest on any money judgment in a civil case is mandatory. 28 U.S.C. § 1961(a) ("Interest shall be allowed on any money judgment in a civil case recovered in a district court."); see also Air Separation v. Underwriters at Lloyd's of London, 45 F.3d 288, 290 (9th Cir. 1995). Postjudgment interest is calculated "from the date of the entry of the judgment" and is computed daily up to the date of payment and compounded annually. 28 U.S.C. § 1961(a) and (b). The postjudgment interest rate is "equal to the weekly average 1-year constant maturity Treasury yield, as published by the Board of Governors of the Federal Reserve System, for the calendar week preceding the date of the judgment." 28 U.S.C. § 1961(a).
Because postjudgment interest is mandatory under 28 U.S.C. § 1961, the Court grants WTRI's request. Interest is to be assessed from July 12, 2022. The postjudgment interest rate for a judgment entered on this date is 2.86%. "Post Judgment Interest Rates-2022," accessible at https://www.casb.uscourts.gov/post-judgment-interest-rates-2022 (last accessed March 27, 2023). WTRI is, therefore, entitled to postjudgment interest computed at 2.86% per year, calculated from July 12, 2022, computed daily, and compounded annually, through the date of payment.
III. WTRI's Request for Fees and Costs
In addition to prejudgment and postjudgment interest, WTRI also requests the attorneys' fees, costs, and expert witness fees the company incurred to defend against PMI's "baseless" trade secret misappropriation claim. ECF No. 415-1 at 15-34. WTRI claims that it cost them $1,492,182.76 to defend against this claim and seeks recompense of this same amount. Id. at 34.
Specifically, WTRI contends the fees and costs it incurred defending against PMI's trade secret misappropriation claim include: (1) $1,304,470.68 in attorneys' fees; (2) $187,712.08 in expert fees; and (3) $92,150 in connection with litigating its fees motion, i.e., WTRI's "fees on fees." ECF No. 415-1 at 34.
Both the Federal Defend Trade Secrets Act ("DTSA"), 18 U.S.C. § 1836, et seq. and California Uniform Trade Secrets Act ("CUTSA"), Cal. Civ. Code § 3426, et seq. permit, but do not require, a court to award fees to a "prevailing party" defending against a claim of trade secret misappropriation made in "bad faith." See 18 U.S.C. § 1836(b)(3)(D); Cal. Civ. Code § 3426.4. While neither the DTSA nor the CUTSA define the term "bad faith," courts that have considered the issue have generally "held that bad faith requires objective speciousness of the plaintiff's claim, as opposed to frivolousness, and subjective bad faith in bringing or maintaining the claim." Direct Techs., Ltd. Liab. Co. v. Elec. Arts, Inc., 836 F.3d 1059, 1071 (9th Cir. 2016) (internal quotation marks and citation omitted); see also FLIR Sys., Inc. v. Parrish, 174 Cal. App. 4th 1270, 1275, 95 Cal. Rptr.3d 307 (2009) ("Although the Legislature has not defined 'bad faith,' our courts have developed a two-prong standard: (1) objective speciousness of the claim, and (2) subjective bad faith in bringing or maintaining the action, i.e., for an improper purpose.").
1. Bad Faith: Objective Speciousness
As there is no dispute WTRI was the "prevailing party" on PMI's trade secret misappropriation claim, the Court will first consider whether PMI's claim was "objectively specious" and then evaluate any evidence of "subjective bad faith." After reviewing the evidence admitted at trial, the Court finds PMI's trade secret misappropriation claim to have been objectively specious.
"[O]bjective speciousness exists where the action superficially appears to have merit but there is a complete lack of evidence to support the claim." FLIR Sys., 174 Cal. App. 4th at 1276, 95 Cal. Rptr.3d 307. In order to prove that a claim is objectively specious, "it is enough for defendants to point to the absence of evidence of misappropriation in the record." Cypress Semiconductor Corp. v. Maxim Integrated Prods., Inc., 236 Cal. App. 4th 243, 260, 186 Cal.Rptr.3d 486 (2015). A defendant "is not required to conclusively prove a negative (i.e., that they did not steal [the plaintiff's] trade secrets)." Id. (internal quotation marks omitted).
In this Court's view, PMI failed to clearly identify the trade secret that it claims WTRI misappropriated. As a result, no reasonable jury could find that PMI owned a trade secret, much less that WTRI misappropriated it. See Inteliclear, LLC v. ETC Glob. Holdings, Inc., 978 F.3d 653, 658 (9th Cir. 2020) (to prove ownership of a trade secret, a plaintiff should describe the subject matter of the trade secret " 'with sufficient particularity to separate it from matters of general knowledge in the trade or of special knowledge of those persons . . . skilled in the trade.' ") (quoting Imax Corp. v. Cinema. Techs., Inc., 152 F.3d 1161, 1164 (9th Cir. 1998) (emphasis in original)).
