Cal. Fire-Roasted LLC v. Olam W. Coast, Inc.

• Decision Date: 24 March 2021
• Docket Number: C086686
• Parties: CALIFORNIA FIRE-ROASTED LLC, Plaintiff and Appellant, v. OLAM WEST COAST, INC., Defendant and Appellant.
• Court: California Court of Appeals Court of Appeals

CALIFORNIA FIRE-ROASTED LLC, Plaintiff and Appellant, v. OLAM WEST COAST, INC., Defendant and Appellant.

C086686

COURT OF APPEAL OF THE STATE OF CALIFORNIA THIRD APPELLATE DISTRICT (Sacramento)

March 24, 2021

ORDER PARTIALLY GRANTING REQUESTS FOR JUDICIAL NOTICE, MODIFYING OPINION AND DENYING REHEARING

[NO CHANGE IN JUDGMENT]

THE COURT:

The request for judicial notice filed by plaintiff on April 8, 2021, is denied as to exhibit 1 and granted as to exhibit 2. The request for judicial notice filed by defendant on April 15, 2021, is granted.

It is ordered that the opinion filed on March 24, 2021, be modified as follows:

1. On page nine, delete footnote nine.

2. On page 17, the opening parenthetical at the end of the last line of the page, "(Id. at p. 420," shall be deleted and replaced with the following:

(Id. at p. 1420,

3 On page 22, delete the second and third sentences in the first full paragraph beginning with the words "The trial court's focus . . ." and replace with the following, while retaining the footnote at the end of the third sentence:

First, there exist well-established procedures to remedy discovery abuses, which CFR utilized in this action. Second, the prejudice that CFR purportedly suffered would have occurred even if Olam never had made the admissions.[RETAIN ORIGINAL FN.]

This modification does not change the judgment.

The petition for rehearing is denied.

BY THE COURT:

RAYE, P. J.

RENNER, J.

KRAUSE, J.

NOT TO BE PUBLISHED

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

(Super. Ct. No. 34-2014-00170784-CU-BC-GDS)

Plaintiff California Fire-Roasted LLC (CFR) and defendant Olam West Coast, Inc. (Olam), are parties to an agreement under which Olam agreed to pay fees in exchange for the right to use CFR's "Licensed Technology," as defined, for the production of fire-roasted and smoked tomato products. The fees required to be paid under the agreement were based on the total volume of tomato products produced using the Licensed Technology.

In 2014, CFR filed a complaint alleging that Olam breached their agreement by using CFR's Licensed Technology to manufacture tomato products without payinglicense fees. The complaint also alleged claims for quantum meruit and for breach of the implied covenant of good faith and fair dealing.

In 2017, CFR moved for summary adjudication against Olam on its breach of contract claim. CFR narrowly argued that undisputed facts established that Olam breached the agreement by using one specific aspect of the Licensed Technology—the "know-how" embodied in certain roasting equipment—to produce tomato products without paying license fees. CFR made clear in its motion that it was not pressing its patent rights or trade secret claims and asserted that the trial court therefore "need not address . . . whether Olam's use of either of the roasters in question utilizes the 'trade secrets' that are included among the Licensed Technology[, or whether] the know-how is confidential, publicly available, or subject to efforts to maintain secrecy . . . ."

Olam opposed CFR's motion on several grounds, including that Olam was only obligated under the agreement to pay license fees when using CFR's proprietary know-how, and CFR failed to establish that the know-how allegedly used by Olam was proprietary to CFR or a trade secret. Olam also claimed to have discovered that it made errors when preparing its discovery responses, causing it to vastly overstate the volume of tomato products it produced. Thus, in connection with its opposition to CFR's motion for summary adjudication, Olam filed a motion to withdraw its responses to certain requests for admissions.

The trial court denied Olam's motion to withdraw its admissions, granted CFR's motion for summary adjudication, dismissed CFR's other claims against Olam, and entered judgment in favor of CFR. The court also granted a motion imposing issue sanctions against Olam for misuse of the discovery process and a motion to strike Olam's supplemental designation of experts.

On appeal, Olam challenges (1) the judgment entered following the grant of CFR's motion for summary adjudication, (2) the order denying its motion to withdraw admissions, (3) the order striking its supplemental designation of experts, and (4) theorder imposing issue sanctions.¹ We will affirm the order imposing issue sanctions, but otherwise reverse and remand for further proceedings.