Throughout trial, PMI's articulation of its trade secret was simply too vague to convey an understanding of its parameters or to separate it from matters of general knowledge. At trial, Karen Holloway, the purported "inventor" of PMI's alleged trade secret, testified she had developed an "agile process" for creating content in a "spreadsheet database" that could be "dumped" into a "template flow." ECF No. 373 at 1267:1-13. However, Ms. Holloway never identified any particular content, spreadsheet, "flow templates," or method of having a spreadsheet and "flow template" work together that she purported to be PMI's trade secret. The remainder of trial provided little additional insight regarding the scope of PMI's purported trade secret. Betsey Redden, another PMI employee, testified in a similarly vague and circular fashion that PMI's trade secret was a "new way" of "getting flows and having decision trees" that would work with PMI's "flows." Id. at 1345:16-24. Dr. Alicia Sanchez, who worked with PMI during the development of the PAL project, testified that PMI's trade secret was a method of making "content changes" to a virtual world "dynamically" using an "Excel-based spreadsheet[.]" ECF No. 435-12 at 18. These descriptions, at once too vague and too inclusive, appear to sweep into the ambit of PMI's "trade secret" every type of spreadsheet, flow chart, and some imprecisely described process of connecting the two together. Based on the trial evidence presented, the Court is unable to discern the nature of PMI's alleged trade secret, much less whether it constitutes a trade secret under the law.
The Court notes that prior to trial, PMI's trade secret expert, Dr. Ricardo Valerdi, identified thirteen PMI trade secrets in four categories. (See Doc. No. 188-1 at ¶ 22). While it is possible Dr. Valerdi's testimony may have lent more clarity as to what PMI's alleged trade secret was purported to be, PMI did not call Dr. Valerdi to the stand.
PMI's failure to articulate the proper scope of its alleged trade secret also makes it impossible for the Court to determine whether there was a complete absence of evidence presented at trial that: (1) PMI's alleged trade secrets were not commonly known; (2) PMI's trade secrets possessed independent economic value from not being known; and (3) that WTRI had misappropriated PMI's trade secrets. See MAI Sys. Corp. v. Peak Comput., Inc., 991 F.2d 511, 522 (9th Cir. 1993) (finding that because trade secrets were not specifically identified, the court could not determine whether defendant had misappropriated any trade secrets).
For these reasons, the Court finds PMI's trade secret misappropriation claim was objectively specious, or at minimum, a poor use of litigation and judicial resources at trial. See United States Auto Parts Network, Inc. v. Parts Geek, LLC, No. CV 09-4609-JFW (RZx), 2010 WL 11597438, at *4, 2010 U.S. Dist. LEXIS 153412, at *11 (C.D. Cal. July 30, 2010) (finding a plaintiff's trade secret claim to be objectively specious where plaintiff was unable to identify or describe its trade secret with sufficient particularity).
2. Bad Faith: Subjective Intent
In order to determine whether fees are appropriate, the Court must go further than finding that PMI's trade secret claim was objectively specious; it must also consider whether PMI's claims were commenced or maintained in subjective bad faith.
Subjective bad faith under section 3426.4 "means the action was commenced or continued for an improper purpose, such as harassment, delay, or to thwart competition." SASCO v. Rosendin Elec., Inc., 207 Cal. App. 4th 837, 847, 143 Cal.Rptr.3d 828 (2012). The test "is not what the plaintiff believed about its objectively specious claim, but for what purpose it pursued such a claim." Cypress, 236 Cal. App. 4th at 267, 186 Cal.Rptr.3d 486 (emphasis in original). "A subjective state of mind will rarely be susceptible of direct proof; usually the trial court will be required to infer it from circumstantial evidence." Gemini Aluminum Corp. v. Cal. Custom Shapes, 95 Cal. App. 4th 1249, 1263, 116 Cal.Rptr.2d 358 (2002) (internal quotation marks omitted).
Here, WTRI suggests PMI brought a baseless trade secret misappropriation claim to retaliate against WTRI for bringing its own lawsuit and to increase litigation costs. ECF No. 415-1 at 27. WTRI asks the Court to infer PMI's bad faith from the alleged total lack of evidence supporting PMI's trade secret claim. Id. at 25-27. Although the Court finds PMI's trade secret claim was objectively specious, the Court does not find PMI acted in subjective bad faith for two reasons. First, the Court finds that PMI may have been motivated by a faulty but genuine belief in the value of the process Ms. Holloway "discovered." From the Court's assessment of the evidence presented at trial, Ms. Holloway held a subjective, but genuine belief she had "discovered" a novel process of developing virtual world simulations more quickly. ECF No. 373 at 1272:7-1273:4; 1273:7-17. Ms. Holloway testified this new process had a number of immediate benefits, including: (1) making it easier for subject matter experts to write stories in a virtual world; (2) making it easier for instructional designers to review and manage this content; and (3) making it easier for developers to write code. Id. at 1272:7-1273:4. Ms. Redden and Dr. Sanchez similarly testified as to the advantages of PMI's process. Id. at 1346:3-5 ("This was really, for us, exciting because this could—this did speed up the ability for us to have simulations in the—in the product and decisions, I should say."); 435-12 at 18 ("So it was a pretty cool and very slick process for how to ingest the voluminous amounts of content into the virtual world dynamically and in a way that allowed for the greatest levels of modification and sustainment."). For the above reasons, the Court finds that Ms. Holloway's subjective belief that she had developed a different and beneficial process—rather than PMI's bad faith tactics—may have motivated the trade secret claims at issue here.
Second, the Court cannot agree with WTRI's conclusion that PMI pursued its trade secret misappropriation claim solely to increase WTRI's litigation costs. By litigating a trade secret misappropriation claim to trial, PMI undoubtedly expended significant fees and expenses in (1) retaining Dr. Valerdi, PMI's trade secret expert; (2) having Dr. Valerdi prepare a report; (3) preparing and defending Dr. Valerdi in deposition; (4) litigating a summary judgment motion on PMI's trade secret claim; (6) defending against WTRI's summary judgment motion on PMI's trade secret claim; (7) defending a Daubert motion directed at excluding Dr. Valerdi's testimony at trial; and (8) devoting time and resources preparing and litigating this trade secret claim through trial. See e.g., ECF Nos. 127-2; 158; 161-4 at 207-224; 182; 207; 301 at 9-15. Although PMI did not call its own trade secret expert at trial, there are a multitude of strategic reasons PMI could have decided not to call Dr. Valerdi, including as PMI states, a need to comply with the trial time limits set by the Court. ECF No. 435 at 26. Despite WTRI's arguments to the contrary, the Court does not find evidence suggesting PMI, or its counsel, embraced a self-damaging litigation strategy that would have invariably increased PMI's own litigation costs and fees for bad faith purposes.
In sum, WTRI has not presented sufficient direct or circumstantial evidence for the Court to conclude PMI brought its trade secret misappropriation claim in subjective bad faith. Direct Techs., Ltd. Liab. Co. v. Elec. Arts, Inc., 836 F.3d 1059, 1071 (9th Cir. 2016) (affirming denial of attorneys' fees where there was no evidence to suggest plaintiff brought its trade secret misappropriation claim for an improper purpose such as to extort a settlement). For the above reasons, WTRI's request for its attorneys' fees, costs, and expert fees pursuant to the DTSA and CUTSA is denied. For the same reasons, WTRI's request for its "fees on fees" is also denied. Thompson v. Gomez, 45 F.3d 1365, 1368 (9th Cir. 1995) ("Fees for fee litigation are excludable . . . in all cases to the extent that the applicant ultimately fails to prevail in such litigation.") (internal quotation marks and citation omitted).
IV. PMI's Renewed Motion for Judgment as a Matter of Law
In PMI's Rule 50(b) motion, PMI advances five grounds to overturn the jury's verdict and enter judgment as a matter of law in PMI's favor. ECF No. 419-1 at 10-22. Before reaching the merits, the Court first examines which, if any, of these arguments PMI properly preserved.
A. Grounds Preserved in PMI's Rule 50(b) Motion
PMI may only raise arguments in its post-trial Rule 50(b) motion that it properly preserved in its Rule 50(a) motion prior to the close of trial. Under Federal Rule of Civil Procedure 50(b), a party may file a renewed motion for judgment as a matter of law after entry of judgment on a jury verdict. See Fed. R. Civ. P. 50(b). A Rule 50(b) motion "is not a freestanding motion." EEOC v. Go Daddy Software, Inc., 581 F.3d 951, 961 (9th Cir. 2009). Instead, "[a] renewed motion for judgment as a matter of law must be preceded by a motion made at trial that sets forth the specific grounds raised in the renewed motion." Wallace v. City of San Diego, 479 F.3d 616, 631 (9th Cir. 2007) (emphasis added); see also EEOC, 581 F.3d at 961 ("Because it is a renewed motion, a proper post-verdict Rule 50(b) motion is limited to the grounds asserted in the pre-deliberation Rule 50(a) motion."). "The purpose of this rule is twofold." Freund v. Nycomed Amersham, 347 F.3d 752, 761 (9th Cir. 2003). "First it preserves the sufficiency of the evidence as a question of law, allowing the district court to review its initial denial of judgment as a matter of law instead of forcing it to 'engage in an impermissible reexamination of facts found by the jury.' " Id. (quoting Lifshitz v. Walter Drake & Sons, 806 F.2d 1426, 1428-29 (9th Cir. 1986)). "Second, it calls to the court's and the parties' attention any alleged deficiencies in the evidence at a time when the opposing party still has an opportunity to correct them." Id. Although Rule 50(b) "may be satisfied by an ambiguous or inartfully made motion"—a party can, for example, argue the "logical extension[s]" of the arguments it raised mid-trial—a party cannot use a Rule 50(b) motion as a vehicle to raise new and distinct arguments. See Go Daddy, 581 F.3d at 961-62.