BACKGROUND FACTS AND PROCEDURE

CFR is the holder of a United States patent (No. 6,099,882) entitled "Method and Apparatus for Roasting and Smoking Skinned Food Products" (the "Patent"). The Patent claims both a system (apparatus) and method (process) for preparing skinned food products.² The system described in the Patent consists of a roasting unit, a smoking chamber, and a conveyor system for transporting the skinned food product through the roasting unit and smoking chamber. The method described in the Patent consists of a process for preparing skinned food by contacting the product with heat to loosen the skin and provide an aesthetically pleasing appearance, and then contacting the product with smoke for a period of time to infuse a smoky flavor.

In 2004, CFR agreed to allow General Mills Operations, LLC, formerly known as General Mills Operations, Inc. ("General Mills"), to use its technology for the production of fire-roasted and smoked vegetables and fruit products. As part of that contractual arrangement, CFR agreed to fabricate, deliver, install, and sell certain custom fabricated equipment (the "Equipment"). The Equipment, which included a roaster (the "GM Roaster") and smoking chamber, was similar (but not identical) to the apparatus/system described in CFR's Patent.³

In conjunction with the sale of the Equipment, General Mills entered into a "License Agreement" with CFR. The recitals to that agreement state that CFR "possesses certain expertise, confidential information and other proprietary rights relating to tomato processing," and that General Mills desires to obtain a license to use CFR's Licensed Technology (as defined in the Agreement) to operate the Equipment.

Under the License Agreement, CFR granted to General Mills the nonexclusive right to use CFR's Licensed Technology to produce tomato products. In exchange, General Mills agreed to pay license fees calculated based on the volume of tomato products produced "using all or any part" of that Licensed Technology.⁴ The License Agreement provides that CFR's consent is limited to the construction of one unit of Equipment to operate the licensed process. It further provides that, except as set forth in the agreement, General Mills shall have no right to construct additional units of Equipment or to use the Licensed Technology.

Paragraph 3.2 of the agreement provides that CFR shall retain all right, title, and interest in and to (i) the Licensed Technology, (ii) any derivative work of all or any part of the Licensed Technology, and (iii) any process, product, concept, invention, design, or development that is "derived, modified, adapted or translated in any way from all or any part of the Licensed Technology."

Pursuant to the License Agreement, the Equipment was installed at a cannery in Williams, California, operated by SK Foods, L.P. ("SK Foods"), a General Mills copacker. CFR consented to SK Foods's use of the Equipment to pack product for General Mills, subject to the terms, conditions, and restrictions of the License Agreement.

In or about 2007, a dispute arose between CFR and SK Foods relating to the use of the Equipment and the Licensed Technology. Specifically, CFR learned that SK Foods had modified the Equipment so that it could use the GM Roaster without the associated smoking chamber, and that SK Foods was using the GM Roaster to make product for customers other than General Mills without paying license fees to CFR. CFR argued that SK Foods was required to pay the full license fee even if only the roasting portion of the Equipment was being used. In contrast, SK Foods took the position that it could use the roasting portion of the Equipment without paying fees to CFR because the License Agreement only applied to the two-phase roasting-and-smoking process described in the Patent.

In December 2007, CFR, General Mills, and SK Foods settled their dispute by entering into an amended and restated consent agreement. The parties agreed that SK Foods could use the roasting portion of the Equipment, without the smoking chamber, to process tomato products for customers other than General Mills in exchange for a reduced license fee.

In 2009, SK Foods filed for bankruptcy. As part of the bankruptcy proceeding, Olam purchased substantially all of SK Foods's operating assets, including the canning facility that housed the Equipment. Olam intended to use the purchased assets to, among other things, produce tomato products for General Mills. Consistent with this intent, Olam hired many of the employees who worked at the canning facility when it was owned by SK Foods.

Shortly after purchasing SK Foods's assets, Olam requested CFR's consent to use the GM Roaster, without the smoke chamber, to produce fire-roasted tomato products. Olam indicated that it expected "to pay a fee to CFR for this as was done in the past."

In July 2009, CFR, General Mills, and Olam entered into a consent agreement (the "Consent Agreement") that allowed Olam to use the Equipment and the Licensed Technology to process tomato products for General Mills in compliance with the terms,conditions, and restrictions of the License Agreement, including the license fee provisions.

Sometime after entering into the Consent Agreement, Olam began using the GM Roaster to manufacture fire-roasted tomato products, not only for General Mills, but...