A comparison between the arguments PMI raised mid-trial and the arguments it raises now reveals many of them are not the same; and that PMI therefore failed to properly preserve many of its current arguments. In its mid-trial Rule 50(a) Motion, PMI's counsel advanced the following arguments. First, PMI's counsel argued WTRI had failed to establish PMI breached the Development Agreement as it was undisputed (1) Dr. Lia DiBello, WTRI's Chief Executive Officer and Director of Research, had negotiated the terms of the agreements; (2) PMI had paid WTRI what it owed; (3) Dr. DiBello admitted WTRI did not use the Software Development Plan attached to the Development Agreement; and (4) that PMI had exercised its contractual right to reject and retain the PAL project software. ECF No. 371 at 985:9-14. Second, PMI's counsel argued WTRI had failed to establish PMI breached the Services Agreement based on "similar arguments" including that PMI had paid WTRI everything it was contractually obligated to. Id. at 985:15-17. Third, PMI's counsel argued the "damages evidence" that had been submitted in connection with PMI's breach of the Services Agreement was "speculative." Id. at 985:18-19. Fourth, PMI's counsel argued WTRI had failed to establish PMI breached the implied covenant of good faith and fair dealing with regard to the Development Agreement because "PMI had a reject-and-retain right," the Parties had agreed to accelerate the development of the PAL project, and the PAL project had not met agreed upon milestones. Id. at 985:20-25. Finally, PMI's counsel argued it did not appear that there was "any evidence of gross negligence or willful misconduct." Id. at 985:25-986:4.
In its post-trial Rule 50(b) motion, PMI advances the following arguments. First, PMI argues the Court should overturn the jury's $2,250,000 lost profits award because as an established business, WTRI was required to—and did not—prove its lost profits by submitting past financials and canceled sales contracts. ECF No. 419-1 at 10-14. Second, PMI argues the Court should overturn the jury's lost profits award because WTRI's claim for lost profits at trial was based on a theory of breach not pled in WTRI's TAC. Id. at 14-15. Third, PMI argues the Court should overturn the jury's entire $3,179,500 award because WTRI's damages expert, Ryan LaMotta, purportedly testified at trial that WTRI's damages were not tied to any particular breach of the Parties' agreements, which purportedly demonstrates WTRI failed to show PMI's conduct proximately caused WTRI's damages. Id. at 15-16. Fourth, PMI argues the Court should overturn the jury's finding PMI acted with gross negligence or engaged in willful misconduct and consequently overturn the jury's damages award partially or in its entirety, because WTRI did not separately allege gross negligence or willful misconduct as independent torts. Id. at 16-20. Finally, PMI argues the jury's finding on gross negligence or willful misconduct should be overturned as WTRI was required to—and did not—prove that PMI owed WTRI a duty of care independent of the Parties' contracts. Id. at 17-19.
Comparing PMI's Rule 50(a) and Rule 50(b) arguments, the Court concludes PMI's post-trial argument that WTRI was required to prove its lost profit damages through past revenue data and evidence of provable future sales is a narrower subset of PMI's mid-trial argument WTRI's damages evidence was "speculative." The remainder of PMI's Rule 50(b) arguments, however, bear no relation to the arguments raised at the mid-trial Rule 50(a) juncture. First, PMI's mid-trial argument that the evidence supporting WTRI's damages claim for breach of the Services Agreement was "speculative" is simply different from PMI's post-trial claim that WTRI's lost profits award is based on an unpled breach. The former is a "quantum of evidence" argument regarding the nature and weight of evidence in support of damages; the latter is a procedural argument directed to a pleading deficiency. Likewise, PMI's mid-trial argument that no evidence supports a finding of gross negligence or willful misconduct is qualitatively different from PMI's post-trial arguments that WTRI was required to plead and prove that PMI committed tortious gross negligence or willful misconduct before it could collect its contractual damages. The former is an argument directed to the sufficiency of the evidence needed to support a finding that PMI engaged in gross negligence and willful misconduct. The latter two arguments are about whether a Party needs to plead and prove an independent tort in order to recover on a breach of contract claim in cases where a contractual limitation of liability provision invokes a tort standard.
To the extent PMI now argues the portions of the Court's final jury instructions and verdict form directed to gross negligence and willful misconduct should not have been submitted to the jury, PMI had numerous opportunities to object at trial—including at the Court's conference on the proposed final jury instructions and verdict form. ECF No. 382 at 1913:14-1940:11. PMI did not do so and its arguments on any purported errors in providing these instructions and the verdict form to the jury are waived. See Affordable Hous. Dev. Corp. v. City of Fresno, 433 F.3d 1182, 1196 (9th Cir. 2006) ("Failure to object to an instruction waives the right of review."); Sanghvi v. City of Claremont, 328 F.3d 532, 541 (9th Cir. 2003) ("[Plaintiffs] waived their challenge to the instruction the district court gave by failing to object to it."); Yeti by Molly, Ltd. v. Deckers Outdoor Corp., 259 F.3d 1101, 1109 (9th Cir. 2001) (failure to challenge jury verdict form waives issue on appeal).
Finally, PMI's mid-trial argument that WTRI's damages evidence was "speculative" is also different from PMI's later argument PMI's expert, Mr. LaMotta, purportedly conceded there was no causal link between PMI's breach and WTRI's damages. ECF No. 419-1 at 15. The first challenges sufficiency of the evidence while the latter seeks to undermine the proximate causation between the breach and damages. PMI's current causation argument does not resemble its mid-trial motion in the least—indeed, at the earlier juncture, PMI did not reference Mr. LaMotta's testimony at all, let alone argue how Mr. LaMotta's testimony supposedly led to WTRI's purported failure to demonstrate causation.
Although the Court does not go to the merits of this argument, the Court does note PMI's post-trial characterization of Mr. LaMotta's testimony may not be accurate given the larger context of his remarks. See ECF No. 371 at 759:4-11.
PMI argues it provided proper notice to WTRI of every ground it now raises in its Rule 50(b) Motion by "challenging specific claims" in its Rule 50(a) Motion. ECF No. 440 at 6. Although not entirely clear, PMI appears to be contending that it may raise a new ground in a Rule 50(b) Motion as long as this new ground can arguably be placed in the same "general category" of "lost profit damages" or "gross negligence or willful misconduct." The Court does not agree. Indeed, PMI's interpretation of the preservation rule would largely eviscerate the requirement for a party to set forth specific grounds in its Rule 50(a) Motion. Because the above four Rule 50(b) arguments are substantively different and not "logical extensions" or better articulated versions of PMI's previous arguments, the Court concludes they were not properly preserved.
The Court also rejects any suggestion PMI was not provided a fair opportunity to set forth all grounds in support of its Rule 50(a) Motion. ECF No. 440 at 5. At trial, the Court specifically instructed PMI's counsel that it was providing PMI with the opportunity to state "all the grounds" for its Rule 50(a) Motion on the record. ECF No. 371 at 985:5-6, 986:17-20. The Court further questioned PMI's counsel as to whether there were "[a]ny other grounds" PMI wished to place on the record. Id. at 986:8. PMI declined the Court's invitation, but instead offered to provide a short brief on the issues already raised with citations to the record. Id. at 986:9-13. PMI did not suggest it had additional unraised grounds—or that it wished to present these unraised grounds in a written brief.
For these reasons, the Court finds that the only properly preserved argument for its consideration is whether WTRI was required to prove its lost profit damages by submitting past revenue data and evidence of provable future sales.
B. PMI's Properly Preserved Grounds for Relief
The Court will next consider PMI's properly preserved argument concerning lost profit damages. Although the Court is not required to do so, out of an abundance of caution, the Court will also address PMI's argument that WTRI was required to prove PMI owed WTRI a duty of care independent of the Parties' contracts.
The Court stands by its analysis this argument was not properly preserved. Nevertheless, one may colorably argue this later argument—that WTRI needed to prove an independent tort duty in order to prove gross negligence or willful misconduct—is a subset of the earlier argument—that there was no evidence in the record of PMI's gross negligence or willful misconduct. The Court will therefore address this argument on the merits.
1. Legal Standard
The standard for a judgment as a matter of law under Rule 50 "mirrors" the summary judgment standard under Rule 56 "such that the inquiry under each is the same." Reeves v. Sanderson Plumbing Prods., 530 U.S. 133, 150, 120 S.Ct. 2097, 147 L.Ed.2d 105 (2000) (internal quotation marks omitted). "[I]n entertaining a motion for judgment as a matter of law, the court should review all of the evidence in the record. In doing so, however, the court must draw all reasonable inferences in favor of the nonmoving party, and it may not make credibility determinations or weigh the evidence." Id. Judgment as a matter of law is proper "if the evidence, construed in the light most favorable to the nonmoving party, permits only one reasonable conclusion, and that conclusion is contrary to the jury's verdict." Pavao v. Pagay, 307 F.3d 915, 918 (9th Cir. 2002); Hangarter v. Provident Life & Accident Ins. Co., 373 F.3d 998, 1005 (9th Cir. 2004) ("JMOL should be granted only if the verdict is against the great weight of the evidence, or it is quite clear that the jury has reached a seriously erroneous result.") (internal quotation marks omitted). In ruling on the renewed motion, a court may "(1) allow judgment on the verdict, if the jury returned a verdict; (2) order a new trial; or (3) direct the entry of judgment as a matter of law." Fed. R. Civ. P. 50(b).
2. Lost Profits
PMI argues that WTRI could not prove lost profits without submitting evidence of past revenue and certain future sales; consequently, the jury's verdict was contrary to law and must be set aside ECF Nos. 419-1 at 10-14; 440 at 7-9. PMI emphasizes that "[t]he only question for the Court is whether an established business must introduce evidence of its past financials or canceled contracts to recover lost profits." ECF. No. 440 at 7. That question is, therefore, the only one the Court will examine.
PMI's briefs make passing reference to a broader argument that the jury's lost profits award was not supported by sufficient evidence. Aside from its contention that lost profits can only be proved with past financials or canceled contracts, PMI does not meaningfully brief how the evidence submitted by WTRI at trial was insufficient. Because proper exercise of judicial restraint mandates that the Court address only the "issues which are argued specifically and distinctly" by a party, the Court will only address PMI's contention that only past financials and/or confirmed sales contracts can prove lost profits. Indep. Towers of Wash. v. Washington, 350 F.3d 925, 929 (9th Cir. 2003) (internal quotation marks omitted); see also Austin v. Univ. of Or., 925 F.3d 1133, 1138-39 (9th Cir. 2019) (holding that a "passing reference" to an issue "without meaningful briefing" waives it.); Greenwood v. FAA, 28 F.3d 971, 977 (9th Cir. 1994) (courts "will not manufacture arguments for [either party], and a bare assertion does not preserve a claim, particularly when, as here, a host of other issues are presented for review."). Such restraint is dictated by the basic tenets of the adversarial system which "relies on the advocates to inform the discussion and raise the issues to the court." Indep. Towers, 350 F.3d at 929. Judicial restraint is especially appropriate and necessary here, in the context of a Rule 50(b) motion, where absent meaningfully briefed and properly preserved arguments, the Court would be engaging in an "impermissible reexamination of the facts found by the jury." Freund, 347 F.3d at 761 (internal quotation marks omitted).
As a general principle, "[d]amages for the loss of prospective profits are recoverable where the evidence makes reasonably certain their occurrence and extent." Grupe v. Glick, 26 Cal. 2d 680, 693, 160 P.2d 832 (1945). With respect to lost profits, courts have "generally distinguished between established and unestablished businesses." Sargon Enters., Inc. v. Univ. of S. Cal., 55 Cal. 4th 747, 774, 149 Cal.Rptr.3d 614, 288 P.3d 1237 (2012). Where the operation of an established business is interrupted, as by a breach of contract, damages for lost profits "are generally recoverable for the reason that their occurrence and extent may be ascertained with reasonable certainty from the past volume of business and other provable data relevant to the probable future sales." Grupe, 26 Cal. 2d at 692, 160 P.2d 832. In contrast, where the operation of an unestablished business is interrupted, damages for lost profits are generally objectionable as the absence of past income and expenses often "renders anticipated profits too speculative to meet the legal standard of reasonable certainty necessary to support an award of such damages." Gerwin v. Se. Cal. Ass'n of Seventh Day Adventists, 14 Cal. App. 3d 209, 221, 92 Cal.Rptr. 111 (1971).
The above dichotomy between "established businesses" and "unestablished businesses" is not, however, a strict one. The fundamental inquiry remains whether lost profits based on future events "can be shown by evidence of reasonable reliability." Grupe, 26 Cal. 2d at 693, 160 P.2d 832; see also Cataphora Inc. v. Parker, No. C09-5749 BZ, 2011 WL 6778792 at *2, 2011 U.S. Dist. LEXIS 148411 at *6 (N.D. Cal. Dec. 27, 2011) ("The limitation on awarding anticipated profits of a new business may be overcome when there is concrete evidence allowing a jury to establish the amount of damages with reasonable certainty."). As the Ninth Circuit has explained:
The new business rule is more empirical than normative, however. As an empirical matter, new businesses often cannot offer reliable proof of prospective profits. As a normative matter, if a business can offer reliable proof of profits, there is no reason to deprive it of the profits it would have garnered had the contract been performed merely because it is "new."Humetrix, Inc. v. Gemplus S.C.A., 268 F.3d 910, 920 (9th Cir. 2001).
Here, the Court does not agree WTRI was required, as a matter of law, to support its claim for lost profits with specific categories of evidence for two reasons. First, the Court does not find this case to fit neatly within the established and unestablished business paradigm. The California Court of Appeal's decision in Asahi Kasei Pharma Corp. v. Actelion Ltd., 222 Cal. App. 4th 945, 169 Cal.Rptr.3d 689 (2013) is instructive. In Asahi, plaintiff Asahi Kasei Pharma Corporation sought to commercialize Fasudil, a drug for the treatment of pulmonary arterial hypertension ("PAH"), in the United States and entered into a license and marketing agreement with another company, CoTherix, Inc. ("CoTherix"), to do so. Id. at 950, 169 Cal.Rptr.3d 689. A third-party company then acquired CoTherix and informed Asahi that CoTherix would be discontinuing the development of Fasudil. Id. Asahi subsequently filed suit. Id. After a jury trial, a question arose in the case as to whether Asahi had presented sufficiently reliable evidence as to the amount of its lost profits. Id. at 975, 169 Cal.Rptr.3d 689. The court held while CoTherix was new to marketing Fasudil, it already had a track record of marketing a different PAH drug. Id. As such, the court found that this venture did not fit neatly within either the established business or unestablished business category and proceeded to accept future revenue and price projections CoTherix had prepared as reliable evidence supporting the jury's lost profits award. Id. at 973-76, 169 Cal.Rptr.3d 689.
Similarly, while PAL was a new product, WTRI was an established business with a track record for developing virtual world simulations prior to its agreement with PMI. Based on the trial record, WTRI developed several simulations prior to the PAL project, including a project management simulation with IBM in 2008, a virtual factory known as Linchpin in 2009, and a simulation to develop a diabetes injectable drug, known as Agribetes, in 2013. ECF No. 367 at 76:4-77:3, 85:12-86:13, 87:12-88:14. The PAL project, on the other hand, was unquestionably a new business venture for both Parties. Dr. DiBello testified the PAL project was an application of WTRI's standard tools (i.e., its "lego set") to a "new product for PMI." Id. at 105:19-20 (emphasis added). Similarly, Jesse Sardina, PMI's Project Manager for the PAL project, described the project as "new technology" and a "new product" for PMI—at least to some extent—because it was "virtual-world based." ECF No. 371 at 801:5, 802:18, 803:8-21. Like the Asahi court, this case concerns a hybrid of an established and unestablished business; any reliable proof of lost profits will therefore suffice. Asahi, 222 Cal. App. 4th at 972-76, 169 Cal.Rptr.3d 689.
Second, PMI argues that all established businesses must prove their lost profits through past financials or canceled contracts, but there is no such legal requirement under California law. Indeed, despite the litany of cases PMI cites, PMI fails to identify any binding authority imposing such a strict requirement. ECF No. 419-1 at 12. To the contrary, under California law, established businesses embarking on new ventures may prove prospective profits in various ways, such as with expert testimony, economic and financial data, market surveys, business records of similar enterprises, and prelitigation business projection. See Parlour Enters., Inc. v. Kirin Grp., Inc., 152 Cal. App. 4th 281, 288, 61 Cal.Rptr.3d 243 (2007).
For example, in S. Jon Kreedman & Co. v. Meyers Bros. Parking-Western Corp., 58 Cal. App. 3d 173, 130 Cal.Rptr. 41 (1976), the California Court of Appeal upheld a lost profits award in favor of a parking garage operator. In that case, a developer refused to construct a parking garage as agreed. Id. at 179, 130 Cal.Rptr. 41. The developer argued that any lost profits on this unestablished business—the new parking garage—was too uncertain and speculative to support an award of damages. Id. at 184, 130 Cal.Rptr. 41. The Kreedman Court found that while the unconstructed garage was a new venture, the parking garage operator was already a highly experienced business. Id. at 185, 130 Cal.Rptr. 41. Lost profits were therefore appropriately awarded based on the conclusions of the operator's expert, who based his opinion on feasibility studies and other evidence developed at trial, and the testimony of a witness regarding the profitability of a similar garage. Id.
The ability for unestablished businesses to prove lost profits using evidence other than past financials or executed contracts makes particular sense in the instant case. As already noted above, the PAL project was a new, unfinished product. PMI does not adequately explain why WTRI's past financials relating to different products would have been relevant, let alone necessary, to calculate WTRI's prospective lost profits on this new product. Likewise, as the PAL project was interrupted in its development cycle before it was finished, it is not entirely surprising WTRI would not have entered into sales contracts at that time. In sum, PMI's contention that all established businesses—including WTRI—must introduce historical revenue data or evidence of canceled contracts in order to recover lost profits is contrary to existing legal precedent. The Court rejects PMI's attempt to impose a categorical legal requirement where none exists.
3. Gross Negligence and Willful Misconduct
The Court next addresses whether WTRI can recover lost profit damages based on contractual language that allowed such recovery if the breach resulted from gross negligence or willful misconduct. PMI argues that because it did not owe WTRI an independent duty of care, WTRI cannot now recover contractual damages for a breach resulting from PMI's gross negligence and/or willful misconduct. ECF Nos. 419-1 at 16-19; 440 at 11-14.
Generally, under California law, parties are "free to contract as they please[ ]." JJD-HOV Elk Grove, LLC v. Jo-Ann Stores, LLC, 80 Cal. App. 5th 409, 423, 295 Cal.Rptr.3d 725 (2022). "If contractual language is clear and explicit, it governs." Powerine Oil Co., Inc. v. Superior Court, 37 Cal. 4th 377, 390, 33 Cal. Rptr.3d 562, 118 P.3d 589 (2005). To prove a breach of contract claim, a party must establish: "(1) the existence of the contract, (2) plaintiff's performance or excuse for nonperformance, (3) defendant's breach, and (4) the resulting damages to the plaintiff." Oasis W. Realty, LLC v. Goldman, 51 Cal. 4th 811, 821, 124 Cal.Rptr.3d 256, 250 P.3d 1115 (2011). While a party wishing to recover under tort law for a breach of contract must also show a violation of a duty independent of the contract, there is no converse requirement. Instead, "courts will generally enforce the breach of a contractual promise through contract law." Erlich v. Menezes, 21 Cal. 4th 543, 552, 87 Cal.Rptr.2d 886, 981 P.2d 978 (1999) (internal quotation marks omitted).
In this case, PMI contends an aggrieved party seeking to recover contract damages for breaches that involve gross negligence or willful misconduct must also prove that the offending party owed it an independent tort duty. The Court does not agree. The elements of a breach of contract claim were met in this case. Both WTRI and PMI freely entered into a contract that explicitly allowed either Party to recover for lost profit damages if the offending Party's "gross negligence" or "willful misconduct" led to the breach. Development Agreement at § 11; Services Agreement at § 8. It is also indisputable WTRI asserted a breach of contract claim, predicated on intentional or grossly negligent conduct, to recover damages under contract law. See ECF Nos. 324 at 4-5; 396 at 47-52, 59-60. Despite PMI's urging, as WTRI was not seeking tort remedies, WTRI had no obligation to prove PMI owed it an independent tort duty. See Crytek GMBH v. Cloud Imperium Games Corp., No. CV 17-8937-DMG (FFMx), 2018 WL 4854652, at *10, 2018 U.S. Dist. LEXIS 192623, at *30 (C.D. Cal. Aug. 14, 2018) (holding disclaimer language preventing parties from being liable for damages "except for intentional acts . . . or gross negligent acts" did not preclude a plaintiff's claim for breach of contract).
PMI also argues that WTRI cannot contractually recover for PMI's gross negligence or willful misconduct because it failed to demonstrate that "PMI intended to harm WTRI." ECF No. 419-1 at 19. In making this argument, PMI seeks to apply a standard different from the one both Parties stipulated to provide the jury. In the final jury instructions—as agreed upon by both Parties—the jury was specifically instructed that "[a]n intent to injure is not a necessary element of willful misconduct." ECF No. 396 at 58. Contrary to PMI's argument, WTRI was, therefore, not required to prove PMI intended to harm WTRI to prevail on this issue.
Even PMI's proposed instruction on "willful misconduct" states that willful misconduct "does not require a subjective intent to injure." ECF No. 376-3 at 22.
For the above reasons, the Court finds no basis to overturn the jury's verdict based on the narrow grounds PMI properly preserved and meaningfully briefed here.
CONCLUSION
For the reasons stated above, the Court grants in part and denies in part WTRI's motion for interest, attorneys' fees, and related expenses. ECF No. 415. Specifically, the Court: (1) denies WTRI's request for prejudgment interest; (2) grants WTRI's request for postjudgment interest; and (3) denies WTRI's request for attorneys' fees and related expenses incurred defending against PMI's trade secret misappropriation claim. The Court grants PMI's motion to strike. ECF No. 436. Finally, the Court denies PMI's renewed motion for judgment as a matter of law. ECF No. 419.
IT IS SO ORDERED.